I welcome the opportunity to appear before the joint committee. I am accompanied by the acting deputy governor for financial regulation and the director of consumer protection, Mr. Bernard Sheridan, and the director of enforcement, Ms Derville Rowland. I will focus on three topics in my introductory statement - the examination of tracker mortgages, the role of the Central Bank in supporting initiatives to reform the motor insurance market and Brexit. I will address each of them in turn.
On the examination of issues related to tracker mortgages, I fully share the committee's concerns. Where these issues have arisen, it is clear that lenders have failed their customers. Moreover, I am acutely aware of the unacceptable impact these failures have had on tracker mortgage customers, ranging from the burden of having to pay more than they should to instances involving loss of ownership of mortgaged properties. I acknowledge that committee members frequently deal with such cases in their constituencies and that the committee has heard powerful testimony about the effects these failures have had on individuals and families. The Central Bank is also aware of many of these cases from callers to our public helpline and our ongoing engagement with various consumer representatives. These are important sources of information which continue to inform the examination. The Central Bank is pursuing a comprehensive, industry-wide examination precisely to ensure lenders will identify every affected customer, stop the harm and pay appropriate redress and compensation.
The fair treatment of tracker mortgage borrowers has been a key supervisory and policy focus for the Central Bank for the past few years. In line with our mandate to ensure the best interests of consumers are protected, the Central Bank intervened with a number of lenders in the period 2008 to 2015 on a range of issues related to tracker mortgages. The interventions ranged from lender-specific supervisory and enforcement actions to, more generally, strengthening the statutory protections for tracker mortgage customers, specifically through the consumer protection code and the code of conduct on mortgage arrears.
During the period before the examination we dealt with a range of lender-specific issues, resulting in approximately 7,100 customer accounts affected by various tracker issues being resolved prior to the beginning of the current examination. We also intervened in a number of additional cases on a preventative basis to prevent detriment to tracker customers before it occurred. Other issues were being actively investigated at the time of the commencement of the examination and these are now being dealt with as part of the examination or, where necessary, have been escalated for enforcement action.
Where appropriate, the Central Bank has required certain lenders to offer affected customers the right to return to a tracker rate and-or payment of redress and compensation. The Central Bank has also commenced enforcement investigations into tracker-related measures at Permanent TSB and its subsidiary, Springboard Mortgages. As a result, these lenders were required to implement a comprehensive mortgage redress programme to address the issues identified. Although the underlying characteristics of each issue have differed, the Central Bank, taking all of this evidence together, decided to launch a system wide examination in 2015 given the range and nature of the customer impact of the issues identified. The examination's scope requires a robust review to identify and deliver fair outcomes for all other affected customers in addition to those cases known to the Central Bank prior to the start of the examination.
The tracker examination is the largest, most complex and significant supervisory review the Central Bank has undertaken to date in respect of its consumer protection mandate. It has involved an initial review of the total mortgage book by lenders in the relevant period, which amounts to more than 2 million accounts. In line with our commitment given at the start of the examination, we have been publishing regular status updates in respect of this ongoing and current supervisory work. The most recent was published last month and has been provided to the committee. The aim of the examination is to ensure that all relevant lenders conduct a comprehensive and robust review which delivers fair outcomes for all customers. I note that a number of lenders have recently apologised to the customers where they failed. Our view is quite clear that this does not have a material meaning unless the lender both stops the harm to all affected customers and provides appropriate redress and compensation for the suffering caused. Lenders must now demonstrate that they are doing everything possible to ensure this happens. This is our goal in overseeing the examination.
The way the framework has been put in place is intended to provide appropriate redress and compensation to affected customers. One of the quality assurance steps in this process is that each lender has had to appoint an external, independent party to oversee the conduct of its lender-specific examination. The framework of the examination is in phases. Phase one involved the development and submission of detailed plans by relevant lenders, which is completed. Phase two requires lenders to conduct the review of their books in line with our framework. These reviews are extensive in that lenders must review the underlying loan documentation and customer files for the in-scope accounts to determine the specific contractual obligations and also to determine more broadly if the documentation that each customer received had the potential to confuse or mislead the customer both on a stand alone basis and also when read in conjunction with other communications, written or verbal, made to the individual customer.
In this respect the Central Bank invoked its powers under section 22 of the Central Bank (Supervision and Enforcement) Act 2013 to set specific deadlines for each lender to complete phase two of the examination. The last of these deadlines is the end of September 2017. The timelines have varied in line with the size of the relevant lender's loan book, the scale and complexity of issues raised in each lender and the complexities associated with completing a thorough review in line with the objectives of the examination. By the end of next September, the Central Bank expects all lenders to have identified all affected accounts, stopped further harm and to have commenced engagement with most impacted customers. The Central Bank is rigorously monitoring the completion of this work.
