EDITION 3 MAY 2006

The IBF Personal

Account Switching Code
12 Months On

INSIDE

Managing Foreign A New Regime Pat Neary

Exchange Exposure to Counter Money The Principal of
for Irish Exports Laundering Regulation
 ABOUT BANKING
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 Contents

2-4 Newsdesk About Banking

The latest news from the
Irish financial services sector
6-8 The Principal
of Regulation
Pat Neary
9-11 Managing Foreign Exchange banks and financial services
Exposure for Irish Exports
Dr. John Cotter and Don Bredin
ISSN 1649-6671
About Banking is a publication
of Irish Bankers Federation (IBF).
Opinions expressed in the magazine
are not necessarily those of IBF,
its Council, Committees or the
Editor. Reproduction in whole or in
part without written permission is
strictly prohibited.
Irish Bankers Federation is the
leading representative body for
the banking and financial services
sector in Ireland. Membership
of over 60 institutions includes
licensed domestic and foreign
institutions operating here.
The Federation of International
Banks in Ireland (FIBI) and the
Irish Mortgage Council (IMC)
are affiliates.

President: Richie Boucher

Chief Executive: Pat Farrell
12-15 The IBF Personal Account Switching Code:
12 Months On Irish Bankers Federation,
Nassau House,
Etain Doyle Nassau Street,
Dublin 2
Tel: +353 (0)1 6715311
Email: ibf@ibf.ie
www.ibf.ie

16-17 Putting Research and Development Editor

at the Heart of Financial Services Felix O’Regan
Head of PR and Public Affairs
Annette Farrell felix.oregan@ibf.ie

Production
Patrick Hughes
patrick@phdltd.com

19-21 A New Regime to Counter

Advertising
Money Laundering Aoife McDonnell
aoife.mcdonnell@ibf.ie
Eimer O’Rourke
Design
Dcoy Design
www.dcoy.ie

23-24 CP14: More Than a Number Printing

Hudson Killeen
in Any Bank’s Book
Anthony Walsh
NewsDESK

Collaboration urged to build on

Ireland’s international success
An Taoiseach, Bertie Ahern, TD, has joined Mike Ryan,
Chairman of the Federation of International Banks
in Ireland (FIBI), in highlighting the need for ongoing
partnership between the public and private sectors to
ensure that Ireland maintains its success in international
financial services. Both were speaking at the annual lunch
of FIBI, which is affiliated to Irish Bankers Federation (IBF),
in Dublin’s Westin Hotel.

Noting that the continued growth of Ireland’s international

financial services industry could result in employment
growth of almost 50% over the next five years to some
26,000, Mike Ryan said that a new strategy for the sector
An Taoiseach, Bertie Ahern, TD, congratulates Mike Ryan, Chairman, FIBI,
“can best be achieved through continued partnership with on another successful year for international financial services in Ireland.
Government and other stakeholders”.

Mr Ahern highlighted the review of the future direction of the
industry being carried out under the auspices of the Clearing
House Group, chaired by his Department, which will be
completed shortly, and he encouraged the industry to engage
with the public sector to ensure its objectives are achieved.
“We have had considerable success in the financial services
sector to date. The challenge we all now face is to build on
that success in adapting to a new and more competitive
environment,” added Mr Ahern.

Top business students honoured

Five students were recognised for achievements in the 2005
state examinations in business subjects at an event hosted by
IBF with the Business Studies Teachers’ Association of Ireland
(BSTAI) in Dublin’s National Concert Hall.

The annual Business Studies Achievement Awards are

Pictured at the Business Studies Achievement Awards (L to R):
Emma Halley (Wicklow), Caroline McHale, President, BSTAI,
Orna Grant (Dublin), Kieran Curtis (Dublin), Diarmuid Bradley,
past President of IBF, Aoibheann Hurley (Cork)
presented to students who are placed first in the state
examinations in Accounting, Business, and Economics at
Leaving Certificate and Business Studies at Junior Certificate.
The 2005 awards were presented by Pat Burke, Assistant
Secretary General of the Department of Education and
Science, and Caroline McHale, BSTAI President.
Diarmuid Bradley, past IBF President, praised the students
and the productive relationship between IBF and the BSTAI,
which promotes business subjects in schools.

