John McGuinness (Carlow-Kilkenny, Fianna Fail)
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We will now resume our meeting and deal with item No. 9 which is matters relating to the EBS tied agents. I welcome Mr. Shane Kavanagh and Mr. Cormac Butler here this morning and before calling on the witnesses to give their opening statements I want to advise the witnesses that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to this committee. However, if they are directed by the committee to cease giving evidence in relation to a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable. Members are reminded that under longstanding parliamentary practice members should not comment on, criticise or make charges against a person outside the Houses, or an official either by name, or in such a way as to make them identifiable.

I thank Mr. Kavanagh and Mr. Butler for coming here today and invite them to make their opening statements please.

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.

Mr. Cormac Butler:

Good afternoon. I am a risk consultant based mainly in the UK, and cover issues like the Basel Accords and the international financial reporting standards, IFRS. Previously I have given evidence to the UK House of Lords on the UK banking crisis.

The failure of EBS to originate new mortgages has put considerable pressure on the tied agents. Many were not able to meet the commission targets from investment products and risked compromising their reputation through aggressive sales in order to make up for the commission lost on mortgages.

A number of weak policy decisions taken by EBS may have contributed to this problem. EBS faced closure from the capital markets when it came to raising funds and in the end had to receive Government bailouts, as well as cutting back considerably on the amount of mortgages it offered, a factor that caused considerable distress to the tied agents.

One matter that contributed to the banking crisis, that is not yet corrected, is the obligation to reveal the financial position of the society to existing and potential investors and depositors. According to some, building societies are not allowed to reveal their solvency position, with the result that it will be very difficult for them to attract investors and fund mortgages. The cost of capital for Irish banks is unusually high, and this is because investors do not find Irish banks a safe and attractive proposition. The result is that tied agents cannot sell mortgages as they once did.

EBS received a State bailout of about €2.3 billion and suffered a 57% discount on assets sold to NAMA. Its failure to attract funds forced it into a firesale of assets which in turn led to further losses. Tied agents were naturally unready for this change in circumstance and in my view would have benefited considerably if the correct financial position was disclosed.

I am convinced that the difficulties of the tied agents could have been avoided if the directors were permitted to reveal their financial position correctly at an earlier stage. There is a lot of misleading information on this matter which I believe the committee should look into. In the UK there are the same concerns. Thames Valley Police Commissioner, Mr. Anthony Stansfeld, has suggested examining how banks measure their solvency and believes that many financial transactions may be overturned unless this matter is corrected. Thank you.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Mr. Kavanagh referred to an independent investigation being proposed and stated that sadly both the report and terms of reference were not made available with the result that the initiative was therefore of limited use. Did the witness engage with the EBS in the context of that comment and that report?

Mr. Shane Kavanagh:

We engaged with an outside agency that was hired by EBS to facilitate the report but we never saw the report or the final terms of reference.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The outside agency was to examine the complaints that the tied agents were making and the issues that they had. Before the witness's group entered into that process they were not shown the terms of reference.

Mr. Shane Kavanagh:

No.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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After that process the group was not given the report.

Mr. Shane Kavanagh:

No.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Did the group not have a meeting with EBS after that?

Mr. Shane Kavanagh:

We tried but there was no engagement. To be honest, we were told there was nothing to see.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The now CEO of AIB - I did ask him about this - said he had met the witness or the witness's group.

Mr. Shane Kavanagh:

Yes, he met with two of my colleagues, he did not meet me personally. At the time I was not allowed to meet him; he felt it was inappropriate that I would meet him because it was a legal matter. He would not meet me but he did meet two of my colleagues with a representative from EBS. We did put this to him but we, that is the two representatives, were told that there was nothing to see.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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How long ago was that meeting, by the way, roughly?

Mr. Shane Kavanagh:

That meeting was about three or four years ago. I do not have a date here exactly.

