I call Deputy Burton to move amendment No. 1.
Central Bank and Financial Services Authority of Ireland Bill 2002: Committee Stage.
Before we move on, will the Minister comment on Deputy Richard Bruton's question regarding the fate of the amendments on which we were briefed with regard to the agreements reached with credit unions? Amendment No. 1 is in that context.
There are four Committee Stage amendments relating to the credit unions, namely, amendments No. 72 and Nos. 98 to 100, inclusive. There will be a further amendment on Report Stage regarding the ethos of the credit union movement, which has been discussed and seen by the movement. It is being drafted currently and the credit union movement is reasonably happy with the proposals.
Will the amendments on which we were briefed be left to Report Stage?
One of them will. Amendments No. 72 and Nos. 98 to 100, inclusive, relate to the credit union movement and there will be one further amendment on Report Stage.
In the interests of clarity, will the Minister talk us through those amendments now and explain how he intends to deal with credit unions? My amendment is related to the briefing I received from the officials.
I will do so when Deputy Burton moves her amendment.
SECTION 1.
I move amendment No. 1.
In page 5, between lines 25 and 26, to insert the following subsection:
"(3) Prior to making an order under subsection (2) in relation to a provision of this Act in so far as it relates to credit unions, the Minister for Finance shall report to both Houses of the Oireachtas on the implications of the operation or proposed application of the relevant provision of this Act to credit unions.".
Since I announced my intention to make amendments to the provisions relating to the Registrar of Credit Unions, specifically the reporting relationships, the Irish League of Credit Unions has expressed its concerns. I met with the ILCU on 16 December 2002, and I stated that I was proceeding with my draft amendments to the Bill regarding the accountability of the Registrar of Credit Unions. It explained that its concern was to protect the ethos of the credit union movement. I explained that my suggested amendments were in regard to the internal accountability of the registrar, but I indicated to the league that I was prepared to propose an additional amendment with the intention of ensuring that the ethos, characteristics and uniqueness of credit unions could be safeguarded in the Bill. To that end, a delegation from the league subsequently met with officials from my Department to discuss a possible wording for an amendment to section 33AA(4).
A draft wording of an amendment resulted from the meetings with officials. I will therefore introduce on Report Stage an amendment to provide that any directions given to the Registrar of Credit Unions must be in accordance and within the scope of the Credit Union Act 1997, or such other Act or law as may be relevant in respect of any functions or powers the management of which may be delegated to the registrar; and, in issuing directions to the Registrar of Credit Unions, the members of the regulatory authority or the chief executive must have regard to the particular objects and nature of credit unions. The particular objects and nature of credit unions are largely spelled out in section 6 of the Credit Union Act 1997 and include their voluntary nature, their common bond, their economic and social objectives and so forth.
It is important to note that there was nothing new with regard to the process under which credit unions are to be regulated under the provisions of this Bill, which will continue to be the Credit Union Act 1997. I understand that the league will issue a press release this week stating that while it would have preferred the provisions relating to the Registrar of Credit Unions to remain in the Bill as published, it acknowledges that the amendment to the above section which I propose to introduce on Report Stage recognises the distinct voluntary nature and social economic role of credit unions. The interim IFSRA has already indicated in two letters that it will take into account the unique nature of credit unions when making decisions which relate to them.
I want to look back at the original intentions the Minister indicated to the credit unions through a series of meetings with his officials. The Bill, as originally drafted, was to provide a registrar with a considerable degree of legal autonomy within the new structure of the regulatory authority. This was to reflect the separate and unique status of credit unions as voluntary and not-for-profit organisations and the need to have a more appropriate regulatory regime which reflected their unique ethos and role in the community both in local areas and in regard to particular work groups, professions and so on.
The Minister has said that he brought forward these amendments and changed his mind from the original Bill as a result of a communication from the interim board of the regulatory authority, which in turn reflected the view of the Central Bank and the ECB, and in order to have a unified regulatory authority for all financial institutions. Despite seeing the Minister's letter to the Fianna Fáil troops in regard to this matter I am convinced there is a degree of a punitive attitude towards the credit unions which are now being placed firmly in the same framework as commercial banks and large commercial organisations given that they too will be subject to some of the additional provisions which are being introduced.
I am not convinced the proposals the Minister has brought forward will be easy for credit unions. From speaking with the Minister's officials I know that as this measure will mark a considerable increase in the requirement for financial regulation by credit unions, there are plans to provide and upgrade training for credit union officials. The capacity of different credit unions to respond to that will vary.
The purpose of my amendment is that in regard to any provision of this Act, in so far as it relates to credit unions, the Minister should report to both Houses of the Oireachtas on its operational implications for or proposed application to the credit unions. The Minister's officials promised us, and I presume it is in the amendments yet to come, that the Bill will say nice things about the credit unions. However, saying nice things and providing a framework which is sympathetic, not only to the operation of the credit union movement but to its further expansion and consolidation and to its ethos, can only be done in a political way where the Minister comes back to the Dáil and Seanad and reports on the implications of his proposals for credit unions.
I would like to address this amendment and the wider issue to which the Minister has drawn our attention through the amendments he has tabled dealing with the Registrar of Credit Unions. One of the attractive features of the legislation as originally drafted was the tangible recognition given to the fact that credit unions were regarded as having a separate ethos and that their independence and that of the registrar was to be defended. There is a genuine fear that what is going on is a move by the commercial financial institutions to have the same sort of regulatory obligations as apply to them imposed on the credit unions. This fails to take into account that credit unions are a not-for-profit body and that they provide credit to those whom the banks regard as unbankable or will not touch with a bargepole.
I am concerned that while the Minister started out with the right attitude he seems to have succumbed to a rearguard action from the more commercial financial interests to force the credit unions into the same straitjacket as applies to solely commercial institutions. Where previously we were going to see the publication of a separate budget for the registrar which would be open to the Oireachtas and the Minister and in which we could see and ensure there was proper provision in regard to the registrar, the Minister is abolishing that in his amendments. Therefore the budgetary independence of the registrar is being removed.
The Minister also provided originally that the registrar's report would be provided directly to the Minister, which gave it status, who in turn would provide that report to the Houses of the Oireachtas. That gave the credit union registrar independent recognition as having a direct reporting relationship with the Minister, and from the Minister to the Houses of the Oireachtas, and defended the strong independence and special role of the credit unions and the registrar overseeing them. Now we are seeing those protections chipped away one by one in this legislation. The Minister has effectively robbed this credit union registrar, just as he has robbed the consumer director, of all independence. This is not a trivial matter.
The record of the Central Bank in relation to consumer issues, whether seen through credit unions or consumer protection, is not a happy one. Effectively we are setting up a Registrar of Credit Unions, and a Director of Consumer Affairs in relation to financial institutions, who will be entirely dependent on the Governor of the Central Bank for their budgets and who will have a reporting arrangement only through that regulatory authority. There will be no direct reporting arrangement to the Houses of the Oireachtas or to the Minister. They will be obliged to format their reports in accordance with the guidelines laid down by the director of the regulatory authority. This is not satisfactory.
The only heartening element in the Minister's amendments is that, to date, he does not refer to a provision whereby the registrar will become subject to direction by the financial regulatory authority. Will the Minister confirm that we are not making the registrar subject to direction? That, at least, would support the independence of the registrar where the only obligation would be to comply with guidelines by the authority in regard to co-operation but not direction. It is important that we try to hold the line in regard to some independence for the registrar within the financial authority structure so that he or she can act as the guarantor in the long-term interest of credit unions.
It is fine and dandy to have a nice wraparound statement of how good the credit unions and their principles are, but it would be better for the Oireachtas to see a strong independent registrar within the regulatory authority standing up to protect the ethos of the credit unions. I am not persuaded by the Minister's approach. It is disheartening that we do not have the full picture of his amendments and that we are only seeing half of them at this stage.
It is important that colleagues press their amendments and take the opportunity to confirm the position with Mr. O'Dwyer of the Irish League of Credit Unions. It is imperative that the concerns being expressed are drawn to the league's attention. Are we to take it the amendments the Minister has signposted, amendments No. 72 and Nos. 98 to 100, inclusive, are a result of a series of meetings that have taken place between the Minister's officials and the league's representatives since last we met? Are some of them at the Minister's own instigation?
We do not have any detailed assessment from the credit unions. For example, amendment No. 100 seeks to delete subsection 33AC(3) which states that as soon as practicable after receiving a copy of the registrar's annual report, the Minister shall arrange for a copy of that report to be laid before both Houses of the Oireachtas. It is proposed to delete that without any replacement. Perhaps the Minister would like to elaborate on the thinking behind the proposal. I would continue to support the amendment as presented by Deputy Burton with regard to the particular focus of the credit unions' interest until the matter is more substantively clarified.
Deputy Burton's amendment is very important because the credit union movement is enormous. Credit unions are the ordinary man's bank and, if a survey were undertaken of ordinary people, it would be found that the vast majority are members of and shareholders in their local credit union. Many would have at some stage not just put savings in but would have benefited by virtue of getting loans. In any working class estate, certainly in my part of the country, virtually everybody has a loan of some description from the credit union. Those loans are generally repaid and the record of repayment is very good. As Deputy Richard Bruton said, many members of credit unions are people the commercial banks would not touch or give loans to under any circumstances. We must ensure the credit unions are protected.
I am concerned that many credit unions are opposed to what the Minister is doing in this legislation. They have expressed particular concerns about parts of the Bill the Minister is bringing forward. Did the Minister get any feedback from the credit unions as a result of his meeting on 16 December last to say they were happy with how he was proceeding? If he has had such correspondence from the credit unions, perhaps he will be good enough to put that on the record. Will he indicate what further discussions he has had and when will we see this other amendment? It is difficult to expect us to vote on an amendment when the Minister is saying that something else is coming. It is a question of "live horse and get grass". What is the real story of that amendment and will the credit unions be satisfied that they are not being put at a disadvantage with regard to the commercial institutions and, in particular, with regard to the very good service they have provided heretofore in the community?
As I explained to the committee before Deputy McGrath arrived, we had a meeting with the Irish League of Credit Unions on 16 December and there have been subsequent meetings between my officials and the league. The league has indicated that whereas it would have preferred to stick with the original Bill as proposed, the changes it has seen meet its approval. That was referred to by Deputy ÓCaoláin and the league is to issue a press release later this week of which I have seen a draft copy.
The changes I proposed to the Bill as initiated arose not from those within the banking sector but from three different sources: one was the interim board of the IFSRA which was made up of a wide variety of interests, another came from the European Central Bank and a third came from correspondence received from the Governor of the Central Bank. The internal accountability of the registrar and to whom he would report was at issue.
When the initial changes were proposed, the Irish League of Credit Unions met and then came to see me. It explained that it was interested in protecting the ethos of the credit union movement. I stated that I had no problem with this and that a suitable amendment could be drafted to incorporate the league's wishes. I referred to the amendments which would be incorporated for that particular purpose. The ethos and structures will be incorporated into an amendment to section 33AA(4) of the Bill. There were many meetings between my officials and the league regarding the particular amendments and the league is prepared to go along with those.
The Irish credit union movement has grown from small beginnings to being a very large holder of deposits. I read in one of the movement's press releases some months ago that it had under its control something like €7-8 billion on deposit, which is a considerable amount. The idea behind this authority is that we would have clear accountability and that the highest standards are brought to bear in all areas of financial regulation. Members would agree that €7-8 billion on deposit with an organisation is a substantial amount. I told the credit union movement when I met with its representatives on 16 December that there was no problem protecting the ethos of the movement in the Bill. The board of the IFSRA has sent letters on two occasions to the credit unions saying it would take all these matters into account and I will also write it into the Bill.
As I am not a committee member, I thank the chairman for the opportunity to make a contribution. Like others, I have concerns in regard to the way in which the Bill will affect how credit unions are defined, and are compared and contrasted with other types of financial institutions. With regard to the series of amendments proposed, what consideration has been given to the United States model where a separate regulatory authority exists - a national credit union administrator - separate to the regulating bodies which exist for other financial institutions? Was consideration given to this model and if not, why not? If consideration was given, why was the model not seen to work in an Irish context? If we are serious about valuing the ethos of the credit union movement, a model of a separate regulatory framework such as exists in the United States is one that would help us to properly protect that ethos.
The consideration given to the European Central Bank in particular might have been informed by a perception of credit unions and similar organisations existing in continental Europe which is not directly comparable to the Irish model, for instance, the German credit union model. As a result of this, the history and formation of Irish credit unions are more closely linked to the American model. I am interested to know the degree of thought that has been put into this Bill and the amendments put forward subsequently with regard to why the American model is not seen to be one that could and should work in Ireland.
I welcome the Minister's agreement with the Irish League of Credit Unions with regard to his proposed amendments. Could the Minister in a broad brush fashion set out some of the principles and thrust of the amendments? Clearly, we cannot see some of those that will be brought forward on Report Stage but he might underline the broad principles behind the amendments he has introduced in line with his discussions with the credit unions, which I applaud. To be fair, some of the league's views of the Minister seem to have been coloured by previous experiences and, when it deals with him, it will find him to be very flexible. Will he set out the broad principles of the proposed amendments? I realise there are over 70 but I would like to hear the broad thrust of the changes which the credit unions will welcome in coming weeks.
I referred earlier to the amendment to section 33AA and what it will incorporate. It will provide that (a) any directions given to the registrar of credit unions must be in accordance and within the scope of the Credit Union Act 1997 or such other Act or law that may be relevant in respect of any functions or power the management of which may be delegated to the registrar and (b) in issuing directions to the Registrar of Credit Unions the members of the regulatory authority or the chief executive must have regard to the particular object and nature of credit unions. The particular object and nature of credit unions is largely set down in section 6 of the Credit Union Act 1997 and includes their voluntary nature, their common bond, their economic and social objectives and so forth.
Which amendment is that?
This is the Report Stage amendment which we propose for section 33AA(4).
Can that be circulated?
That is only the speaking note regarding the general objectives of the particular amendment. The actual amendment is currently being drafted.
That makes it difficult for us to do our business. The Minister has all the aces while we do not even have the text of the material before us.
The Deputy is being unreasonable. I asked this question of the Minister and he is actually being helpful. I accept that some of the beneficial amendments are being sent to the parliamentary counsel.
The Deputy should speak through the Chair, Deputy Burton is in possession.
Perhaps Deputy Lenihan is disadvantaged by the fact that he was not present for our earlier discussion. For that reason I forgive him and welcome him now. I am just asking the Minister whether we can get the text of the proposed amendment. We have already had a briefing from his officials but the Minister's notes indicate further changes. Can we establish where we stand in regard to this? This is a reasonable request.
The Deputy may have a copy of the speaking note.
What about the USA?
