2.6.9 From Whitewash to Quicklime

As the Competent Authority with respect to the financial affairs of the Irish nation, the Central Bank was always allowed to operate, quietly, behind closed doors.

It was the Oracle in such matters —— to be consulted when required by the Department of Finance and the Government.

It would be closer to truth than cynicism to classify the passive stance adopted by those within the Irish Central Bank in the matter of dealing with the conduct of those within the Financial Services Sector, particularly the conduct of Management Personnel, as the very embodiment of the proverbial principle, ‘See no Evil, Hear no Evil, Speak no Evil’, with the Three Wise Monkeys representation of this principle as the Central Bank’s most appropriate emblem.

Following from the March 1998 Exposure of Malpractice within Irish Financial Services Institutions,

—— and following from the July 1998 Review of this malpractice by the Joint Committee on Finance and the Public Service, and the Committee’s consequent recommendation that an independent Financial Services Authority should be established immediately,

—— and following from the Government’s October 1998 establishment of a special Advisory Group to advise on the establishment of such an Authority,

—— and against the recommendations of the majority that Advisory Group (the McDowell Report, May 1999),

—— it was announced that the new structure for Financial Services Regulation would be derived from the organisational structure of the existing Central Bank.

In April 2003, the Central Bank and Financial Services Authority of Ireland Act 2003 was enacted and, under this Act, the body corporate, formerly called the ‘Central Bank’, was renamed the ‘Central Bank and Financial Services Authority of Ireland’ (CBFSAI) and the Regulatory Authority was established within, and as a constituent part of, this body corporate.



Under the subsequent Central Bank and Financial Services Authority of Ireland Act 2004, the key Office of the new Financial Ombudsman Service was established and the statutory provisions governing that Office were set down. 

The new Financial Ombudsman Service commenced operations on 1st April 2005.

The person appointed Financial Services Ombudsman was Mr. Joe Meade, who was then the Data Protection Commissioner.

Two Deputy Financial Services Ombudsmen were also appointed: Caroline Gill, formerly the Insurance Ombudsman, and Gerry Murphy, formerly the Ombudsman for the Credit Institutions. (See Section 2.6.4, The Irish Regulatory Regime, and Section 2.6.5, Control and Containment — Self Regulation: The Ombudsman Schemes.)

While a wholly independent Office, the provisions of the Central Bank and Financial Services Authority of Ireland Act 2004 required that the Financial Ombudsman Service liaise with the Regulatory Authority and the Consumer Director and make recommendations ‘to effectively deal with persistent patterns of complaints made against specified regulated financial service providers or against a specified class of those financial service providers’.

Also, as previously related in Section, the powers and remit of the Financial Ombudsman Service were already set down under the Central Bank and Financial Services Authority of Ireland Act 2004. Of greatest import, the provisions of this Act stipulated that ‘a consumer is not entitled to make a complaint [to the Financial Services Ombudsman] if the conduct complained of occurred more than 6 years before the complaint is made’.

(See Section 2.6.7: A Stitch-Up in Time.)

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BUT, in becoming the new ‘Central Bank and Financial Services Authority of Ireland’, the Central Bank was given MUCH GREATER POWER.


And with this MUCH GREATER POWER came a MUCH GREATER RESPONSIBILITY.



A MUCH GREATER TRUST was now vested by the Irish Government / Parliament and the Irish people in the competence and integrity of those within their Competent Authority, the Central Bank and Financial Services Authority of Ireland.

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You will recall from the McDowell Report (see Section 2.6.7: A Stitch-Up in Time) that the defining concern of the Advisory Group in deciding its recommendations with respect to the new Single Regulatory Authority was ‘accountability’.


The Advisory Group particularly considered the reasoned paramount criterion of accountability as defined by the Attorney General, Mr. David Byrne, SC, in a November 1998 speech titled, ‘Who Regulates the Regulators?’, where he stated:

“Most importantly, a comprehensive, statutory system must be devised through which Regulators are required to render account to the legislature and, ultimately, to the people. ……

Anything less represents an erosion of the principles of democracy and political accountability, and weakens the democratically elected branches of Government ──── the legislature and the executive.”

The mechanism for ensuring this paramount criterion of accountability was set down within the provisions of the Central Bank and Financial Services Authority of Ireland Act 2003, under Section 33AM.