Mr. Shane Kavanagh: Yes, we engaged with an outside agency that was hired by EBS to facilitate the report but we never saw the report or the final trems of refderencce.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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They met him as CEO of AIB.

Mr. Shane Kavanagh:

No, at that time he was a board director of AIB.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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In what capacity did he meet Mr. Kavanagh's colleagues at that time?

Mr. Shane Kavanagh:

As board director of AIB.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Was he appointed to attempt to resolve this matter?

Mr. Shane Kavanagh:

No, he just decided to call a meeting to hear what we had to say.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Were Mr. Kavanagh's colleagues shown the report at that meeting?

Mr. Shane Kavanagh:

No.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Was the content of the report discussed?

Mr. Shane Kavanagh:

No.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Mr. Kavanagh's group has been making complaints but nothing has happened in terms of address of the issue.

Mr. Shane Kavanagh:

Correct.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Mr. Kavanagh has not had a productive meeting with the bank since then.

Mr. Shane Kavanagh:

Correct.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Has Mr. Kavanagh attempted in recent times to meet AIB?

Mr. Shane Kavanagh:

I will not lie. I have trees burned down at this stage from writing letters to AIB and the Central Bank to try to get resolution of this matter.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Mr. Kavanagh has had no response.

Mr. Shane Kavanagh:

Just the usual response from the Central Bank that it is reviewing the matter as part of its day-to-day supervision.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is that the current position?

Mr. Shane Kavanagh:

Yes. We have not had any response.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What legal challenges are under way?

Mr. Shane Kavanagh:

There are legal challenges under way by a number of agents.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Individual cases.

Mr. Shane Kavanagh:

Correct. To be honest, they are going nowhere because we do not have the same backing as does the bank as regards financial clout.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What does Mr. Kavanagh believe needs to be done to resolve the matter?

Mr. Shane Kavanagh:

To be honest, proper meaningful engagement would resolve it. In one particular case, the judge recommended mediation but the case has not progressed.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I note some of the agents are in the Public Gallery. How many agents are affected?

Mr. Shane Kavanagh:

Approximately 15 agents across the country, many of whom have young families.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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There are 15 agents across the country who have given fair service to the EBS and have taken up their issues with the ESB and, presumably, of late with the AIB and the Central Bank and they are being ignored in the hope that they will go away.

Mr. Shane Kavanagh:

Correct.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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That is astonishing. If Mr. Kavanagh has documentation relevant to the efforts he has made to meet the banks, which met with no reply, he should forward it to the committee.

Mr. Shane Kavanagh:

Yes.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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For example, the response from the Central Bank would be helpful to us. I encourage Mr. Kavanagh to do this as soon as possible.

Mr. Shane Kavanagh:

That is no problem.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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As it is the intention of the committee to examine the matter and to pursue it further with the banks, it would help us to fully understand the background to the issue if Mr. Kavanagh made that information available to the committee.

Mr. Shane Kavanagh:

I can do that.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I call Senator Conway-Walsh.

Rose Conway Walsh (Sinn Fein)
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I thank Mr. Kavanagh for his presentation. I agree with the Chairman that to do further scrutiny we would need supporting documentation. When did the agents move to commission work? Was it prior to EBS becoming State owned or previous to that?

Mr. Shane Kavanagh:

On becoming agents we became eligible for commission in respect of any business we executed as regards mortgages and savings. In 2011 we were told that lending had dried up and we were asked to focus on bank assurance sales, which is investment model selling. As agents, we had a number of concerns. We were a mutual building society and as such we did not have customers, we had members and we had a duty of care to them. We were previously told that approximately 10% of our client base were suitable for this kind of product but then that changed and we were told if the EBS was to survive we needed to sell more and ramp up customer numbers.

Rose Conway Walsh (Sinn Fein)
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Does Mr. Kavanagh have documentation to support that instruction and his response to it?

