I thank the Chairman for the opportunity to address the committee this morning. Mary O'Dea and I, along with our colleagues, are happy to discuss with the committee the general issues arising from the overcharging by AIB of certain foreign exchange customers. I appreciate that in your invitation to us you noted that an examination into specific issues regarding AIB Bank is ongoing. You will understand that it is not possible, nor would it be appropriate or in the interests of consumers, for us to go into the detail at this point.
I would like to start by briefly putting the role of the financial services regulator in context by describing our statutory mandate. Our job is to protect consumers. We do this by helping them to make informed financial decisions in a safe and fair market and by fostering sound, dynamic financial institutions, thereby contributing to financial stability.
Earlier this year we published our three-year strategic plan. This sets out clearly how we intend to focus our efforts in terms of both the consumer and the financial services industry. The implementation of our strategy is intended to deliver to the consumer more and better information in a safe financial market that is fair and gives better value. Our strategy is aimed also at facilitating innovation, competitiveness and growth within the industry, which in turn will directly benefit the consumer. We were mandated by law to put the consumer at the heart of our regulatory job.
In recent days there has been much public debate and commentary on financial services regulation. We welcome this and believe it is a useful opportunity to help increase awareness of regulation and what it can achieve. We are committed to a principles-based approach to regulation. This is achieved by the boards and top management of financial institutions fully committing to a culture of integrity, competence and best practice. In turn we would expect them to ensure that this culture flows throughout all levels of their organisations.
This approach sets out high-level requirements within which these firms can operate. It is backed up by the development of conduct of business rules which oblige firms to act fairly and openly when dealing with consumers. These high-level requirements are addressed at the outset of the codes with the more specific business rules following on naturally from these. The purpose of this approach to regulation is to work towards ensuring that the long-term benefits for the industry are aligned with the long-term interests of the consumer.
However, the regulatory process has many other tools at its disposal. The requirement for effective internal controls is extremely important, particularly for larger institutions. As regulators we leverage off compliance and audit systems. There is a need for financial institutions to have compliance systems, controls and internal audit departments that have the standing and the powers to meet the standards of behaviour that we now expect of them. We set out those standards, but they must then invest in the systems and staff to ensure they are met.
Our aim is to have a regulatory environment that engenders an ethical and competent industry with appropriate risk systems in place. We strongly believe that when the industry focuses on the best long-term interests of their customers, they are ensuring the continued long-term health of the industry. On-site inspections are another feature of the regulatory process. It is important to emphasise that it is not possible to undertake checks on an ongoing basis on every aspect of a financial institution's operations. Inspections, by their nature, are sample-based. They are, of course, an essential element of our regulatory process and they do uncover breaches of rules and regulations, which are then dealt with appropriately.
Regulation is also about responding to issues as they arise. These can be identified through our inspections process, through the compliance and audit channels and, of course, directly through consumers. We have dealt with many issues through our own consumer helpline in the past 12 months and have taken appropriate action. The consumer helpline was the source from which we got this information about what was happening in AIB.
The regulatory environment has changed radically in the past year. The consumer is at the very heart of what we do. Since our establishment we have been working to assist consumers in making their own financial decisions by providing them with clear and relevant information, by monitoring competition and by developing the conduct of business rules that I mentioned earlier. We are currently undertaking a consultation process as part of our review of all conduct of business rules for financial institutions. This is to ensure a consumer-focused standard of protection for purchasers of financial products and services. It is also to ensure the same level of protection for consumers regardless of the type of financial services provider they choose and to facilitate competition by providing a level playing field. We have also been very active in the past 12 months in the prudential area, supervising all financial service providers and authorising 164 new entrants across the various sectors. The safety and soundness of the financial institutions and funds within financial institutions is one of the basic protections for the consumer.
We subscribe fully to the six principles of better regulation as described in the Government's White Paper published in January this year. We seek to ensure that they will inform the way we undertake our regulatory role. These principles include transparency, where we consult widely, publish all relevant information and respond to any queries received. We will ensure that our rules and regulations are consistent across the different industry sectors and that we are accountable to our stakeholders — the Government, industry and consumers. We will improve effectiveness by putting in place the necessary resources, expertise and procedures to ensure that our rules and regulations can be complied with and enforced. In addition, we are committed to taking appropriate action, proportionate to each issue, and we advocate and adopt a principles based approach to supervision. We will strive to ensure that the rules and regulations in place are necessary to support our principles-based approach.
Without going into the specific details of the ongoing investigation, I would like to inform the committee on how we dealt with the AIB case. We received an anonymous call a number of weeks ago, making certain allegations relating to foreign exchange charges within AIB. We are encouraged that this issue was brought directly to our attention. When the issue was raised with us we pursued it at a meeting with AIB. Once the scale and nature of the issue was established, we undertook an initial on-site inspection. Our primary focus was to determine the amount involved, the extent of the impact on customers and how those customers could be identified and recompensed.
Within a matter of days, it had been established that more than two thirds of the customers could be identified. A mechanism was agreed with AIB under which €25 million was lodged into an account in the Central Bank to cover the liabilities involved. We consider that the lodgement of this money was a very important signal to those customers of AIB affected by this case and indeed to all who may be concerned about this issue. AIB, it must be said, has been very active and co-operative right up to board level in addressing this issue since it came to light. Its response includes a commitment to a full and speedy review of the systems surrounding all of their charging issues.
It is very important that at all times IFSRA, as the regulator acting in the public interest, has direct control over all aspects of this case. We also believe it is necessary in this case for the board of AIB to act on the basis of an independent investigation. We agreed last week with AIB that the investigative process is to be fully independent. Mr. Lauri McDonnell, former Comptroller and Auditor General, has been appointed as the independent assurer and an external independent firm of forensic accountants will undertake the investigation, working with Mr. McDonnell. We are finalising the terms of reference which will be supported by a reporting framework that includes direct reporting to us in relation to all aspects of the case. Our inspectors will continue to be onsite throughout the investigation.
When the investigation is complete, we shall review the evidence and AIB's response to it. We will formulate our own conclusions as to whether or not the response is appropriate. This process will, of course, also involve determining how the matters could have arisen and persisted over an extended period of time and will involve identifying the measures necessary to deal with the possibility of such matters arising again. We will also be reviewing the regulatory process to see if any changes are necessary.
We have contacted other institutions requesting them to verify that the charges they apply to customers are within the maximum level previously notified to the financial services regulator, and we are requiring each firm to carry out a detailed review of their systems in this regard.
There has been some recent discussion concerning the powers of IFSRA. The work in which we are currently engaged is driven by our current powers and I assure the committee we are using those powers efficiently and effectively. We will ensure that this case is dealt with speedily and thoroughly. The case clearly demonstrates that we do have powers to act and are willing and able to use them on behalf of the consumer.
There are a range of additional enforcement powers that we are in the course of receiving under the Central Bank and Financial Services Authority of Ireland Bill 2003, although I will not detail them as the Bill has just reached Report Stage in the Dáil. These additional powers will assist us considerably to refine our regulatory approach and are welcome for that reason, and also very timely. We are in the process of developing our conduct of business rules and the powers to sanction will support the introduction of our revised codes.
The committee will understand that I cannot draw specific conclusions concerning this case until we have completed our investigations. There are already consequences from our approach that should be acknowledged. This kind of investigative process is a very expensive one for the institution concerned, and almost certainly more expensive than any fine we could impose, both in monetary and reputation terms. Our primary focus for now is that we identify as many customers affected by this case as possible and ensure that those customers get their money back.