My officials and others had a look at the US situation and I can forward a five page note of considerations on the matter to the Deputy. In summary, credit unions in the United States are either state or federally chartered. Those with federal charters are supervised by the National Credit Union Administration while state chartered unions are supervised by a state regulatory industry. There are many variations as to how state chartered credit unions are regulated. Six states have credit union regulatory bodies completely separate from bank regulatory bodies. In the majority of cases the regulation of state chartered credit unions is carried out by a state institution which also regulates the banking sector in that state.
The different divisions within these institutions vary. Some, such as Connecticut, have specific divisions that deal specifically with credit unions while others, such as New York, have divisions which deal with credit unions among other things. While the proposed structure of the Central Bank and Financial Services Authority of Ireland differs from the federal chartered credit unions, it has many similarities with the regulation of state chartered credit unions. The similarities mainly revolve around one institution having its own regulator, within which institution different divisions deal with such things as credit unions. In Ireland, the Registrar of Credit Unions is responsible for credit unions, consumers have the consumer director and the IFSRA deals with banking regulations. Some thought was given to the matter and it will be no trouble to provide the detailed notes if Deputies require them.
Can the Minister expand on how the new regime is likely to work? We all accept, the Minister included, that credit unions have a unique role and are not the same as a commercial, for profit bank. Yet, by virtue of the amendments about which the Minister has spoken and by his rejection of other models, the Registrar of Credit Unions will have to fit into the regulatory authority. Although the Minister can insert fine words acknowledging the ethos of the credit union, when his amendments are put into effect the Registrar of Credit Unions will be an essential part of and subject to the overall regulatory authority.
The members of the board of the regulatory authority may well have favourable intentions towards the credit unions. Nonetheless, they objected to the Minister's original model because of its failure to corral the credit unions into a single model. I suggest that what the Minister is proposing to the credit unions is a diplomatic fudge whereby language will be written into the Act but, in effect, the registrar will be clearly subject to the overall control of the financial services authority. I am not sure the Minister has given this sufficient consideration.
This Bill represents a political victory for the Central Bank in grabbing control of this entire field from where it was meant to be in the original report of the Department of Enterprise, Trade and Employment where it was to have, for instance, a large element of consumer friendly purposes to it. When one looks at the recent history and performance of the Central Bank in regard to regulation, as disclosed in the DIRT report, why should we suddenly have confidence in that bank which, now that it dominates and controls this new authority which is primarily concerned with prudential aspects of banking, will dominate a report substantially concerned with consumers? As the Minister said himself, consumers throughout the country have €7 billion on deposit with the credit unions which are coming under this strict regime which was primarily designed for commercial banks, not for a not-for-profit ethos.
I am not filled with confidence when I look at the history of the Central Bank and how it went after the regulation of banks with regard to the DIRT fiasco. I am concerned it may approach the credit unions with a negative frame of mind and try and squeeze them into the commercial banking "one size fits all" model. That would do a disservice to the commercial banking and financial services sector and to the credit unions which are quite different. The Minister's original proposal was far better and his explanation today for this new proposal has not convinced me.
I was disappointed the Minister did not respond to my direct request as to whether we could rely on the fact that the registrar will not be subject to direction by the regulatory authority. This important feature of its independence is set out in page 47 of the existing Bill, in section 33AA(4) which states:
The Registrar is not subject to the control or direction of the Regulatory Authority in carrying out or exercising the Registrar's responsibilities or powers with respect to the registration of credit unions or the supervision of their affairs or activities.
That is one of the important defences of the independence of the credit union movement. There were three others in the original Bill. One was the obligation of the regulatory authority to provide adequate funds, the second was its right to report directly to the Minister and the third was the right to lay the report before the Oireachtas. It now seems that in the amendments already tabled the Minister has taken away three legs of that stool leaving just one leg - independence from direction. I suspect from the Minister's reading of this amendment, and I think my suspicions are confirmed, that the precise subsection we have referred to here is being deleted.
Effectively, we have taken the four legs of independence from under the stool of the registrar and are asked to rely instead on some general statement about the objects and purposes of the credit union movement and its ethos. I am not convinced the Minister's second thoughts are as good as his first ones. His first thoughts reflected accurately the view of the Oireachtas that we want to preserve the freedom of movement of the credit unions. We did see the need for the registrar to develop regulatory procedures and to work in co-operation with the IFSRA. That was set out adequately in the original Bill but here the Minister has gone in the opposite direction. He has succumbed to the statements coming from the ECB, the Governor of the Central Bank and the IFSRA that they want lines of accountability set up for the registrar. That might work neatly for them but for those interested in the independence of the registrar and the credit union movement, this is seen as a power struggle and power seizure by the IFSRA. All of the pillars of independence the Minister granted on first thought have now been taken from under the registrar. I do not understand why the Minister is so quickly willing to abandon his first thoughts on this matter. I have not seen the submission from the IFSRA and, although I have seen the submission from the European Central Bank, it has not dealt in any way with the ethos of the credit union movement and I do not think the bank even knows of its ethos. I have not seen the views of the Governor the Central Bank.
The Deputy has them all.
I have had not had the opportunity to study them although I have received the ECB view.
The Deputy has the others also.
The Minister is perhaps here to justify his decision to proceed along the lines suggested by the Governor of the Central Bank, the IFSRA and the ECB instead of those suggested by Members of the Oireachtas and members of the credit union movement, who have a long tradition of providing finance to people who otherwise would not have access to it. The Minister might explain these views and why they are so important that they steamroll over the independence of the registrar and the credit union movement he supervises.
The goal of everybody in this area is to ensure good regulation. Nobody will thank us in years to come if one Friday morning we wake up and some financial institution has gone under, be it a bank, credit union or whatever. Everybody is trying to ensure that the best regulation possible is devised.
The credit unions are a substantial part of the Irish financial services sector. We have tried to ensure that the ethos and values of the credit unions are recognised in this structure. The regulatory provision regarding credit unions still remains the Credit Union Act 1997 which, as Deputy Richard Bruton will know, took five years to bring from gestation to being passed by the Dáil. At the end of that period, it was Deputy Pat Rabbitte who had the responsibility of finally getting the Bill through the Dáil and he will tell you that trying to get agreement in that area was not one of his more pleasant tasks. He has written and spoken about it on a few occasions and his comments are worth noting.
We are trying to ensure that the best regulatory structure is put in place. I have taken on board the comments of the IFSRA board, the ECB and the Governor of the Central Bank and the attitude of the Irish League of Credit Unions and I am bringing forward amendments with which the league has expressed its satisfaction. To answer Deputy Bruton's question, under the new structure the credit unions will be under the direction of the chief executive officer and board of the IFSRA. However, as is pointed out in a letter from the chairman of the IFSRA and in my amendment, the ethos and values of the credit union movement must be taken into account.
None of us will be thanked, whether we represent Laois or Roscommon, if, one sunny day, it is found that things were not done correctly. Some Members will ask in the House why proper regulation was not given to that body. There is no regulation in the world that can guard forever and a day against things happening in financial institutions; if that was the case, we would be in a very happy position. Therefore, we have taken on board the comments of the various people whose job it is to look at these particular aspects. I have taken on board the comments of the Irish League of Credit Unions and have come up with this solution.
Will the Minister tell us what those comments are?
The Deputy has them.
Where?
The Deputy will have them in the next few minutes. We should return to the basic principles of this Bill. When the Government decided to have a single regulatory authority, Mr. Michael McDowell was asked to chair an implementation group which eventually delivered three reports. I have received conflicting views from the Fine Gael Party as to what structure it favours. The former finance spokesperson, Deputy Noonan, favoured everything being within the Central Bank. He was replaced by Deputy Jim Mitchell who more or less favoured everything being with the Director of Consumer Affairs. I cannot remember former Deputy, Senator Derek McDowell, having a great objection to what was being proposed in the original Bill.
If 25 people were brought to the committee, we would hear 25 different opinions. When the nine-person implementation group was set up, I received three different reports from eminent people, all proposing different structures for all of the areas of single regulation. It is not an easy task but we have come up with a compromise between a number of competing entities. Nobody has been totally satisfied. I reject absolutely that any organisation has taken over anything else.
The job the Central Bank was charged by law to do has been done exceptionally well since the Central Bank Act came into force many years ago, and it should be looked upon with pride by Irish people and with some envy by those from abroad who will tell you that the bank does its job effectively and well. I have said in the Dáil on many occasions that the Central Bank was not legally entitled to act in many areas where it has been accused over the years of failing in its duty. The bank was specifically excluded by law from reporting matters that came across in the bank's prudential regulation of institutions that could have been of interest to the Revenue Commissioners or anyone else. The Central Bank has been accused of many things in past years and that is totally unfair to current members of its board and workers at the bank over many years, and is based on a false premise.
I find something intriguing in the Minister's speaking notes. In the reference to the Minister's proposals to recognise the role of the credit unions, and the nice words about them, it is interesting that, in the previous statements of the Minister and his officials, one of the points acknowledged about the credit unions is their not-for-profit nature. In the letter given to Fianna Fáil Deputies which the Minister also sent to credit unions, he specifically notes that the IFSRA acknowledges this not-for-profit nature. However, in the proposed amendments, while mutuality and the voluntary nature of the work of the members is proposed for recognition, the not-for-profit nature is not.
In the context of the Minister's reference to the €7 billion worth of deposits in the credit unions, not to recognise the not-for-profit nature of the credit unions in the Bill would, as happened in the case of building societies, facilitate the takeover of credit unions by commercial banking organisations because all that is proposed for recognition is mutuality, voluntary contributions and voluntary work. I recognise and acknowledge that it is a very difficult area to get right but, as Members have said, the Minister's first attempt was better than his second. I am seriously concerned with regard to the recognition the Minister proposes to give to the ethos of the credit unions. Leaving out formal recognition of the not-for-profit nature of the credit unions could facilitate their takeover because all that is recognised is mutuality and voluntary effort.
With regard to the speaking note on the meeting with the ILCU on 22 January last which has been circulated by the officials, I am anxious to know about the issue of recognising the distinct nature of the credit union movement with regard to the voluntary character of directors - this matter has been raised with me by members of the credit union movement. Is that a signal that the Minister's intention is not to have the same heavy burden of compliance as appeared in the first published Bill on directors of credit unions, in other words they would not be put through the same verification and screening that would apply to, say, a commercial bank which would appoint a director? Clearly there would be a much higher degree of compliance, training and scrutiny of somebody who is a director of a commercial bank as distinct from a credit union. That is one of the fears voiced to me privately by credit unions in my constituency. While they were voluntary directors they were being asked to operate at compliant levels equivalent to the banks and directly to the chief executive of the new authority.
The proposed amendment has been cleared with the Irish League of Credit Unions. It refers specifically to the Credit Union Act 1997 and, in particular, to section 6 of said Act which reflects the non-profit ethos. The reference to this in a particular section has proved satisfactory to the Irish League of Credit Unions which is satisfied that it covers that particular point.
In that note the Minister referred to mutuality and voluntary work but he left out the reference to "not-for-profit".
I have just explained that. In addition to the mutual benefits and objectives of credit unions as prescribed in section 6(2)(b) and (c) of the Credit Union Act 1997, the economic, social and cultural objectives prescribed in section 6(2)(e) are referred to and the credit union accepts that is sufficient. Deputy Lenihan asked about the levels of compliance. The directors of credit unions, in the same way as the directors of any limited company or any other institution, have a great deal of responsibility. That responsibility will not lessen or increase due to this Bill and people taking on these responsibilities should be aware of that. The job of director of a credit union is no longer a job with which one is honoured, it has to be taken very seriously because one is dealing with large amounts of money.
Will it be cleared by a Minister rather——
Everything in this regard will be cleared by the Registrar of Credit Unions. The Credit Union Act 1997 is the regulatory Act for credit unions. The regulation of credit unions will be governed by the Credit Union Act 1997 but the reporting relationship will be part of the IFSRA under this Bill which most people accept makes sense. I have already indicated that the reporting relationship must take account of the ethos of the credit union movement. That has been written into the Bill, even though I would probably have said there was no need to write it in. However, the League of Credit Unions came to see me in December and asked that it be written into the Bill and I agreed. I do not think there was a great need to do it but I agreed to do it if it satisfied the League of Credit Unions. That is what I have done.
Amendment put and declared lost.
Section 1 agreed to.
NEW SECTION.
I move amendment No. 2:
In page 5, before section 2, but in Part 1, to insert the following new section:
2.-As soon as may be after the passing of this Act, the Minister for Finance shall prepare and lay before each House of the Oireachtas a report on his proposals for establishing the office of financial services ombudsman.".
The purpose of this amendment is to bring forward the proposals for the establishment of the office of financial services ombudsman. It is regrettable that in the turf war which preceded this Bill, the Central Bank clearly won the war. As the Minister indicated earlier in his sterling defence of the Central Bank and its actions down through the years, the Central Bank has many admirable achievements to its record but protecting the interests of the consumer is not one of them. The Central Bank has always been concerned with the prudential aspect of banking. In this day and age when consumer credit and consumer interaction with financial agencies is such an important part of everybodys life, it is regrettable that the question of providing for consumer services in relation to this has been put on the back foot.
What is necessary is the provision of a financial services ombudsman because consumers are in a environment of intense pressure from banking organisations and, thank God, the credit unions are not party to that intense pressure, much of which results in people having, at times, inappropriate levels of credit. All of us as public representatives are familiar with the increasing numbers of people who actually have unsustainable personal debt and credit card levels. Some of the advertising and some of the actions and initiatives taken by financial services industries, including banks, result in excessive pressure. When things go wrong for the individual consumer there is little redress. The Department of Social and Family Affairs has established MABS which offers information and advice to those in difficulty. I was party to this as a Minister of State at that Department. There is no financial services ombudsman here and such an ombudsman is urgently needed. The purpose of my amendment is to bring that forward as quickly as possible. Given the amount of time devoted to the report of the McDowell group and the work put into the Bill, it is regrettable that the areas dealing with the protection of consumers and services to consumers have been left on the back boiler by the Government.
Deputy Burton's comments go to the kernel of the misunderstanding many people have with this Bill, namely the misunderstanding of many, both inside and outside the House and commentators in particular, as to the role of the Central Bank prior to the passing of this legislation. On the specific point of the financial services ombudsman, a No. 2 Bill, which will provide for the financial services ombudsman and other matters, will be published later this year. I can deal with the purpose of the amendment in that context.