Mr. Shane Kavanagh:

I do. We have plenty of documentation. At the management meetings the name of the game was selling. It was all about sales. We were not allowed to engage with mortgages or people in financial difficulty. We were told to leave them alone, that they would be only wasting our time and we would not make money on them. We were told to focus on sales. It was awful. We had built up trust with our members at local level. People had trusted us for years. We were told not to engage with people whom we had helped to get mortgages and were now in trouble and to direct them to head office or a particular helpline. Given our culture, this did not sit right with us. It upset us that we had to turn our backs on our customers. We were located in local communities and towns and these were people and families for whom we had processed mortgages and other financial products throughout their life cycle and we were told not to engage with them and to direct them to head office in Dublin. We did not like that and we raised concerns about it. It is not that we were being negative; we just felt it was not the right approach.

Rose Conway Walsh (Sinn Fein)
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On the incentive schemes, am I correct that Mr. Kavanagh is saying pressure was put on the agents to sell consumers products that were not suitable for them?

Mr. Shane Kavanagh:

To be clear on the products that were being sold, for the right customer there was no difficulty with them but they did not suit everybody. We would have known our customer base for years and we would have known who would be happy to buy these products. This was in 2011, when there was a lot of fear in terms of the bank guarantee and the safety of savings and so on. We were told deposits were guaranteed but we need to sell bank assurance products. We knew they would not be suitable for everybody and we raised concerns in that regard. It was a case of comply or good luck. That was the reality.

Rose Conway Walsh (Sinn Fein)
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Did everybody comply?

Mr. Shane Kavanagh:

I do not mind saying agents were intimidated.

Rose Conway Walsh (Sinn Fein)
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In what way were they intimidated?

Mr. Shane Kavanagh:

I do not-----

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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We should not get into that now.

Rose Conway Walsh (Sinn Fein)
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I understand. What Mr. Kavanagh has outlined paints a worrying picture from a number of perspectives. We will need to examine the additional documentation.

Mr. Shane Kavanagh:

When a number of agents are shown the door, it appears as though they did something wrong or they put their hands in the till but we did not. Like a bucket of dirty water, we were thrown down the gully.

Rose Conway Walsh (Sinn Fein)
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Mr. Kavanagh referenced the need for meaningful engagement. What does he hope will be the outcome of that meaningful engagement?

Mr. Shane Kavanagh:

The bottom line would be vindication for how we were treated, especially with the people in our local communities, and appropriate redress.

Paul Murphy (Dublin South West, Solidarity)
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This is a unique business model for EBS from the point of view of the banking sector. Would it make sense if Mr. Kavanagh and the other agents and staff could be brought into the fold of EBS and employed as managers and staff on union agreed salaries etc. as opposed to the continuation of this franchise-type EBS model?

Mr. Shane Kavanagh:

It should have been up for consideration and discussed.

I know from talking to other agents that they certainly would have engaged with management on it at the time if it had been put on the table, but it was not put on the table.

Paul Murphy (Dublin South West, Solidarity)
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It was never put on the table as an option.

Mr. Shane Kavanagh:

No.

Paul Murphy (Dublin South West, Solidarity)
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Okay.

Paddy Burke (Fine Gael)
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I welcome Mr. Kavanagh and Mr. Butler. I assume we are talking about commercial ventures that were entered into between the EBS and the agents.

Mr. Shane Kavanagh:

Yes. I do not know the exact year when the model itself started. I joined the EBS in 1999. It was sometime before then that the model itself started or came to fruition. It started to be rolled out in or around 1999. It seemed to work very well for a lot of people.

Paddy Burke (Fine Gael)
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I assume the agreements were negotiated at various stages over different periods.

Mr. Shane Kavanagh:

There was an original agreement. The agreement was changed in 2007. That caused a bit of controversy.

Paddy Burke (Fine Gael)
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Did Mr. Kavanagh's group have an input into the changing of the agreement?

Mr. Shane Kavanagh:

The only input we had was to say we did not like the terms.

Paddy Burke (Fine Gael)
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Yes.

