Mr. Paul Stanley:

I thank the Chairman and the committee for the opportunity to discuss the tracker mortgage issue and Ulster Bank's progress in putting this right for our customers. I am the chief financial officer of Ulster Bank Ireland DAC and I am joined today by Ms Elizabeth Arnett, head of corporate affairs.

As the committee is aware, we are in a close period and therefore we cannot discuss issues which may trigger discussion of financially sensitive information regarding provisions or disclosures. There may be some questions that stray into this territory. I will be happy to take those questions away if I cannot answer them and come back to the committee where I can. We are here to discuss the progress made regarding resolution of the tracker mortgage redress issue. I will give an overview of this and then we will be very happy to take questions, which I am sure committee members have.

As committee members know, our examination is ongoing and we have, as part of our phase 2, identified just under 3,500 customers who are impacted. The impact on these customers and the length of time it is taking to pay redress and compensation is unacceptable and, rightfully, we are being challenged on this. I repeat the apology that Ulster Bank has made to our customers in this regard.

When the Central Bank tracker mortgage examination letter arrived in our bank we took a number of months to consider how to respond, but by March 2016 we had begun the process of establishing our programme. In hindsight what we should have done was mobilise somewhat earlier and have deliberations concurrently. By doing it the other way we probably added three months to our programme that potentially could have been avoided.

The work involved in identifying impacted customers is one of the largest and most complicated projects ever undertaken by the bank. We have more than 200 people working full time on the programme. I know this is no consolation to people who have been waiting too long for the redress and compensation to which they are entitled, but let me try to explain the challenge of the process in more detail.

Ulster Bank started with 300,000 customers in the scope of the examination. They were customers who were active, redeemed or sold between 2001 and 2015. Customer journeys were segmented into different categories, which required different levels of review. By way of example, these customers include those who drew down on a tracker rate and did not move to any other product or margin at any time. There are approximately 64,000 of these and we could discount them from the process quickly. Of the 300,000 mortgages, we carried out an in-depth review of over 7,000 to determine whether or not they were impacted. As I am sure the committee appreciates, this involved a lengthy process of rebuilding customer files, locating original hard copies of documentation and putting together a full journey of what those customers went through. This process was made difficult in Ulster Bank because we were dealing with five mortgage systems across two banks extending for a period of over a decade and a half. There was a high degree of variety in these accounts. We found over 1,600 different journeys, with some customers having up to 20 different points in that journey. By way of example, a journey includes mortgage drawdown, product switches, any rate changes, any forbearance or special arrangements and mortgage redemption. This process identified just under 3,500 impacted customers and is set out in the phase 2 report we submitted to the Central Bank. As of quarter three of 2017, we made a provision of €211 million for this project, which includes administration costs and compensation and remediation to customers.

In designing the examination, the Central Bank framework requires that we look retrospectively at our loan book and apply a contractual, regulatory and, very importantly, customer lens to determine whether there is an impact. The vast majority of the 3,500 customers were impacted due to ambiguous and potentially confusing terminology in our documentation, and as a result, these customers did not get the correct rate. I do not wish to appear to minimise the nature of the impact, but rather to give the committee an understanding of what we have found as a result of our work to date on the examination.

The ambiguity in the documentation we produced presented circumstances whereby our subsequent actions certainly disadvantaged our customers. The requirement to be clear in all communications with customers is the minimum standard to which we must, and do, hold ourselves. In this regard, we did not meet the standards and we failed our customers. We deeply regret this and apologise unreservedly to all impacted customers. We are putting this right, accepting the pace is frustratingly slow for our customers and for ourselves.

In total, the transparency and ambiguity issue to which I have referred affected approximately 88% of the 3,500 customers. The other 12% were primarily due to operational errors and the absence of required warnings. Approximately 2,500 of impacted customers are still with Ulster Bank and we have returned them to their correct rate. We stopped the harm as quickly as we could. As the committee is aware, this happened on a phased basis, mostly during the first quarter of 2017 and the back end of 2016. For customers who are no longer with Ulster Bank, we are working through their remediation, with a commitment to complete this and our commitment on the overall 3,500, by the end of the second quarter of 2018.

For customers who lost their homes as a result of the tracker mortgage issue, we have a special process in place on top of the standard remediation. For example, where we identify customers who have lost their homes as a result of the loss of a tracker rate, we communicate with them, appoint a single point of contact for them, arrange a meeting and offer an upfront initial payment of €50,000 in advance of completing the full redress and compensation process. We commenced the process of paying redress and compensation in September and to date we have paid more than 1,200 customers.

There are a number of key principles for us in this phase of the examination. It is very important for us that we put each customer back to the position he or she would have been in had the error not occurred. This involves reconstruction of each customer account using the correct interest rate; quantification of the amount of interest overcharged at the incorrect rate, and reversal of that overcharge; calculation of the monthly repayments that should have been paid by the customer and a refund of the difference between that total and what was paid by the customer; and restoration of the mortgage balance to what should now be outstanding, following reversal of the interest overcharge and refund of repayments.

The letters we write to customers are designed to complete a picture for them. In some cases these can contain up to 30 pages but they also include a summary. They contain a full financial statement going back to the month when the impact happened and provide a month by month statement for the years the impact happened. Customer accounts, in calculating redress amounts require manual intervention and calculations. At present, this cannot be systemised because of the multiple variations that exist in each customer journey. This necessitates additional quality control and assurance checks. In calculating redress and compensation for even straightforward cases, there are up to 120 separate data points that can move each time there is an additional payment on the account. This means the calculation is very time sensitive. For live Ulster Bank customers, a short period opens up each month when all of the data is collected and reviewed, the calculations are made, the calculations are checked, the letter is compiled and checked and then issued before the next payment is made on the account and the data points have changed. This has been a slow and challenging process, and I would not even begin to express how difficult this has been for customers. We are focused on paying what is due to all impacted customers as quickly as possible. There is no advantage for us if we drag our feet on making this right and there is certainly no advantage for our customers.

We have more than just a regulatory or contractual obligation to our customers. We believe we have a moral obligation to be fair and to put things right as quickly as possible when it goes wrong. We also accept and acknowledge the focus of this committee, the Minister for Finance and the Central Bank in this matter and holding us all to account. Ulster Bank has certainly learned lessons from this and, while we are still in the process of finalising our programme, we are applying these lessons across the bank.

Throughout this process, our people on the front line - helping customers and dealing with queries - have worked tirelessly, and that is despite how the public may feel about those of us at senior level. I would like to draw that distinction.

To close, I emphasise again that we are working to finalise our numbers. We will continue to engage with the Central Bank as regards a phase 2. While we expect some additional customers to be impacted upon, we do not expect the issues to be on the same scale. Despite this, we have failed. This has not only impacted on our tracker customers but society's trust in banks and, indeed, our credibility as an industry. We will continue to work hard to complete this programme, learn from it and rebuild trust in our bank. We are serious about our commitments to our customers and we are listening and learning from the experience of this programme. I thank the Chair and look forward to questions.