Phase three of the examination relates to calculating redress and compensation for customers identified as having been affected by tracker-related issues.
Phase four relates to implementation of a redress and compensation scheme. It is important to appreciate that phases three and four, dealing with redress and compensation, can run concurrently with phase two. We expect lenders to initiate phases three and four once affected customers are identified. There is no need to complete phase two in its entirety before moving to redress and compensation for cohorts already identified. In that regard, thus far under the examination, around €78 million has been paid out in redress and compensation to approximately 2,200 affected customers.
Separately, in regard to the mortgage redress programme for PTSB and Springboard Mortgages that was announced prior to the examination, additional redress and compensation amounts were paid. PTSB paid €36.8 million and its subsidiary, Springboard, paid €5.8 million. Due to legal requirements which restricted the degree to which I can discuss individual firms, I cannot provide a detailed lender-by-lender breakdown of payout of redress and compensation. We are detailing aggregate amounts and there are tables with the available data in the statement I have provided to the committee.
I emphasise the Central Bank does not have the statutory power to compel lenders to implement redress and compensation in respect of failures that occurred prior to the 2013 Act. Having sought such powers, we were granted them in the 2013 Act but they are not retrospective. However, I believe the Central Bank's robust approach in this matter is evident from the principles of redress we have laid down and published and with which we expect lenders to comply. To illustrate our robust approach, it is important to emphasise that this work is not just being conducted by our consumer protection directorate but also our separate enforcement directorate which is involved in the exam. Where regulatory breaches are suspected, cases may be referred to enforcement. We are committed to taking robust enforcement action aimed at promoting principled and ethical behaviour by and within regulated entities. To date, the Central Bank has concluded an enforcement investigation in regard to Springboard and imposed a monetary penalty of €4.5 million on that entity in respect of these failures, which is the highest penalty ever collected by the Central Bank. This is on top of the direct payout to the affected customers.
In addition to the investigation into the tracker issues at Springboard and Permanent TSB, the Central Bank has initiated an enforcement investigation at Ulster Bank. We may also commence other investigations as appropriate into other lenders and persons concerned in the management of such entities where there is evidence of non-compliance with regulatory requirements. In this regard, enforcement activity will be influenced by the outcome of the reviews currently being conducted as part of the tracker examination. In short, all possible enforcement angles, including potential individual culpability, will be thoroughly investigated and analysed in the context of the legal framework. Enforcement measures will be deployed as appropriate, including investigating issues and taking cases under our administrative sanctions procedure, together with the use of our fitness and probity powers. Boards of lending institutions are expected to ensure appropriate control, governance and management in those firms.
In line with international regulatory standards, we operate a risk-based framework for the supervision of regulated firms. In its regular supervisory work, the Central Bank cannot pre-approve every single commercial decision taken or contract entered into by a regulated firm. Rather, supervision entails challenge of firms, judgment of the risks they pose to the economy and to the consumer and mitigation of those risks we judge to be unacceptable. Targeted enforcement action against those firms whose poor behaviour risks jeopardising our objectives, including financial stability and consumer protection, underpins this framework. Consumers are further protected by other relevant State bodies in this area such as the Financial Services Ombudsman, the Competition and Consumer Protection Commission and the courts system. Taken together, these form the State's protection for individuals.
I recognise and acknowledge the committee's reflection that the examination has taken some time and that it will take some further time to complete.
I reiterate that lenders are working to the specific timelines we have imposed and are required to examine all relevant individual contracts. Given the harm the actions of some of these lenders have caused, it is essential the examinations be both comprehensive and robust. Our objective is to ensure that every impacted customer is identified and appropriately redressed and compensated.
The Central Bank welcomes the focus that this committee and the cost of insurance working group led by Minister of State at the Department of Finance, Deputy Eoghan Murphy has brought to bear on the issue of motor insurance. The Central Bank appeared before this committee in regard to insurance last year. The Central Bank recognises that volatility in the price of insurance has an unwelcome impact on consumers. We do not have a role in the setting of premiums, in common with all supervisory authorities across the EU. It is explicitly prohibited by European law under Article 181 of the Solvency II directive. The Central Bank is committed to working with this committee, the cost of insurance working group and other stakeholders on aspects related to this issue in ways that are appropriate to our mandate.