Mr. Shane Kavanagh:

There was no consultation. It is important to note that a clause in the original agreement provided that it could not be changed without the consent of both parties. A new agreement came out all of a sudden in 2007 without the consent of both parties - it was a case of, "Sign it or go".

Paddy Burke (Fine Gael)
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The chief executive of the EBS dictated to the agents.

Mr. Shane Kavanagh:

Yes, absolutely, although "dictated" is the Senator's word.

Paddy Burke (Fine Gael)
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When were the aggressive sales brought in?

Mr. Shane Kavanagh:

I suppose it kicked off in 2011. They had been working up to it gradually, but it kicked off in 2011. The lending that had been going on was pretty much stopped then. The name of the game was bank insurance and investment product sales.

Paddy Burke (Fine Gael)
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Have the agents set out how much they might be entitled to or what they have missed out on?

Mr. Shane Kavanagh:

We all know that individually.

Paddy Burke (Fine Gael)
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Each case is individual.

Mr. Shane Kavanagh:

Exactly, yes.

Paddy Burke (Fine Gael)
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Okay. All right.

Mr. Shane Kavanagh:

All of the agents I represent are reasonable people.

Paddy Burke (Fine Gael)
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Yes.

Mr. Shane Kavanagh:

It is not going to break the bank.

Paddy Burke (Fine Gael)
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I agree with the Chairman that the EBS should send further documentation to the committee and we will take it from there.

Michael McGrath (Cork South Central, Fianna Fail)
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I apologise for being late. I was speaking in the Chamber. I welcome Mr. Kavanagh, Mr. Butler and the people in the Gallery. I ask the Chairman to cut me off if any of my questions have been asked.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I would not do that to the Deputy.

Michael McGrath (Cork South Central, Fianna Fail)
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The Chairman would, and he would be justified. That would be okay. I have been aware of this issue for some time. I raised it in the past, for example during Deputy Michael Noonan's time as Minister for Finance. The response from the Department and the Minister then and now has been that the EBS is at arm's length and has nothing to do with the Department, and that all commercial and operational decisions are matters for the institution. There does not seem to be any political will to become involved in this dispute. I have an understanding of what the issues are. I ask Mr. Kavanagh to clarify what he thinks would justify redress and engagement from the EBS side. Does he think the treatment of the agents was unjust and unfair? Does he think there were legal breaches of the contract that was in place? How would Mr. Kavanagh characterise that?

Mr. Shane Kavanagh:

I would characterise it as unjust and unfair, and certainly as unethical. The chief executive officer made a point about shareholders at the last meeting. From a fiduciary point of view, as agents we have the same responsibility to our members. All we were doing was bringing that to the attention of the EBS. The contract side of things has yet to be sorted out properly. The EBS has always maintained that it has acted within its legal rights, but that has never been proven before the courts. As far as I am concerned, it is easy to make such a statement until it is proven not to be the case. Our primary concern at the time was to act in an ethical and professional manner. We raised issues that were of concern to our clients. Rather than being facilitated with meaningful engagement and having our concerns heard, for our troubles we were told, "You are not team players so you are gone". That is how ruthless it was. The suggestion was that those who were no longer willing to play the game were no longer considered to be team players and were therefore gone. When we asked why we were gone and whether we had done anything wrong, we were simply told that this was happening on a no-fault basis. When we asked why this was being done, the simple and callous answer we received was, "Because we can".

Michael McGrath (Cork South Central, Fianna Fail)
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Was it legally permissible for the EBS to take that approach under the contract?

Mr. Shane Kavanagh:

It has not been proven otherwise. As I have said, it has not been tested before the courts.

Michael McGrath (Cork South Central, Fianna Fail)
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Okay.

Mr. Shane Kavanagh:

The EBS has taken a very legalistic approach.

