THE CENTRAL BANK of Ireland has issued a fine of €1.4 million to KBC Bank Ireland for loans issued to “related parties”.
A related party transaction refers to an arrangement or deal between two parties who are joined by a special relationship.
This enforcement is the first of its kind for the Central Bank after it introduced the “Code”, which refers to a series of measures on lending to related parties implemented following the financial crisis of 2008.
Under the Code, relevant firms must obtain the prior approval of their board or a relevant subcommittee before they can enter into, or vary loan transactions with related and/or connected parties. These parties can include directors, senior managers, significant shareholders of the firm, spouses or inter-party groups or entities.
Between September 2012 and February 2016, the Central Bank identified 18 separate occasions that KBC failed to implement adequate policies and processes, which are adhered to, to identify loans to related parties.
The bank also failed to obtain prior approval of its related party lending committee before granting a loan to a related party, as well as extending the maturity on 12 separate occasions in respect to five existing loans.
The Central Bank had raised concerns with KBC in June 2013 regarding its compliance with these issues. In May and June of 2014, KBC notified the Central Bank of three potential breaches of the code.
However, upon the commencement of an investigation in February 2015, the Central Bank identified another 15 instances of non-compliance in relation to existing loans that potentially breached the code.
While KBC was said to have been in breach of the code, it is understood there was no suggestion that more favourable terms were attached to loans as a result of these breaches.
Derville Rowland, director of enforcement at the Central Bank, says: “This Code represents an important component of the Central Bank’s response to failings associated with related party lending and was introduced to seek to prevent abuses and address possible conflict of interests in this area.
“Such repeated breaches of the Code, in spite of on-going Central Bank intervention and engagement with [KBC], is unacceptable and demonstrates a failure on the part of [KBC] to have in place and adhere to the necessary policies and processes to ensure effective compliance with the Code; this is reflected in the level of the fine and the reprimand issued today and accepted by [KBC].”
The Central Bank indicates that KBC has admitted the breaches in this case.
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