2 ABOUT BANKING
Businesses to benefit from new
Switching Code
Irish Bankers Federation (IBF) launched a Business Account
Switching Code in March to make it easier for businesses to
switch accounts from one financial institution to another.
Developed by IBF in association with the Irish Payment
Services Organisation (IPSO) and in consultation with
the Financial Regulator, as well as a number of business
representative groups, the IBF Business Account Switching
Code covers current accounts and demand deposit
accounts held by business customers. The business
representative groups involved in consultations on the
Code included the Small Firms Association (SFA), Chambers
Ireland, Irish Small and Medium Enterprises Association
(ISME) and the Irish Farmers’ Association (IFA).
IBF has invited all financial institutions, including non-IBF
members, to subscribe to the Code which will be fully
operational by 30 June 2006.
“This Code will provide a clear and simple road map for
business customers who wish to switch accounts from one
financial institution to another,” said IBF Chief Executive
Pat Farrell.
Launching IBF Business Account Switching Code (L to R): John Dunne,
Chief Executive, Chambers Ireland; Pat Farrell, Chief Executive, IBF; and
Pat Delaney, Director of Business Sectors, IBEC.
Internal Market Commissioner Charlie McCreevy and Richie Boucher,
IBF President at the IBF breakfast briefing.
Conference sees bright future
for mortgage market
The future of the Irish mortgage market looks bright,
according to speakers at the recent National Mortgage
Conference, which was organised by Irish Bankers
Federation and sponsored by MyHome.ie.
Delegates concluded that there is plenty of room for
further sustainable growth domestically and through new
opportunities emerging in the massive EU mortgage market.
“Against the backdrop of a strong economy, the
development of Ireland’s financial sector in general, and
the mortgage market in particular, has assisted thousands
of people enter and move up through the housing
market,” said Minister for Finance, Brian Cowen, TD, in
his opening address to the conference in Dublin’s Mansion
House. “Increased competition among financial institutions
intensified by new market entrants has enabled households
to benefit from Ireland’s membership of the euro area,
in a very tangible way, through access for the consumers
to very competitive mortgage finance, and through the
lenders’ product innovation and a wide choice among
mortgage providers.”
Minister for Finance Brian Cowen giving his opening address at IBF’s National
Mortgage Conference, sponsored by MyHome.ie.
New IBF President welcomes
Commissioner McCreevy
In his first engagement as the new IBF President, Richie
Boucher hosted a breakfast briefing by Charlie McCreevy,
European Commissioner for the Internal Market and Services.
Commissioner McCreevy highlighted his priorities: these
include facilitating single markets for payments and mortgages,
cross-border consolidation, improving efficiency and enhancing
competition. He also acknowledged that new measures
relating to the level of capital, required by financial institutions
to protect them from insolvency and to protect their
customers’ interests, present banks and regulators with a major
implementation challenge.
ABOUT BANKING 3
NEWSDESK
Dutch show the way on
better regulation
As a member of the Government-appointed Business Regulation
Forum, I received recently, along with my fellow members, a
presentation from Wim Jannsen. Wim is a senior civil servant in the
Dutch Finance Ministry and heads up their Administrative Burdens
Reduction Unit (ABRU). I thought Wim’s title was intriguing, dare I
say bordering on radical, in a public service context.
A radical approach was what was needed. It seems the Dutch
have measured the cost of “red tape” compliance and have
come up with a figure of e16.4bn! Not surprisingly, they
decided enough was enough and set a target to reduce the
cost for business by 25% over four years. And before the critics
wade in with the usual arguments about “not throwing the
baby out with the bathwater”, a key principle underpinning the
exercise is that any changes made must not result in dilution of
the original regulatory initiative’s policy imperative; rather, seek
to improve it.
With less than two years to go, the Dutch programme has
achieved a 17% cost reduction and they are confident of
exceeding their target comfortably in the timeframe agreed.
The reason they have made so much progress is that they
have tackled the issue with the seriousness it deserves: each
Government Ministry has its own ABRU and failure to achieve
targets results in financial penalties being applied by
way of reductions in the Ministry’s annual budget.
Some would say that this is a rather aggressive
approach. A similar approach is what is needed here
if we are to successfully counter the perceived inertia
that characterises official thinking on this subject.
Pat Farrell,
IBF Chief Executive
Partnership works
The continued growth and development of the IFSC can be
attributed in large measure to a public/private partnership model
which has enabled the wholesale banking and financial services
sector to successfully maintain and enhance Ireland’s competitive
positioning in what is a truly global marketplace. Irish Bankers
Federation (IBF), representing the wholesale and international
banking sector, has played a leading role in building and
developing the relationships which sustain the model’s success.
The recent announcement by the Minister for Finance of the
Government’s decision to amend and update the Asset Covered
Securities Act, 2001, is a prime example of that partnership at
4 ABOUT BANKING
So where are we now on the Better Regulation agenda?
The onset of warmer weather and longer, brighter evenings
has reminded me that the Government’s Better Regulation
launch last July will soon celebrate its first anniversary. The
launch set out some new initiatives; all primary legislation and
significant statutory instruments would henceforth be subject to
Regulatory Impact Assessment (RIA) and Consultations would be
informed by guidelines. On the face of it a reasonable start, but
on further scrutiny it appears that the growing plethora of rule
making initiatives generated by an increasing array of regulatory
and compliance agencies are not obliged to apply RIA but can
do so on a voluntary basis. On consultation the “guidelines”
initiative is similarly underwhelming when compared with the
UK Government position which raises the bar much higher and
sets out non-negotiable “standards”.
But maybe all this is a bit harsh and, almost a year on, answers
to the following questions may pleasantly surprise us all:
- Has the Better Regulation Group yet devised a public sector-
wide standardised methodology for conducting RIAs?
- How many RIAs have been undertaken and what have been
the results?
Meanwhile, back to our Dutch friends. There is no doubt that
they had a bigger problem than us in the first instance and this
created an urgency to act. Do we need to arrive at the same
pass before a similar momentum is created here? Apparently
the Dutch initiative was driven at political level by a Minister
who was prepared to invest political capital in
making things happen. Does our political system
have the capacity to act likewise? If it does, the
benefits for business and consumers alike would
be considerable.
work. Since its inception, the current legislation has facilitated
the participation by Irish financial institutions in these markets,
which have an increasingly prominent role in the international
debt capital markets. The Irish legislation is highly regarded
internationally for the high levels of protection afforded to
investors in Irish covered bonds. This update should further
enhance Ireland’s leading position in the market.
IBF has for some time now been working with the Department
of Finance and key stakeholders to bring about these
legislative changes so as to position Ireland for continued
growth in the international covered bonds markets, in the
face of ever-changing market conditions and the forthcoming
introduction of new European legislation.
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 The Principal of Regulation
Interview with Pat Neary, CEO, Financial Regulator
“My main principle is that the boards and
management of regulated entities are best
placed to run their own organisations”, says
Pat Neary, CEO of the Financial Regulator.
Patrick Hughes met with him to discuss a
range of key issues.
The Financial Regulator turned three
years old on 1 May 2006. The former
Prudential Director, Pat Neary, is
relatively fresh in the role of CEO,
having taken over from Liam O’Reilly
at the beginning of February. “The
role demands a strong sense of
leadership among other personal
qualities”, says Neary. “I am lucky
to work with a highly professional
team, which shares a common vision.
In doing our job we are working
with a dynamic sector, profitable and
sound, contributing to the State and
to the community.”
Pat Neary sees his previous role as
Prudential Director as having clear
relevance to the new job. “I see that
certain aspects are carried through, such
as attention to safety and soundness,
and many micro issues that transmit to
the macro. This is key to the system’s
robustness. Consumer protection is at
the core, and I encourage a view of
consumers as not only borrowers but
also as depositors”.
6 ABOUT BANKING
The CEO’s background in the area of
regulation is impressive, having worked
in statistics, internal audit, and in the
area of supervision since 1979, mostly
in banking, but also in securities.
“I had a good relationship already
with the major players nationally and
internationally. This is very useful in my
new role.”
Neary’s view of the future of the
Financial Regulator and its relationship
with industry is quite clear. “I see the
Financial Regulator as working closely
with the industry and being mindful
of its needs, while not creating
bureaucracy for the sake of it. There
should be no unnecessary regulation;
rather, we should encourage
innovation. The caveat is that banks
treat all customers with respect and
care. The Financial Regulator can be
aggressive if necessary and falling
out will happen where it’s needed.
But the best approach is through
reasonable collaboration, consultation
and cooperation.”