Section 33AM stipulated that:

(a) the Governor of the Bank (i.e. the Central Bank and Financial Services Authority of Ireland),

(b) the Chairperson of the Regulatory Authority,

(c) the Chief Executive Officer of that Authority, and

(d) the Consumer Director of that Authority

———  SHALL, if requested to do so, attend before the Joint Committee of the Oireachtas that is responsible for examining matters relating to the Bank, and provide that Committee with such information as it REQUIRES.

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Since the time of its establishment, through its subsequent ‘hearings’ on the prevalence of malpractice within Irish Financial Services Institutions, and as the Committee that recommended the establishment of a Financial Services Authority in the first place, it was the Joint Committee on Finance and the Public Service that was mandated by the Irish Government with ensuring that the Bank (i.e. the Central Bank and Financial Services Authority of Ireland) was being operated in a manner that best served the interests of the Irish people.

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AND SO, on 18th January 2006:

Mr. Liam O’Reilly, Chief Executive Officer at the Office of the Financial Regulator,

Mr. Joe Meade, Financial Services Ombudsman, and

Ms. Mary O’Dea, Consumer Director at the Office of the Financial Regulator,

 ———— attended before the Joint Committee on Finance and the Public Service.

NOTE !

Prior to being appointed to the most senior positions within the new Financial Services Regulatory Authority:

Mr. Liam O’Reilly had been the Assistant Director General of the Central Bank, and

Ms. Mary O’Dea had been the Head of the Regulatory Enforcement and Development Department of the Central Bank.

The main item on the agenda was a ‘report’ on Endowment Mortgages.

This ‘report’ had been submitted by the Financial Regulator in a letter to the Joint Committee at the end of December 2005.

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The most significant extract-elements of the Presentation to the Joint Committee by the Financial Regulator and the Financial Services Ombudsman, and of the ensuing Discussion with the Committee, are set out in Appendix 2/6.

As you become more aware, in the Chapters that follow, of the many and varied fraudulent means used by those within the Irish Financial Services Sector to induce consumers / customers / clients to enter into Endowment and similar-type investment contracts, the full significance of what transpired at this Presentation and Discussion will begin to dawn.

NOTE! If, throughout the course of this website-book, as an Irish consumer (or as an Irish citizen) you ever feel your anger waning, just read back through this Section, i.e. Section 2.6.9 and its accompanying Appendix, Appendix 2/6.

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Mr. Joe Meade(Financial Services Ombudsman):

I will give the committee some statistics. Approximately 280 complaints about Endowment Mortgages have been received by me and the former Ombudsman (the Insurance Ombudsman) to the end of 2005.

Regarding those investigated by us to date, both under the (previous) voluntary scheme (i.e. the Self Regulatory Insurance Ombudsman Scheme) and by myself, the cases that were upheld were upheld on the grounds of maladministration, not on the grounds of mis-selling. ………………

Deputy Bruton:

In the United Kingdom there has been considerable evidence of breaching selling Codes and this has triggered an amount of compensation activity.

What UK Code was breached that triggered substantial compensation and were the same selling practices in place in Ireland when the same products were being sold, even though we did not have a code?

Was the same unsatisfactory selling in practice here? ………………

My reading of the document is that it is a Catch-22 for somebody who was mis-sold. (This document was, presumably, Mr. O’Reilly’s letter to the Committee, setting out the ‘details’ with respect to the position on Endowment Mortgages in Ireland, as referred to in the beginning of Mr. O’ Reilly’s opening statement.)They must wait until maturity which, by definition, will be more than six years since they were mis-sold. If they try to deal with the case before maturity, it cannot be heard. They seem to be caught regardless of which way they go, according to page 4 of the document. If mis-selling occurred in the period 1989 to 1992, which is when all this was sold, there is virtually no way it can be explored. Does that signal a flaw in the way we have legislated?

There is one matter in our system that strikes me as being different from that in the United Kingdom. According to the appendix to Mr. O’Reilly’s letter, in the United Kingdom once one discovers that the product will seriously underperform and one is notified of that, one has three years to make a complaint.