The job of the Central Bank was to ensure prudential regulation of banks. I would honestly have to say the Central Bank has done that job exceptionally well and is recognised internationally as such. We have never had a failure here. The bank has an exceptional record. There are many reasons for the success of the financial services centre in Dublin. As Minister for Finance and as spokesman on finance I have dealt with a number of these companies from all over the world. Their head manager said one of the key reasons for its success was the speed with which one can get access to decision making here, particularly in regard to how matters were dealt with by the Central Bank. The Central Bank has a big name internationally in dealing with prudential regulation. The Central Bank did that job very well and was precluded by law from dealing with 99% of all the other issues that have been in the public domain in recent years. There are people in Leinster House who know that but who choose to ignore it in some of their public comments and it is difficult to believe that people outside the House who have commented upon it do not know it either, but it may serve a particular purpose to keep knocking the bank all the time. The Central Bank has done its job particularly well and, as I said earlier, was precluded by law from reporting other matters to the Revenue Commissioners or whatever.
The purpose of this Bill is to marry, in a single regulatory authority, the prudential regulatory aspects with consumer aspects. The Bill gives a sharp focus to the consumer aspects of financial regulation which did not exist previously, nor was it the job of the Central Bank to so do. It was precluded by law from doing many of the functions people have said it should have been doing despite the fact that the previous governor, Mr. O'Connell, told many committees of this House that he could not do it although he would have done so had he had the power. Those remarks were publicised to a limited extent, although he must have made them on 25 different occasions. I made them on at least 55 other occasions but nobody wants to hear about that particular aspect.
The purpose of the Bill is to bring all those aspects together and there has been a worthwhile debate on the way that should be done. Over the past decade or so the United Kingdom has had tremendous difficulties in its financial services regulations in trying to bring different aspects together. It is not easy to marry all these aspects as we have attempted to do with this Bill. Nor is it true to say that any one institution has won the battle in these particular turf wars. No one knows more than myself, having had experience of Government for some years, the turf wars that can go on between Departments and which will continue to go on regardless of whether Deputy Richard Bruton or myself is in this position. That has always been the case among Departments and even within Departments on many occasions. I laugh when I hear about some of the things that go on, which are ridiculous. This Bill, however, was not in that particular category. The Bill is trying to maintain what is best about Irish financial regulation and what the Central Bank did very well. We have come up with this solution to give consumer focus a bigger input, to have it at the centre of this new organisation and to have prudential regulation also. That is what we have achieved.
It is not a case of anybody winning. The Central Bank does not make decisions about the CBFSRA Bill. That is done by the Government. I, as Minister for Finance, together with my colleagues, the Taoiseach, the Tánaiste and other members of the Government, as the voice of the people, decided on these particular structures. Some people have interpreted some of those structures as the Central Bank getting its way. If there is that perception it is because, having considered the matter, we have decided that this is the best way of doing it to the best of our knowledge. That is the reason we have opted for this way of doing things.
Recently I heard comments about the appointment of the chief executive and the consumer director, which is the one made last week, both of whom were appointed after an exhaustive interview process. It must be remembered that the CBIFSRA board does not have a majority of Central Bank board and former Central Bank board members. It is made up of people who were never members of any Central Bank board. The process was wide-ranging and a great deal of expense was incurred. It was more or less an international competition in this regard and the two people who won happen to be former employees of the Central Bank, but the process was completely open and above board. There was a large number of applications for these jobs, both nationally and internationally, and these two people won the competition. Incidentally, the chairman of the CBIFSRA board was not a Central Bank person. Mr. Patterson has no involvement with financial institutions. There have been some very peculiar comments in this area. Some people just do not like the Central Bank or some of the people involved with it, despite the fact that it has an international reputation and is highly regarded.
I am not here to defend the Central Bank. I am just defending the facts and the truth which some people appear to be deliberately ignoring over a long period. That is very unfair to the Central Bank. I readily accept it would be a peculiar organisation that was perfect in every aspect. Apart from a few Deputies in this House, mostly of the left wing persuasion who are perfect in all things, the rest of us are not like that, nor are our parties perfect but we do our best. This is an attempt to have sharper consumer focus and the best prudential regulation and it is the compromise solution we have come up with.
I acknowledge what the Minister said in his Second Stage contribution which perhaps is not a bad thing. I have no objection to the Central Bank having the financial regulatory authority under its wing. There are clear advantages in the Central Bank, which has considerable experience in regulating banking, having a role in regulating insurance companies. We have clearly had a mess in terms of the regulation of insurance companies. I have been in the Department which had responsibility for that area and everyone would admit it did not have the experience or the expertise to do the job, so I see merit in that side of it. I see no merit, however, in bringing consumer protection into the Central Bank.
The Minister said the Central Bank is unfairly accused of not being pro-consumer. Perhaps it is but there is a genuine conflict of interest in terms of defending the prudential soundness of a bank. High profit margins and limited competition make a bank very sound prudentially. They are comfortable and they rumble along without a care in the world because they are insulated. To some degree over the years, the Central Bank has acquiesced in a fairly comfortable environment in banking. That is changing but I do not see——
I want to ensure the prudential strength of the bank.
Absolutely.
The point the Deputy makes is a fair one.
Yes, but the Minister is now trying to say that the Central Bank will look two ways at once. It will look at the prudential soundness and it will want high margins, not too much competition to cause any real threat and a fairly benign environment in which everyone rumbles along they way they have always done. However, a director of consumer protection will want fiercely low margins, a very competitive environment, a huge degree of contestability and transparency and vigorous obligations imposed on the banking structure to conduct its business in the open, as is the case in the Consumer Credit Act in that if charges are increased, approval for those charges must be obtained. There are many areas on which one would take a very different view if looking through the binoculars of consumer protection. The Minister is trying to create a single body that will examine these areas through one set of eyes. It cannot do that. I do not believe the Central Bank ever made a claim that it wanted consumer protection brought into its remit.
It did not. The Deputy is making a fair point about this whole area and it goes to the kernel of the whole debate on a single regulatory authority. This may be a Second Stage speech but people want to ensure that the €10,000 they have on deposit with a certain institution will not evaporate into thin air. They would be more concerned that their money is safe rather than whether the bank manager said "hello" to them when they walked into the local branch or something being wrongly charged to their account. Most people, including those from my constituency and that of Deputy Bruton, would like to think their money was safe. The other aspects are important, and Deputy Bruton is correct. We are trying to marry these two very different objectives.
Many people over a long period said we would try to have a single regulatory authority. Michael McDowell was not charged with saying whether that was a good idea. I do not know what he would have said if he had been asked that question. He was charged with examining how this would be implemented. I have not discussed this matter with him recently. It took the best part of a year to pull all this together. Deputy Richard Bruton put his finger on it in that in relation to the prudential aspect, the Central Bank must ensure that banks do not go under. That is why they have closed secret vaults. If there was a run on the banks, we would all suffer. The Central Bank of Ireland Financial Services Regulatory Authority Board will be at the top. It will have a pillar, the IFSRA board, the make-up of which will include the chairman, the consumer director and the chief executive officer of the IFSRA. It will deal with consumer affairs, credit unions and other matters. Over that will be the CBIFSRA board, which will deal with the Central Bank.
With regard to Central Bank matters, there will be two aspects. Any aspect that relates to dealing with the European Central Bank will be solely a matter for the governor. Under EU law to which we have signed up, we cannot influence in any way how he would deal with such matters. Part of the Central Bank will deal with the normal activities it has traditionally dealt with such as the issuing of notes and coins etc.
Deputy Bruton and I could have this debate on many occasions. I read recently that the Deputy said he did not consider this structure to represent the way he would go about dealing with this area. If he had a debate on this with members of his party interested in this area, who might number only a dozen, he would get different opinions as to how this should be done. If the Deputy had his say, as the line goes in the Frank Kelly song, he would not be starting from this point in the first instance. We have decided this is the way we are going. We got more opinions about the way this should be done than I have had breakfasts, and this is the compromise solution. If Deputy Burton was in this chair, she might do this another way. This is not a starting position. It is not the position from which people in the Central Bank wanted to start and they were not asked about this. They were not consulted as to whether they wanted to have consumer protection. I do not believe one would find a letter in the Central Bank to the effect that people there wanted that. The Central Bank was not pushing down my door saying it wanted a single regulatory authority. We, the politicians, decided we wanted it. I am trying to be fair to everybody in this process.
Although the Minister is an eloquent defender of the Central Bank, it is important to note that while the bank has done a great job, it has failed in some areas. Recently, there were the spectacular happenings at All-First, not under the direct control of the Central Bank, but nonetheless owned by an Irish bank under its control. That case was spectacular by world standards. There were the affairs at Ansbacher and also what happened in relation to DIRT, on which the Minister has commented.
In his comments the Minister basically confirmed that the consumer director, who is to deal with elements of consumer protection, will as he understands it, very much fit in with the Central Bank fiat. Correctly, the primary responsibility of the Central Bank is the prudential aspect of the soundness of the banking system. That cuts directly across the question of consumer protection. The purpose of my amendment is to bring forward the establishment of the office of a financial services ombudsman. This Bill was promised by the Government in 1998 and is only now going through the Dáil. It is reasonable to ask when consumers will get a fair deal in relation to a financial services ombudsman. The Minister spoke about the soundness of the currency and preventing a run on banks and that is very important——
Of course it is.
Of course it is, but of equal importance currently - this is recognised by those whom the Minister admires so much in the American Reserve Bank and by the ECB - is the fact that economies now substantially function on consumer credit and generous amounts of it. That is why George Bush, post-11 September, told American consumers that one thing they could do for America was spend, buy and borrow. As this is such an integral part of modern economies, the question of protecting consumers from unscrupulous behaviour, in some cases by financial institutions, is important. Often when banks offer credit they are the consumers' best friends, but when things go wrong, as they do from time to time, or there is a recession or difficulty in the economy, the banks are not so friendly. We have seen that happen in the case of farming families. Alongside this Bill, we need to appoint, as early as possible, a financial services ombudsman. This Government has been highly remiss in failing to provide such a framework.
I congratulate the person who got the job of consumer director and I am glad to note it is a woman, but as the Minister acknowledged, she has come from the prudential side of the Central Bank, which has a different ethos. I am sure the person appointed will do a good job, but where is the consumer in all this? It is a case of the old Central Bank glove covering this area rather than looking after the needs of the consumer. The Minister must recognise that consumer spending and consumer credit are some of the fundamentals of a modern economy.
The question of prudential regulation and consumer protection was considered in the report of the expert group. The note I have on it states that the question of how best to deal with the issues arising from combining the functions of prudential regulation and consumer protection were dealt with comprehensively in the report by the expert group, that is the McDowell report. It further states that a number of options were examined to see how best each of them would work. The group examined the issue of protecting the interests of clients of financial institutions on two levels, the level of protection of consumers' interests in the context of the solvency regulated entities and at the level of the individual consumer and his or her relationship with the particular financial institution. The relationship between these levels was looked at, particularly from the point of view of the obligation imposed under EU law in relation to the prohibition of disclosure of information to the relevant authority on issues for which it has no statutory function. I referred to all this previously.
In the end the expert group took the view that the consumers' interests would best be served by combining the functions of consumer protection and prudential regulation in one body. The alternatives examined were separate authorities for prudential regulation and consumer protection or two competent authorities but one having a consumer protection function and-or a regulatory authority with subsidiary responsibility for consumer protection. They were all ruled out as it was only within the entity which combined the prudential regulation function with the consumer protection function that the disclosure of information between the two could be done under the provisions of EU law. It would be up to the IFSRA to devise the appropriate mechanisms to achieve this.
The difficulty all along has been that, under section 16 of an EU directive, the Central Bank cannot tell anybody what it finds out in regard to prudential regulation, etc. even if it is in regard to consumer protection or whatever the case may be. It is only in the way we are approaching this, by way of the IFSRA and the CBIFSRA, that these things will be more or less brought together. This is the approach we have adopted here. It is an area in respect of which we have taken a great deal of advice and this is what we have come up with.
With regard to the point made by Deputy Burton about a financial services ombudsman, I refer her to the second Bill which will be published later this year. That will provide for the establishment of an independent financial services ombudsman, which is recommended in the McDowell group report. The role of the ombudsman will be to deal with consumer complaints against financial institutions. The ombudsman, while independent of the IFSRA, will work closely with the consumer director to ensure that customer complaints are dealt with efficiently and effectively. This close co-operation will mean that the consumer director will be in a better position to assess the need for codes of conduct or other regulatory measures that may be necessary to deal with broader issues shown up by the pattern of complaints. The consultation process on the Bill has thrown up some useful ideas about the ombudsman. These will be reflected in the published Bill which I hope to present to the Oireachtas before the end of this year.
I do not wish to prolong the discussion unduly but I wish to draw the Minister's attention to that report. Interestingly, Mr. McDowell, who was not a Deputy at the time, offered 19 examples of other countries in which this issue was dealt with. Not one of them opted for the route which the Minister is presenting as the only route permissible under EU disclosure of information regulations. In only three of them was any sort of formal link established and in 16 of the 19 countries the body dealing with consumer protection was independent.
It is hard to believe that Deputy McDowell, for all his merits, seriously assessed this issue. He went with the flow about where consumer protection would end up instead of having a serious look at international best practice. Many people would argue convincingly that the basic conflict of interest between trying to deal with consumer protection and jurisprudence would demand at least maximum independence for the consumer director. We could all pack our bags and go home if the Minister was willing to say that although he is bringing the consumer director under the umbrella of the financial services authority, he will maximise his or her independence. However, he has done the opposite. He has done what he is now trying to do to the Registrar of Credit Unions. He has provided that the consumer director can issue no report other than mediate it through the regulatory authority, that the director is budgetary dependent on the authority and is obliged to observe the authority's direction on anything. That is not even circumscribed. This is not an independent consumer director.
There is some merit in having consumer protection under this umbrella but the case for it is not compelling. The case for having it separate is compelling. However, even if we accept that the Minister is going to bring this in, he should make an effort to maximise the independence of the director which he has instead minimised. All the Minister has done is give him or her separate positions on boards. It would be better to forget membership of boards and give the director independence within his or her remit. We will come to these issues later but if the Minister is willing to concede some ground, that is where it should be conceded. He should restore to the consumer director a greater degree of freedom of operation than is envisaged by the IFSRA and the Central Bank. They have not been used to having this sort of body inside their tent and they are not happy with an animal that will display independence. That is the problem and this is our last opportunity to ensure that the consumer director, even if he or she is inside the tent, will be strong and independent.
The ombudsman legislation will be more important in terms of vindicating consumer rights than the director of consumer protection within the bank. While the director of consumer protection within the IFSRA or the Central Bank will have the role of encouraging best practice, I presume the sanctions to be applied will ultimately be applied by the ombudsman if substantive criticisms are made. That is the distinction being drawn here. Given the experience we have had with the Ombudsman in this country, it is a positive way to treat this matter. The ombudsman would be wholly independent in the conduct of his or her role and would be able to apply punitive sanctions. Complaints of the systematic ripping-off of customers through charges or whatever would be addressed through the ombudsman rather than the director of consumer protection in the bank. Obviously, the only role of the consumer protection officer within the Central Bank or the IFSRA would be to discourage such practices when they arise or come to his or her notice.
