ON 1 MARCH this year the Central Bank fined Davy Stockbrokers €4.13 million for breaking market rules in a transaction that involved several of its top brass pursuing their own self-interest for financial gain.
The scandal led to the resignation of three senior executives, the severing of links with the National Treasury Management Agency (NTMA) and serious reputational damage to Davy itself.
Less than five months later, five of the executives involved in the transaction are set to reap €180 million from the sale of Davy to Bank of Ireland, announced just this week.
If those involved can be congratulated for anything, it is turning a crisis into an opportunity.
Within a five-month timeframe, the system has sent a strong signal to those in high finance – that if you break the rules, you can still come out on top, with individual accountability a concept so remote that you need not worry about it.
Four days following the fine, I wrote that the Davy scandal can’t just pass without
consequences for the top brass who think they can break the rules.
And while some of the consequences I called for, such as the NTMA cutting ties with Davy, came to pass, others were less expected.
Few would have thought that the financial consequence of this scandal would be a sale that will enrich those involved by as much as €180 million.
What does this tell us about accountability within the financial sector? Or about the seriousness of this Government to tackle the misbehaviour and malpractice at its core?
The answers to these questions are not encouraging. What is worse, we have been asking
the same questions for over a decade now.
From scandal to reward
This week, Bank of Ireland – in which the State is the largest shareholder – acquired Davy’s main business for €440 million.
This followed a bruising five months for the leading stockbroking firm in the State.
On 1 March a multimillion-euro fine was handed down to it by the Central Bank for a transaction that began in 2014 involving a group of its employees including some of its senior executives.
The transaction took place between a developer who wanted to sell corporate bonds he had bought from Anglo Irish Bank some years before.
He then went to Davy and paid them for their services, with the expectation that the bonds would be sold for a profit.
Seeing an opportunity, 16 Davy employees formed a private consortium and bought the bonds from the client who now believes he would have got a higher price on the open market.
Not once was the client told that the buyer of the bonds was a consortium made of employees of the very firm that he had paid to advise him on the sale.
To assess if a conflict of interest would emerge with such activities, a committee at the stockbrokers concluded that all was well and that no conflict of interest existed.
In meting out a €4.13 million fine, the Central Bank found that those involved acted “recklessly”, “prioritising financial gain over ensuring it was complying with its regulatory obligations”.
The regulator said that when it contacted Davy, it provided “vague and misleading details”.
It was a damning finding and a scandal quickly ensued, with three of its senior executives resigning, including its CEO; all of whom had been involved in the private consortium and the transaction.
On the same day the NTMA, which manages the State’s assets and liabilities on behalf of the taxpayer, cut all ties.
The reputational damage suffered by Davy was enormous. But there was little in terms of individual accountability.
Following the scandal, the Taoiseach told the Dáil that a fine would “change behaviour” – a sign that over a decade after the financial crash, some still don’t get the imperative of tools that can hold individuals accountable for malpractice and harmful behaviour.
Corporate fines do not hold individuals to account.
The announcement that Bank of Ireland will buy Davy’s main business for €440 million will see five former chief executives who were part of the Davy 16 reaping a windfall of €180 million from the sale.
Five months on from the Central Bank’s corporate fine of €4.1 million, some of the individuals responsible will be rewarded handsomely from a sale that was precipitated by the scandal.
Talk about turning crisis into opportunity – they can’t lose.
Where is the accountability?
A culture of impunity facilitated by Government
More than three years ago the Central Bank called for a Senior Executive Accountability Regime, underpinned by law, so that the top brass in the financial sector would face consequences when they broke the rules.
More than three years on, even after this scandal, the legislation is nowhere to be seen, with the Minister for Finance yet again missing his own deadline of publishing the legislation before the Dáil broke for summer recess.
It speaks volumes that five months on from the Central Bank fining Davy for regulatory breaches, the legislation to underpin individual accountability in the financial sector is nowhere to be seen while those responsible will sail off into the sunset with riches from a sale that was precipitated by their actions and malpractice.
The Davy scandal revealed that a decade after the financial crash, the rot at the heart of high finance remained.
The message from this Government is clear – carry on.
This is not acceptable and is no longer sustainable.
The legislation to underpin the Senior Executive Accountability Regime must be published without delay, with as wide a remit as possible. The Minister for Finance has been sitting on this vital legislation for too long.
The events of the past week serve only to embarrass him and this Government.
While those who always find a way to come out on top despite their actions may be laughing, the public is not.
Pearse Doherty is a Donegal TD and Sinn Féin spokesperson on Finance.
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