In the Irish case, however, it seems that one must go back to when the product was originally sold, which is beyond the Statute of Limitations.Why are Irish consumers being put in a worse situation than UK consumers in trying to defend their position against alleged mis-selling? ………………

The financial findings of Mr. O’Reilly’s survey were interesting but what was missing was an analysis of the sales techniques, the way in which these were presented and the extent to which the survey showed the potential.

We all know products can go wrong but were these mis-sold?
I do not see in the survey report any analysis of that crucial issue. ………………

I was surprised to see that no mis-selling case has been upheld.I would be interested to know if that was because of the six-year Statute of Limitation or because Mr. Meade was satisfied that no mis-selling occurred.

Mr. O’Reilly(Financial Regulator):

I will take the first question and the one about the analysis of sales techniques, how it was in the United Kingdom and what the evidence was.

The evidence was really about the Requirements that were put on sales people to record how the product was sold. As a result of this, or the lack of such recording, the UK authorities were able to have documentation, or there was a lack of documentation where such was required.

Unfortunately, in Ireland there are no such Codes providing for Statutory Requirements and as a result the problem is one of evidence. ………………

Deputy Bruton:

Is Mr. O’Reilly saying the same sales practices were in place in Ireland, but the only problem was that there was no obligation to collect evidence of wrongdoing?

Mr. O’Reilly (Financial Regulator):

Not alone that but the problem is that we had no evidence because there was no Requirement to write down exactly how it happened.

Deputy Bruton: Is Mr. O’Reilly satisfied there is prima facie evidence that some mis-selling occurred in Ireland ?

Mr. O’Reilly (Financial Regulator):

We have no prima facie evidence and no documentary evidence whatever.

We only have records of conversations but we have no other evidence whatsoever. Part of the evidence that Mr. Meade is describing is that 280 cases have come before him and none of them was upheld on the basis of the original mis-selling.

Mr. Meade (Financial Services Ombudsman):

According to the legislation under which I operate, if a matter has occurred more than six years before the complaint was made, then I cannot consider it. That is the legislative situation.

I am a creature of the Law and I carry our my duties under the Law.

This aspect was discussed when the legislation was going through the Oireachtas. ………………

Many of the complaints are based on what was allegedly said many years ago and that can be difficult to verify.

However, with the passage of time, the contractual documentation is very important, including the advisory booklets and all that was signed up to.

In most of the complaints that have come before me, the documentation has indicated that the annuity calculation was done, the endowment calculation was done, the (advisory) booklets and contract (documentation) indicated that investments could rise or fall, and there was no guaranteed minimum which would arise in the end.


Our policy is that if an Endowment Mortgage is sold or cashed in before the end of the period, there is no loss on that and we do not rule on it. However, Endowment Mortgages can go up and down and we do not know exactly what the final loss will be until the end.

 Mr. Meade (Financial Services Ombudsman):

The original mis-selling is statute barred.

Even if the rule was changed in the morning, unless there is hard evidence, I will not find in favour of mis-selling. ………………One must have hard evidence. ………………

By changing the six-year rule, every Endowment Mortgage since 1988 would be covered.

One must bear in mind this concerns not only Endowment Mortgages.
Every unit linked policy and investment sold can rise or fall and would be subject to the same rule. ………………

As of now, the evidence is not there to support my statutory case to substantiate mis-selling.

Deputy Burton:

The Financial Regulator’s loss will be a gain for the world of maths and physics. ………………

Mr. O’Reilly (Financial Regulator):

……The basic lesson we have learned is that it is necessary to fill an information gap between what the consumer knows and the Financial Institution knows.There are two ways to do so, the first being to ensure that through the Codes of Conduct Institutions are obliged to provide information to individuals and the second is that we have a role in making sure people are more financially proficient.

We have a long-term role in the education curriculum to ensure people are enabled to ask the right questions. ………………

Deputy Ó Caoláin:

As Mr. O’Reilly said, it comes down to the maxim, “let the buyer beware”.
The buyer must inform him or herself but the information must be provided.

