Public statement relating to Settlement Agreement between the Central Bank of Ireland and KBC Bank Ireland plc

• Date: 24 September 2020

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ENFORCEMENT ACTION

The Central Bank of Ireland

And

KBC Bank Ireland plc

KBC Bank Ireland plc reprimanded and fined €18,314,000 by the Central Bank of Ireland

for regulatory breaches affecting tracker mortgage customer accounts

On 22 September 2020, the Central Bank of Ireland (the “Central Bank”) reprimanded and

fined KBC Bank Ireland plc (“KBC” or the “Firm”) €18,314,000 pursuant to its Administrative

Sanctions Procedure (“ASP”) in respect of KBC’s serious failings to certain tracker mortgage

customers holding 3,741 customer accounts from June 2008 to October 2019. KBC has

admitted in full to 12 regulatory breaches.

The Central Bank has imposed a fine at the highest end of its sanctioning powers, reflecting

the gravity with which the Central Bank views KBC’s failures. The impact of KBC’s failings on

its customers, which related to 3,741 accounts, was devastating and included significant

overcharging and the loss of 66 properties. Additionally, KBC’s engagement and co-operation

with the Central Bank’s Tracker Mortgage Examination (the “TME”) was deeply

unsatisfactory. KBC caused avoidable and sustained harm to impacted customers due to the

Firm’s unwillingness to acknowledge its failings until December 2017 and to take immediate

action to apply the protections of the TME. Had KBC adhered to the TME guidelines sooner,

without the need for significant and sustained Central Bank intervention, the harm to its

customers – particularly incidences of property loss - would have been significantly reduced.

The Central Bank determined that the appropriate fine was €26,162,857, which was reduced

by 30% to €18,314,000 in accordance with the settlement discount scheme provided for in

the Central Bank’s ASP

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. This will be paid to the Exchequer

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.

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The Central Bank’s ‘Outline of the Administrative Sanctions Procedure’ provides for an early settlement

discount of up to 30% in order to promote early resolution of matters, which in turn leads to better utilisation

of the resources of the Central Bank.

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All fines collected by the Central Bank are returned to the Exchequer.

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This fine is in addition to the €153,524,363 that KBC has been required to pay to date in

redress and compensation and account balance adjustments under the TME to its impacted

tracker mortgage customers.

The enforcement investigation, which was conducted in parallel with the TME, sought to

determine how and why KBC failed to fulfil its obligations to their customers. The

investigation also examined KBC’s failure to adhere to the Central Bank’s requirements under

the TME.

Over the course of 2008, tracker mortgages were becoming increasingly unprofitable for KBC,

resulting in the withdrawal of the product by July 2008. The Central Bank’s investigation found

that in doing so, KBC failed to treat its existing tracker mortgage customers fairly and put

KBC’s financial interests above the protections their customers should have been afforded. In

particular, KBC’s failures resulted from:

(i) A proactive strategy to convert customers off their tracker rates: In 2008, KBC

devised a strategy to permanently convert certain customers from their low-cost

tracker rates. This applied to customers seeking fixed rates or interest only periods

at a time when KBC knew that trackers were unprofitable for them. KBC failed to

adequately warn the customers concerned that such amendments would result in

the permanent loss of their tracker rates. The impact of this strategy was that

certain customers, some of whom were already in financial distress, were required

to make higher monthly mortgage repayments over the remaining term of their

mortgages. This in turn increased the profit margin KBC made on these mortgages.

(ii) Failure to adequately warn customers entering interest only or fixed rate periods

that they would be unable to return to their tracker rates: At a time when KBC

was withdrawing tracker products, it failed to provide customers with clear

documentation and/or to provide customers with vital information that their

request to fix their interest rate or move to an interest only period would lead to

the permanent loss of their tracker interest rate. KBC also failed to warn

customers seeking an interest only arrangement that they stood to pay more

interest over the lifetime of their loan.

(iii) Failure to adequately comply with the Central Bank’s Framework for the TME:

KBC failed to adhere to the guidelines set out in the Central Bank’s TME

Framework, requiring significant intervention from the Central Bank to ensure that

all impacted customers were identified, redressed and compensated.

(iv) Failure to adequately comply with the Stop the Harm Principles of the TME: From

the outset of the TME in December 2015, KBC failed to take adequate steps to

prevent customers from suffering any further harm or detriment pending the

outcome of the TME review. This included failing to stop charging higher, incorrect

rates of interest and failing to halt legal activity and loss of ownership of

customers’ properties. Of the 66 properties referenced above that were lost as a