The banks have been talking for some time about establishing their own ombudsman but I presume that would be overtaken by this ombudsman.
They have a voluntary ombudsman.
I am aware of that.
They pay for it.
Is it intended that the new one would render that obsolete? More importantly, will there be a financial contribution, presumably significant, from the industry to pay for the new ombudsman? It would be wrong for the taxpayer to have to pay for legitimate complaints being made about banking institutions. The taxpayer should not have to foot the Bill, and this is an important principle, for the malfeasance, bad practice or sheer niggardly disregard of consumers by the banking sector. The bill should be picked up by the industry. In the meat industry, for instance, the marketing of Irish beef overseas is almost entirely paid for by the beef industry. In the case we are discussing the principle should be established from the start that the banks will pay for the ombudsman and that the ombudsman would be independent, notwithstanding that payment.
There are a number of ombudsman schemes. The banks and the insurance industry both have an ombudsman scheme. We will be having further discussions with these bodies with a view to incorporating their best practice in this new financial services ombudsman. There will be a consultative panel and so forth so I do not want to rule on what will happen to these bodies. Naturally, I would like it to be paid for by somebody other than the Exchequer so the Deputy need not encourage me in that regard. Some of these schemes work quite well and we might learn something from them when setting up the financial services ombudsman. We are having discussions and they will be taken into account when we produce the financial services ombudsman Bill. It will be a No. 2 Bill but I do not have its title yet.
Amendment put and declared lost.
SECTION 2.
Question proposed: "That section 2 stand part of the Bill."
Will the Minister give an indication of the financial cost of establishing and operating this body? Has the Department assessed the financial implications?
The body being established will comprise people from a number of organisations. There will be people from the Department of Enterprise, Trade and Employment who have dealt with the insurance business, as Deputy Bruton will be aware as he was previously the Minister in that Department. People will come from the Central Bank into the IFSRA organisation and there are rights to move back and forward over a number of years. No staff are being disadvantaged. Two people I am aware of are from the Central Bank and are already on the State payroll.
Most of the people who will be brought in are already being paid by either the Central Bank or the Department of Enterprise, Trade and Employment. There will also be people from the Office of the Director of Consumer Affairs. I cannot think of anybody, as of now, who will be going into this organisation who is not already on the public payroll, so it will be a transfer of resources. When we put it all together, the cost of going into a separate entity, although it is a transfer, would be approximately €20 million to €30 million per annum. They are already being paid out of the public purse so it is not an additional cost. Some additional people will be brought in from outside, but I anticipate there will be few in the initial year or two. There will be the usual cost of setting up new offices and providing stationary and ancillary activities, but I am not taking that into account - they will be additional costs.
Question put and agreed to.
Section 3 agreed to.
SECTION 4.
Amendment No. 5 is consequential on amendment No. 3, and both amendments may be discussed together.
I move amendment No. 3:
In page 6, to delete lines 18 to 20.
These are technical amendments. The definition of "banker's licence" has already been defined in the Central Bank Act 1971 and, therefore, does not require definition again in the amended principal Act. This is deleted by amendment No. 3. The proposed amendment No. 5 deletes the definition of "licensed banker" from the amended principal Act. This definition is not required as the term "licensed banker" is not used in the amended principal Act.
Amendment agreed to.
I move amendment No. 4:
In page 7, between lines 6 and 7, to insert the following:
" 'enactment' includes any instrument made under an enactment;".
This amendment is technical in nature. It inserts a definition of "enactment" into the principal Act. This will ensure that references in the amended principal Act to enactments will include statutory instruments.
I am a lay person trying to get to grips with the Bill, but it seems the Minister has taken a bulldog clip, put it around these different provisions and transferred the enactments and all the instruments in one big bundle in a wheelbarrow and rolled it down the road to the IFSRA. From a practitioner's point of view, will we at some point over the next two or three years need to consolidate these powers and responsibilities?
Yes, we will need some consolidatory mechanism.
It is a nightmare trying to understand it.
This Bill has taken more than four years of my political life. I hope to get it and a second Bill out of the way and then we will be able to consolidate.
It will be in the Minister's epitaph.
If it is the only thing in my epitaph, I will be happy.
Amendment agreed to.
I move amendment No. 5:
In page 7, to delete lines 36 and 37.
Amendment agreed to.
I move amendment No. 6:
In page 8, line 17, to delete "Bank" and substitute "Minister".
This is a technical amendment. The term "the regulations" is defined as regulations made by the bank under section 61A of the principal Act. However, section 61A(1) provides for the Minister for Finance to make regulations in consultation with the bank. The reference to the bank within the definition of "the regulations" should refer to the Minister for Finance and is being amended accordingly.
Amendment agreed to.
Amendments Nos. 7 and 8 form a composite proposal and may be discussed together.
I move amendment No. 7:
In page 8, line 20, to delete "Authority." and substitute the following:
"Authority;
'Rome Treaty' means the Treaty establishing the European Community done at Rome on 25 March 1957, as amended by the Treaty on European Union done at Maastricht on 7 February 1992.".
These are two technical amendments which correct the incorrect placement of a definition within the Bill. In the interpretation section, being inserted by section 4 of the Bill, the definition of "Rome Treaty" on page 8 was mistakenly placed at the end of subsection (3) instead of subsection (1). This amendment inserts the definition into subsection (1) in the correct alphabetical order after the definition of "Regulatory Authority". In addition, this amendment corrects the punctuation at the end of line 20. Amendment No. 8 deletes the paragraph that defines "Rome Treaty" from subsection (3). In addition, this amendment corrects the punctuation at the end of subsection (3).
Amendment agreed to.
I move amendment No. 8:
In page 8, lines 48 to 51, to delete all words from and including "person;" in line 48 down to and including "Treaty" in line 51 and in page 9, to delete lines 1 and 2 and substitute "person.".
Amendment agreed to.
Section 4, as amended, agreed to.
Section 5 agreed to.
SECTION 6.
I move amendment No. 9:
In page 9, line 45, after "industry" to insert "and to discourage and where necessary prevent irresponsible lending by the financial services industry".
The purpose of this amendment is to encourage discussion about a growing problem, namely, the fact that financial products and services are being forced on people through irresponsible advertising. It is a cause of concern for many people. The purpose of the Bill is to promote the financial services industry, but there is no corresponding statement on social responsibilities. The Minister mentioned the ethos of the credit unions and his desire to protect it. While we have successful banking and financial services sectors, it is necessary that they operate with a degree of responsibility. It is important that the Bill refers to the necessity for responsibility in relation to credit lending.
As regards the management of a modern economy, this issue is of increasing importance because credit is important to sustain consumer spending. I know the Minister is fond of lecturing us on the long-term effects of bear markets, etc., but the control and availability of credit in a modern economy is as important as what happens in the stock market. The Bill does not refer to the necessity for parameters and ethical criteria for responsible lending. I am concerned that reference is not made to that in the Bill. I am sure the Minister will say the board of the new institutions and the consumer director may refer to that, but it is not spelled out. That is a major deficiency, particularly given that modern economies have changed markedly in recent years.
While the Minister has mentioned the prudential aspect of the Central Bank, which is important, credit and the provision of credit in a modern economy is just as important. There is no reference in the legislation to the need for responsibility. I am concerned at how credit is often foisted on people. Although we have been promised that provision will be made for the services of an ombudsman some time in the future, it is badly needed now.
Section 5A of the principal Act, as inserted by section 6 of the Bill, deals with the general functions and powers of the bank. The Deputy proposes that in addition to its function to promote the financial services industry, it would also be required to discourage and, where necessary, prevent irresponsible lending by the industry. I understand the proposed consumer credit directive is likely to cover such areas of concern and I would not like to pre-empt whatever provisions will be covered by it. However, the role of the consumer director within the IFSRA will require her to be aware of and to take such steps as she feels necessary, for example, through codes of conduct issued to institutions, to prevent such lending practices in order to fully protect the consumer.
Amendment put and declared lost.
I move amendment No. 10:
In page 10, between lines 14 and 15, to insert the following:
"(e) whenever it thinks fit, to inform the Oireachtas or an appropriate committee thereof, on matters within its expertise which are relevant to the scrutiny of public policy or the development of the legislative framework;”.
It is important that the Oireachtas should receive clear lines of reportage from the Central Bank. In the past there was some doubt about the reporting arrangements between different regulators and the Oireachtas. We have seen instances where regulators and, indeed, bank officials were reluctant to appear before Oireachtas committees. Therefore, we should have in place clear reporting and accountability arrangements to be made to the Houses of the Oireachtas by this authority.
I happened to read an academic assessment of this Bill which made the point that if there was not proper accountability to this committee, and if this committee did not take its task seriously in receiving and assessing the performance of the IFSRA, we would be missing out on a critical element of a successful system of financial regulation. We need to take seriously the advice of Mr. Westrop who made that report and clearly signalled that a successful element, apart from this Bill, was active supervision and scrutiny by the Oireachtas. I am anxious that at every opportunity the Minister will stitch in the necessary scrutiny by and accountability to the Oireachtas. In certain respects, as under the ECB obligations, I am sure the Minister will tell us that the Central Bank is restricted in its reporting arrangements but we should seek to have that accountability built in from the start, to the maximum possible degree.
Can I take it that the Deputy is referring to page 59 of the Bill, section 33AM? This provides that the bank is required to attend, if so requested, before the joint committee of the Oireachtas that is responsible for examining matters relating to the bank, and to provide it with such information as it requires. Those to whom that provision applies are the governor, the chairperson and the chief executive of the IFSRA, the consumer director and the Registrar of Credit Unions. This is an accountability issue and I am satisfied that accountability is adequately covered by the provisions of section 33AM. Under this section the committee can be informed on the matters referred to by the Deputy and consequently I do not see the Deputy's amendment as being necessary.
In the section the Minister refers to, subsection (3)(b) states that it is subject to “restrictions that are imposed on a person to whom this section applies by or under the Central Bank Acts.” I would like some clarification as to what exactly is that qualification on accountability to the Oireachtas.
I can check it for the Deputy but I am sure it relates to matters of confidentiality. They are required to do that in order to comply with EU law.
Is the Minister referring to EU law on confidentiality?
On these matters, yes.
Amendment, by leave, withdrawn.
I move amendment No. 11:
In page 10, line 29, after "problems" to insert "and the quality and cost of services to the consumer".
This amendment relates to the issue of having proper accountability in relation to consumer protection. In line 29 we are talking about the collection and study of data that deal with monetary and credit problems, and publishing information. One of the things that information should be published about is the quality and cost of services to the consumer. There is clearly a problem about transparency and it would be worthwhile to give the bank the role of collecting and studying data on the quality and cost of services to the consumer, which is contrary to current practice. If one thumbs through the bank's annual report one will see all sorts of reportage but not a great deal of attention to consumer interests. We ought to make it clear that we expect the bank's annual report to deal with international comparisons of various products. It should be a consumer-friendly report as well as raising issues of significant consumer interest, whereas currently it is only of interest to stock market commentators and brokers. In recognition of the fact that the bank is moving in a new direction, we should require it to produce reports that are relevant to its new responsibilities.
At present, section 33P provides that one of the responsibilities of the consumer directorate is to produce an annual report on its activities. The information which is supposed to be included in that report includes specifying what steps have been taken by the IFSRA to increase the awareness of consumers or relevant financial services of the cost to consumers and the risks and benefits involved in using those services. I expect this would include reference to the quality of financial products and therefore I will not be accepting the Deputy's amendment.
What page is that on?
Page 43.
I have some amendments relating to this matter later on. I am not happy that this section really deals with the level of reportage that I would like to see. Will we be seeing in the future a quarterly or annual report from the Central Bank that will address aggressively consumer issues and will not be just an insiders' financial report?
There will be reports from the IFSRA which will deal with those particular matters. At this stage I cannot tell the Deputy whether they will be quarterly or six-monthly because that has not yet been decided by the board of the IFSRA——
Okay.
——but it will certainly be providing reports which will cover those particular aspects.
Amendment, by leave, withdrawn.
I move amendment No. 12:
In page 10, lines 38 to 40, to delete all words from and including "matters" in line 38 down to and including "Office" in line 40 and substitute "statistics".
This is essentially a technical amendment. Section 5A(1)(h) is intended to be a restatement of section 8B(b) of the principal Act. Section 8 of the principal Act is being repealed by section 10 of the Bill in order to facilitate a consolidation exercise and is being restated in section 6 of the Bill. Section 5A(1)(h) deals with the bank’s function to provide advice and assistance to the Central Statistics Office about the collection, compilation, analysis and interpretation of statistics relating to the balance of payments, national accounts and other financial matters, and to provide advice and assistance to that office and, where appropriate, to collect data for that purpose. This amendment brings this subsection into line with the original wording of section 8B(b) of the principal Act which is being deleted.
Amendment agreed to.
I move amendment No. 13:
In page 10, line 45, after "law" to insert "until 31 December 2005, by which time a consolidated statement of its functions under all statutes will have been presented to the Oireachtas".
This amendment seeks that the consolidation work on exactly what the functions are under different statutes should be completed by 31 December 2005, so that two years hence we would have a completely clear view of the exact consolidated work of the bank and the authority.
I assume the Deputy is referring to the consolidation of all the relevant legislation. As the Deputy will be aware, the McDowell group recommended that "a consolidation be carried out of all the statutory provisions relating to the SRA". I have indicated that this will be done. It will be a complex project for which my Department will have responsibility. Moreover, now that so many different parts of the financial sector are to be dealt with by the IFSRA some consideration will have to be given as to whether consolidation alone is the appropriate way to go, or whether there should also be some harmonisation of legislation for different sectors at the same time. However, while I am committed to carrying out the exercise, I do not believe it is either necessary or desirable to set a timetable for the bank in that way. Consequently, I must reject Deputy Bruton's amendment, although 2005 is a bit far away.
It is, but the Minister could ensure that it will be done on his watch. By accepting the amendment it would allow the whole matter to be wrapped up.
I will do my best Deputy but I cannot accept the timescale due to the size of this Bill. The No. 2 Bill will be another major piece of legislation. I will do my utmost but I would ask the Deputy not to press me on time. I will do my best to have it done on my watch but I do not want to have a date inserted.
Amendment, by leave, withdrawn.
I move amendment No. 14:
In page 11, line 12, to delete "hold or dispose of" and substitute "hold, dispose of or otherwise deal in".
The amendment is to ensure avoidance of doubt in the specific powers of the bank. The proposed section 5B(a), as inserted by section 6 of the Bill, permits the bank to “acquire, hold or dispose of all kinds of property”. The words “acquire” and “dispose” would cover the leasing or letting of premises. This amendment is intended to clarify that the bank may also buy and sell property.
Amendment agreed to.
