Mr. Shane Kavanagh:

Go raibh maith agat, a Chathaoirligh. First I want to thank the committee for the opportunity to speak here today. I represent a number of former EBS agents, many of whom have given up to 33 years committed service to EBS Limited, formerly EBS Building Society. All have suffered financial and personal stress as a result of the difficulties experienced by EBS itself. Our reputations were also impaired even though we were committed to an honest service and recognised the importance of the duty of care we owed to members.

The EBS tied agency business model is unique to EBS in the Irish market. The tied agent is an independent business entity exclusively tied to EBS. Tied agents sell the full suite of EBS products, operate on a licence agreement with EBS and are regulated by the Central Bank of Ireland. The customer experience is the same as that from an EBS branch outlet. The branding, look and feel and back-office operations are all the same as with the branch, and the business is run by a local agent and staff. Beginning in 1935 the Educational Building Society built up a very positive reputation among its members. Agents, including myself, were paid commission for the mortgages and investment products that were sold. We had no control over whether mortgages were approved or not. From this commission from the mortgages that were executed, however, we covered the costs of running the agency including office rental, staff and all of the usual costs associated with any small SME.

In January the management surprised the agents and the network in general by introducing an incentive scheme which focused on maximising sales. There is potential for incentive schemes to encourage mis-selling. Potential investors may buy unsuitable products without fully realising the risks. Under the new structure the survival of agents depended heavily on the commissions they generated instead of focusing on ensuring that the needs of the member were actually met. In our view the incentive scheme was far too short-term in focus, at the expense of the long-term reputation of EBS and their agents. After expressing our concerns, one non-executive director offered to support us. An independent investigation was proposed. Sadly both the report that was concluded and the terms of reference were not made available to us, so this initiative was of limited use.

A second underlying but equally important problem was the inability of EBS to provide mortgages that agents could sell. This resulted in a considerable loss of commission and put the agents under pressure to make up the shortfall by selling investment products. This is a very unsatisfactory situation to be in, as the desperate desire to earn commission from investment products may weaken the fiduciary duty that agents owe to their members. As Mr. Cormac Butler will explain, there were a few policy decisions taken by EBS which, in hindsight, contributed significantly to the avoidable problems that EBS and their agents faced.

We spoke to the officials from the Central Bank and we note the comments from a member of the Irish Bank Officials Association, now known as the Financial Services Union. The problem is widespread. The Central Bank is now attempting to examine and change the culture of Irish banking, but there are considerable hurdles in their approach. We have attempted to engage with EBS on this matter but, after seven years trying, a solution seems unlikely. I thank the committee for listening and will pass over to Mr. Butler now.