The High Court recently described the misappropriation of client funds at investment firm Custom House Capital (CHC), as displaying characteristics of a “full blown Ponzi scheme”.
The investment firm was discovered to have used €66 million of customers’ funds to cover losses incurred by its property portfolio across Europe. In response to the scandal and to deter future similar financial mismanagement, the Central Bank is understood to be seeking new powers which would permit it to appoint an administrator to investment firms in the same manner as an administrator was appointed to Quinn Insurance.
The Central Bank has requested the Department of Finance to include the powers sought in the Central Bank (Supervision and Enforcement) Bill, which is currently before the Dáil. Please click here to view a previous article on this Bill.
The Bill, if enacted in its current form, will add significantly to the powers of the Central Bank to hold an inquiry in relation to the imposition of administrative sanctions, where it suspects that a regulated financial service provider (FSP) has committed a prescribed contravention, as set out in the legislation. The Bill increases the financial penalties that can be imposed from €5 million to €10 million (or 10% of annual turnover) where the FSP is a body corporate or €1 million where the FSP is a natural person. Crucially, the Bill empowers the Central Bank to suspend (for a period not exceeding 12 months) or, in certain cases, to revoke the FSP’s authorisation, an enforcement strategy which is not currently available to the Central Bank.
Interestingly, the Bill in its current form specifically protects those persons who report any breaches within an FSP. This is an important inclusion, given that the Central Bank was alerted to the financial mismanagement at CHC by a so-called ‘whistleblower’.
FSPs must now wait to see the full suite of powers which are proposed to be granted to the Central Bank as the exact details of its request to the Department of Finance are not yet known.
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