Regulating for prudence
and protection
There continues to be significant debate
within the industry about principles-
based regulation versus rules-based
regulation. The Financial Regulator
does not see these as being mutually
exclusive: “Best practice is not one or
the other, but a combination of both. A
rule should have a principle, and must
be capable of being defended as a
principle first. Some jurisdictions can do
little by principle; all regulations must
be enshrined in law. While some EU
directives come through as regulation,
rules must hang off principles.”
“My main principle is that the boards
and management of regulated entities
are best placed to run their own
organisations: they know their dynamics.
We must ensure that they have policies
in place to cover their main areas of
operation and their main risks. Any
rules must contribute to that smooth
operation; nothing else makes sense.”
Are banks in Ireland delivering their
responsibilities in this respect? “I think we
have an industry of good standing. Our
strategy reflects this: it’s not draconian.”
As to striking the right balance between
prudential supervision and consumer
protection, Neary is quite clear in his
mind as to the importance of that
balance and how the Financial Regulator
should help to strike it. “I believe that
we are displaying subtle judgement
in striking the right balance. We are
fleshing out the prudential side under
Basel II and other codes to develop a
fully formed prudential framework.
At the same time with regard to
consumers, we have developed and
continue to develop a framework to
protect customers.”
It is now one year since Irish Bankers
Federation (IBF) introduced the Personal
Account Switching Code. “We feel
that there is considerable evidence that
it is working. We need to continue to
build up information and transparency
to consumers about pricing structures.
Our Consumer Protection Code, which
will be implemented later this year, will
“We can create
the structure for a
reputable business
environment. After
that, the matter
of reputation is
in the hands of
financial institutions
themselves.”
address some of these issues, but the
industry clearly also has its own part
to play,” said Neary.
With regard to the industry’s contention
that price control (Section 149 of the
Consumer Credit Act) stifles innovation
and should be removed, Neary has
this to say: “Section 149 is a political
matter, and the Financial Regulator
should not seek to engage in that
process. However, we can clearly state
our position based on our assessment
of the facts. Many, I know, have pointed
out that there may be grounds for its
removal. However, before that stage
can be reached, we think a number of
things will need to happen. They include
some of the issues I have mentioned,
such as full transparency on costs and
the effective operation of the switching
code. They also include consideration
of the development of a standardised
low-cost basic bank account. We have
been engaged with the Combat Poverty
Agency in conducting research on the
issue of access to financial services and
what the barriers to access are.”
ABOUT BANKING 7
The Principal of Regulation
“One particular strength in Irish banking has been the way we
have dealt with the International Financial Services Centre (IFSC).
We did not grant lower regulatory requirements to the IFSC,
but the same to everyone”.
The European agenda
“A lot hangs off the EU agenda” says
Mr Neary. Prominent in many experts’
minds is the reinsurance question:
“We need the regime to capture risks,
but not work against the reinsurance
industry”. Some critics believe there is
a danger that regulation in Ireland goes
beyond EU requirements. “That’s not
the case”, he states. “On the prudential
side, we don’t ‘goldplate’, the standard
supervisory framework applies, but
where we see a need to focus on some
issues specific to this market, we will
adapt the regime as necessary. The
consumer side is being developed, with
the Markets in Financial Instruments
Directive (MiFID) applying to how entites
sell cross-border in Europe. The hurdles
here are no higher than for anywhere
else. As a regulator, we do not seek
to create any barriers to competition,
but the importance of a well regulated
industry of high reputation should not
be underestimated”.
Is convergence in regulation a clear path
to a single European regulator?
“I don’t think we’re heading there
quickly. The fabric has been woven to
bring this to bear on supervision in due
course. This is crystal ball stuff: if it does
happen, I’m not sure it would completely
replace local national regulators”.
Relations with the industry
When discussing the relationship with
the industry, to describe the situation
Pat Neary reaches again for the three
Cs - collaboration, consultation and
cooperation. “Our working relationship
with IBF has been constructive and
collaborative, shown for example by our
8 ABOUT BANKING
working together on the implications
of Basel II. Nor do I have any sense of
difficulties in our relationship with
banks themselves.”
“At the moment, we
create no distinction
in dealing with
international and
domestic banks, nor
between wholesale
and retail banks. This
approach is being
reviewed at present
to ensure that we
deal with banks using
the best model. I am
open-minded: we are
examining the risks
and benefits of a
differentiated model.”
“One particular strength in Irish banking
has been the way we have dealt with
the International Financial Services
Centre (IFSC). We did not grant lower
regulatory requirements to the IFSC,
but the same to everyone”.
However, Neary recognises the
difficulties in implementing regulation
for all parties concerned - not least
banks. “The sector is so complex, with
many directives demanding attention.
It is a struggle for the sector to absorb
the avalanche of regulation. It’s often
the same colleagues who are trying
to implement everything. We must be
realistic about the timescales involved”.
The sector’s reputation
Approaching the end of the interview,
one senses that the new CEO really
gets into his stride when the issue
of reputation is raised, not least
when reference is made to a recent
attempt to stick the label of ‘the Wild
West’ on Ireland. “I saw this as an
opportunistic comment, which has
gained no credibility”, says Neary,
“there is no systematic flaw to justify
this comment. There is nothing
to cause me concern about the
reputation of the financial services
sector”, he states emphatically.
“The various overseers, like the
International Monetary Fund and the
Financial Action Task Force all provide
positive endorsements”.
And what can the Financial Regulator
do to ensure a positive reputation?
“We can create the structure for a
reputable business environment. After
that, the matter of reputation is in
the hands of financial institutions
themselves”, he states simply. That said,
Neary endorses the recent supportive
comments from An Taoiseach. “The
IFSC attracted international banks and
gave them room for profit. We can’t
begrudge them their success. On the
domestic side, there have been some
unfortunate incidents which will take
time for the sector to recover from, but
there is no doubt that the sector is very
much heading in the right direction”,
he concludes positively.
Managing Foreign Exchange Exposure
for Irish Exports
Dr. John Cotter and Don Bredin, Michael Smurfit School of Business, UCD
All exporters need
to correctly manage
their foreign exchange
exposure with the full
support and expertise
of their banks, states
Dr. John Cotter.
It’s scarcely surprising that, as a small
open economy heavily dependent on
trade, Ireland’s economic statistics
reflect a strong, positive relationship
between our trade performance and
overall economic activity. However,
the slowdown in our export
performance over recent years is
a matter of some concern, with
exports in 2003 recording a total
decline of over 12% in value on the
previous year, for example.
The contraction of the world economy
is the oft cited explanation, while the
negative effect of escalating oil prices
has taken up much of the media
coverage. In addition, however, the
impact of foreign exchange exposure
continues to create uncertainty for
performance in this sector; and, to some
extent, this has been overlooked.
Through the provision of currency risk
management products and services,
banks have a crucial role to play in
helping to reduce this uncertainty.
Additionally, the banking sector can
further help to demystify the many
myths associated with exporting and
foreign exchange exposure.
The role of the euro
It is worth noting that our membership
of the euro zone has helped to mask
the problems associated with foreign
exchange markets. While not the main
one, a key motivation for Ireland’s joining
the trading block of the EEC (as it was
known then), followed by the European
Monetary System and finally the euro
zone was to expand our export trade to
European markets. This has not happened
to any real extent. What has happened is
that the United States (US) has replaced
the United Kingdom (UK) as our single
largest export destination. Moreover,
much of our trade with non-European
economies is invoiced through sterling
or US dollars and our ability to expand
in these markets will be influenced by
movements in these currencies.
Thus, for now and the foreseeable
future, our largest export volumes will
go to economies that involve foreign
exchange exposure - namely, the US and
the UK. Combined, they account for
approximately 40% of total Irish exports.
It was a fallacy to believe that the euro
would eliminate our foreign exchange
exposure. Perhaps this misconception
was driven by the relatively large intra-
EC trade undertaken by other euro
zone members. Today, perhaps it is
being driven by commentators who
overlook the adverse impact that foreign
exchange exposure has had during the
boom years. Regardless, the volatility of
currency markets continues to be a key
and worrying consideration for exporters
as they try to ensure stability of their
revenues and ultimately their profitability
and competitiveness.
ABOUT BANKING 9
Managing Foreign Exchange Exposure for Irish Exports
How do you manage your foreign currency?
0.4%
10.8%
3.8%
3.6%
20.6%
23.5%
Certainly exporters recognise that
it is now a more competitive trade
environment. Moreover, they are also
expressing concern about the impact
of oil prices. But what concerns do
they have about currency movements
and how have they responded to these
concerns? Unfortunately, there are still as
many questions as there are answers, but
some disquieting findings have emerged.
Measuring foreign exchange
exposure
In the Export Ireland Survey 2005,
recently published by the Irish Exporters
Association, more than 10% of
responding exporters - trading with non-
euro partners - advised that they ‘take no
action’ to manage their foreign currency.
This inaction must be seen in the context
of the cumulative movements, both
positive and negative, in the dollar/euro
exchange rate in 2005.
While we know that the net movements
involved an appreciation of the euro of
just 13%, the cumulative movements
show the extent to which currencies can
vary; and, more importantly, the extent
10 ABOUT BANKING
37.5%
to which exporters’ revenues can be
affected. However, it is important to be
able to estimate the actual size of the
impact of currency fluctuations on the
export base, as this will help to determine
the policies and strategies required to
manage this exposure.
That said, looking at aggregate exports
themselves may only provide a rough
idea as to the influence of currency
markets on our export activity. The
impact on individual sectors also needs
to be measured. The reality is that Irish
exports are heavily dependent on certain
products. For example, over 50% of our
exports to our largest trading partner, the
US, are in one sectoral classification (from
ten in total) - namely, the multinational
dominated Chemical and Related
Products sector.
In contrast, little activity can occur
in other sectors including more
predominately indigenous ones. Thus,
aside from the fact that exporters face
risks due to a concentrated dependency
on certain sectors, the impact of foreign
exchange exposure on these individual
sectors also needs to be measured.
Currency accounts
Forward contracts
Trade in euro only
Currency options
Pooling and netting
Use non-bank dealers
Take no action
Source: Export Ireland Survey 2005,
Institute of International Trade of Ireland/Irish
Exporters Association
Unlike indigenous firms, multinationals
enjoy the option of eliminating the
influence of foreign exchange exposure
through transfer pricing. So, there is no
reason to assume that the impact on
individual sectors would be the same and
consequently the response of firms across
sectors should also vary.
Managing the exposure
Once we have measured the impact
of foreign exchange exposure on
total and sectoral exports, we need to
examine mechanisms to manage this
exposure. There are a number of ways in
which this can be addressed and these
range from the ad-hoc to more formal
procedures. Among others, the potential
list includes exposure netting, currency
accounts, forward contracts and
option contracts.
The extent to which these various
options are being utilised by Irish
exporters in general is confirmed by
one of the key findings of the Export
Ireland Survey: this shows that over
85% of respondents are satisfied
with the support provided by their
Does your bank meet your needs?
14.8%
85.2%
banks. However, the same research
also shows that a significant 10% of
respondents take no action to protect
against currency fluctuations and thus
underutilise the services available
from banks.
The banking sector has a key role to
play in providing support services that
help underpin and grow the activities
of exporters. Banks can and do provide
a wealth of expertise and innovative
money and currency market products to
aid the performance of Irish exporters.
They can also provide valuable advice
and tailor-fit risk management products
that are suitable to each exporter as
required. And they can determine,
through engaging with the exporter,
the relative merits of currency risk
management products, such as forward
contracts, in protecting export revenues.
With the international trade environment
becoming more competitive, and with
changing characteristics, there is a
serious challenge for our export sector
to respond positively, bolstered by a
strong supporting role from banks.
It remains to be seen whether Irish
exporters will indeed engage more
and seek comprehensive support from
the banking sector. Certainly closer
cooperation is paramount.
There remains an imbalance between
the theory of good practice in the face
of foreign exchange exposure and
what companies are really doing. This
represents a worthwhile challenge for all
concerned: exporters, the banking sector
and policy makers in general, to ensure
that foreign exchange exposure can be
managed effectively so as to help the
competitive activities of exporters and
the Irish economy in general.
Dr. John Cotter is director of the
Centre for Financial Markets at
University College Dublin. His research
and consultancy interests are in the
areas of risk management and
investment analysis.
Yes
No
Source: Export Ireland Survey 2005,
Institute of International Trade of
Ireland/Irish Exporters Association
Further research on foreign
exchange exposure
“Foreign exchange exposure and
risk management: The case of Irish
exports” is the title of an important
research project currently underway
and due for completion in July
2006. The research arises from
engagement between Irish Bankers
Federation (IBF), the Irish Exporters
Association and researchers at the
Centre for Financial Markets, Michael
Smurfit School of Business, University
College Dublin.
Sponsored by a number of IBF
member banks and led by
Dr. John Cotter and Don Bredin,
this research project is employing state
of the art modelling procedures to
examine foreign exchange exposure
and to provide answers to relevant
questions, including the following:
1. What effect does foreign
exchange exposure have on the
Irish export sector?
2. What effect does foreign
exchange exposure have on Irish
exports to the US?
3. What effect does foreign
exchange exposure have on Irish
exports to the UK?
4. What is the effect of foreign
exchange exposure on
disaggregated (industry sector)
data, i.e. what is the variation (if
any) of the effects of currency
movements across industrial
sectors?
5. How can exporters develop
risk management strategies
to protect them from foreign
exchange exposure?
ABOUT BANKING 11
 The IBF Personal Account Switching
Code: 12 Months On
Etain Doyle, Senior Consultant in Regulatory and Governance Matters

