Ethics and governance in the European Financial centers

The Irish Independent has reported that  a record number of litigants will seek to have cases heard this week in the Commercial Court, which was set up five years ago to fast track multi-million euro business disputes.

This special court, which became operational in January 2004, heralded a new approach to commercial litigation in Ireland. It was set up to send a message to the world that Ireland is a good place to do business and resolve costly disputes

Among the applications will be attempts to sue Dublin-based Thema International Fund plc, which invested with disgraced US "Ponzi Prince" Bernard Madoff.

 

The Independant has reported that the Irish arm of banking giant HSBC is facing another court action here arising from the bankruptcy of alleged $50bn fraudster Bernard Madoff and his companies.

Kalix Fund Ltd, registered in the British Virgin Islands, is suing HSBC Institutional Trust Services (Ireland) Ltd, Grand Canal Square, Dublin, for $35m given by Kalix for investment purposes to a sub-fund of Thema International Fund plc, and later allegedly passed on to Madoff companies by the HSBC company.

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The Financial Times has reported that Ireland, easily the best performing eurozone economy since the birth of the single currency, this week became the first in the 15-country region to fall into recession.
As I already said, a financial center cannot base a sustainable growth on tax advantages to attract companies.
Which financial center will be next to face reality? I am afraid Luxembourg as the development model has not been changed and is still promoted.

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The Irish Times reported that a lease between the partners in a development and another company established by them to avoid paying VAT was invalid, because of the absence of prior written consent of the mortgagee. In addition, the lease and leaseback had no commercial reality and constituted an abusive practice under EU law, rendering invalid the VAT classification on the transaction.

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Last June the IMF issued a book that brings together conference papers in which participants discuss: information exchange for an effective anti–money laundering/combating the financing of terrorism (AML/CFT) regime, in terms of both standards and practices.

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The website, www.antimoneylaundering.ie, is run by Peter Oakes. Peter is Principal and founder of Compliance Ireland, a specialist regulatory consulting and training business for Irish and UK financial firms and professionals. Peter is admitted to the rolls of solicitors in England & Wales, the Republic of Ireland and Australia (New South Wales). Although qualifying as a solicitor, Peter now practises as a regulatory & management consultant, business coach and trainer, particularly in the areas of financial services (e.g. banking, credit unions, other credit providers, insurance, brokers & mutual funds), data protection and general business consulting to enterprises of all sizes. Peter is available to serve as a non-executive director on the boards of corporations and mutual funds to assist these bodies meet their corporate and regulatory governance requirements.

The website provides the latest information about the money laundering issues, laws and regulations in Ireland.

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In October 2005 statutory guidelines to the Administrative Sanctions Procedure were issued. These guidelines were issued by the Authority pursuant to a power in the 2004 Act and expand for staff of the Financial Regulator on the detail in the 2004 Act on how the Administrative Sanctions Procedure is to be operated. In addition, a non-statutory “Outline of the Administrative Sanctions Procedure” was also published. This is a high level explanation for regulated financial service providers of the process and procedure involved in the Administrative Sanctions Procedure and will be updated fromtime to time in light of experience
The following sanctions may be imposed:

Caution or reprimand;
Direction to refund or withhold all or part of an amount of money charged or paid, or to be
charged or paid, for the provision of a financial service;
Monetary penalty (not exceeding €5,000,000 in the case of a corporate and unincorporated
body, not exceeding €500,000 in the case of a person);
Direction disqualifying a person from being concerned in the management of a regulated
financial service provider;
Direction to cease the contravention if it is found the contravention is continuing;
Direction to pay all or part of the costs of the investigation and inquiry.

The Irish Financial Services Regulatory Authority (‘Financial Services Regulator’) does not communicate the cases. The information that is provided is less detailed than the information that is provided in Luxembourg by the regulator (CSSF) in the annual reports.

But the Irish Financial Services Regulatory Authority publishes warning notices naming firms, which operate, as investment business firms in Ireland without appropriate authorisation. Under the Investment Intermediaries Act, 1995, it is a criminal offence for an investment firm to operate in Ireland unless it has appropriate authorisation from the Financial Services Regulator. Clients of firms, which are not authorised, are not eligible for compensation from the Investor Compensation scheme.
In August 1998 the Central Bank of Ireland obtained legal powers to warn publicly about firms, which are not authorised. On 1 May 2003 these powers were transferred to the Financial Services Regulator.

Sources

Administrative Sanctions Guidelines

Outline of Administrative Sanctions Procedure

CP8 Consultation paper on administrative sanctions

Financial Regulator Response to CP8 Feedback

Response by Irish Bankers Federation (‘IBF’)

Warning Notices

Press release : 25/07/06

Financial Regulator publishes Annual Report 2005

During 2005, the Financial Regulator continued its work to foster a sound regulatory system to provide a safe and fair market for consumers of financial services and to develop sound prudential standards for the well-being and future expansion of credit unions. According to its Annual report, published today, (25 July 2006), by the end of 2005 it was responsible for the supervision of 9,638 firms and funds. The Financial Regulator has also identified a total of €118 million which is being refunded to thousands of customers for charging errors across 36 firms since 2004. Almost 1 million copies of its consumer publications were distributed and 23,000 consumer contacts were handled.

The Financial Regulator also presented the financial services industry with the new competency standards for those who provide advice on or sell retail financial products and the final version of the new Consumer Protection Code. Both were developed following extensive consultation with the industry and will be implemented over the coming months.