I move amendment No. 15:
In page 11, line 33, after "conditions" to insert "as".
This is a technical amendment. The insertion of "as" after "conditions" is to correct a typographical error. The current wording does not read correctly.
Amendment agreed to.
Amendment No. 38 is consequential on amendment No. 16 and both amendments may be discussed together by agreement.
I move amendment No. 16:
In page 11, line 40, to delete "financial" and substitute "credit".
This amendment is necessary to correct a consolidation error. Section 5B(g) states that the bank has the power to open accounts in other countries or act as agent, depository or correspondent of any financial institution carrying on business in or outside the State. Section 5B(g) is meant to be a restatement of section 7(1)(c) of the principal Act, which is being repealed by the Bill. Section 7 of the principal Act is being repealed by section 9 of the Bill in order to facilitate the consolidation exercise and is being restated in another part of this Bill. This amendment, deleting “financial” and substituting it with “credit”, brings section 5B(g) into line with the wording of section 7(1)(c).
Amendment agreed to.
I move amendment No. 17:
In page 11, to delete lines 48 to 50 and in page 12, to delete lines 1 to 3.
This is a technical amendment to correct an error in the consolidation exercise. Section 5B(i) states that the bank may fix and publish from time to time the minimum rate or rates at which the bank may re-discount bills and debt instruments or otherwise make funds available to credit institutions. This section is a restatement of section 7(1)(g) of the principal Act which is repealed by section 6 of the Central Bank Act 1998. This was repealed because when the single currency was introduced, the European Central Bank assumed responsibility for setting interest rates.
Amendment agreed to.
I move amendment No. 18:
In page 12, line 28, to delete "Bank" and substitute the following:
"Bank;
(o) transfer assets, income or liabilities to the European Central Bank where required under the ESCB Statute.”.
Two items are covered by this amendment which is, essentially, technical. First, this amendment is to restate section 7(1)(mm) of the principal Act, as inserted by section 6 of the Central Bank Act 1998, which dealt with the powers and functions of the bank to transfer assets, income or liabilities to the European Central Bank where required under the ESCB statute which was omitted in error. This amendment is necessary as it restates this necessary power of the bank.
Second, this amendment also corrects the punctuation at the end of section 5B. The existing paragraph (o) of section 5B, which is being changed to paragraph (n), ends in a full stop which is followed by the closing double inverted comma and full stop that ends section 6 of the Bill in which section 5B is contained. After the insertion of a new paragraph at the end of section 5B, the punctuation at the end of the existing paragraph (o) should be changed to just a semi-colon.
Amendment agreed to.
Section 6, as amended, agreed to.
Section 7 agreed to.
SECTION 8.
I move amendment No. 19:
In page 12, line 42, to delete "performing" and substitute "discharging".
This amendment is essentially technical in nature. The proposed section 6A(1), as inserted by section 8 of the Bill, is a restatement of section 6(1) of the principal Act which is being substituted in the Bill. Section 6A(1) of the Bill states that in performing its functions and exercising its powers as part of the European system of central banks, the primary objective of the bank is to maintain price stability. This amendment is to bring section 6A(1), as inserted by section 8 of the Bill, into line with the wording of section 6(1) of the principal Act by deleting "performing" and substituting it with "discharging" to ensure clarity.
Amendment agreed to.
I move amendment No. 20:
In page 13, line 2, to delete "European".
The ECB in its opinion has made a number of drafting comments. In paragraph 13, it points out that the ESCB's required contribution to the stability of the financial system does not contain any geographical connotations and the specific reference to the stability of the European financial system should be amended accordingly.
Section 6A, as inserted by section 8 of the Bill, is meant to be a restatement of an existing provision in section 6(2) of the principal Act which deals with the "Objectives of the Bank in performing ESCB functions, etc." The word "European" was inserted in error. Accordingly, the amendment provides for the deletion of the word "European" in section 6A(2) of the Bill.
Amendment agreed to.
I move amendment No. 21:
In page 13, line 5, to delete "systems." and substitute the following:
"systems;
(c) and discharging such other functions and powers as are conferred or imposed on it by the Rome Treaty, the ESCB Statute or any enactment.”.
This is a technical amendment dealing with two issues. First, the amendment corrects the punctuation at the end of section 6A(2)(b) which currently ends in a full stop. However, the insertion of a new paragraph (c), also by this amendment, necessitates the current last word in paragraph (b) to end with a semi-colon instead of a full stop. Accordingly, this amendment changes the full stop at the end of section 6A(2)(b) to a semi-colon.
Section 6A(2), as inserted by section 8 of the Bill, is a restatement of section 6(2) of the principal Act. Section 6 of the principal Act has been substituted and is being restated elsewhere in the Bill as part of the consolidation exercise. This amendment simply brings the proposed section 6A(2) into line with the wording of section 6(2) of the principal Act which is to be substituted by inserting the above amendment.
Amendment agreed to.
I move amendment No. 22:
In page 13, lines 7 and 8, to delete "Governor or the Board to consult with the Minister" and substitute "Governor, the Board or the Regulatory Authority to consult with the Minister, in relation to their respective functions,".
Section 8 of the Bill inserts new sections 6A to 6K into the principal Act immediately after section 6. Section 6A of the principal Act is concerned with the objectives of the bank in performing ESCB functions, etc. Subsection (3) provides that the Minister for Finance may, from time to time, request the governor or the board of the bank to consult him in regard to the performance by the bank of any function of the bank other than a function imposed on the bank by the Rome Treaty of the ESCB statute. This amendment is being made to clarify that such consultation is in respect of their respective functions and to allow the Minister to also request the regulatory authority to consult him.
In regard to this section, would this be a good opportunity for the Minister to stitch in that the consumer director and the Registrar of Credit Unions would have some line to the Minister? He is providing that the Minister may, from time to time, request the governor or the regulatory authority to consult him. It would be appropriate that the Minister be given the power to consult the Director of Consumer Credit and the registrar of credit unions so that he could satisfy himself that these interests, which are independently represented on the board, are adequately provided for rather than seeing the issues solely through the eyes of the superior authority of the bank and the IFSRA.
I am sure the Deputy does not mean to do this, but accepting such an idea would have far-reaching repercussions in a wide variety of State and semi-State organisations and statutory agencies. If one was to give to a person below the chairman or chief executive the power to go directly to the Minister and to report to him or her, one would be creating a principle with which the Deputy would not wish to go along. It would totally blur the line between the Department and the Minister and the agency or body. I understand what the Deputy is trying to achieve but the best way to deal with these bodies is directly with the chairman and the chief executive and to have such a reporting mechanism. If line officers in the Revenue Commissioners, for example, were to report directly to me rather than report up the line, it would lead to unsatisfactory relationships in the organisation. It would not be a good idea for people below the chairman and the chief executive of this new structure, the Central Bank of Ireland and Financial Services Regulatory Authority of Ireland, or of the IFSRA to go sideways to see the Minister.
There is the danger that the Minister would presume that because most bodies do it this way, it should be done this way in all instances. The Minister, in his original draft of the registrar for credit unions, envisaged that it would be he who would set the terms of the type of report the registrar of credit unions would present. In his original draft of this Bill, he envisaged that the registrar of credit unions would present the report directly to him. Clearly, the Minister and his advisers in the Department of Finance felt that the independence of the Registrar of Credit Unions was sufficient to break with the tradition and to provide this direct line to the Minister.
The Registrar of Credit Unions was outside the reporting relationship at that stage. The amendments I have tabled are to bring the registrar——
I know but that is what I am questioning. We should at least give some reference back to the Minister in relation to these powers because we are, as he admits, taking an act of faith in saying consumer protection can survive in this environment. Providing for direct consultation with the consumer is equivalent to the Minister holding a life jacket under his seat.
I do not wish to have a life jacket or a parachute. The Deputy makes a good point. Let us see how the legislation works, if we ever get it enacted. We can examine the points raised when it has been operative for a couple of years.
Amendment put and declared carried.
I move amendment No. 23:
In page 13, line 22, to delete "affecting" and substitute "prejudice to".
The ECB makes a number of drafting points in paragraph 13 of its opinion. It points out that under Article 105(1) of the treaty, the ESCB's objective of supporting the general economic polices in the Community is stated to be without prejudice to, rather than without affecting, the objective of price stability. Section 6A(6), as inserted by section 8 of the Bill, is a restatement of an existing provision in the principal Act, namely section 6(6). This is part of the consolidation exercise to bring the wording into line with the existing legislation. The words "without affecting" are included in the wording. The amendment also brings the wording into line with the wording in the treaty by deleting "affecting" and replacing it with "prejudice to" in the first line of section 6A(6) on page 13.
Amendment agreed to.
I move amendment No. 24:
In page 13, to delete lines 29 to 32 and substitute the following:
6B.-Where the Board considers-
(a) that it is necessary for the purpose of the due performance by the Bank of its functions, the Board may build, purchase, lease or otherwise acquire, establish, equip and maintain offices and other premises of the Bank in such places, whether in the State or elsewhere, or
(b) that it is no longer necessary for that purpose, sell or let any such premises.”.
Section 6B is concerned with the offices of the bank. The section, as inserted by section 8 of the Bill, is a form of re-statement of section 15 of the Central Bank Act 1989, which is being replaced by the First Schedule to the Bill. This deletion of section 15 of the 1989 Act is part of the consolidation exercise in this Bill, and the amendment is an attempt to bring the wording in line with that section.
Amendment agreed to.
I move amendment No. 25:
In page 13, line 39, after "office" to insert "and other".
Section 6C(2), as inserted by section 8 of the Bill, states that the board is responsible for administering the provision of office equipment with a view to enabling the bank and its constituent parts to perform and exercise their respective functions and powers. The purpose of the amendment, by inserting "and other" after "office", is to ensure that the board's responsibility extends to non-office equipment, for example, machinery for currency production.
Amendment agreed to.
Amendment No. 27 is an alternate and amendment No. 28 is related to amendment No. 26. Amendments Nos. 26 to 28, inclusive, may, therefore, be discussed together by agreement.
I move amendment No. 26:
In page 14, to delete lines 1 to 8 and substitute the following:
"(3) Except as regards the appointment of a Secretary to the Bank and the Secretary of the Regulatory Authority-
(a) the Governor has the same power to appoint employees of the Bank as the board has under subsection (1), but that power is only exercisable in respect of responsibilities specified in section 19A(1)(a) and (b) and (2).
(b) the Chief Executive has the same power to appoint employees of the Bank as the Board has under subsection (1), but that power is only exercisable with the agreement of the Regulatory Authority.”.
These amendments arise out of a concern expressed by the ECB as to whether the governor would enjoy sufficient control over staffing issues. Under the terms of the Statute of the European System of Central Banks, the Government is required to consult with the ECB regarding proposed changes to the structure or functions of the Central Bank of Ireland. A copy of the Bill was sent to the ECB in April 2002 and a reply was received the following June. While the ECB gave a generally positive assessment of the Bill, it had a number of technical reservations. These were primarily designed to eliminate any legal risks associated with the independent discharge of the Central Bank's ESCB related tasks. I will deal with these matters in the course of dealing with the individual amendments I propose in response to the opinion.
The ECB states in paragraph 9 of its opinion that it is unclear from a legal perspective whether the governor would enjoy a sufficient degree of control over staffing decisions so as to be able to fully protect the Central Bank's operational independence. It considers that this risk would cease to exist if the governor was to be granted comparable staffing powers with the regulatory authority and its chief executive. Amendment No. 26 makes this change. It allows the governor to have comparable power to the chief executive to recruit staff, without constraining the powers of the chief executive and the board of the IFSRA in relation to the staff of the IFSRA. The amendment restates the chief executive's power in this area, as was the case in the original Bill.
Amendment No. 28 deals with the assignment of employees. Section 6E, as it is currently worded, could be interpreted as allowing the chief executive to veto any staff assignment within the bank, including those which are not related to the IFSRA. There was never any intention, nor would it be reasonable, that the IFSRA would be construed or considered to enjoy any appointment or assignment rights over the Central Bank's employment-employer functions which did not directly relate to the IFSRA itself and its employment needs. The effect of the amendment will be to confine the approval of the chief executive to only those staff assignments relating to the IFSRA.
I continue to be puzzled by what section 6E is seeking to achieve.
The purpose of the amendments is to ensure that the approval of the chief executive of the IFSRA will only relate to the staff of the IFSRA. The ECB was of the view that the legislation could be interpreted to the effect that he may have a say regarding the position of other Central Bank staff, which might conflict with the governor's independence, etc.
That clarifies the position.
Amendment agreed to.
Amendment No. 27 not moved.
I move amendment No. 28:
In page 14, to delete lines 51 to 56 and substitute the following:
6E.-The Board shall arrange for employees of the Bank to be assigned to the Regulatory Authority and to any divisions, branches or offices established under section 6C. However, any assignment of an employee to or from the Regulatory Authority shall take place only with the agreement of the Chief Executive.".
Amendment agreed to.
I move amendment No. 29:
In page 15, line 14, to delete "the" where it firstly occurs and substitute "such".
This is a technical amendment. Section 6G(3) deals with the bank paying its surplus income from the Exchequer. The purpose of the amendment is to correct a grammatical error that deletes "the" and substitutes "such".
Amendment agreed to.
I move amendment No. 30:
In page 15, to delete lines 29 to 31 and substitute the following:
"(6) The Minister may, after consultation with the Bank, make regulations providing for the periodic determination of the Bank's surplus income and, in particular, such regulations may--".
This is a technical amendment to correct an error in the wording during the consolidation process. Section 6G(6), as inserted by section 8 of the Bill, is a re-statement of section 23(2) of the Central Bank Act 1989, which is being repealed by the First Schedule to the Bill as part of the exercise of consolidation. This amendment brings the proposed section 6G(6), as inserted by section 8 of the Bill, into line with the wording of section 23(2) of the Central Bank Act 1989.
Amendment agreed to.
I move amendment No. 31:
In page 15, line 50, after "accordingly" to insert "provided that the Minister shall present to the Oireachtas before 31 December 2005 a consolidated statement of the regulations taking into account the new environment created by the introduction of a single European currency".
The purpose of the amendment is to delete whatever elements of Central Bank regulations that are now unnecessary post EMU. I am not aware to what extent a consolidated statement of regulations in the new environment has been developed. The amendment proposes that it should be completed by the end of 2005. Perhaps the Minister will advise that the statement is already in place.
I am not sure to which regulations the Deputy refers. If it is to regulations under section 23 of the Central Bank Act 1989, I would have no difficulty providing him with an informal consolidation on an administrative basis. Legislation would not be required for that and it can be done fairly quickly. However, if he has in mind the consolidation of all regulations affecting the Central Bank, the job is bigger and it would not be usual to put in legislation a provision requiring a consolidation.