The IBF Personal Account Switching Code has

had a successful first year, proven by the level of
switching facilitated and competition generated,
according to Etain Doyle who has just completed
an independent review.

In February 2005, the IBF Personal The arrangements were set up to make
Account Switching Code was it easier for customers to switch from
introduced by the country’s leading one bank to another. Difficulties in
banks and building societies in switching current accounts are viewed
the personal current account as a barrier to competition. As shown
market. Twelve months on and in Figure 1, a new survey undertaken
17,000 switches later, Irish Bankers by TNS mrbi for IBF indicates that 55%
Federation (IBF) asked me to review of current account holders now think
the operation of the Code and it is very easy or fairly easy to switch
its development. I am doing this their current accounts. In March 2005,
from a position of some familiarity a Eurobarometer poll recorded a 46%
with the Code, having acted as an response to a similar question.
independent adviser and referee for
IBF over the last year.

Figure 1: Perceived Ease of Switching Current Accounts - by age (March 2006)

FAIRLY EASY/VERY EASY FAIRLY DIFFICULT/VERY DIFFICULT DON’T KNOW

All 55% 29% 27%

65+ 50% 6% 27%

55-64 56% 17% 27%

45-54 45% 27% 27%

35-44 54% 25% 21%

25-34 63% 19% 18%

18-24 53% 11% 36%

0% 20% 40% 60% 80% 100%

% of respondents
Base: Respondents with current accounts, total 854
Source: TNS mrbi

