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BoIMB fined E120k for rule breaches

Thursday, October 04 12:28:25

Bank of Ireland Mortgage Bank has been fined E120,000 and reprimanded by the Central Bank for breaches of the Asset Covered Securities (ACS) Act.

The financial sector watchdog found that between 4 April 2011 and 20 December 2011 it held credit transaction assets in excess of the 10pc cap on the holding of such assets set out in Section 31(3) of the ACS Act.

It also found that it failed to have in place adequate internal controls to enable it to identify or ensure compliance with the limit on credit transaction assets.

Asset Covered Securities are securities, usually bonds, are backed by a defined pool of assets, in this case mortgages. The purchaser of Asset Covered Securities knows that a pool of assets is protecting their investment. Although the assets in the Pool can change, the value of the assets cannot drop below a required level. And this is where the Central Bank discovered the breaches by Bank of Ireland Mortgage Bank.

The ACS Act also includes requirements relating to other assets that are held outside the pool.

One such class of assets is credit transaction assets, which come from credit transactions.

The ACS Act gives firms a limited ability to engage in other activities besides issuing Asset Covered Securities. Issuers of Asset Covered Securities can therefore engage in other credit transactions. To ensure that a firm's ability to engage in other activities remains limited, the ACS Act places a cap on the proportion of credit transaction assets which can be held by a firm, outside the pool, at 10pc of the total value of the firm's assets.

The Central Bank explained that the breach by the firm of the 10pc cap set out in Section 31(3) arose as a result of the downgrading of Bank of Ireland's long term credit rating in April 2011.

Its credit transaction assets consisted of deposits in Bank of Ireland. This downgrade in Bank of Ireland's rating led to certain deposits held by the firm in Bank of Ireland being reclassified as credit transaction assets.

The result of this was that the percentage of credit transaction assets held by the firm (being assets held outside the Pool) exceeded the 10pc cap set out in Section 31(3). This breach of the legislation continued from 4 April 2011 to 20 December 2011.