The Central Bank’s decision to impose a total fine of 96.7 million euros on AIB and its subsidiary EBS for their involvement in the sector-wide mortgage scandal, which dates back more than a decade, brings the total levied to date against lenders by the regulator to more than 178 euros. million.

The permanent TSB (PTSB) was fined €21 million in May 2019, a record at the time. And at the end of 2016, PTSB’s former subprime lending unit, Springboard Mortgages, was fined 4.5 million euros. KBC Bank Ireland was fined €18.3m in September 2020, seven months before the Belgian lender revealed it was planning to exit the Irish market.

Meanwhile, in March last year, Ulster Bank in the Republic was hit with a €37.8million fine – just weeks after it was confirmed it was also heading for the door of exit.

[ AIB Group fined record €96.7m for role in tracker mortgage scandal ]

An enforcement investigation into Bank of Ireland continues. He has set aside money for a likely €94million aggregate fine set aside at the end of last year to deal with the remaining tracking issues.

The Central Bank, which began a review of the mortgage issue in late 2015 and opened enforcement investigations the following year, had to ensure that it carried out extensive forensic work to build cases against individual lenders.

Changes to the law in 2013 doubled the maximum financial penalty that the regulator can impose on a financial firm for violating the rules from 5 to 10 million euros, or 10% of turnover and, for individuals, from 500,000 to 1 million euros.

The fines imposed on PTSB, KBC, Ulster Bank, AIB and its subsidiary EBS cover breaches of the rules that occurred before and after the 2013 changes.

Where does the money paid in fines go?

All fines collected by the Central Bank are transferred to the Treasury. The fines against AIB and EBS are the regulator’s 148th and 149th settlements under its so-called administrative sanctions procedure since 2006, bringing the total to more than 298 million euros.

Irish taxpayers, of course, own almost 69% of AIB. So, in effect, most of the money it pays out is a circular transaction back to the state.

Central Bank Deputy Governor Derville Rowland told reporters on Thursday that she recognizes that much of the AIB fine was being handed over to the government, but she said “it’s absolutely important that institutions that operate commercially in financial services be held accountable” for breaches of the regulations. “without fear or favor”.

How did the tracker saga begin?

Tracker mortgages – cheap loans that track the main European Central Bank (ECB) rate – were introduced to the Republic in 2001 by the Bank of Scotland and have quickly become a popular product across the industry.

All was well for banks as long as their own funding costs were in line with Central Bank rates. However, with the financial crisis of 2008, lenders saw their funding costs skyrocket and they soon began to withdraw follow-up products from new clients.

While cases of lenders wrongly denying borrowers their contractual right to monitor loans began to surface around 2009, it was not until August 2015 that AIB implemented its own internal monitoring review. It took another two months for the Central Bank to embark on a broad review and order the industry to scour its books for affected borrowers.

AIB would only fully recognize in December 2017 – after a political and public outcry over how banks were avoiding acknowledging the full extent of wrongdoing – all major groups of its customers affected by the issue. Even then, he only planned to pay a certain group of 5,900 customers €1,615 each for a “service breakdown” for denying them the chance to switch to a mortgage at the ECB rate.

The bank has always argued that the tracking rate in effect at the time would have been 7.9%. However, a ruling by the Financial Services and Pensions Ombudsman (FSPO) on a test case in early 2020 – outside the Central Bank process – paved the way for this group of customers to be included for appropriate compensation. .

A total of 10,015 individual AIB customers were affected. In the most severe cases, this resulted in the loss of 53 properties, including 13 family homes, as customers struggled financially due to overcharging.

Some 2,830 EBS customers were affected, with 84 properties, including eight family homes, ultimately lost.

How much did AIB pay in refunds and compensation?

Some 230 million euros under the process supervised by the Central Bank. However, the bank would have paid an additional 167 million euros following the decision of the mediator. The wider industry, which has admitted more than 41,000 cases, has paid out more than 735 million euros so far in the Central Bank’s review.

Banks have provisioned 1.5 billion euros in recent years – of which the AIB represents more than 600 million euros – to deal with reparations, compensation, administrative costs related to the examination and fines.

Is the Central Bank investigating individual bankers for their actions in relation to the tracker debacle?

The regulator has always said it is reviewing the conduct of companies and senior bankers.

Last November, the Central Bank said it was opening an investigation into an unnamed former permanent TSB executive in the regulator’s first known decision to prosecute an individual for an alleged role in the industry-wide debacle. . The Irish Times later reported that the individual in question was the bank’s former chief executive, David Guinane. So far there have only been private investigative management meetings into the case, chaired by British lawyer Peter Hinchliffe.

It is expected that more cases against individuals will be prosecuted. Central Bank officials declined to be drawn on Thursday on whether it would go after former or current leaders of AIB or EBS.

Under current rules, the Central Bank must first convict a company before taking legal action against individuals. Legislation planned to give rise to a so-called executive liability regime (Sear) aims to allow the regulator to convict individuals first. The new regime is expected to be in place next year – four years after the Central Bank requested additional powers.