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Lending breaches lead to €1.4 million fine for KBC Bank

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Lending breaches lead to €1.4 million fine for KBC Bank

In the first enforcement action of its kind, the Central Bank of Ireland has fined KBC Bank Ireland Plc €1,400,000 and reprimanded it for breaches of the Code of Practice on Lending to Related Parties 2010, and the Code of Practice on Lending to Related Parties 2013.

The Central Bank introduced the Code in 2011 to guard against abuses in lending to related parties and as part of the Central Bank’s regulatory approach following the financial crisis.

Under the Code, relevant firms must obtain the prior approval of their Board or a subcommittee thereof, before they can enter into, or vary loan transactions with related and/or connected parties, which include directors, senior managers, significant shareholders of the firm and spouses or domestic partners.

The breaches of the Code, which were admitted by KBC, occurred from 26 September 2012 to 23 February 2016, during which time KBC failed, on eighteen separate occasions to:

  • Have adequate policies and processes in place, which are adhered to, to identify loans to related parties;

  • Obtain the prior approval of its Related Party Lending Committee prior to (i) granting a loan to a related party and (ii) extending the maturity dates on 12 separate occasions in respect of five existing loans; and

  • Obtain prior approval of the Related Party Lending Committee on five separate occasions in respect of the management of four loans to two related parties.

    • Director of Enforcement, Derville Rowland, said: “Related party lending is an issue of significant prudential concern for the Central Bank, particularly in the context of identified failings at the time of the financial crisis when loans were issued to related parties without adherence to internal controls and procedures. This Code represents an important component of the Central Bank’s response to failings associated with related party lending and was introduced to seek to prevent abuses and address possible conflict of interests in this area.

    “The Central Bank is committed to robust, appropriate and proportionate Enforcement action, to ensure there is a credible deterrent and to promote compliance in the firms that we regulate. Such repeated breaches of the Code, in spite of on-going Central Bank intervention and engagement with the Firm (KBC), is unacceptable and demonstrates a failure on the part of the Firm to have in place and adhere to the necessary policies and processes to ensure effective compliance with the Code; this is reflected in the level of the fine and the reprimand issued today and accepted by the Firm.

    “The Central Bank requires all firms to ensure full compliance with the Code. Where firms fall short of the required standards, the Central Bank will continue to take the necessary enforcement action.”

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