If the Deputy has in mind going even further, into some kind of updating exercise, I would have to consider this in the context of a wider review of legislation. While I do not accept his amendment, I will give his ideas some thought to see what might be done.
The amendment is a response to a view that everything is included in the Bill with no attempt to remove provisions that may at this stage be redundant. While I accept that at present it may not be timely to proceed on this basis, I am pleased the Minister will give the matter further consideration.
Amendment, by leave, withdrawn.
I move amendment No. 32:
In page 16, line 7, after "year" to insert "concerned".
This is a technical amendment. Section 6H(2), as inserted by section 8 of the Bill, deals with the bank preparing and transmitting a statement of accounts for the year. The proposed amendment adds clarification to the provision by inserting "concerned" after "year".
Amendment agreed to.
Amendments Nos. 35 and 109 are related to amendment No. 33 and all may be discussed together by agreement.
I move amendment No. 33:
In page 16, line 17, after "Minister" to insert "and to the Committee of Public Accounts".
It seems strange to provide that the Comptroller and Auditor General will certify and audit these reports, with no mention of the role of the Committee of Public Accounts. Perhaps there is a presumption somewhere else in legislation that the Comptroller and Auditor General will provide the audit to the Committee of Public Accounts, but I was covering the possibility that this is not covered elsewhere in legislation by tabling this amendment.
These amendments relate to the reporting requirements of the bank in relation to the Oireachtas. The report of the Comptroller and Auditor General on the statement of accounts of the bank will be presented to me and I will lay it before the Houses, and as such the report and statement will be available to all Members and committees of the Houses.
However, by virtue of section 77 of the Central Bank Act 1977 the Comptroller and Auditor General can carry out value for money studies on the bank. This would allow it to be called before the Committee of Public Accounts. Section 8 of the Bill provides that the bank prepare a report of its operation for the year, which would be laid before each House of the Oireachtas. Deputy Bruton is proposing that the bank be required to attend before a committee of either or both Houses on such matters as the committee requests. The accountability provisions contained in section 33AM on page 59 of the Bill, which I spoke about earlier, in relation to the attendance before a joint committee of the Oireachtas responsible for examining matters relating to the bank are already adequate to deal with these matters, so I am unable to agree to the Deputy's proposed amendments.
I am happy enough if the value for money exercises can be presented to the Committee of Public Accounts.
Yes.
Amendment, by leave, withdrawn.
Amendment No. 203 is related to amendment No. 34 and both may be discussed together by agreement.
I move amendment No. 34:
In page 16, between lines 22 and 23, to insert the following:
"(5) The accounts of the Bank may be audited in accordance with Article 27 of the ESCB Statute and, for that purpose, the Bank shall provide any auditors appointed in accordance with that Article with full information, books and records.".
This is a technical amendment to address a matter which was brought to our attention by the ECB in its official opinion on the Bill. A copy of the opinion and a copy of the response of the Department to it were laid before each House of the Oireachtas in October 2002.
Section 19 of the 1989 Act provided for the Comptroller and Auditor General to audit the accounts and records of the Central Bank. Section 11 of the 1998 Act, in turn, provided for the audit of the accounts and records of the Central Bank by external independent auditors in accordance with Article 27 of the ESCB statute, notwithstanding section 19 of the 1989 Act.
The Bill as published provides for the repeal of section 19 of the Central Bank Act 1989, to which item 2 of Part 9 on page 128 of the Bill refers, as the provision relating to the audit of the accounts by the Comptroller and Auditor General has been restated in the Bill in section 6H on page 16.
The ECB points out in paragraph 16 of its opinion that while the Bill does not propose to repeal section 11 of the Central Bank Act 1998, pursuant to which the Central Bank's accounts may be audited in accordance with the ESCB statute, the proposed repeal of the related section 19 of the Central Bank Act 1989 would appear to have rendered section 11 of the 1998 Act redundant.
The ECB suggests that a new section be inserted in the provisions of the Bill which would restate section 19 of the 1989 Act to clarify that the Central Bank's accounts may, in addition to being audited by the Comptroller and Auditor General, be audited by independent external auditors recommended by the ECB in accordance with the ESCB statute. It goes on to say that a corresponding revision to the provisions permitting the disclosure of information concerning matters arising in connection with performance of the Central Bank's functions to such independent external auditors would also be necessary. Thus, for the avoidance of doubt, amendment No. 34 inserts a new subsection into section 6H of the principal Act on page 16. Section 6H deals with accounting and other records of the bank. The new subsection, in effect, restates section 11 of the Central Bank Act 1998.
Amendment No. 203 is a consequential technical amendment. The purpose of the amendment is to add section 11 to the list of sections of the Central Bank Act 1998 which are being repealed.
Since amendment No. 34 inserts a new subsection which, in effect, restates section 11 of the Central Bank Act 1998, there is no reason to retain section 11 of the 1998 Act and it is being repealed.
Amendment agreed to.
Amendment No. 35 not moved.
I move amendment No. 36:
In page 17, line 1, after "years" to insert "after the latest date of the period to which such documents relate".
This is a technical amendment. Section 6K(2) as inserted by section 8 of the Bill is a re-statement of section 18(1) of the Central Bank Act 1989, which is being repealed by the First Schedule to the Bill as part of the consolidation exercise. This amendment is to bring section 6K(2) as inserted by section 8 of the Bill into line with the wording of section 18(1) of the Central Bank Act 1989.
The bank is required to keep records for six years only. That is a relatively short period. I know it is the standard period but it strikes me as being very short, particularly in view of the experience down the years with tribunals, which have often wanted to look back at matters over a considerable period. I understand the technical regulation, but perhaps the Minister could advise us on the practice of the Central Bank. Does it destroy records after the six-year period or does it keep them for much longer?
It does not destroy them after six years but I will get the procedure and practice from someone in the Central Bank. We do not have the answer but I will supply it to the Deputy. I can tell the Deputy that the bank keeps records longer than six years.
I think it does, but I just wanted to check. Actually I thought it kept them forever.
It may. I am told that in practice it does not destroy them at all.
That is what I thought.
It keeps them for as long as possible, until it has to get a larger building.
Would there never be a rogue boss in the bank who would have a bonfire? It is unlikely in such a prudential institution.
The Deputy would want to be very careful talking about bonfires in the context of a certain leader. I will not mention it now, since we are all in bed together.
Amendment agreed to.
Question proposed: "That section 8, as amended, stand part of the Bill."
Section 6G(3) provides that the bank will pay its surplus to the Exchequer in such manner as the Minister directs. The Minister will be aware of the issue of the free reserves on foot of the ECB single currency. There is not the same requirement to maintain reserves and there is this issue of assessing how much is required. In this section is the Minister giving himself power to determine that issue of how much reserves are required to be kept or is that something that the Bank will determine?
No, I am only restating what the existing Act says, but that——
Does it relate to reserves?
No. On that question, as the Deputy will be aware I have had my eye on those reserves for a long time. Two budgets ago, that is what I wrote to the Central Bank about - I was looking for those reserves. As I recall, in my time in Opposition on the previous committee we devoted much time, under the chairmanship of the late Deputy Jim Mitchell, to what would happen to those reserves when the euro would be set up. I remember it well and always had an idea about them, but I was told, in reply from the governor of the Central Bank, that now the ECB deems it has powers in this regard. The governor kindly said that other countries make certain provisions to do with coins and with surplus notes and that is the money we took up in that year.
The ECB is conducting a review.
No. At that stage I said that in conjunction with the Central Bank we would conduct a review of the reserves for our own information and the Central Bank is doing that - it brought in consultants.
This has been raised with the ECB. We were not the only country to raise this point. I was not the first to think of this, by the way, but the ECB says it has competence in this regard. I might dispute that because in my view those reserves built up when it was the Central Bank and belonged to the Irish people. However, there is doubt about the legal position, whether they now belong to the ECB or whether the ECB has rights in this regard. In any event, the ECB has to be consulted in this matter. Down the road perhaps the ECB might examine this for all central banks. I do not think it will deal with Ireland in isolation because this is a matter of considerable importance to other central banks as well.
The Deputy may not be correct that they are looking at this at present. I am not sure they are. The Irish Central Bank, on foot of the letter to which I referred, has consultants examining it.
I thought a European colleague had made some move which resulted in the ECB examining it.
No, my Italian colleague did some interesting things, both prior to joining the euro on 1 January 1998 and recently regarding bond issues which have now been deemed to be okay in how they could be counted. The Italians do creative things.
Is the Minister taking a leaf out of their book?
The Deputy's colleagues inside and outside the House think perhaps I have been too creative over the years in these matters. I certainly spoiled the speech and direction of the Fine Gael election campaign with my budget of that particular year, and that of the Deputy's colleague.
Question put and agreed to.
Sections 9 to 11, inclusive, agreed to.
SECTION 12.
I move amendment No. 37:
In page 17, lines 33 to 37, to delete all words from and including "authorised" in line 33 down to and including "and" in line 37 and substitute the following:
"authorised-
(a) if the seal is to be used in relation to a function or power of the Bank that is to be performed or exercised by the Board, by the Board, or
(b) if the seal is to be used in relation to a function or power of the Bank that is to be performed or exercised by the Governor, by the Governor, or
(c) if the seal is to be used in relation to a function or power of the Bank that is to be performed or exercised by the Regulatory Authority, by that Authority.’, and”.
Section 12 amends section 10 of the principal Act. Section 10 deals with the seal of the bank. Section 10(1) is being amended by section 12 and currently provides that the bank's seal is to be kept in such custody as the board of directors of the bank directs, and may be used only as authorised by the board of directors of the bank, or may be used by the regulatory authority, if the seal is to be used in relation to a function or power of the bank that is to be performed or exercised by the regulatory authority.
The current text unnecessarily provides full authority of the seal of the bank to the board of the bank with the exception of the functions and powers exercised by the regulatory authority. In addition, the specific functions and powers of the governor of the bank, in particular in relation to the ESCB related functions, are not taken into consideration in the legislation. To this effect section 10(1) is being revised to restrict the power of the board of the bank in relation to the seal and to include functions and powers relating to the governor of the bank in the text.
The revised text of section 10(1) has been restructured into three paragraphs. The new paragraph (a) provides that the board can authorise the use of the seal only in relation to the functions and powers of the bank that it exercises. In addition a new paragraph (b) allows the governor to authorise the use of the seal in relation to the functions and powers that he or she exercises. Paragraph (c) restates the circumstances of the regulatory authority’s use of the seal that exists in the current text.
Amendment agreed to
Section 12, as amended, agreed to.
Section 13 agreed to.
SECTION 14.
I move amendment No. 38:
In page 18, between lines 4 and 5, to insert the following:
" 'credit institution' means an undertaking whose business is to receive deposits or other repayable funds from the public and to grant credit on its own account but does not include the European Central Bank;".
Amendment agreed to.
Amendments Nos. 40 and 41 are related to amendment No. 39, and the three amendments may be discussed together by agreement.
I move amendment No. 39:
In page 18, lines 24 and 25, to delete "appointed by the Minister" and substitute ", at least 3 of whom must be women, appointed by the Minister following a process of public advertisement for the positions, assessment of candidates based on published criteria of qualification and interviews".
I have been asked by Deputy Ó Caoláin to move his amendment. The purpose of these amendments is to provide for the appointment of a woman director. It should not be necessary to do this but, as the Minister will be aware, there are, unfortunately, no women on the board of the Central Bank. I debated this with him before Christmas and he assured me that such are the onerous functions of the Central Bank only the men whom he appointed could carry out this serious and onerous task.
I did not say that.
I have the quotation and it is interesting. Given the functions and responsibilities carried out by women throughout the State in small and large organisations it is extraordinary that the Central Bank is one of the key institutions on whose board there is no woman representative. An indication of the Minister's thinking is that when he made appointments to the interim body, he chose only one woman among the ten members, which is quite remarkable. Women have not done well in the appointments made by him.
Amendment No. 40 provides that one of the board members should be a representative of consumers. The Minister referred to the importance of the consumer director's role and has given us many assurances regarding how he or she will look after the interests of consumers. The purpose of amendment No. 41 is to ensure the person would be appointed to the board to ensure two board members would have a specific interest in consumer affairs as they relate to its functions. I hope the Minister will give serious consideration to these amendments.
The former chairman of the Revenue Commissioners and others, who are worthy people, are on the interim board but I do not see why a representative of consumers should not be on the board given that the consumer function is critical to the legislation. Why not have consumers represented on the board? Why should a woman not be appointed to the board? There is one woman on the board but it would be desirable, without bean counting, if 40% of the board comprised men, 40% comprised women with the remaining members to be selected by the Minister. However, it is important to send a signal that consumers and women are represented.
There is considerable merit in these amendments. One of the weaknesses of the Central Bank historically has been the sense that it is very much an insiders' club and consumers do not get a look in. Few women have been appointed to the bank's board and, therefore, there is merit in the Minister opening up the boardroom of the bank to allow fresh breezes to blow through.
There is also merit in Deputy Ó Caoláin's proposal. There should be a process of public advertisement so that people who are interested in becoming members of the board would have an opportunity to convey their interest to the Minister. The quality of candidates that can emerge is remarkable when placing an advertisement and requesting replies, as opposed to the Minister scratching his head to see which Fianna Fáil cumann has an appropriate person with a financial background. The Minister would be surprised at the number of quality individuals who would be willing to offer themselves pro bono. There is merit in all the amendments.
The Bill provides that the Minister for Finance appoint seven directors to the board of the bank. Amendment No. 39 proposes that I appoint a minimum of three women to the board of the bank. I refer to a parliamentary question put by Deputy Burton in December last in relation to the board of the Central Bank. In reply I stated I was mindful of the Government's commitment to achieving a greater gender balance on the boards of State bodies and would have regard to that factor as vacancies arose and appointments were to be made to the board. However, I ask the Deputy to also bear in mind that when making appointments, my main aim is to select persons with the required qualities and attributes to make a contribution and who can be seen to be independent of Government in the exercise of their functions.
Amendment No. 40 also proposes that one of the seven directors to be appointed by me shall be a person, other than the consumer director, who is representative of consumers. Under the draft provisions, six of the 12 directors will be members of the IFSRA, which will have responsibility for consumer affairs and representing the interests of consumers. I will, as Minister, have to decide whom to appoint and will make such appointments after careful consideration but I do not see the need to specify in this way who might become a director of the board. The Deputy also proposes in amendment No. 41 that one of the four directors to be appointed, and who are to be members of the IFSRA, shall be the consumer director. Responsibility for consumer matters will be the responsibility of the IFSRA, through the consumer director. It will be within my power to appoint the consumer director to be a member of the board if I so wish. It is not necessary to tie the hands of future Ministers in this way. I regret I will not accept these amendments.
