The revelation is the latest blow to the bank’s reputation in foreign exchange, after rogue trader John Rusnak at AIB subsidiary Allfirst Financial lost nearly $700 million in fraudulent forex trading two years ago.
"I wish to apologise sincerely to our customers," said Gleeson last week. "Charging the wrong price, however it is occasioned, is entirely unacceptable. Customers who paid the wrong price for foreign exchange transactions will be reimbursed with interest."
A bank spokesperson said that in 1996, AIB had mistakenly told its then banking regulator, the Office of the Director of Consumer Affairs (ODCA), that the margin charged on certain forex trades was 0.5%. In fact the bank was charging 1%.
A spokesperson at the Irish Financial Services Regulatory Authority (IFSRA), the regulator that took over banking jurisdiction from the ODCA in May 2003, explained that even though customers had also been advised that the rate was 1%, as this had not been authorised by the regulator, the charge was illegal.
The categories of foreign exchange trades affected include: consumer forex drafts between IR£500 and IR£10,000 (€600–13,000) and outward international payments of between IR£500 and IR£50,000, including e-payments, the IFSRA spokesperson said.
Due to the "high-level" nature of these transactions, "it is likely that business customers are involved", said the AIB spokesperson. The bank was unable to say how many customers have been affected, but it believes it should be able to identify, contact and reimburse at least two-thirds of them, accounting for 80% of the total amount to be reimbursed.
The bank is setting up the systems needed to identify these customers, so it will not be able to start reimbursement until August. In the meantime, AIB has placed €25 million in a holding account at Ireland’s central bank, which it expects to cover an estimated €14 million resulting from the margin discrepancy, and a provision of €5 million for interest and contingencies. Should there be any money left over after all customers that can be identified have been reimbursed, it will be put "back into the community", said the AIB spokesperson, although further details of how this might be achieved are not yet available.
The bank will shortly announce the name of the individual leading its investigation, which will examine how the error occurred, and how it went undetected for so long.