Elderfield slams State over failure to act on Custom House Capital
Letter says advice over 'Ponzi scheme' was ignored
Published 20/10/2013 | 05:00
Former Financial Regulator Matthew Elderfield severely criticised the Government for failing to extend powers to his office to prevent a repeat of the Custom House Capital scandal, as he exited his role.
In a letter to the Public Accounts Committee (PAC) before his departure, obtained by the Sunday Independent, Mr Elderfield lashed the Government's failure to act on a "central recommendation of our report" into the notorious affair.
In 2011, it emerged that solicitors, accountants, doctors and business people were among 1,500 investors who lost €56m in what High Court judge Gerard Hogan branded an "Irish Ponzi scheme".
The highly critical letter, sent by Elderfield before he stood down as Regulator, said that the decision to change the ownership of Custom House was because of an "absence of power to appoint administrators" in existing legislation.
"The only alternative course of action would have been to liquidate the company and crystallise significant losses for investors," Mr Elderfield wrote.
Mr Elderfield, who was appointed in October 2009 to restore public confidence in the role of Financial Regulator, then went on to severely lash the Government's failure to act on his strong recommendation.
"I would note that the power to appoint administrators for investment firms was a central recommendation of our report but was not included in the Central Bank Supervision and Enforcement Bill. We believe that this is a remaining weakness in the legislative framework," he added.
The contents of the letter have drawn a strong response from PAC Chairman John McGuinness, who said the Government's failure to listen to Mr Elderfield is incredibly dangerous.
He told the Sunday Independent: "It is clear that reports from Elderfield and others are not being heeded by Government. By ignoring him, we are allowing ourselves to sleepwalk into another crisis."
"When he was before the committee, Mr Elderfield certainly looked like he had a story to tell. He felt he was not being listened to. The departments of Justice, Finance and of the Taoiseach all now need to respond to this and explain why they have failed to implement his recommendations," Mr Deasy said.
In his letter, Mr Elderfield also confirmed that the Central Bank spent €60,203 on a KPMG report into the Custom House scandal but admitted it was flawed.
"The KPMG report relied upon a letter from CHC confirming that all equity monies received had been accounted for in the firm's books and records. This confirmation, with hindsight, unjustified comfort to the Central Bank regarding the safety of client funds," the letter added.
Separately, Mr Elderfield told the committee that an internal investigation had taken place within the Central Bank following the raising of concerns by an employee over the accuracy of the bank stress tests in July 2011.
He said that in response to those concerns, senior managers at the Central Bank commissioned an internal investigation by its Audit Department.
That investigation concluded that despite differences in the Irish stress tests to other European stress tests, carried out by the European Banking Authority (EBA), "there is no reason for concern with the figures provided to the EBA".