The Minister referred to the need for the members of the board to be people who can make a contribution and be independent minded. Why, in his appointment of a chairman and seven members, was only one woman appointed when in all walks of life there are extremely distinguished women who make a contribution and are independent and fair-minded? It is not good enough in this day and age to brush aside the notion that women should be adequately represented on a board such as this as some kind of appointment that would reduce the quality and calibre of the board. Last week a distinguished accountant and campaigner for one of the Government parties published a report on the health services. There are a number of examples of women with experience in the financial services and banking sector, together with women from a wide variety of occupations and backgrounds who would bring tremendous expertise and practical common sense to the board.
For all the lauding of the Central Bank, it is regrettable some women were not around when, because of its prudential role, it was unable to prevent certain things happening. Last year, AllFirst, a very significant subsidiary of a very large Irish bank, cost the shareholders very large amounts of money. It is time the Minister changed his attitude to women constituting significant numbers on boards, and representatives of consumers should be represented.
Mr. Quigley, former chairman of the Revenue Commissioners, and other former chairmen, said there were no pots of gold to be had from unpaid taxes but how wrong were they? The Minister's Department and budget benefited significantly this year from some of the pots of gold that were untouched and untapped by the Revenue Commissioners for years. The reason he could lay off the reserves in the Central Bank was that some of the pots of gold began to trickle in and made his figures look much better.
Was the Deputy disappointed?
Former chairmen of the Revenue Commissioners merit appointment even though they got things wrong. Women and consumers cannot get representation on the board. The Minister's attitude is pathetic.
I will make a deal with the Deputy. If she supplies me with a list of suitable women representatives for any of the boards I will consider them, including members of another political party. To the best of my knowledge, the woman referred to in a newspaper last week is a member of the accountancy profession and a member of a board of a bank. This would automatically preclude her from being a member of the board of the Central Bank. I will appoint to a board anyone who will make an additional contribution, which does not exclude or include anyone. I agree with the Deputy that women could make an excellent contribution to any board. However, one must make judgments at particular times because only a limited number of vacancies occur. I appoint people whom I think will do an adequate job, and I will consider any names provided by the Deputy.
One will find women in Fianna Fáil cumann.
One will find them all over the country.
Indeed one will. The Deputy referred to the AllFirst crisis last year. I remind her that the policing of banks is a matter for the relevant authority under which the bank operates. Consequently, the regulator's first resort in such an instance would be the Federal Reserve in America. The operations of American banks here are a matter for the Irish Central Bank to regulate. The people responsible, in the first instance, for regulating AllFirst would have been the Federal Reserve Bank in the United States. As the group is located in Ireland, it would have residual responsibility to the Irish Central Bank, because that banking group's parent bank is located here. That is how things are done internationally regarding central banks. Consequently, the Irish Central Bank would be responsible for prudential matters in regard to German banks operating here and the parent company would be regulated by the regulatory authority in the home country. Therefore, criticism of the Irish Central Bank is unjustified in that instance.
This is an important matter in regard to the development of banking services, particularly international banking services. As the Minister knows, the primary regulatory authority within the bank is the internal and external audit function. It behoves the Central Bank to take an interest in how the internal and external audit function in the Allied Irish Bank, which is an Irish bank, failed in this instance. Failures in internal and external functions are common but the prudential function of the bank is heavily reliant on the effectiveness of the audit function within the banking system. Therefore, I do not accept the Minister's comments.
Those are facts. That is the way banks operate throughout the world. It is the regulatory environment in which the banks operate. At one remove, the Central Bank of the parent group has a wider remit and the Central Bank in Ireland would have to be satisfied that the audits carried out in the United States were up to standard. That is how banks are regulated in regard to prudential matters.
Amendment put and declared lost.
I move amendment No. 40:
In page 18, line 25, after "Minister" to insert "one of whom (other than the Consumer Director) shall be a person who in the opinion of the Minister is representative of consumers".
Amendment put and declared lost.
I move amendment No. 41:
In page 18, line 27, after "Authority" to insert ", one of whom shall be the Consumer Director".
Amendment put and declared lost.
Sitting suspended at 4.45 p.m. and resumed at5 p.m.
We resume on section 14.
Question proposed: "That section 14, as amended, stand part of the Bill."
Who, under the existing legislation, appointed the director general of the bank? I am interested in the make-up of the board because I note from a later section that the only way the governor can be removed is by a unanimous resolution of the board and a decision of Government. Who is the director general of the bank?
The director general of the Central Bank is appointed by the board of that bank.
Is it different in the case of the governor?
The governor is the governor of the Central Bank. The director general normally comes through the normal procedures and appointment mechanisms of the Central Bank and would be the head of the operational directions——
They would be more a career person.
Yes. Up until now it has always been somebody that came up through the ranks of the Central Bank. He is the operational head of the Central Bank. The governor of the Central Bank is more a cross between a chairman and a board as it was.
Question put and agreed to.
SECTION 15.
I move amendment No. 42:
In page 20, line 35, after "that" to insert "office".
There is a grammatical error in the last line of the text of subsection (3). The clause currently reads "unless the person previously ceases to hold that". The word "that" in this context refers to "office" but the sentence is not clear with the absence of this word "office". To rectify this problem, "office" is being inserted into the text after "that".
Amendment agreed to.
Section 15, as amended, agreed to.
SECTION 16.
I move amendment No. 43:
In page 21, lines 30 and 31, to delete all words from and including "the" in line 30 down to and including "Bank" in line 31 and substitute "by the Bank of the foreign reserves of the State".
Section 19A(1)(a) as inserted by section 16 of the Bill states that the governor is responsible for, among other things, holding and managing the foreign reserves held by the bank. This amendment is for the sake of clarity, bearing in mind the bank’s obligations under Article 106 of the Rome Treaty and Article 3 of the ESCB statute. These provide that the official foreign reserves of euro area member states are to be held and managed by the ECB and the euro area national central banks. The above amendment simply clarifies the responsibility of the governor.
Amendment agreed to.
I move amendment No. 44:
In page 22, lines 6 and 7, to delete "subsection (2)" and substitute "subsections (1) and (2)".
Section 19A(3) as inserted by section 16 of the Bill provides that the governor shall provide information to the board and may discuss with the board, the performance by the governor of the functions and powers for which the governor has responsibility and which are referred to in section 19A(2) as inserted by section 16 of the Bill. As the governor has other responsibilities referred to in section 19A(1), this amendment is to ensure the governor shall also provide information to the board about, and may discuss with the board, his or her performance of these functions and powers.
Amendment agreed to.
Section 16, as amended, agreed to.
SECTION 17.
I move amendment No. 45:
In page 22, line 42, after "takes" to insert "immediate".
This is a technical amendment to clarify this subsection. Section 21(3) as inserted by section 17 of the Bill deals with the decision by the president to remove a governor from office. Section 21(3) as inserted by section 17 of the Bill is a re-statement of section 21(2) of the principal Act which is being substituted by section 17 of the Bill. This amendment is to bring section 21(3) into line with the wording of section 21(2) of the principal Act.
Amendment agreed to.
Question proposed: "That section 17, as amended, stand part of the Bill."
Perhaps the enormous level of security enjoyed by the governor of the Central Bank has great historical provenance. I know there is a need to maintain the independence of the governor of the Central Bank from Government in respect of his primary responsibility of historically maintaining the value of the currency and controlling inflation. I wonder if these provisions are far too great now that the role of the governor is extending well beyond those core responsibilities. I wonder if other mechanisms should be considered for the preservation of the governor's independence in relation to his primary function rather than having a mechanism which on the face of it if someone proved to be just unsuitable, there is no way in which they can be removed. Even the Government cannot remove someone who proves to be just unsuitable unless it can produce specified grounds of serious misconduct. Now that we are considering the expansion of the role and influence of the governor into a lot of new regulatory areas away from the core responsibilities I wonder if this level of protection for his office is still appropriate.
The cornerstone of the independence of the Central Bank in the set-up of the ECB rests with the independence of the governor. Other countries have different arrangements for the removal of governors. We have copperfastened rules about the independence of the governor of the Central Bank in this section as to how he or she can be removed. It would go against all the tenets of independence if we to tinker with it now. I would not be so inclined, in any event.
This is confining the appointment of governor to the Secretary General of the Department of Finance as has been the case historically.
No. The Government appoints the governor on the recommendation of the Minister for Finance. As far as I know the governor is appointed by the President. Up until now it has been the tradition to nominate the Secretary General of the Department of Finance to be the governor of the Central Bank. The previous governor of the Central Bank was not actually Secretary General to the Department of Finance; he came from the Central Bank. GovernorO'Connell was never Secretary General of the Department of Finance.
I was thinking in terms of the new responsibilities. We are moving considerably farther than a traditional Central Bank role. Quite frankly, I question that degree of security even for a Central Bank governor but now that he has a range of new roles I thought that there would be other mechanisms. It would be interesting if the Minister looked at what the other countries do in this regard.
In the new set-up the governor would chair the board but he would not be involved in the day-to-day operations of the IFSRA. There would be a chairman and chief executive of the IFSRA. The governor would retain his responsibility vis-à-vis his role and the European Central Bank.
Perhaps I am mistaken but would he have the power to issue directives in relation to some——
If something was going to happen in the IFSRA which he thought might contain a systemic risk to the whole financial system, he would then have powers to advise in that particular regard and we thought that was the right thing to do. The ECB would insist on that in any event.
Question put and agreed to.
SECTION 18.
Amendments Nos. 46 and 47 are related and may be discussed together by agreement.
I move amendment No. 46:
In page 23, to delete lines 15 to 22 and substitute the following:
"(3) Whenever the office of Governor becomes vacant, the Board may appoint any one of the Directors to act as Governor to carry out the designated responsibilities of that office during such vacancy but no Director so appointed shall so act after the expiration of 3 months from the occurrence of the vacancy which occasioned his or her appointment.".
Section 22(3), as inserted by section 18 of the Bill, is a form of re-statement of the existing section 22(2) of the principal Act which is being substituted in the Bill. Amendment No. 46 is to bring the proposed new section 22(3) into line with the wording of the existing section 22(2) of the principal Act.
Section 22 deals with the appointment of an acting governor when the governor is temporarily unable to carry out his functions. It also specifies the functions of the governor which that person may carry out.
Subsection (5) of section 22 of the principal Act appears to have been omitted in error from the restatement. Amendment No. 47, therefore, is to restate the subsection and include it as part of the new section 22, subsection (6).
Amendment agreed to.
I move Amendment No. 47:
In page 23, between lines 32 and 33, to insert the following:
"(6) A Director appointed under this section to act as Governor shall not, by reason of such appointment, vacate office as a Director.".
Amendment agreed to.
Amendments Nos. 48, 49, 75, 120, 121 and 122 are related and may be discussed together by agreement.
I move Amendment No. 48:
In page 23, between lines 32 and 33, to insert the following:
"(7) This section does not apply to responsibilities of the Governor that are required, by virtue of section 22A, to be carried out by the Director General of the Bank in any of the circumstances specified in that section.".
These amendments arise from my consideration of the opinion of the European Central Bank on the Bill. The opinion, along with an outline of my proposed response to the issues raised by the ECB, were laid before the Houses of the Oireachtas on 31 October 2002.
Under the terms of the Statute of the European System of Central Banks, the Government is required to consult with the ECB regarding proposed changes to the structure or functions of the Central Bank of Ireland. A copy of the Bill was sent to the ECB in April 2002 and a reply was received the following June.
While the ECB gave a generally positive assessment to the Bill, it had a number of technical reservations. These reservations are primarily designed to eliminate any legal risks associated with the independent discharge of the Central Bank's ESCB-related tasks.
I am taking these amendments together, as they address the same issue raised by the ECB, namely, the examination and approval of the budget for the the IFSRA.
Regarding amendment No. 48, the ECB was of the view that it is necessary to explicitly clarify that where the governor is unable to carry out certain responsibilities which are vested in the governor in order to ensure the proper performance of the Central Bank's ESCB related functions, these functions would be carried out by the director general in his capacity as the Central Bank's substitute decision-making body for the performance of ESCB related tasks.
The performance of the governor's functions, in the absence of the governor, is dealt with in sections 22 and 22A of the principal Act, as inserted by sections 18 and 19 of the Bill. In effect, section 22 provides that any other director appointed to do so may carry out the non-ESCB functions of the governor in the governor's absence, while section 22A provides that the director general will carry out the ESCB functions in the absence of the governor.
It is considered that the Bill, as published, clearly makes the distinction between who can and who cannot carry out the governor's ESCB functions in his absence. However, for the avoidance of any doubt this amendment is being made to the Bill. The amendment inserts a new subsection into section 22 immediately before the last subsection. The new subsection provides that the functions to be carried out by a person appointed under section 22 to carry out the functions of the governor will not include any functions of the governor that are required to be carried out by the director general under section 22A.
Another of these proposals contained in amendment No. 49 is that any meeting of the board of the bank to deal with budgetary or funding issues relating to the regulatory authority, or staffing issues relating to the bank, must be chaired by the governor, or in his or her absence, the director general. It is proposed to give effect to this proposal by inserting a new subparagraph in paragraph 3 to Schedule 1 to the principal Act - amendment No. 122 refers - and amending section 22A of the principal Act, as inserted by section 19 of the Bill, to provide that the functions to be carried out by the director general will also include the chairing of meetings of the board in the circumstances, which I have just described, by including a reference to paragraph 3(3) of Schedule 1 to the principal Act.
The amendment to section 22A proposes to replace the wording "section 19A(1)(a) and (b) and (2)” with “section 19A (other than under subsection (1)(c) and paragraph 3(3) of Schedule 1.”
Amendment No. 75 relates to section 33N. Section 33N of the principal Act as inserted by section 27 of the Bill which compels the regulatory authority, not later than three months before the beginning of each financial year, to prepare a statement of expected income and expenditure for the year. It is required under subsection (1)(b) to submit the statement to the Minister for Finance for approval.
The ECB notes that the Minister for Finance and the regulatory authority are in a position to exercise influence on the determination of the IFSRA's budget. It also states the Bill contains some safeguard clauses which are designed to ensure that this does not impede the proper performance of the Central Bank's ESCB-related tasks. For instance, the authority is required to supply details of the estimates to the governor before they are submitted to the Minister for Finance for approval. The governor can then give his or her views on the estimates to the regulatory authority in so far as they effect the carrying out by the bank of its obligations with respect to the promotion of the financial stability of the State and the performance of the functions of the bank in its capacity as a member of the European System of Central Banks. The authority can then revise the estimates to take account of the governor's views before it submits the estimates to the Minister.
Page 37 of the Bill refers to subsection (4) of section 33N and states that the Minister for Finance must consult the board before approving the statement setting out the estimate of income and expenditure. In order to copper-fasten the role of the governor, I propose to amend subsection (4) of section 33N to provide that the Minister for Finance must also consult the governor after the regulatory authority has submitted the estimates to him and before approving the budget. This would ensure that the Minister of the day was fully aware of the governor's views, whether or not the authority had revised the estimates after receiving the views of the governor.
