The Davy transaction in question took place in November 2014 (Pic: RollingNews.ie)
It is the biggest fine of its kind ever levied on a broker in Ireland.
The Central Bank said its investigation into Davy identified “serious issues” that required “the imposition of a significant financial penalty”.
The transaction in question took place in November 2014.
What the Central Bank calls a ‘consortium’ of 16 Davy employees, including a group of senior executives, bought what are understood to have been unlisted corporate bonds from a client at an agreed price.
But the client was not made aware that the consortium was made up of Davy employees.
The Central Bank found Davy had failed to put in place a system to prevent a potential conflict of interest when employees entered into personal transactions.
The bank found Davy’s compliance section, which has responsibility for Davy sticking to the rules, were “sidestepped” by the consortium.
In permitting the transaction to go ahead, it said that Davy had acted “in a reckless manner”.
It prioritised facilitating an opportunity for the group of employees to “make a financial gain” over sticking to the rules and posed a risk to the client, the Central Bank said.
To make matters worse, the Central Bank said when it contacted Davy, it provided “vague and misleading details”.
It also withheld information, which the Central Bank considered “an aggravating factor” in the case.
In a statement, Davy said it was not commenting beyond what is contained in the settlement agreement.
However, in a note to staff today seen by RTÉ News, Davy chief executive Brian McKiernan said “we deeply regret and are sorry for the shortcomings that gave rise to the findings”, which he said “could not recur today”.
Mr McKiernan said Davy has gone through a significant investment in risk management since 2014.
He also noted there were “no findings of actual conflict of interest or customer loss”.
The Minister for Finance has said the behaviour detailed by the Central Bank today in relation to stockbroker Davy falls gravely short of the standards of behaviour that are expected of leaders in positions of financial responsibility.
Paschal Donohoe said the issue was an exceptionally serious one.
He said he was particularly concerned that the incident took place in the period after the financial crisis, which was a period during which we have reflected much and commented much on the standards and behaviour that we expect within our financial services sector.
He said the seriousness of the incident is reflected in the thoroughness of the investigation by the Central Bank, its statement and the scale of the fine the Central Bank has decided is appropriate.
Mr Donohoe also said he believes it is appropriate that Davy publicly comment on the statement made by the regulator today.