12 ABOUT BANKING
Following the Code’s introduction in
February 2005, the numbers switching
rose rapidly in the first few months
- as shown in Figure 2. Some 17,000
accounts were switched under the Code
in the year, about 0.5% of the total 3.3m
personal current accounts.
Figure 2: Numbers Switching Each Month under the Code (1 Feb 2005 - 3 Feb 2006)
2500
2000
1500
1000
500
0 noted by 45% of switchers, while 23%
FEB MAR APR MAY JUN
Source: IBF
The rate of switching under the Code
is regarded as a good start both by the
Financial Regulator and the Competition
Authority as well as the Consumers’
Association of Ireland. It is estimated that
there is a much higher level of switching
outside the Code and this may account at
least in part for an overall 5% switching
rate reported in the TNS mrbi survey.
Developments in the first year
As the Code commenced operation, it
gained considerable national publicity.
Numbers of customers switching banks
were larger than had been anticipated.
While this was positive for the success
of the Code, it also intensified initial
teething problems. IBF was proactive
in following up issues and banks made
changes to improve the service, some
taking effect rapidly and others over time.
For example, it had been envisaged
initially that transfer forms would be sent
by post from the new bank to the old
bank and back again, but this proved
impractical and was replaced by courier
services. Decentralised systems operating
mainly at branch level around the country
were slow and insufficiently consistent to
handle switches effectively. Banks with
such systems centralised key functions.
They introduced controls to improve
visibility of operations at branch level.
All banks strengthened internal and inter-
bank co-ordination.
After two months the percentage of
switches completed late fell very rapidly.
By the end of the year the position had
improved further, thanks to a
JUL AUG SEP OCT NOV DEC 2005 JAN 2006
combination of factors as follows:
increased experience with the Code;
increased training of staff particularly
at branch level; better identification of
the best switching date for individual
customers; and acceptance from other
banks of minor debit balances on
incoming switches by the bank most
heavily engaged in switching.
Management of account switching
The clearing banks have dedicated
switching teams, together amounting to
some 50 staff. They have put resources
into IT development, marketing and staff
training, both centrally and in branches
to handle switches. Switching code
operations are subject to internal audit.
In several cases they have already been
reviewed for compliance and issues were
followed up.
Smaller banks also have arrangements
to handle the Code. Banks which do not
offer personal current accounts to new
customers are operating the Code to
switch out existing customers who decide
to bank elsewhere.
The Code was developed under the
auspices of IBF and the IBF Secretariat has
actively overseen its operation, including
independent review, collecting data
and holding regular review meetings
with member bank representatives.
The independent review function is
regarded as particularly important by the
Financial Regulator, as is recourse to an
independent referee where required. For
example, a bilateral dispute concerning
incorrect returns on win-back and
incorrect representations to customers
about another bank’s offer was dealt with
in this way.
Impact on competition
The TNS mrbi survey showed 5% of
respondents said they had switched their
current accounts to a different financial
institution during the previous twelve
months. The survey asked switchers to
provide the main reason for switching
their current account. Bank fees were
were unhappy with the level of service
from their existing bank and 7% felt
they would get better service from a new
bank. (It should be noted that, with 44
respondents, the sample size was small.)
See Figure 3 on page 14 for details.
Charges and service were two main
reasons also noted by banks interviewed
for this review, some of whom also
mentioned convenient location - a
customer moving job or home may move
to another bank with facilities more
convenient to the new address.
In response to the opposite question
- the main reason for not switching the
current account - it is notable that 61%
of respondents stated that they were
happy with service from the existing
supplier. Interestingly, just 3% gave ‘too
much hassle’ as the reason. See Figure 4
on page 15 for details.
As the Code was introduced, one
bank was running a major switcher
campaign emphasising a free offer on
current account fees, while another
bank had a long standing limited free
offer. Since then, another three leading
banks have introduced or announced
the introduction of free offers. One of
these three is currently running a major
campaign emphasising its free offer.
The increased competition between
banks on current account service costs
is welcomed by the Financial Regulator,
the Competition Authority and by the
ABOUT BANKING 13
The IBF Personal Account Switching Code: 12 Months On

Figure 3: Reasons for Switching (March 2006)

2%

Better deal on interest and/or fees

14%
Not happy with service from existing
bank/building society
2% Better services
2%
More convenient location

5% Changed mortgage or other product

45%
Loan or overdraft request declined

7% Other

No reason

Base: All respondents that switched in past 12 months,

44 respondents
23%
Source: TNS mrbi

Consumers’ Association representatives back problems - howsoever caused. Further developments

who were interviewed for this report.
Both regulators also noted that the
Code has had a broader impact. The
Financial Regulator noted that it is
helping to deal with the perception
among some consumers that they
could not easily change banks. The
Competition Authority noted that
marketing by banks which refers to
switching is useful in making Irish
people more aware of the possibilities
and potential benefits of switching
suppliers, whether for banking or
other services.
Queries and complaints
Banks record formal complaints -
although queries resolved in a phone
call are not included. However, not
all banks keep separate data for
complaints relating to switching. On
the basis of available bank data, it
appears that complaint levels are low
and most complaints relate to direct
debits not transferred on time, or to
late switching generally. Complaints
are generally made to the new bank,
which takes responsibility for tracking
All indicate a rapid clear-up rate. The
Financial Regulator stressed the need for
continued close monitoring to ensure
that late completions are minimised. It is
important that switching is trouble free
for customers. As indicated below, issues
raised will be subject to ongoing review.
Between April 2005 and March 2006,
some 22 complaints were made to the
Financial Services Ombudsman about
switching. Of these, 18 were referred
to the internal complaints procedures
of the banks - on the basis that the
Ombudsman does not handle complaints
unless the bank’s own internal complaints
procedures have first been exhausted.
Of the four complaints accepted by the
Ombudsman, one has been settled and
one not upheld, while the other two are
still under investigation.
The Consumers’ Association indicated
that most calls it received about
switching were seeking information.
Complaints tended to reflect
disappointment among consumers that
they were unable to switch right away.
The Financial Regulator wishes to see
timescales kept under review.
Shortening the timeframe it takes to
switch accounts has been reviewed.
While some thought it might be feasible
to shorten it slightly, the general view
among banks was that this would
increase late transfers. Given the
experience to date and the fact that
switching systems are partly manual,
this is likely to be the case. A slight
shortening is also unlikely to be valued
by consumers. Radically shortening
the process would require complete
automation. Electronic payments
infrastructure required to deliver Ireland’s
obligations to operate the Single
European Payments Area (SEPA) will be
a driving force in delivering increased
automation from 2008 onwards.
The Consumers’ Association stressed
the importance of increasing awareness
among consumers of the Code. While
the TNS mrbi survey shows that 27% of
current account holders did not know
whether it would be easy or difficult
to switch their current account, it also
showed that 22% have heard of the IBF
Code. This is a good result after a year
and provides a solid basis from which to
develop greater awareness.

