Matthew Elderfield, Head of Financial Regulation, Irish Central Bank

The new head of financial regulation in Ireland, Matthew Elderfield, outlined plans on Thursday for a more effective supervision of the banking and financial sector, in his first public speech.

Elderfield said the obvious conclusion is that weaknesses in regulation contributed to the financial crisis in Ireland. “Ireland is competing as a premier financial services centre. But you can’t referee a Premier League match with one linesman and no red card in your pocket,” the Leeds United fan said in an address at a Leinster Society of Chartered Accountants lunch.

Elderfield said it will be important to take a balanced and measured approach. While regulatory weaknesses did indeed contribute to the crisis, the Financial Regulator has also done a good job in many areas and has many dedicated and hard-working professionals fighting in the front line of the crisis to strengthen the financial system and protect Irish consumers.

However, he said "it is already clear to me that we need to undertake a fundamental overhaul of the regulatory model for financial services in Ireland. We need to address the obvious weaknesses that have caused problems here and also keep pace with best practice internationally, as regulators around the world are reassessing their approach."

He said he intended to implement a framework of assertive risk-based regulation underpinned by the credible threat of enforcement. "We need to insist that the biggest and riskiest firms manage themselves better and that firms and their management are held more accountable for their actions."

"A risk-based model means that we will not have a one size fits all approach," Elderfield said. "We need to be balanced and proportionate depending on the risk of the sector or firm in question."

To be effective regulation needs to be underpinned by a credible threat of enforcement, the new Head of Financial Regulation added.

Peter Oakes, Managing Director & Company Solicitor Compliance Ireland commented: "Refreshingly Matthew Elderfield does not adopt a doomsayer’s approach to Ireland’s problems. Rather he looks ahead to the benefits that Ireland shall reap in the near future. Perhaps this is driven by his success in turning around the Bermudian financial market, in particular the insurance and reinsurance sectors, a skill he can deploy in Ireland with the advent of Solvency II."

SEE: Finfacts article, May 2009: Irish Financial Regulator’s failure to control property bubble contributed to economic crash and consumer wealth losses

In June 2007, Sean FitzPatrick, then chairman of Anglo Irish Bank said in a speech that politicians and regulation may have been about to stifle growth as in the 1980s. "Having developed this marvellous entrepreneurial culture which is delivering so many benefits in terms of employment and wealth to the country we must ask ourselves if there is now a danger that our regulatory environment has gone too far? Are we starting to shackle instead of encourage the entrepreneurs who in turn generate more wealth not just for themselves, but for the country as a whole."

Stating that we may have reached a situation where the weight of compliance with the various financial reporting standards and other corporate regulations was so heavy that entrepreneurs are no longer willing to bear it, FitzPatrick said: "Among the more insidious and I believe iniquitous aspects of the current regulatory environment is its apparent presumption of guilt on the part of entrepreneurs and businesspeople generally. The whole structure seems to be geared towards an annual proof of innocence statement. This is corporate McCarthyism and we shouldn’t tolerate it."

He said that we should be proud of our successful business people and not pillory them. "It is time to shout stop. The tide of regulation has gone far enough. We should be proud of our success, not suspicious of it. Our wealth creators should be rewarded and admired not subjected to levels of scrutiny which convicted criminals would rightly find intrusive."

FitzPatrick, a council member of the Institute of Chartered Accountants, was engaged in hiding huge loans to him from the bank over several years, when he made the speech.