THE new Financial Regulator has outlined his shock at the poor level of financial regulation he discovered when he started his job in January.
Matthew Elderfield, previously the regulator in Bermuda, told the Oireachtas Committee on Economic and Regulatory Affairs that the system was "poorly resourced'' and lacked sufficient powers.
He said a new culture of "enforcement'' needed to begin almost from scratch. "We will need to grow an enforcement capability from what is now a very small base -- pretty much from scratch," he said.
And he warned: "This will take some time." He said just two individuals were regulating two of the largest banks before the financial crisis erupted.
Mr Elderfield also revealed that rules governing whether bank executives are "fit and proper" to serve are not even on a statutory footing.
He also said the office of the Financial Regulator currently does not have a "proper enforcement team" and called for an investigative team who can take on issues from the ordinary staff and delve deeper.
Mr Elderfield said the kind of resources Ireland devoted to financial regulation were "miles off" international standards and revealed he is seeking to recruit another 150 staff this year, with a few more hundred after that.
"Our resources are far below what is required to supervise the number of firms within our responsibility," he said.
And he warned the major banks could expect "a more intrusive approach" than smaller entities.
He said previous regulators in Ireland, and many others around the world, had been too trusting of the market expecting problems to correct themselves.
Previous regulators were "cowed" by the markets. "It is clear to me we need to undertake a fundamental overhaul of the regulatory model for financial services in Ireland,'' he told the Dail committee. He said a new system was needed, based on a "credible threat of enforcement". The Regulator said Ireland went too far with "principals-based" regulation and now needed a risk-based approach.
If bank executives disagree with The Regulator's approach, Elderfield said a different response would be needed.
"Where the stakes are high because of the size of the firm, we need to be prepared to insist on a course of action," he told the members.
In previous years, Ireland's banks suffered from several "over-dominant chief executives", but Mr Elderfield declined to name the institutions.
Several members of the committee complimented Mr Elderfield on his frank comments. Sean Sherlock TD said he was surprised The Regulator had not arrived into the meeting with a Stetson hat after he recently acquired the label 'sheriff' from the media.
Mr Elderfield did not comment on these descriptions, but agreed with members that most of the problems here were "home grown'' rather than international.
The Regulator said he could not comment on whether prison sentences might result from investigation into financial irregularities at Anglo Irish Bank, saying he did not want to "queer the pitch"' by taking action ahead of the garda probe.
"It's best if we hang back on those investigations and let the guards have the first shot," he added.