Speaking at the publication of the Annual Report, Chairman of the Financial Regulator, Brian Patterson said ‘Our duty as a single regulator reflects the need for a consistent approach across all sectors of the financial services industry where appropriate, something which until now has been missing. We spent much of 2005 preparing the groundwork for new unified requirements in the areas of competency for those dealing with consumers, the consumer protection code and revising fitness and probity procedures. The development and implementation of these requirements will go a long way to bringing this about.’

Patrick Neary, Chief Executive, said that sound financial institutions who put their customers interests first and which operated in a competitive market were a prerequisite for a vibrant and respected financial services industry.

“Today we have published new competency requirements designed to establish minimum standards for financial services providers, with particular emphasis on individuals dealing with consumers and who undertake certain specified activities. The requirements will come into effect from January 2007. We have also released the final consumer protection code which sets out to firms how we expect them to conduct their business dealings with consumers. The hard work now begins for firms as we begin the rollout of the code. Over the next few months as the code is put in place, firms will have to make the significant and necessary changes to systems, procedures and documents and conduct staff training in line with provisions of the code”.

“Building consumer confidence is an ongoing task, while much of the groundwork has taken place in 2005 and into this year, we have now set out our expectations and standards to the financial services industry. In 2007, we will also begin a campaign for consumers to educate them about their rights. We hope that this, combined with our supervisory efforts, will further strengthen the consumer’s hand when dealing with regulated firms.” he added.

During 2005 a total of 584 prudential, consumer focused and credit union inspections and reviews were carried out. As part of its role to monitor the safety and soundness of financial services firms, the Financial Regulator analysed over 57,000 returns and authorised 2,178 financial services providers and 582 funds. In the first six months of operation of the new prospectus regulations for the sale of securities, 861 documents were approved and there were a total of 39 enquiries, suspicious transaction reports and occasions when assistance was rendered to other competent authorities as part of the Financial Regulator’s new market abuse monitoring role. 33 reports of suspected criminal offences or breaches of company or competition legislation were also made to relevant agencies and the Financial Regulator acted on 115 advertising issues.

The Registrar of Credit Unions met with over 500 credit union volunteers as part of a series of 8 consultative roadshows and over half of all credit unions were visited. The provision of mortgage products was approved for 13 credit unions and 179 onsite visits to credit unions took place during the rollout of the new web based prudential return.

Staff from the Financial Regulator also attended 196 EU and international meetings as part of working on technical advice on EU directives and other regulatory policy development at international fora. A total of 161 responses were received to 9 consultations carried out during the year, including a review of fitness and probity requirements and on measures for the extension of regulation of reinsurance.


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The FATF Third Round of Mutual Evaluations began in 2004 and has adopted a more detailed approach to the assessment based on the tough new standards that the FATF adopted in June 2003. Since early 2005 Belgium, Switzerland, Australia, Norway, Italy, Sweden and Ireland have been evaluated. Ireland’s ratings are comparable to those obtained by these countries.

Many of the recommendations on which Ireland is currently assessed as either partially compliant or non-compliant will be addressed in the transposition into Irish Law of the 3rd EU Money Laundering Directive. The special recommendation on regulation of wire transfers (to counter terrorist financing) on which Ireland and most EEA Member States are rated non-compliant is being addressed by an EU Regulation (which will be directly applicable).

The main findings of the recent Evaluation are that Ireland generally achieves a high standard in relation to legal measures to criminalise money laundering and terrorist financing, in its institutional and other arrangements and in international co-operation. The Evaluation notes in particular that Ireland has a broad money laundering offence, which meets the FATF requirements and the provisions for the confiscation of the proceeds of crime appear effective and comprehensive. The offence of Terrorist Financing is criminalised broadly in accordance with the UN requirements.

The Ministers noted that process of reviewing and updating the Irish legal framework to meet both our domestic needs and international obligations is already under way. Ireland opted to be evaluated early in the 3rd Round of Mutual Evaluations because this would be of considerable assistance in planning the transposition of the 3rd EU Money Laundering Directive into Irish Law.

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Financial institutions designated under the Criminal Justice Act, 1994 (the Act) are obliged to take the necessary measures to effectively counteract money laundering in accordance with the provisions of the Act and the relevant sectoral Guidance.
The Financial Regulator, as part of its supervision process, assesses the adequacy of procedures adopted by the institutions, which it supervises to counter money laundering and the degree of compliance with such procedures.
The Central Bank/Financial Regulator is obliged by the Criminal Justice Act 1994 to report to the Garda Síochana and Revenue Commissioners where it suspects that an offence under Section 31 or 31 of the Act has been, or is being, committed by an institution under its supervision (Section 57(2) of the Act).
It is an offence punishable by imprisonment of up to five years or a fine, or both, for the failure of the Central Bank/Financial Regulator to comply with this requirement (Section 57 (5)).

Know more

Criminal Justice Act, 1994, Section 31 (Money laundering, etc)
Criminal Justice Act, 1994, Section 32 (Measures to be taken to prevent money laundering)

Criminal Justice Act, 1994 - Money Laundering as amended (guidance notes for credit institutions)
Criminal Justice Act, 1994 - Money Laundering as amended (guidance notes for financial instititions excluding credit institutions)
Criminal Justice Act, 1994 - Money Laundering as amended (guidance notes for stockbrokers)
Criminal Justice Act, 1994 - Money Laundering as amended (guidance notes for insurance and retail investment products)
Criminal Justice (Terrorist Offences) Act 2005 - Financing of Terrorism