There were a number of common themes between the findings of this committee's final report and the work of the cost of insurance working group in which we were involved. For example, both found there was scope to improve the renewal process to assist consumers in the purchase of insurance. Equally, both the committee and the working group recommended substantive work be undertaken to improve data availability. The Central Bank, through the working group process, is the lead owner for a number of recommendations and actions in these areas. Work has begun on implementation. In the area of renewals, the working group recommended that insurers provide additional information on the premium breakdown to consumers and that the renewal notification period be extended from 15 to 20 working days to make it easier for motorists to compare pricing when purchasing insurance. The requirements for provision of information in non-life renewal notices are set out in the Non-Life Insurance (Provision of Information) (Renewal of Policy of Insurance) Regulations 2007. The process to amend these regulations requires us to undertake a standard consultation process including engagement with consumers, stakeholders and industry. The consultation will be conducted in the fourth quarter of 2017 in line with the timeframe set out by the working group. Regulatory change, if required, will take place in 2018.
In the area of data availability, the working group has recommended the establishment of a national claims information database. We are currently working with the Department of Finance and other stakeholders to define key aggregated statistical data on motor claims for publication in the near future. This will assist with the development of the database in 2018 as recommended. It should be noted, however, that the database function will represent an extension of our mandate and will require legislative change.
As I said at the outset, the Central Bank is committed to working with this committee, the Department of Finance, the cost of insurance working group and other stakeholders on this issue in ways that are appropriate to our mandate.
Brexit is a priority area for the Central Bank, dealing with the implications both for the wider economy and for the financial system. Our current near-term forecasts are for relatively favourable growth in the economy, driven by continuing recovery in underlying domestic demand. Consumption and the domestic-driven component of investment is set to remain robust and is supported by a strong labour market. However, there is no doubt that the outlook remains subject to unusual uncertainty related to external risks, including Brexit and the uncertainty regarding the post-Brexit trading relationship.
Last week, the UK Government triggered Article 50 of the treaty, starting the two-year negotiation period. In fact, the European Commission has indicated that an agreement would need to be completed by October 2018 to allow ratification by the UK and European Parliaments before the two-year timeframe elapses. It is clear that this timeframe is very ambitious, given the volume of issues that must be negotiated. It can be extended if all member states agree.
For the domestic banking sector, Brexit to date has had a relatively benign impact. We have not seen any funding impact or decline in credit quality. We continue to engage with all regulated entities to ensure they are adequately prepared.
It is too early to accurately predict any Brexit-related effect on foreign direct investment. In the financial sector we have had increased engagement with a range of entities, including banks, market and insurance firms, and queries about payments and electronic transfers. The inquiries have taken the form of discussions on potential new authorisations and possible balance sheet expansions by existing firms or changes to business type. Where the Central Bank is asked to consider the authorisation of a firm in Ireland, we will want to be satisfied that we are authorising a business or a line of business that will be run from Ireland and which we, effectively, will be supervising. The Central Bank will expect it to have a substantive presence here. For financial services, it operates under a common framework for regulation and supervision at a European level. This is all part of the European System of Financial Supervision, ESFS, which promotes the consistent application of EU legislative requirements.
Potential new entrants pose a challenge to us as an organisation in planning and prioritisation, but we are meeting this challenge. To fulfil our mandate in safeguarding stability, using a risk-based approach to supervising credit institutions and ensuring a robust and transparent authorisation and approval process, we established a Brexit task force within the Central Bank prior to the referendum. This internal task force has a cross-departmental structure involving 15 divisions across the Central Bank. This functional approach is necessary, given the potential for a more diverse cross-section of entity types and new business models across all sectors. We have increased our capacity to deal with this and are developing our contingency resourcing plans.
Our vision is to have a well functioning, well managed and well regulated financial system. Legacies of the past remain material and continue to be worked through. Trust in the system remains very damaged, which reflects the need for continued improvements, including in the underlying culture of financial firms. We endeavour to foster a strong culture of compliance, with firms and individuals within firms acting in the best interests of their customers, backed up by comprehensive and enforceable legislation, rigorous supervision, a credible threat of enforcement and powers of redress when customers have suffered detriment. As I stated, although the examination of tracker mortgages will still take some time, the Central Bank's goal is to ensure every customer who has been impacted on will be identified and appropriately redressed and compensated.
In looking ahead, Brexit poses a number of risks and challenges for the economy, individual institutions and businesses. In line with our mandate, we will continue to highlight these risks, engage with the regulated institutions in order that they will be adequately prepared and provide a transparent and efficient authorisation process for potential entities that choose to establish in Ireland. Equally, on the issue of insurance, the Central Bank will continue to work with the committee, the working group and other stakeholders in ways appropriate to our mandate. I look forward to discussing these issues further with the committee, as well as the others raised in the invitation.
