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Bank of Montreal Ireland fined E650k

Thursday, May 29 14:17:53

The Central Bank today said it has reprimanded the Bank of Montreal Ireland and fined it E650,000 for breaches of capital adequacy regulations.

The regulator said that the bank took account of three breaches of the rules between March 2008 and March 2013.

The watchdog said the first of these was the 2006 Regulations, which set limits on the level of financial exposure which a firm can have to any person or entity in order to contain the level of loss which a firm may incur in the event that the other party experiences financial difficulties. "The Firm had an exposure to a client (in this case its ultimate parent company) in excess of the permitted limits set out in Regulation 57(2) of the 2006 Regulations."

The 2006 Regulations set out how a firm should calculate its financial exposures. The Central Bank assesses the risks to which a firm is exposed on the basis of exposure figures reported by firms in large exposure returns and solvency returns.

"The Firm failed properly to calculate its exposure under swap transactions with its ultimate parent company and an affiliate in accordance with Regulation 53(1) of the 2006 Regulations and therefore reported incorrect exposure figures to the Central Bank; and the Firm breached Regulation 16(3) of the 1992 Regulations, in that the Firm failed to have effective processes and adequate internal controls in place to ensure compliance with the permitted limits set out in Regulation 57(2) of the 2006 Regulations and compliance with Regulation 53(1) of the 2006 Regulations in respect of its exposure to related party swap transactions."

The Central Bank of Ireland also issued a general comment from Director of Enforcement, Derville Rowland noting that this is the second settlement by the Central Bank with a credit institution in respect of the failure to adhere to large exposure limits; this settlement also, however, involves a failure to ensure the accuracy of regulatory reporting to the Central Bank.

"Each of these elements is considered by the Central Bank to be a serious matter."

"This settlement also relates to the failure by a credit institution to have in place proper internal controls to ensure compliance with regulatory reporting obligations and with large exposure limits," said Ms Rowland.

"Regulated firms are required to submit regulatory returns to the Central Bank on a regular basis containing information which is used by the Central Bank to determine the financial stability of a firm and to monitor the level of risks to which a firm is subject. The accuracy and compliance with all regulatory obligations of such regulatory returns is key to the Central Bank's ability to supervise regulated firms."

"The failure by a regulated firm to ensure that it fully considers the implications of new regulatory requirements is also viewed as a serious matter by the Central Bank. In this regard, in light of the new regulatory reporting obligations which have been introduced in the Capital Requirements Directive IV ("CRD IV”) which was transposed into Irish law on 31 March 2014, the Central Bank expects that firms will have in place effective processes and internal controls to ensure compliance with their regulatory reporting obligations."