Financial Regulation - A return to bad habits.

Hillmanhunter1

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The Central Bank has recently (re)started to publish periodic reports about “service standards”. This ominous as it presages a return to the mind-set of the Financial Regulator era.

https://www.centralbank.ie/docs/default-source/Regulation/how-we-regulate/authorisation/regulatory-service-standards-performance-report-january---june-2017.pdf?sfvrsn=7

Regulated financial firms must pay an annual levy to the Central Bank. A levy is like a tax, and the Central Bank levy is a tax on the ability to offer financial services in or from Ireland. Levies like this are commonplace internationally.

The problem is that financial firms regard this levy as a fee that they pay for regulation, and that consequently they (the financial firms) are consumers of regulatory services. Like any other provider/consumer relationship they believe they are entitled to demand quality standards.

No doubt the (very capable and well resourced) industry representative bodies are constantly demanding to know what they are getting for their money, and challenging the regulatory budget of the Central Bank.

The fact is that financial is performed on behalf of citizens, not financial firms. It is the citizenry of Ireland that pays the costs of regulatory failure. I say citizens rather than consumers or taxpayers because arguably the poor, the unbanked and the homeless paid a higher price for the rescue of the banking system than the wealthy burghers of Dublin 4.

The job of the Central Bank is to protect citizens from rapacious financial firms – it is the financial watchdog. There is just one page in the report dealing with contact with consumers and the focus is on superficial metrics such as how quickly they answered the phone etc.

The idea that the Central Bank considers that it provides services to the financial firms that it is charged with supervising, and that it has an obligation to achieve and report on standards agreed with those firms, is absurd.

As absurd as if the customs authorities published their service standards for the smuggling business, or the police published service standards for burglars.

The publication of these service standards suggests to me that we are back to the bad old days of industry lobbying, regulatory capture, golf outings, cozy dinners and light touch regulation.

We will pay a price for this, again.
 


HarshBuzz

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How are the key solvency and liquidity ratios looking at the Irish banks?

Just for balance
 

clearmurk

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How are the key solvency and liquidity ratios looking at the Irish banks?

Just for balance
I think the OP is about the absence of focus by the Central Bank on consumer service. I agree.

My point is that if they are going to be appending the line "regulated by the Central Bank for conduct of business rules" to consumer financial advertisements, then that would imply that they will actually receive and address consumer issues. They will not. Therefore this advertising is misleading.
 

Hillmanhunter1

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I think the OP is about the absence of focus by the Central Bank on consumer service. I agree.
Absolutely, as the saying goes, "That which gets measured gets done".

Protecting consumers is hard to measure - how do you measure a mis-selling scandal that doesn't happen, or an asset bubble that is managed?

There is a degree to which management in regulatory agencies like service standards too because
a) they lend themselves to the planning process;
b) they can be translated into individual targets (and therefore feed in to individual assessments and bonus awards);and
c) if you have service standards (approved by your Board) and you meet those standards, then you can say that you are doing your job.

I'm quite sure that in the years leading up to the Irish banking crash the Financial Regulator met all of its service standards - a lot of good it did!
 

HarshBuzz

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I'd see service standards as a soft regulatory target. I'm not even that sure that people agree on what they mean and I suspect they fall under the domain of 'consumer protection' rather than 'financial regulation'.

Complying with Basel 3, EMIR, MIFID etc - those are hard, quantifiable standards. They're a more solid set of frameworks.
 

clearmurk

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I'd see service standards as a soft regulatory target. I'm not even that sure that people agree on what they mean and I suspect they fall under the domain of 'consumer protection' rather than 'financial regulation'.

Complying with Basel 3, EMIR, MIFID etc - those are hard, quantifiable standards. They're a more solid set of frameworks.
As they will not intervene on behalf of consumers, they should drop the pretence through advertising.
 

HarshBuzz

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Hillmanhunter1

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isn't that what this guy is meant to do?

this is worth a read too.
The role of the Ombudsman is to adjudicate on individual complaints referred to that office. The Ombudsman does not 'intervene" s/he is passive and only comes into play when a complaint is referred.

The Central Bank has the role of protecting consumers at the macro level, it does not deal with individual complaints. The Central Bank can, should and does intervene when it deems it appropriate.

My fear however is that returning to the mind-set of service standards, bringing with it the idea that regulation is a service provided to, and paid for by the industry, marks a turning towards the quicksands of regulatory capture.
 

HarshBuzz

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The role of the Ombudsman is to adjudicate on individual complaints referred to that office. The Ombudsman does not 'intervene" s/he is passive and only comes into play when a complaint is referred.

The Central Bank has the role of protecting consumers at the macro level, it does not deal with individual complaints. The Central Bank can, should and does intervene when it deems it appropriate.

My fear however is that returning to the mind-set of service standards, bringing with it the idea that regulation is a service provided to, and paid for by the industry, marks a turning towards the quicksands of regulatory capture.
I might better understand your case if you could refer to the specific service frameworks you have in mind?
 

Hillmanhunter1

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I might better understand your case if you could refer to the specific service frameworks you have in mind?
I provided the link in the OP
 

HarshBuzz

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I provided the link in the OP
so you did...apologies.

Reading that:

we seem to be talking about three things;

This document sets out the Bank’s performance against Service Standards that it has
committed to in respect of (a) authorisation of FSPs and Investment Funds, (b)
processing of PCF IQ applications and (c) contact management
.

And at a summary level;

For the period January to June 2017, performance was met or exceeded against forty-
three (96%) of the forty-five Service Standards.
,

so I read that as "we hit our KPIs", in essence. The CB follows its own procedures - big deal. We should be more concerned with actual outcomes.

I'm still unsure as to why you find this so troubling and an indicator of a return to The Bad Old Days?

I'd be far more concerned with tangible metrics like solvency ratios, capital buffers, liquidity barriers etc. These provide a far more realistic view on the health of the financial industry here - and consequent pitential risks to taxpayers.
The state of this is "improving rapidly" - as demonstrated by the recent successful partial refloat of AIB.
 

HarshBuzz

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Are any of the banks still "too big to fail"? A simple yes or no is all that this question requires.
Irish or global context?
 

HarshBuzz

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Are any of the banks still "too big to fail"? A simple yes or no is all that this question requires.
Can you amend the question to be more precise?

i.e. are we talking Ireland only or global. It's vague.
 

Hillmanhunter1

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Are any of the banks still "too big to fail"? A simple yes or no is all that this question requires.
In the context of Ireland, AIB and Bank of Ireland are too big to fail, and will remain so for the foreseeable future. They each represent such a significant chunk of the financial infrastructure (including the current and savings accounts of the majority of the population) that their failure would be impossible for the economy to sustain.
 

HarshBuzz

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In the context of Ireland, AIB and Bank of Ireland are too big to fail, and will remain so for the foreseeable future. They each represent such a significant chunk of the financial infrastructure (including the current and savings accounts of the majority of the population) that their failure would be impossible for the economy to sustain.
This is true - they are highly systemic in an Irish context. Hardly surprising when you consider the system is essentially a duopoly.

They're non-systemic globally.
 

Watcher2

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Can you amend the question to be more precise?

i.e. are we talking Ireland only or global. It's vague.
Seeing as you are pushing it (did I push a button? You've replied twice to it with the same question), answer for both.
 

HarshBuzz

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Seeing as you are pushing it (did I push a button? You've replied twice to it with the same question), answer for both.
I have answered above.
 


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