Mr. Cormac Butler:

At the time the tied agents signed into the contracts, approximately 80% of their commission came from mortgages and approximately 20% came from investment products. As we know, the EBS got into liquidity and solvency difficulties. As a result, the mortgage commission went down to close to zero. That was a decrease of close to 80%. My view is that if this was not expressly stated in the contract, the EBS should have alerted the tied agents as far back as 2005 that there were potential liquidity problems on the basis that if the EBS was unable to fund the mortgages, the agents' entire income would come from investment income. Apart from putting a strain on the tied agents, there was a risk that if their income depended solely on investment income, they would be tempted to sell products which were unsuitable to customers. This would have put the tied agents into a difficult situation. If they went along with this and kept their heads down low, they might have kept their jobs, but they would have been risking their reputations and creating damage for potential costumers with this new approach. My view is that the EBS should have said in 2005, and certainly in 2008, that it would have to deal with potential liquidity difficulties. It should have consulted the agents in that context to say that the contracts which had been signed would have to change considerably.

Michael McGrath (Cork South Central, Fianna Fail)
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Are legal cases being taken in the system?

Mr. Shane Kavanagh:

There are, but they are going nowhere.

Michael McGrath (Cork South Central, Fianna Fail)
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Have they got a hearing?

Mr. Shane Kavanagh:

One or two of them have got an initial hearing. The only way I can describe it is to say that the process is being pushed out, for example by playing games with stuff like discovery.

Michael McGrath (Cork South Central, Fianna Fail)
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Okay. Does Mr. Kavanagh think the former agents will get justice through legal actions?

Mr. Shane Kavanagh:

I do not have the financial ability to-----

Michael McGrath (Cork South Central, Fianna Fail)
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Yes, I understand.

Mr. Shane Kavanagh:

None of us does.

Michael McGrath (Cork South Central, Fianna Fail)
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I would like to ask about the selection process that was used by the EBS to enter into new tied agency arrangements after Mr. Kavanagh and the other former agents had been removed. How was that process conducted, in Mr. Kavanagh's view? Is there a suggestion that the EBS had certain preferred people in mind to take on the role?

Mr. Shane Kavanagh:

I will elaborate briefly on the background as my initial response to the Deputy's very good question. The culture we came from has to be understood. Over the years, there was a very strong relationship between the agents and the management of the EBS. When we raised issues about the new agreement, we were told we should not worry because there was nothing of concern in it. The reaction we were getting from management was that because we had been with the EBS for years, everything would be fine. Nobody predicted that the rug would be pulled from underneath us. I would say that the spirit of the agreement was withheld from us. We were hoodwinked into believing everything would be okay. We did not think the EBS would do anything to us because we had been working with it for years. That is an important point about the way the contracts were dealt with at the time. Was there a second question?

Michael McGrath (Cork South Central, Fianna Fail)
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I asked about the selection of replacement agents.

Mr. Shane Kavanagh:

Yes. It is very interesting. We raised our concerns when we met the non-executive director. We have seen a copy of a memorandum that was issued to the board of the EBS at the time. I cannot share it with the committee. The memorandum clearly stated that the board had decided that 20 underperforming offices would be closed as part of the EBS restructuring plan for the EU.

We understand that. It is business. The reality is that many offices of agents who lost their contracts are still open, are still running and there are still people in them. We vehemently deny that we were underperforming and we have proof of that. We were not underperforming. Some 20 offices were going to be closed and we were used as an example to cut offices. As I have said, many of those offices are still open so the underperformance argument does not stand up. I would question it, and we believe there was a personal side to the determinations.

Michael McGrath (Cork South Central, Fianna Fail)
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I would support the committee doing more work on this issue. We need to hear directly from EBS and have its representatives in front of us. The note we received from EBS is unsigned and there is no name next to it. Each time we engage with AIB to ask about EBS we are told that AIB speaks for EBS but EBS is a separate legal entity within the AIB structure. They should be here to answer questions on this directly. I support that.

