4. An end to "light-touch" regulation in Ireland?

As a result of insufficient governance and “light-touch” regulation, it was decided that regulation needed to be improved by a new leader from outside of Ireland. In January 2010, Matthew Elderfield was appointed Head of Financial Regulation. Prior to this appointment, he spent three years as CEO of the Bermuda Monetary Authority (BMA) and 8 years with the UK Financial Services Authority (FSA). He has made a strong impact to date as Financial Regulator. In March 2010, Elderfield requested the High Court to assign “administrators” to Quinn Insurance due to “alleged breaches of insurance regulations”. This conveyed a strong message that “light-touch regulation” was no longer associated with financial regulation in Ireland.

In April 2011, Finnish finance expert Peter Nyberg held an enquiry on the banks in Ireland which lasted nine months. Nyberg disapproved of the Financial Regulator’s actions. He believed the Financial Regulator had known about inadequate practices at Anglo Irish Bank and Nationwide and was “hesitant to act”. Nyberg also acknowledged that both the Financial Regulator and the Central Bank had failed to uncover or miscalculated the risks connected to the property boom. Both regulatory bodies recognised the “macroeconomic risks” and the risky behaviour of banks but deemed them “insufficiently alarming” to aim to restrain lending.

Connor et al (2010) believe that the lax regulatory policy in place in Ireland was an error and they examine the economic costs connected with this policy error. They find that the lax regulation of banks led to the banking crisis in Ireland. They believe that careful limitations on bank risk-taking may have averted the Irish banking collapse. If Irish financial regulators had behaved prudently during the period from 2003-2007, then Irish domestic markets would not have been impacted by the US credit crisis of 2008-2009 as severely as they were.

Financial Regulation is the “hot potato” that no one would like to hold on to. It is passed around with no one wanting to take liability and in the end it falls. This is what happened in Ireland time after time under Neary’s regulatory regime. It is hoped that the new Financial Regulator Matthew Elderfield will bring a new era of stricter financial regulation in Ireland by abolishing “principles-based” regulation and introducing regulation which is more “rules-based”.