IRISH NATIONWIDE building society is being examined by the financial watchdog over issues ranging from lending practices to corporate governance. Sources said the examination, which was described as “wide-ranging” is expected to take a number of months to complete.

The building society denied any inquiry was under way.

In 2002 a former senior executive, who received €200,000 from the building society in settlement of an unfair dismissal claim, wrote to the Central Bank expressing concern about alleged compliance issues. A letter was also sent to the building society’s board repeating the allegations.

Regulation of the building society has since passed to the newly established Irish Financial Services Regulatory Authority (IFSRA). Among the authority’s concerns, which have been communicated to the building society, is the number of independent directors on its board and their expertise. Irish Nationwide has appointed a number of new directors in recent years.

One source said IFSRA stopped short of appointing its own directors for fear of what he called “moral hazard”. This is the concern that IFSRA’s independence as a regulator could be compromised.

Michael Walsh, chairman of the building society and a well known figure in Dublin financial circles, is understood to be co-operating fully with the regulator.

Irish Nationwide said all directors were appointed to succeed retiring directors. “The Central Bank had no part in the appointment of directors,” it said.

Last week Liam O’Reilly, the chief executive of IFSRA, warned that the regulator had the power to demand that the board of a financial institution remove any director including the chief executive.

Launching IFSRA’s three-year strategic plan, O’Reilly said there was a need for “ethical standards” and for people with “probity” and that it would be emphasising its principles to the senior management at Irish financial institutions.

IFSRA expects the boards and management of financial services companies to commit fully to a “culture of integrity, competence and best practice”.

Sources said some of the practices at Irish Nationwide were not covered by industry standards or regulations and would have to be approached by reference to first principles such as openness and transparency.

Practices that members have objected to in the past include the absence of a published standard variable rate and penalty interest payments. Under pressure from members, Irish Nationwide last year agreed to stop charging penalty interest. However, it has refused to pay back the interest it had already received.

At the end of last year the cabinet agreed proposals that will allow Irish Nationwide to demutalise. It had been lobbying for legislative changes for years, specifically a relaxation of a five-year takeover protection clause.