14 ABOUT BANKING
Figure 4: Reasons for Not Switching Accounts (March 2006)
10%
5%
2%
3%
3%
5%
5%
6%
The review will now concentrate
attention on measures to improve
efficiency on direct debit transfers where
significant numbers have to be followed
up, and on eliminating late transfers.
These issues are important in terms of
trouble free switching and also in scaling
up to handle larger numbers as required.
The IBF Personal Account Switching
Code has had a successful first year and
is already making a visible contribution
in facilitating personal bank customers
and developing competition.
Etain Doyle was the country’s first
sectoral regulator for telecoms between
1997 and 2004. She is also Chairperson
of CRANN, the Nanotechnology Institute
based at Trinity College and a member
of the Executive Board of the Institute of
European Affairs.
Happy with service from existing bank/building society
Been with current provider a long time/Hold other accounts there
Concern about disruption from switching
Inertia
Too much hassle
No other convenient branches
61%
Banks and building societies basically all the same
Other
No reason
10% Base: Respondents that did not switch accounts, total 810
Source: TNS mrbi
Commitments under the Code
Under the Code, ACCBank, AIB Bank, Anglo Irish Bank, Bank of Ireland,
Bank of Scotland (Irl.), EBS Building Society, First Active, ICS Building Society,
IIB Bank, Irish Nationwide Building Society, National Irish Bank, Northern
Rock, permanent tsb and Ulster Bank have each committed to providing
the following:
Information on how to switch:
All banks offering personal current accounts prepared switching packs
and distributed them to branches setting out a step-by-step process to
switch accounts.
Co-ordinated operations within a fixed timescale:
All banks committed to opening new accounts, setting up payment
instructions and providing cards etc., to customers within 10 working days.
They also committed to closing old accounts, transferring balances, and
notifying the new bank and third parties such as utilities paid by direct
debit, within 7 working days.
Instead of dealing with both the new and old bank, the customer deals only
with the new bank, using the forms in the switching pack provided. The
two banks operate together to complete the transfer. [To obtain a refund of
Government Duty paid on unused old cheques and cards, customers must
themselves return these to their old bank.]
ABOUT BANKING 15
 Putting Research and Development at
the Heart of Financial Services
Annette Farrell, Head of Research and Development, Citigroup
It is widely held in financial services
that innovation today is the key to
future success. The establishment of
a dedicated R&D centre in Dublin’s
IFSC is a clear sign of Citigroup’s
commitment to that position, writes
Annette Farrell.
In many ways, the International Financial
Services Centre (IFSC) revolutionised
the financial services industry in
Ireland. Almost all of the major global
financial institutions have a presence
in Dublin today. As a consequence of
this, a knowledge and skills base for
the global banking industry is located
here. However, in common with
many other sectors, Ireland’s financial
services industry now faces increasing
competition from low-cost locations in
Europe and Asia.
How can the industry sustain its current,
strong position and, at the same time,
continue to grow? The answer lies
in the fact that, in order to expand
further, we need to look for alternative
opportunities. In other words, we need
to innovate and to move our people
up the value chain. Past experience
has enabled us to develop a wealth of
knowledge and skills upon which we can
now continue to build.
Research & Development centre
The majority of Citigroup’s 1,200
employees are employed in what’s
known as the Global Transaction Services
division. This business provides integrated
cash management, trade, fund and
securities services for corporations,
financial institutions, intermediaries
and governments around the world.
With the opening of the bank’s Dublin
Service Centre in 1996, a range of new
businesses, services and operations
were moved to the IFSC. In subsequent
years the group began to house global
16 ABOUT BANKING
products in Dublin. Citigroup was also
granted an Irish banking licence for
Citibank Ireland Financial Services plc
(CIFS) by the Financial Regulator.
An innovative idea, the creation of CIFS
reflected Citigroup Ireland’s ability to
attract and headquarter regional and
global products. While the financial
services industry differs somewhat
from the manufacturing sector, there
is a belief within senior management
circles in CIFS that we should adopt
a similar approach to innovation.
Continual product development, process
improvements and enhancements are
necessary within all aspects of the
business - not only to sustain existing
positions but to grow in this fast and
ever changing environment. The creation
of an R&D centre is a logical progression
of this thought process.
This culminated in the announcement in
July 2005 by the Minister for Enterprise,
Trade and Employment, Micheál
Martin, TD, of five new R&D projects
including the Citigroup project. Hence,
Ireland’s first dedicated and permanent
financial services research capability was
established in the IFSC with a Citigroup
investment of e10 million and the
support of IDA Ireland.
This R&D Centre of Excellence (as
it is known) is responsible for the
development from ‘concept to
commerce’ of products and services for
Citigroup businesses located in Europe,
the Middle East and Africa. Research
projects will initially focus on the Global
Transaction Services business, developing
innovative solutions for the investment
management industry. A team of eight
multi-disciplinary researchers with
specific skills in financial innovation work
in the Centre. These are supported by
internal subject matter experts.