Kieran O'Donnell (Fine Gael)
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I welcome Mr. Kavanagh and Mr. Butler. AIB has taken over. Now that AIB owns EBS and it is part of the AIB family, have the witnesses found a change or improvement in the relationship?

Mr. Shane Kavanagh:

I could not answer, that as I am no longer part of the network.

Mr. Cormac Butler:

I am not directly involved with EBS.

Kieran O'Donnell (Fine Gael)
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Mr. Kavanagh said he was not here in January. To which January was he referring?

Mr. Shane Kavanagh:

It was January 2011.

Kieran O'Donnell (Fine Gael)
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Mr. Kavanagh said the "problem was the inability of EBS to provide mortgages that agents could sell". He also spoke of the non-executive directors. Who were the non-executive directors? What type of products was EBS not providing? Mr. Kavanagh also said "there were a few policy decisions taken by EBS which, in hindsight, contributed significantly to the avoidable problems that EBS and their agents faced". Will the witness tell us what those policy decisions were? Mr. Kavanagh has spoken about his own situation from his business' perspective. Perhaps he could explain how long was he a tied agent with EBS and how he built up the business. Did he operate from a town, a city or a village? Over the years - for example the period from 2002 onwards - what happened and what were the changes? He was at the coalface. People were coming in and Mr. Kavanagh's business was processing mortgage applications through EBS. I was in practice at the time and we had a lot of people who came to us through a person they knew, such as auctioneers in the towns and so on. Will Mr. Kavanagh give the committee his personal perspective on looking through the prism of those years?

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I suggest that Mr. Kavanagh takes a general view on this and does not mention names.

Mr. Shane Kavanagh:

Yes that will be no problem at all. I started working as a branch official for EBS directly, at the front counter, in 1999.

Kieran O'Donnell (Fine Gael)
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Was this as an employee of EBS?

Mr. Shane Kavanagh:

Correct, in 1999. I worked in customer service also and a number of other different offices. I was on the relief panel at one stage where I would go to different offices if they were short a staff member. That was my starting point. I am not exactly sure of the time but it was around 2002 or 2003 when I began to work for an agent of EBS who then asked me to work for him as his assistant manager in a local office. From there I grew my own reputation within EBS for being a good employee and a good worker. In 2006 there was a call to the network with regard to growing the offices and the businesses and they were looking at other opportunities. At the time, in my wisdom, I saw a greenfield site and I went to EBS with a plan for an opportunity to open an office in that growing, affluent area. EBS listened and agreed we should go for it

Kieran O'Donnell (Fine Gael)
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Was that in 2006?

Mr. Shane Kavanagh:

The process started in 2006 and the EBS agreed it around 2007.

Kieran O'Donnell (Fine Gael)
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So it was at the peak.

Mr. Shane Kavanagh:

Yes. It was going into a shopping centre that was not properly constructed so-----

Kieran O'Donnell (Fine Gael)
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With regard to the structure within EBS, was Mr. Kavanagh an employee of the EBS or was he self-employed?

Mr. Shane Kavanagh:

Initially I was an employee, then I worked for an agent and then I was self-employed.

Kieran O'Donnell (Fine Gael)
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Did Mr. Kavanagh rent the building? Was the lease in his name and were the overheads part of Mr. Kavanagh's business?

Mr. Shane Kavanagh:

No. The lease was in the name of the EBS. I was the licensee of that lease so the costs still came to me.

Kieran O'Donnell (Fine Gael)
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Mr. Kavanagh was in the cockpit when things went over the cliff.

Mr. Shane Kavanagh:

Yes.

Kieran O'Donnell (Fine Gael)
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Will he explain how the relationship changed with EBS from the set-up?