This was no ‘sleeping at the wheel’ **************a deliberate refusal to see, a conscious covering of the eyes

FROM ELSEWHERE

Consider, in the first instance, the hypothetical situation where the person in the fiduciary position does not disclose all material facts within his knowledge to the other party; but he keeps valid records of his disclosures to the other party. In any subsequently court action, it would become evident from the objective evidence (the valid records) that he has not disclosed all material facts within his knowledge. If this were to happen once or twice (even though the person in the fiduciary position intended to make a gain for himself or others as a consequence of the contract entered into by the other party) it could reasonably be concluded that the failure to disclose was through want of care (there being no evidence of it being a deliberate non-disclosure) and that his conduct should therefore be classified as Negligence.

But what if this were to happen ten times, or a hundred times, or a thousand times, or ten thousand times?

And what if, as a consequence of each of the contracts entered into by the other parties following these non-disclosures, the person in the fiduciary position intended to make a gain for himself or others?

In such circumstances, even though he kept valid records of his disclosures, there would be a strong suspicion his conduct was deliberate.

Even though, taken individually, the circumstances under which each of the parties were induced by the person in the fiduciary position to enter into the contract would result in his conduct being classified as Negligence, his overall conduct, the persistent non-disclosure of material facts, could be seen to have been deliberate, and this could lean towards it being classified as Fraud.

In the above hypothetical situation, it is the overview, exposing the persistence of the conduct of not disclosing material facts to the other party, that would most strongly support the contention of it being deliberate, and therefore Fraud.

But there is only a deliberate breach of one duty, the duty to disclose all material facts, and it is the keeping of valid records that provides the objective evidence of this breach of duty.

What if there were no such objective evidence?  Consider now, in the second instance, the not so hypothetical situation where the person in the fiduciary position does not keep any records of his disclosures to the other party. 

Again, if this were to happen once or twice (even though the person in the fiduciary position stood to make a gain for himself or others as a consequence of the contract entered into by the other party) his conduct would likely be classified as Negligence.

But what if this were to happen ten times, or a hundred times, or a thousand times, or ten thousand times?

And what if, as a consequence of each of the contracts entered into by the other parties following these non-disclosures, the person in the fiduciary position made a gain (or stood to make a gain) for himself or others?

Again, in such circumstances, his conduct could hardly be classified as Negligence.

But, in this second instance, there is no means by which the party to whom the fiduciary duty is owed can prove the non-disclosure, for there are no records.

It is crystal clear that, in the second instance, where there is  

At the outset of this website-book we stated that ‘the tenet most essential to the Code of Honour by which Financial Services Institutions must function within society is Trust‘.

it could reasonably be concluded that the both the failure to disclose and being unable to the failure to was through want of care (there being no evidence to the contrary) and that 

if persistent non-disclosure Even though the other parties were misled and the indueach in turn induced to enter into contracts that  Even though the person in the fiduciary position keeps a record of his disclosures every time deliberately withholds material facts within his knowledge from the other party, and yet keeps a record of his disclosures?

But what if the person in the fiduciary position were a hundred times, or a thousand times, or ten thousand times, or every time? deliberately withholds material facts within his knowledge from the other party, and yet keeps a record of his disclosures?

In such circumstances, it is unlikely that the fact that his failure to disclose was deliberate will be discovered by the court: for there will have been nothing evident from his conduct that could lead the court to decide, either on the balance of probabilities or beyond reasonable doubt, that such was the case.

Again, while he will be found to have been Negligent in the discharge of his duty, even though his non-disclosure was in fact Fraudulent there would be no evidence to support such a proposition.  

Now consider the situation where the person in the fiduciary position does not dislose all material facts within his knowledge to the other party, where it is not known whether or not his non-disclosure is deliberate, AND where he does not keep a valid record of his disclosures.

If this were to happen once or twice, it could reasonably be concluded that this was an inadvertent error on the part of the person in the fiduciary position and that his conduct should, therefore, be classified as Negligence.

But what if this were a hundred times, or a thousand times, or ten thousand times, or every time?

It could hardly, THEN, be argued that there was reasonable doubt, either in respect of his non-disclosure or in respect of his not keeping valid records, but that his conduct was deliberate.

NOT FINISHED YET!!!!!*****************BUT, and MARK THIS WELL !

It could therefore be reasonably concluded that there is stong Prima Facie Evidence to the effect that the Irish Financial Regulator has a case to answer.

This is the ultimate prostitution of Justice within Financial Services legislation in Ireland.