Central Bank fiasco embroils RTÉ's new finance chief

The Central Bank and its Governor Gabriel Makhlouf have suffered an enormously embarrassing setback to the credibility of Ireland's system for regulating the individuals working in the financial sector.

That vetting process is crucial to the country’s international standing and the wider economy.

If regulations are too onerous, they act as a disincentive for foreign investment. If they're too weak, as they were during the boom, all hell can break loose – as Ireland discovered to its cost.

But now the vetting process has been found to be deeply flawed by the courts on two occasions.

In the wake of the 2008 financial crash, the Central Bank introduced a so-called Fitness and Probity process.

It is a mechanism for regulators to act as gatekeepers over who is allowed to work in senior positions in banks, investment companies, insurance firms and funds.

Since 2014, more than 30,000 people have been approved to work in the financial sector.

But on April 17, the High Court published a damning judgement which excoriated the bank’s handling of a one-year prohibition for a CEO of an Irish fund management company.

In his judgement, President of the High Court Mr Justice David Barniville decided to refuse the application to confirm the prohibition.

He said there had been "many breaches" of the senior executive’s "right to natural and constitutional justice and basic fairness of procedures during the entirety of the process".

At the heart of the case was an allegation that the executive did not inform the Central Bank about an investigation into the UK parent company by British regulators.

The former CEO was following legal advice that he did not have to disclose the probe.

The Central Bank said he failed to be open and transparent and therefore decided to prohibit him from working in the company in Ireland for one year.

But it was the manner in which the Central Bank handled the case that was singled out by Mr Justice Barniville.

He said the bank’s investigators "acted wrongly and unfairly" in failing to arrange an oral hearing for the executive.

It was "unfathomable that no such hearing was afforded," he added.

He also found the prohibition notice would have "inevitably devastating consequences" for the executive "without him ever being given the opportunity of addressing those issues in an interview".

The judge said his interview with the Central Bank’s decision-maker was no more than a box-ticking exercise and an "ultimately futile attempt to remedy the failure to afford an oral hearing to the respondent at the investigation stage".

The senior executive wasn’t asked about the allegation that he was not truthful with the Central Bank.

The man resigned from his position in February 2020 but the judgement was only published last month.

Speaking to RTÉ yesterday, the former CEO said life since 2020 "has been pretty horrific".

After being forced to resign, his wife was diagnosed with cancer and came through the illness, but he also faced financial pressures, and his mortgage is classed as non-performing.

He was unable to work for any financial companies regulated by the Central Bank.

He did find work for an unregulated firm, but alerted that company to the case when the judgement was expected to be published, and it ceased to employ him.

He said: "You should be able to challenge what the Central Bank says without going through the suffering I had to go through."

Taking a legal case against the bank’s decision of a one-year ban meant he has been unable to work in a regulated fund since 2020.

"No recruitment company will touch me. Nobody was prepared to give me a role."

An added dimension to the case is the involvement of Annemarie Britz, who was then the Central Bank’s head of finance.

She was "the decision-maker who ultimately decided to issue the prohibition notice on behalf of the Central Bank," according to the judgement.

Five days before the publication of the High Court judgement, Ms Britz was announced as RTÉ’s new chief financial officer, replacing Mari Hurley who is joining property group Ires Reit.

Ms Britz will be RTÉ’s fourth chief financial officer since 2020 when she takes up the role later this year.

She was among a number of senior Central Bank figures named in the judgement.

Under the bank’s processes, the investigations are separate from decision-making.

Ms Britz was chosen from a panel of senior regulators to assess the evidence gathered during the investigation.

RTÉ senior management believes Ms Britz has huge experience and that she was following legal advice given to the Central Bank in her handling of the case.

When asked if RTÉ was aware of the judgement prior to appointing Ms Britz, the broadcaster’s press office would only refer back to a previous statement by its Director General Kevin Bakhurst. This said he was "very pleased" with the appointment "following a rigorous selection process".

Ms Britz did not comment when contacted this week.

Regardless of her role, the judgement leaves the Central Bank with a number of significant issues.

The bank is now viewed as wide open to being sued by the senior executive involved.

The judgement is the second time in two years that the Central Bank has been severely reprimanded.

The first judgement, which found against the bank’s processes, happened in 2024.

The Irish Financial Services Appeals Tribunal, a body which hears appeals, rejected the Central Bank’s refusal to approve an executive’s application for the roles of non-executive director and chairman of a fund called Redhedge.

The tribunal said the bank’s decision-making was flawed and the executive was "denied fair procedures at each stage of the process".

It said: "The Tribunal is satisfied that what is in issue here is more than simply the right to the appellant’s good name. Rather, what is in question was a binding decision in relation to his right or interest to earn a living."

The case related to a separate part of the Fitness and Probity regime which gives individuals authorisation for the first time, whereas last month’s case related an enforcement mechanism.

The 2024 case resulted in the bank commissioning an independent review of its processes.

It then implemented a series of changes on foot of recommendations made by an external report.

The Banking and Payments Federation, a lobby group which represents bankers, is one of a number of organisations which provided feedback on that process.

The Federation’s CEO Brian Hayes said: "It is the arbitrary decisions which are not acceptable. People have a right to their good name.

"I think it is now being addressed."

He noted that since the 2024 case there has been a "reset" led by the Central Bank’s Governor Gabriel Makhlouf.

"The bigger point is that Ireland has to be on its guard. We are playing at an international level. These things are noticed. Fitness and Probity should be transparent and clear. It has to be fair to people. There are learnings from all of these cases," said Mr Hayes.

Last month’s case, which is part of a separate enforcement process, will now lead to further changes and is likely to include the requirement for an oral hearing where allegations are put to applicants.

But some professionals working in the sector are unconvinced the Central Bank has fully learned from its mistakes.

One senior legal source said: "Their procedures were too lax and unconcerned with outside oversight."

"These were amateur hour failures. Any court would find fault with the processes."

The Central Bank "was challenged and found wanting," he went on.

"The feeling is that this has not been sorted out. Senior legal people will wait and view the next layer of procedures."

Both cases happened on Governor Gabriel Makhlouf’s watch.

In March, the Minister for Finance Simon Harris appointed him to a second seven-year term.