Mr. Shane Kavanagh:

Yes. I elaborated on this earlier. We came from a mutual building society background. We did not have customers - we had members. It was all about care for the member, proper customer service and growing the membership locally. One was using trust and building on trust to build a proper steady business based on proper fiduciary rights and duties, as a person in a proper financial position to do that. Our members were made up of people who were great clients and we had a great business with them. There was nothing to stop that business continuing to this very day, but EBS wanted to change the structure and convert the business from safe products into what I regard as non-safe products. The products were okay if they were sold correctly and to the right people, but the products did not suit everybody. We were not selling shoes, we were selling complex financial products. That is the bottom line. We were not selling shoes. EBS wanted sales, sales, sales. We did not like that much.

Kieran O'Donnell (Fine Gael)
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Were targets set for Mr. Kavanagh?

Mr. Shane Kavanagh:

We absolutely were set targets.

Kieran O'Donnell (Fine Gael)
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Mr. Kavanagh said that incorrect products was being sold to the customer. Will he define this? Can he give an example?

Mr. Shane Kavanagh:

I will give the committee a real-life example and I will not use names. There was one situation where we were supervised to make sure we were actively selling. If a client had a lump sum investment but very much wanted his or her money kept safe, we were actively told to try to get some of that money into a protected bond. In the sale of protected bonds, with the word "protected" one would assume that the money is protected. The small print, however, indicates that the money is only protected after five years. If the person wants the money before that date, then it is not protected. We were given instructions to make sure our paperwork was right. The paperwork included a freetext box, which is the piece we put in, where the wording was inserted in such a way that "you" decided. This is even though I tell a person to put his or her money into the product, and the person trusts me because he or she always has dealt with me. They may say that Shane was a nice fellow, that they trusted him and that they would do whatever he said. Some customers were like that; they trusted one. While I do not state that people did this, the opportunity was there to do it because people were under pressure to get their sales. They might put somebody into one of these products and the forms stated that "you" chose it and " you" were made aware of the charges and have been told that after five years, the capital is protected etc. That part of the paperwork is in the freetext box but this is manipulation. If the client decides suddenly, two or three years down the road that he or she did not want that and goes to the financial services ombudsman, the ombudsman will then look for a copy of the paperwork, where everything will be in favour of the bank. I felt it was very underhanded and so did the rest of the agents. When we queried it we were basically thrown out.

Kieran O'Donnell (Fine Gael)
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Can I support Mr. Kavanagh on this? There is a body of work to be done here.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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During the exchanges Mr. Kavanagh had with members, he referred to the terms and conditions, an incentive scheme and that his position was terminated. Perhaps Mr. Kavanagh will give the committee a note, without accusations, with some further information.

Will Mr. Kavanagh let us know, as he was doing with Senator O'Donnell, exactly how the general body of people who were tied agents were affected overall? An overall note on that would be useful. He gave us the number of legal cases. How many tied agents are there now? How many are now taking cases? We would like the information on it when we deal with the banks.

Will Mr. Butler fill out a little bit on the three paragraphs that he gave us on the decision taken by EBS? He went on to talk about the banking crisis and so on, and then he addressed the €2.3 billion. Will he give us a deeper sense of the points he is making there?

What I suggest to the members this morning, arising from what they asked, is that we give a right of reply to EBS and AIB, that we talk to the Central Bank and send it transcripts of this meeting, and that we arrange an appropriate engagement with each one, EBS, AIB and the Central Bank, to determine how we can move forward from where we are right now. This is a first meeting to get agreement from members. We have that agreement. They are the steps we will take.

In everything that has been said, I find it extraordinary that neither the terms of reference or the final report ever emerged in the process entered into. In terms of the legal cases and challenges that are there, I cannot help but think that those on the other side of this argument have legal muscle and money, and that might be a way of dealing with it, which is unfair. A bank which has got €2.3 billion is answerable to this committee. The Central Bank and the regulator need to be more accountable than they have been to date. That is my view. The members are anxious that we see more information and that we engage as soon as possible with the Central Bank and AIB.

I thank the witnesses for coming to the meeting today and opening this paragraph of the investigation. I also thank their colleagues, all the tied agents and all the families affected. I appreciate them coming here. We look forward to engaging with them again.