The Centre performs R&D work within
the funds services area - developing
funds and pooling products - and in the
consumer arena. It continues to identify
and investigate R&D opportunities in
all aspects of its business both from a
regional and global point of view.
Aidan Brady, Country Corporate Officer
for Citigroup in Ireland is particularly
upbeat about this latest initiative:
“The staff of Citigroup Ireland have
demonstrated a strong ability to manage
complex global banking and transaction
services. A number of cross border
products are today fully managed out
of Ireland with a global footprint into
108 countries. We are excited by this
initiative and proud to take an innovative
lead in the financial services industry in
Ireland. This is a significant addition to
our Irish operations and firmly places
Ireland as one of the most successful
Citigroup locations worldwide.”
The challenges
R&D is not a concept that has been
synonymous with the financial services
industry. When one thinks of research in
this context, equity and market research
is what springs to mind.
However, true financial services R&D
involves unearthing knowledge about
products, processes and services
and applying this knowledge to fill
needs within the organisation itself
or within the marketplace. Identifying
R&D opportunities within financial
services companies does not just
mean performing R&D on product
development, but can also involve
looking at opportunities within
the support processes and
infrastructure services.
To fully and successfully embed R&D
in its structure and processes, an
organisation - financial or otherwise
- requires a paradigm shift in its culture
and thinking. Establishing a culture of
innovation throughout the company
is a prerequisite to ensuring that this
shift is successful. Senior management
support is also essential. Moving ideas
from the concept stage into the R&D
phase requires a level of investment.
Additionally, there is the inherent risk of
failure: traditionally innovation efforts
have a very low hit rate; while there
will be many ideas and concepts, only a
limited number of them will ultimately
be successful.
The benefits
While recognising the many challenges
involved in setting up and running an
R&D Centre, the benefit ultimately lies
in developing new products, processes
or services. R&D projects can also
create innovations that lead to benefits
in the form of increased revenue,
new or expanding markets, increased
productivity, improved controls and
reduced costs.
In addition, companies will be able to
move their employees up the value
chain. R&D exposes people to new
challenges and experiences. Established
R&D centres have the added benefit
At the joint Citigroup Ireland/Irish
Bankers Federation presentation on
R&D in financial services (L to R):
Aidan Brady, Country Corporate
Officer, Citigroup in Ireland;
Deirdre Lyons, Head of International
Financial Services, IDA Ireland;
Enda Twomey, Deputy Chief Executive,
Irish Bankers Federation
of a library of knowledge that can be
referred to for future projects.
The establishment of the Citigroup R&D
Centre of Excellence has provided an
impetus for other financial institutions
here to follow suit. A recent Citigroup
Ireland/Irish Bankers Federation joint
presentation on R&D in the financial
services sector to senior management
from a range of other financial
institutions generated a lively discussion
with a lot of interest in the initiative
and much feedback. The involvement
of other financial institutions in R&D
work will lead to the development of an
innovative and creative culture within
the industry as a whole.
Positive impact on Ireland Inc
The creation of an R&D culture will
help to make Ireland competitive
in the global market as a world
leader in innovative products for
the financial service industry. In the
Deloitte report, Study on the Future
of the International Financial Services
Sector in Ireland, one of the key
recommendations was that Ireland
should strive towards “being a world
class location for managing complex
global/regional banking products”.
Development of products for the
global and regional markets through
R&D will contribute towards the
successful implementation of this
recommendation. It will also further
cement the external view of Ireland as a
knowledge-based economy within the
financial services sector.
ABOUT BANKING 17
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A New Regime to Counter
Money Laundering
Eimer O’Rourke, Head of Member Services Retail, Irish Bankers Federation
The way in which
the new Anti-Money
Laundering Directive is
implemented will have
an important bearing
on the relationship
between a financial
institution and its
customers, writes
Eimer O’Rourke.
Legislation implementing anti-money
laundering provisions first came into
effect here in April 1995 by way
of the Criminal Justice Act (1994).
For banks and their customers this
represented a paradigm change
in the way business relationships
were established in that it placed
on a statutory footing the need for
institutions to verify the identity of
their customers. When undertaking
certain business, including opening
an account, customers are required
to produce documentation such
as passports and driving licences
- or in cases where these cannot
be provided - alternative forms of
identification (ID).
Subsequent revisions and refinements
have built up a comprehensive legislative
regime reflecting best practice in the
area. At the same time, the scope of
responsibilities has been extended to
cover a wider range of entities such as
solicitors, accountants and tax advisers.
We are once more entering an era of
change in respect of the anti-money
laundering regime. The Financial Action
Task Force (FATF), the international
body charged with overseeing this
area, reviewed and revised its forty
recommendations in 2003 and
introduced nine new recommendations
in relation to terrorist financing. All of
these were addressed in a cohesive
fashion by the European Commission
in the drafting of the Third Anti-Money
Laundering Directive as published in
November 2005. Member States are
now required to introduce national laws
to implement the provisions of this new
Directive by 15 December 2007.
The risk-based approach
As can be expected of any new
comprehensive measure to counter
money laundering, there is considerable
detail in the make-up of this new
Directive and much of this has the
potential to impact significantly on the
bank-customer relationship. Some of the
key elements that need to be carefully
considered as the Directive is transposed
into national law are discussed here.
The Directive explicitly introduces the
concept of the risk-based approach by
acknowledging that the risk of money
laundering and terrorist financing is
not the same in every case. Therefore,
a simplified process of customer due
diligence may apply in some cases while
more enhanced customer due diligence
may be required in others.
However, the conditions set out by
the Commission for coming within the
“simplified customer due diligence”
provisions set the bar very high
indeed. As a consequence, very few
entities -whether business or personal
customers - will in practice fall within this
definition and it may not be practical for
institutions to treat them any differently
from customers perceived to present a
ABOUT BANKING 19
A New Regime to Counter Money Laundering
“An early understanding of what is meant by a risk-based approach
in the Irish context is essential to developing a sound legislative
text. IBF proposes to closely examine this concept with the Financial
Regulator in order to develop the required clarity.”
higher risk. In any case, the very process
of confirming that an entity meets all
of the specified requirements will in
many instances go a long way towards
conforming with the standard process of
customer due diligence.
In the circumstances, considerable
concern exists within the banking
sector that the conservative approach
as outlined by the Commission may
set parameters which would ultimately
preclude institutions from determining
(in accordance with article 8(2)) that
certain customers or products represent
a low risk of money laundering. Banks,
other financial institutions and other
third parties covered by the Directive
could well find themselves with little
opportunity for flexibility going forward.
An early understanding of what is meant
by a risk-based approach in the Irish
context is essential to developing a sound
legislative text. Irish Bankers Federation
(IBF) proposes to closely examine this
concept with the Financial Regulator in
order to develop the required clarity.
Standard forms of ID
Ireland and the UK are unique among
EU Member States in not having national
identity cards. This presents very specific
challenges against the backdrop of
the increasing onus which is placed on
institutions to ensure that they know
their customers. In the absence of
national ID cards, the existing guidance
notes for implementation of the current
legislation recognise the passport and
driving licence as the pre-eminent forms
of personal identification.
However, it is also acknowledged that,
whilst most people have a driving
licence or passport, not everyone does.
A range of other options are available
20 ABOUT BANKING
to credit institutions for the purpose of
identifying people who do not possess
these documents and institutions are
free to decide which of these options are
most acceptable to them. This situation
does not lend itself to consistency and
has given rise to some confusion. Going
forward, more work will need to be done
to find practical solutions which address
the needs of those who do not possess
the standard documentation whilst
meeting the fairly stringent legislative
requirements placed on credit institutions.
Beneficial ownership
While it imposed an obligation to
establish the identification of one’s
customer, the first Anti-Money
Laundering Directive of 1991 - on
which our original legislation was based
- contained relatively little detail on the
relevant procedures that should apply.
In view of the crucial importance of
this aspect of the prevention of money
laundering and terrorist financing, the
EU has seen fit, in accordance with the
new international standards, to introduce
more specific and detailed provisions.
These relate to the identification of the
customer and of any beneficial owner
and the verification of that identity.
To this end, a precise definition of
”beneficial owner” is included.
Significant as this development is, it
will present its own challenges when
institutions are dealing with complex
ownership structures in legal entities.
Guidance will be needed as to the extent
of inquiry that an institution must make
in order to understand the beneficial
ownership of funds - both at the outset
of a relationship and thereafter in the
context of a risk-based approach.
Guidance will also be required from the
Financial Regulator as to the appropriate
methodology for recording beneficial
ownership. Given the diverging and
complex nature of legal structures, the
potential solutions to this issue can
have direct and significant impacts on
institutions’ systems.
Politically-exposed persons
In the context of the risk-based approach,
the Directive recognises that certain
situations present a heightened risk of
money laundering or terrorist financing.
Although the identity and business profile
of all customers should be established,
there are cases where particularly
rigorous customer identification and
verification procedures and ongoing
monitoring are required. This is especially
true of business relationships with
individuals holding, or having held,
important public positions. The Directive
requires that special attention should
be paid to such cases: the complete
set of normal customer due diligence
measures are to be applied in respect of
domestic, politically-exposed persons;
and enhanced customer due diligence
measures in respect of politically-exposed
persons residing in another Member State
or outside of the EU.
This aspect is the subject of considerable
focus in the two working papers on
implementing measures published by
the Commission. A potentially very wide
group of people would fall within the
description ‘politically-exposed’, including
the spouse, parents, children and in-
laws of the politically-exposed person.
The section, “Who is considered to be
politically exposed?” on page 21 provides
further details.
The banking industry remains concerned
that theoretical consideration of what
a ‘politically-exposed person’ is will
proceed without any consideration
as to how these provisions might be
applied in practice. It is essential that
both consideration of the provisions
themselves and of how they are to be
implemented should go hand in hand.
The probable alternatives as to
application in practice are a top down
approach, whereby names would be
checked against a centralised list; or
a bottom up approach such as self-
certification, whereby customers would
be asked to declare any interests they
might have in this regard. The bottom
up approach would more than likely lead
to a high level of potentially intrusive
questioning to prospective customers and
would still ultimately rely on their honesty
in disclosing their status.
The production by the Commission
of comprehensive lists of ‘politically-
exposed persons’ will be necessary if
these provisions are to be successfully
implemented by credit institutions
- not to mention the whole range of
individuals and small businesses on
whom these obligations will fall.
While IBF has requested the production
of such lists at EU level, there appears to
be little appetite within the Commission
to assume this responsibility.
Transposition and implementation
The industry’s objective is to have the
Directive transposed into national
legislation and to have all attending
guidance finalised by early 2007 with a
commencement date before the end of
2007. To most effectively facilitate this,
IBF would favour the repeal of existing
legislation and the drafting of a new
piece of legislation consolidating all
relevant previous requirements, which
have been spread over a range of
primary and secondary legislation.
The transposition process needs to get
underway now. The potential impact
of a change to a risk-based approach
- together with the incorporation of
the new concepts as introduced in the
Directive - will have direct effects on
business processes. In order to plan for
training, operational design and systems
changes, certainty as to how the new
provisions are to be applied here is
needed as soon as possible.
Early and constructive engagement with Who is considered to be
the relevant stakeholders is essential for politically exposed?
the financial sector. Compliance with The Commission working paper
the anti-money laundering regime is one proposes that the following would be
of the single greatest compliance cost considered to be politically-exposed
segments for the sector in Ireland today. persons for the purpose of the
Directive. Natural persons who are or
“Financial institutions have been entrusted with prominent
public functions shall at least include:
share the authorities’ (a) Heads of State, heads of
view that prevention government, ministers, deputy or
assistant ministers;
of money laundering (b) Members of legislative bodies;
is a priority issue (c) Members of high-level judicial
bodies and high-ranking public
and they take their prosecutors;
responsibilities in this (d) Members of the boards of the
bodies or authorities which
regard very seriously monitor or control compliance
and operate to the with legal obligations by other
public bodies or regulated entities
highest standards. and which enjoy a certain degree
In order to facilitate of independence or autonomy,
such as courts of auditors, central
this commitment, banks and similar institutions;
early and constructive (e) High-ranking diplomats, high-
ranking officers in the armed
engagement by forces, high-ranking officers
the sector with the in the police and other high-
ranking officials exercising
relevant stakeholders public functions within the
is essential. This needs administrative structure of these
bodies referred to in points (a) to
to be followed by a (d) or of other bodies or organs
formal consultation of public nature, provided that
the public functions of these
process with the high-ranking officials allow them
industry prior to to control or otherwise exercise
dominant influence in the
finalising the national decision-making process or in the
legislation and major public expenditure of these
bodies or organs;
guidance notes.” (f) Persons able to discharge
managerial responsibilities within
A decision is also required at an early
State-owned enterprises charged
stage as to whether the existing
with the exploitation of natural
relationship between the legislation and
resources, or which obtain
the guidance notes is to be continued.
monopoly revenues, or whose
If it is to broadly continue, the balance
profits or other type of economic
and extent of detail to appear as
compensation paid to the State
between primary legislation, secondary
constitute a material part of the
legislation or guidance note material
State revenue;
will need to be carefully determined.
(g) Any other person that, although
not falling under any of the above
categories, is known to exercise
similar powers or influence in the
public domain.
ABOUT BANKING 21
CP14: More Than a Number in Any Bank’s Book
Anthony Walsh, Chief Executive, The Institute of Bankers in Ireland
New competency requirements in financial retailing strike a fair balance between the
interests of product providers and consumers, says Anthony Walsh.
From 1 January 2007 new minimum competency
requirements will apply to individuals who, on a
professional basis, provide advice to consumers on
retail financial products or undertake one of four
specified activities.
The Financial Regulator has sought responses to a small number
of specific questions that are outstanding - hence the title, Limited
Consultation on Proposed Minimum Competency Requirements,
or CP14 as it’s generally known. However, the fundamental
structure of the requirements proposed is not likely to change.
Impact on banks and their customers
There is no doubt that CP14 has significant implications for
banks, financial institutions and their employees and will
require focused preparation to ensure compliance. However,
informed by extensive consultations with the industry and
professional education bodies, the Financial Regulator has set
out an effective minimum competencies regime that strikes a
fair balance between the interests of providers and consumers
of retail financial products.
As a result of the work of the professional bodies such
as the Institute of Bankers in Ireland, the Life Insurance
Association Ireland and the Insurance Institute of Ireland, all
the qualifications on which the new regime is based already
exist. Arising from the banks’ long-standing investment in the
education and training of their staff, thousands of bankers
already hold the qualifications which satisfy the minimum
competency requirements.
For example, over 3,500 bankers hold the designation
Qualified Financial Adviser, thereby satisfying the competency
requirements for virtually all retail products. This means that
banks and their staff are, in general, well prepared for the
new regime. In addition, the four-year transition period,
the arrangements for new entrants and the provision for
‘grandfathering’ of very experienced advisers will ease the
initial implementation burden considerably.
ABOUT BANKING 23
CP14: More Than a Number in Any Bank’s Book

