Tuesday 16 January 2018

Shane Ross: RSA scandal puts our financial sector in spotlight again

Latest debacle harms our attempts to build a reputation as a country that is fit for purpose, writes Shane Ross

Philip Smith has resigned dramatically
Philip Smith has resigned dramatically

'The great and the good adorn the Irish board of RSA. But it now seems another plum directorship turned out to be a poisoned chalice...'

THE three Irish non-executive Irish directors of Royal Sun Alliance (RSA) will be scratching their heads this morning.

How did the shock €84m gap in the company's balance sheet happen on their watch? The great and the good adorn the Irish board: Leo Blennerhassett, formerly managing director of consultants Accenture; Fergus Clancy, currently chief executive officer of the Mater Private Hospital; and Roy Keenan, one-time banker and president of the Irish Insurance Federation, will be having an unpleasant weekend.

Another plum directorship has turned out to be a poisoned chalice.

The trio are almost certainly blameless, but it will be an unwelcome experience for them to witness the arrival of a UK squad of executives swooping on the global giant's Dundrum headquarters and swarming all over the books of RSA's Irish division.

It was a bad couple of weeks for RSA, but a worse one for Ireland, for the innocent 1,000-strong staff and for consumers of RSA's products.

News of the big hole in the company's finances came hot on the heels of another revelation – just a few days earlier – that claims against RSA for "bodily injuries" in Ireland were rocketing.

RSA in Ireland took a double whammy in a single week. On Friday, the parent was forced to write a cheque for €100m to prop up the Irish reserves. Back in London there must be mutterings about its troublesome Irish operation. Its multiple failures were hitting the profits of the global group. Something was badly wrong in Dublin.

The message for us in Ireland is dangerous. Yet another global financial group will undoubtedly be reviewing its role here.

RSA's latest misfortune follows multiple business withdrawals from this country, including Bank of Scotland (Ireland), Danske and ACC.

RSA's situation is not dissimilar to Ulster Bank's. Both have a rich parent overseas. Both have taken big losses here recently. Both have needed injections from their UK owner (RBS in Ulster's case). Both are protesting their commitment to Ireland despite the disasters of recent months.

Neither is convincing in its protestations. All overseas investors pledge their loyalty to the country of their operations until the day they decide to reduce in scale, or worse still, to leave.

The cumulative effect of such a string of accidents in Ireland is damaging to our reputation abroad at a time when the Taoiseach and others are making superhuman efforts to convince the world that, in Enda Kenny's own words, Ireland is "the best small country in the world to do business".

If we continue to score own goals we will become a graveyard for foreign investors in the financial sector and a no-go area for future prospects.

Yesterday, the RSA in London ominously admitted to me that the effect of the double hit in Ireland was material to the entire global group's finances.

RSA was already in difficulties last week when its shares dropped 6.2 per cent following a profit warning and a slashed dividend.

The warning wiped €340m off the value of the stock. The company is now nervous about how the shares will open in London tomorrow following the news release on the €84m Irish hole after the market closed on Friday.

If they tumble further, then the Irish operation will come under more unwelcome scrutiny.

How did it happen?

We do not yet know any details, but according to the company, the €84m hole was discovered by a "routine internal audit". It informed the Central Bank immediately. A thorough investigation is now said to be taking place.

Yesterday a spokesman initially told me that the losses were all relatively recent, later correcting himself to say that they had little idea how long the offending activities had been going on. There appears to be an element of confusion and buckets of spinning.

Although the parent should be commended for its quick response in suspending the top brass (CEO Philip Smith, chief financial officer Rory O'Connor, claims director Peter Burke), this is yet another in a long list of scandals in the Irish insurance industry. It follows hot on the heels of the scandal in the Quinn Insurance Group.

Did we never learn from the other disastrous episodes, such as in PMPA and the AIB-owned Insurance Corporation of Ireland, both of which had to be rescued by the State after collapsing?

Questions must be asked about the role of the Regulator. Why does he have to wait for the "routine internal audit" before he becomes involved? What ever happened to the much-vaunted, old-fashioned "dawn raid"?

Most important of all, considering our dismal history, how many other supposedly blue-chip insurance companies are not performing?

We badly need companies like RSA. They took a big bet on Ireland when they bought 123.ie for €60m and expanded fast. They employ 1,000 people here. They are believed to have close to a million customers.

Those customers, along with the hard-working staff are now in the front line. Do not believe the company if it says that premiums will not go up. Their motor premiums have already risen by 13 per cent in a year, despite falls in the premiums of their competitors.

When the offices open tomorrow morning, their British bosses will already be devising devious methods of recovering the losses from Irish customers.

There is a sense of deja vu here. Will the investigators ask the hard questions of the auditors KPMG?

If there is another failure of regulation will the Central Bank point the finger at itself?

Will the non-executive directors and the head of the audit committee be questioned?

More pertinently, we must ask how we have not staunched the constant flow of scandals year after year that break out in Ireland's financial industry?

As the news of RSA's setback in Dublin travels around the world, others contemplating coming to Ireland will hesitate. They will ask: is Ireland still cowboy country for regulation?

Despite the company's insistence that it is committed to Ireland, the 1,000-strong workforce must be understandably nervous.

Once again, a large number of those with jobs in the financial services industry have seen their futures put in jeopardy.

Shane Ross is an Independent TD for Dublin South

Sunday Independent

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