There are several areas where the committee must make recommendations. As recorded in the draft report, the AIB events unfolded as a consequence of a whistleblower telephone call. When representatives of the bank appeared before the committee, they claimed it had established a hotline, based with a company in the UK, for staff who may feel certain activities of the bank are improper or illegal. The committee's report must recommend that in every banking organisation in the State, there should be a facility for staff to report any form of impropriety or illegal or unethical behaviour, particularly by those above them, they encounter. Bank staff must be empowered to bring these matters to the attention of their superiors or, separately and on a confidential basis, to the Irish Financial Services Regulatory Authority. The bank unions that attended the committee before the last appearance of AIB management, claimed there was a climate of fear on the reporting of wrongdoing in banks.
I have frequently referred to the actual role of internal audits and audit committees within banking structures. In law, an internal audit has no status. The internal auditors are the employees of the bank. While attempts have been made to give them more independence, they are still not protected or recognised. No provisions for this were contained in the Irish Financial Services Regulatory Authority legislation. Does Mr. Dorgan believe that the committee must recommend a higher defined status for internal audits? The external auditors have a legal role but the internal auditors do not. It is critical to the proper operation of banks. The Stock Exchange and various other regulatory bodies rely heavily on internal audits. What do non-executive directors of banks do? Do they sip sherry and have a nice lunch or do they earn their money? Who takes to task those responsible for a culture of wrongdoing in a bank? Somebody on the staff may see what is wrong and want to report it but may not be able to do so. The internal audit may spot something wrong. The AIB report revealed that the difficulties there had come to light on several occasions. The bank acknowledged this but it effectively tried to suppress the knowledge of overcharging by rescinding the notification. The next layer of scrutiny is the audit committee but its key members are the non-executive directors who have a glass of sherry and lunch then toddle off, which is not good enough.
The financial regulator made a presentation to this committee to the effect that he is undertaking a process of public consultation on fitness and probity in senior appointments in banks and their boards of directors. As we will not soon revisit this subject, does Mr. Dorgan think we should make a firm recommendation on it? IFSRA informed us that we will be kept informed of what will be the fit and proper test for someone serving at senior level in bank management or on boards of directors. It is crucial that we put the culture of wrongdoing behind us.
As a consequence of the information disclosed about money laundering, and specifically Chesterton Finance, based in or doing significant business in the South, it emerged that the chairman of a Government committee was a director of this company. I submitted questions on this to the Minister for Finance last Thursday. This type of company, which may deal in large sums of money, effectively falls outside IFSRA regulations. The McDowell report recommended that type of lender be covered by those regulations. For reasons that no one, including the Minister for Finance, knows, they are not covered by banking regulations although they make large loans at high rates of interest and impose high penalty clauses. They lend to people to whom nobody else lends. For example, a farmer whose land may be worth €10 million and who needs money quickly can borrow from such a company on the security of the land. That service does not come cheap. In addition, the penalties and charges are quite severe. The Minister explained that from the lending point of view, these companies have all the appearance of financial institutions but do not take deposits in the ordinary sense.
Instead, as was reported widely in the national media, a former senior partner in PricewaterhouseCoopers wrote to likely investors offering them the chance to earn 10% per year if they invested cash deposits with this financial organisation. What is the difference between a deposit and an investment? I presume it is a technical method by which the deposit is framed. This is why these organisations are not fully regulated by the IFSRA although they should be because of the risk that money laundering poses to this economy.
Interest rates on credit cards can be high and there is too little up-front information available about the APR on those kinds of transactions. People should be informed as much as possible.
The last recommendation in the draft report is contained in paragraph 5.24 and deals with a matter I raised, namely, the position of people over-extended with loans who avail of the Money Advice and Budgeting Service. The committee heard a presentation from this service. According to Central Bank figures, ours is becoming a highly indebted country with large amounts of credit extended to individuals and families. As a result, each year a percentage of such people have difficulty repaying loans.
There are agencies operating here, some of which advertise regularly on RTE using prominent personalities, that offer to take on all of one's loans, roll them together and solve one's financial problems. I am sure the Chairman knows the kind of organisations to which I refer. Many of these companies operate from the United Kingdom and are not necessarily subject to IFSRA regulations. The offers they put forward entail significant costs. If one has an accumulation of debts and a relatively low mortgage, an organisation will arrange to roll up the debts — these might include credit card debt and the mortgage itself, which may be for €15,000 on a house worth €200,000 — and create a new loan of €50,000. This may be unscrupulous and the interest rates and penalties can be high.
I wish to comment on the support IFSRA and the banks give to people who are over-exposed to debt, who are tempted to remortgage their homes but who cannot sustain the repayments. In that context, the financial services sector needs to take more responsibility and provide more resources for services such as MABS. It is not good enough for financial institutions to take the attitude that they can direct people to a MABS office because the latter will merely contact the relevant bank or lender and request a delay in the repayment schedule on foot of the fact that the person is trying to deal with his or her problems. Some of this is sharp practice for people who may at times be vulnerable.
I heard from somebody recently who had to pay a loan in order to adapt a vehicle for a disabled driver. The person went to one of these organisations and although the loan was only €15,000, they quickly discovered the debt amounted to €35,000. These companies roll up the capital plus the interest at the beginning of the loan. Can Mr. Dorgan establish the position of these companies, which are loan sharks operating as financial services providers?
We need to establish how they can be successfully brought within the ambit of the regulations.