Overview of new requirements “Nothing is more important to the

CP14 divides retail financial products into six categories, sets
out details of specific competency requirements for each and future of the sector then ensuring that
lists the qualifications which meet these requirements. These customers continue to receive excellent
are outlined below.
advice from their financial institutions.”
Category of Recognised Qualification(s)
Retail Financial Product The consultation paper also sets out the transitional
arrangements for individuals engaged in a relevant activity on
Savings, Investment and - Qualified Financial Adviser (QFA)
Pension Products (Institute of Bankers, Life 1 January 2007, who do not at that date hold a recognised
Insurance Association and qualification and who cannot benefit from the ‘grandfathering’
Insurance Institute) arrangements, and also the position of new entrants after
1 January 2007. These arrangements may be summarised
Housing Loans and - QFA
as follows:
Associated Insurances - The Specialist Certificate in
Mortgage Practice (ROI)
(Institute of Bankers)
- Mortgage Diploma Individuals who Individuals who Individuals who
(Life Insurance Association) commenced an commenced an commence an
activity on or activity between activity on or after
Consumer Credit and - QFA before 1 2 September 2000 1 January 2007
Associated Insurances - Certificate in Consumer Credit September 2000 and 31 December
(Institute of Bankers) 2006

Quoted Bonds and Shares - QFA Grandfathered 4 years to obtain 4 years to obtain a
- Registered Representative a recognised recognised
(Irish Stock Exchange) qualification qualification;
and
Life Assurance - QFA must complete a
Protection Products relevant training
course or part of a
General Insurance Policies - Associate or Fellow of the recognised
Chartered Insurance Institute qualification;
- Certified Insurance Practitioner and
(Insurance Institute, Irish Brokers must be supervised
Association) by another
accredited
(i.e., qualified or
grandfathered)
The four specified activities also covered by the minimum individual.
competency requirements are as follows:
• Assisting in the administration or performance of insurance
claims; A requirement for continuing professional development is
• Reinsurance mediation; also set out in the consultation paper. Both qualified and
• Direct management of those providing advice to consumers ‘grandfathered’ individuals will be required to complete a
about retail financial products or who arrange or offer to number of hours of professional development each year.
arrange retail financial products for consumers; and
• Adjudicating on any complaint by a consumer which relates Conclusion
to advice about a retail financial product or the arranging of This new competency regime should be fully embraced at all
a retail financial product. levels within the banking and wider financial services industry.
Nothing is more important to the future of the sector then
Compliance with the minimum competency requirements can ensuring that customers continue to receive excellent advice
be fulfilled only by attainment of a specified qualification, from their financial institutions. The proposals in CP14 provide
other than in the case of those who are ‘grandfathered’. To be an excellent framework to achieve this.
‘grandfathered’, an individual must have commenced carrying
on the relevant activity on or before 1 September 2000 and
must have continued to carry on the same activity in the period
up to 1 January 2007. However, it should be noted that the
precise time periods that define ‘grandfathering’ are one of the
areas on which the Financial Regulator has consulted further
with Irish Bankers Federation and others.

24 ABOUT BANKING