Amendment No. 120 provides that special quorum arrangements will apply in the case of any meeting of the board to deal with budgetary or funding issues relating to the regulatory authority, or staffing issues relating to the bank. This amendment substitutes a new paragraph 2. The quorum will still be seven. Paragraph 2 of Schedule 1 to the principal Act states that the quorum for a meeting of the board is seven. This amendment substitutes a new paragraph 2 to provide that special quorum arrangements will apply in the case of meetings of the board dealing with budgetary and funding issues relating to the regulatory authority as well as staffing issues relating to the bank. These revised arrangements along with the amendment providing that the governor, or in his absence the director general, must preside at any meeting of the board dealing with budgetary or funding issues relating to the IFSRA or staffing issues relating to the bank, should satisfy the concerns of the ECB.
The amendment I am proposing will provide for this special quorum arrangement. This will ensure that, during such discussions, the governor or, in his absence, the director general retains an effective casting vote. The special arrangements that are being proposed are if there is an even number of members present, at least half of them must not be members of the regulatory authority and if there is an uneven number of members present, the majority of them must not be members of the regulatory authority.
Schedule 1 to the principal Act, as inserted by section 32 of the Bill, sets out the provisions applicable to the board of directors of the bank, such as the calling of meetings and voting. Paragraph 3 of schedule 1 specifies at subparagraph (1) who is to preside at meetings of the board, while subparagraph (2) specifies who has the casting vote. Amendment No. 121 will make sub-paragraph (1) subject to the new sub-paragraph (3) that I mentioned earlier. This new sub-paragraph will define who is to preside at meetings where budgetary or funding issues relating to the regulatory authority, or staffing issues relating to the bank are being discussed.
Finally, one of my proposals is that any meeting of the board of the bank to deal with budgetary or funding issues relating to the regulatory authority, or staffing issues relating to the bank must be chaired by the governor, or in his or her absence, the director general. Amendment No. 122 will give effect to this proposal by inserting a new sub-paragraph in paragraph 3 to schedule 1 to the principal Act and amending section 22A of the principal Act, as inserted by section 19 of the Bill, to provide that the functions to be carried out by the director general will also include the chairing of meetings of the board in the circumstances which I have just described.
Schedule 1 to the principal Act, as inserted by section 32 of the Bill, sets out the provisions applicable to the board of directors of the bank, such as the calling of meetings and voting. Paragraph 3 of schedule 1 specifies at sub-paragraph (1) who is to preside at meetings of the board, while sub-paragraph (2) specifies who has the casting vote. This amendment inserts a new sub-paragraph (3) into paragraph 3. This new sub-paragraph provides that the governor, or in his or her absence, the director general as the Central Bank's substitute decision-making body for the performance of ESCB-related tasks, must chair any meeting of the board dealing with budgetary or funding issues relating to the IFSRA or staffing issues relating to the bank.
That was quite a mouthful. The ECB is looking to the doomsday scenario in looking to specify all these provisions. Nonetheless, I cannot see them as objectionable. They require the governor not to delegate certain functions and that he have a role in the budget for fear that it might jeopardise the bank and that he be in a position to control proceedings at board meetings. In practice, I have no great objection to them, but the ECB seems to have plenty of people to beaver through Bills and come up with suggestions. I hope these are all to the good.
Amendment agreed to.
Section 18, as amended, agreed to.
SECTION 19.
I move amendment No. 49:
In page 23, lines 42 and 43, to delete all words from and including "section" in line 42 down to and including "(2)" in line 43 and substitute "section 19A (other than under subsection (1)(c)) and paragraph 3(3) of Schedule 1”.
Amendment agreed to.
Section 19, as amended, agreed to.
SECTION 20.
I move amendment No. 50:
In page 24, line 2, after "(3)" to insert "and by inserting in subsection (4) the words ', other than the Governor,' after the word 'Director' ".
Section 23(4) of the principal Act states that every director shall receive such remuneration and allowances and be subject to such conditions of service as the Minister determines. This provision does not relate to the governor, as under section 2 of the principal Act, the expression "Director" means "Director of the Bank" and the expression "Director of the Bank" does not include the governor. Section 19(1) of the principal Act, which will remain unaffected by the Bill, states that the governor's remuneration, allowances and conditions of service are set by the board. Due to amendments being made by the Bill, the governor will no longer be excluded from the definition of "Director" in the principal Act. The purpose of this amendment, therefore, is to continue to exclude the governor from the provisions of section 23(4), which deals with directors and remuneration. This amendment ensures that the governor will not be involved in setting his or her remuneration.
Is the board entirely independent or does it have to take account of Government guidelines?
It does take account of Government guidelines.
Amendment agreed to.
Section 20, as amended, agreed to.
SECTION 21.
I move amendment No. 51:
In page 24, line 14, to delete "(1)" and substitute "(2)".
This is a technical amendment. Section 21 of the Bill amends the principal Act by substituting a new section 24 for the existing section 24. The new section sets out the provisions in relation to the tenure of office of directors of the bank. Subsection (1) deals with official directors, who are directors by virtue of the office they hold, such as the Secretary General of the Department of Finance. Subsection (2) deals with appointed directors. These are directors appointed by the Minister for Finance. Subsection (3) incorrectly states that subsection (1) applies only to a director appointed on or after the commencement of this section. The reference should be to subsection (2), relating to appointed directors.
This amendment makes this correction. This is to make it clear that appointed directors of the Central Bank board who are re-appointed to the new board will serve a term of five years, irrespective of how long they were on the old board. Official directors will continue to be directors as long as they hold the office by virtue of which they are directors.
Amendment agreed to.
Section 21, as amended, agreed to.
SECTION 22.
Question proposed: "That section 22 stand part of the Bill."
Someone who is nominated as a candidate is required to give up his or her position. Usually this requirement would only come into effect upon election.
To which paragraph is the Deputy referring?
This is in section 25(3)(e), which states that a person who is appointed a director ceases to be appointed a director if the person is nominated as a candidate for election as a Member of either House of the Oireachtas or is nominated as a Member of Seanad Éireann. Is that standard?
I believe it is fairly standard. There may be some legislation in which it is not so, but in any legislation which I have piloted through the Oireachtas and in which this is referred to, it always specified the date of nomination for obviously good reasons.
Question put and agreed to.
SECTION 23.
Amendments Nos. 52 and 53 are consequential and may be discussed together, by agreement.
I move amendment No. 52:
In page 25, line 45, to delete "(1)".
These amendments are of a technical nature. If amendment No. 53 to delete subsection 28(2) as inserted by section 23 of the Bill is accepted, there will then be only one subsection in this section and, accordingly, the use of "(1)" in this section is no longer necessary. The subsection being deleted is not necessary due to the provisions of the proposed new section 18(b), as inserted by section 14 of the Bill. The new section 18(b) deals with the composition of the board of directors of the bank. Section 28(2) was originally inserted when the monetary authority was part of the proposed structure, so these subsections are redundant. In addition, this amendment also corrects the punctuation at the end of section 28 (1).
Amendment agreed to.
I move amendment No. 53:
In page 25, line 48, to delete "vacancy." and in page 26, to delete lines 1 to 4 and substitute "vacancy.'.".
Amendment agreed to.
Section 23, as amended, agreed to.
Sections 24 to 26, inclusive, agreed to.
SECTION 27.
Amendments Nos. 54 and 111 are similar and may be discussed together, by agreement.
I move amendment No. 54:
In page 26, line 37, after "called" to insert "Údarás Rialála Seirbhísí Airgeadais or in the English language".
The newly inserted section 33(b)(i) in Part III (A) at section 27 of the Bill, established the body called the Irish Financial Services Regulatory Authority. The newly inserted section 57(c) in Part VII (A) at section 29 of the Bill established the body called the Irish Financial Services Appeal Tribunal. The Deputy proposes to amend these sections in order to give the bodies their names in the Irish language. I have no difficulty in principle in accepting the proposed amendment. While I have no doubt the Deputy’s Irish is flawless, I will have the proposed translations confirmed by the translation section in the Houses of the Oireachtas prior to Report Stage.
I accept the Minister's response.
Amendment, by leave, withdrawn.
Amendments Nos. 125 and 130 are related to amendment No. 55 and they may be discussed together by agreement.
I move amendment No. 55:
In page 27, between lines 12 and 13, to insert the following:
"(b) in respect of functions of the Bank under sections 18 and 23 of the Central Bank Act 1971-
(i) in so far as relates to the performance of functions imposed on the Regulatory Authority by this section, to perform those functions of the Bank, and
(ii) in any other case and by agreement with the Governor, to contribute to the performance of those functions of the Bank;".
These amendments arise from concerns expressed by the ECB in its opinion on the Bill. Under the terms of the Statute of the European System of Central Banks, the Government is required to consult with the ECB regarding proposed changes in the structure and functions of the Central Bank of Ireland. A copy of the Bill was sent to the ECB last April and a reply was received in the following June. A copy of the opinion and a copy of my Department's response to that opinion were laid before both Houses of the Oireachtas on 21 October last.
The ECB expressed a number of technical reservations about the Bill. One of these concerns was set out in paragraph 14 of the opinion. The ECB noted that the list of enactments and regulations under which the regulatory authority is to perform functions of the Central Bank should not include any ESCB related functions vested in the governor, such as certain of the functions of the Central Bank under section 18 of the Central Bank Act 1971, as amended, which, inter alia, facilitates the collection by the ECB, assisted by the Central Bank, of the necessary statistical information directly from economic agents in order to undertake the tasks of the ESCB, in accordance with Article 5 of the ESCB statute; and section 23 of the Central Bank Act 1971, as amended, which, inter alia, facilitates the application by the Central Bank of the ECB's requirements that credit institutions hold minimum reserves on accounts with the ECB and national central banks in pursuance of monetary policy objectives, in accordance with Article 19.1 of the ESCB statute.
However, the ECB does recognise that the regulatory authority must be able to exercise the Central Bank's functions under section 18 in order to collect information and under section 23 in order to apply specified ratios for purposes of the exercise of the regulatory authority's own functions. The Bill as drafted transfers sections 18 and 23 of the Central Bank Act 1971 to the regulatory authority under the First Schedule to the principal Act. Section 33C(1)(a) in turn allows the regulatory authority to perform the functions the bank has under, or in respect of, the enactments and statutory instruments specified in the Second Schedule.
However, what is desirable is that either the governor or the authority should be able to use their powers. Accordingly, the amendment provides that, in respect of functions of the bank under sections 18 and 23 of the Central Bank Act 1971 the regulatory authority is to perform those functions of the bank in so far as it relates to the performance of functions imposed on the authority by section 33C. Examples of these functions would be the collection of information under section 18 and the application of specific ratios under section 23 for supervisory purposes and the board is also to be able to use those powers. The authority is required to assist the governor when he, on behalf of the bank and in the exercise of his functions, seeks to exercise those powers.
The ECB pointed out in paragraph 14 of its opinion that the list of enactments and regulations under which the regulatory authority is to perform functions of the Central Bank should not include any ESCB functions vested in the governor. It referred specifically to sections 18 and 23 of the Central Bank Act 1971. The ECB recognised, however, that the regulatory authority must be able to exercise the Central Bank's functions under sections 18 and 23 of the 1971 Act. Amendment No. 55 deals with these concerns of the ECB and how the regulatory authority is to carry out the functions of the Bank under those sections of the 1971 Act.
The Second Schedule to the Bill lists the enactments and regulations under which the regulatory authority is to perform functions of the bank. The functions set out in sections 18 and 23 are mainly of an ESCB nature and therefore vested in the governor. It is necessary, therefore, to exclude these sections of the 1971 Act from the sections of the Act under which the regulatory authority is to perform functions of the bank. Accordingly, amendment No. 125 adds sections 18 and 23 to the list of sections of the 1971 Act which will not apply to the regulatory authority. The Central Bank Act 1998 is included in that list. The amendment, in effect, removes the Central Bank Act 1998 from this list. This amendment should be read together with amendments Nos. 55 and 125. Amendment No. 203 repeals sections 3 to 8 and 10 to 20 of the 1998 Act. This effectively leaves only section 9, which this amendment is removing from the Second Schedule.
Section 9 extends section 23 of the Central Bank Act 1971 allowing the Central Bank to require institutions in the State to hold special deposits, observe certain liquidity ratios etc. on behalf of the European Central Bank in accordance with Article 19 of the statute. The interest of the regulatory authority in these matters has been dealt with by amendment No. 55 which can only have full effect if section 9 of the 1998 Act is not listed in the Second Schedule. Accordingly, the amendment provides for the deletion of the Central Bank Act 1998 from the list of enactments and regulations in the Second Schedule to the Bill as the only sections of relevance to the regulatory authority have been restated by amendment No. 56.
Is it the delegation of functions that require the agreement of the governor, or is it the actual exercise of the functions?
The governor has to be solely responsible for anything related to ECB matters. On anything which might conflict with that, the ECB has expressed an opinion. That is the general rule that seems to apply throughout its opinion.
Do I understand correctly that the wording in the amendment - "and in any other case and by agreement with the Governor, to contribute to the performance of those functions of the Bank" - amounts to putting a rider on the functions of this regulatory authority? What I am not clear on is whether the governor will delegate the functions, but has to agree to delegate them, or is it that, effectively, the governor becomes capable of intervening on a day-to-day basis in the exercise of any of these functions?
I understand this is for efficiency purposes, in order to allow the authority to help the governor to carry out his job.
Is the governor to be the sole agent, the ultimate authority on a day-to-day basis? Is it comparable to the position of a Minister in respect of his Department, having at least nominal responsibility for everything? Is that the type of structure we are setting up?
Yes, in relation to anything to do with the ECB.
Is that the reference to sections 18 and 23?
Yes.
Amendment agreed to.
I move amendment No. 56:
In page 27, to delete lines 24 to 32 and substitute the following:
"(2) (a) The Minister may, after consulting the Bank, by order notified in Iris Oifigiúil, add-
(i) to Part 1 of Schedule 2 any specified enactment, or
(ii) to Part 2 of that Schedule any specified statutory instrument, under or in respect of which functions of the Bank are to be performed by the Regulatory Authority.
(b) An order under paragraph (a) may be limited to specified entities, or categories of entities, to which the enactments or statutory instruments apply.”.
Section 27 of the Bill amends the principal Act by inserting two new Parts - Part IIIA and Part IIIB - into the Act. Part IIIA is concerned with the Irish Financial Services Regulatory Authority. Section 33C in Part IIIA deals with the functions and powers of the regulatory authority. Subsection (2), which is being amended here, provides that the Minister for Finance may, by order, add to the lists of enactments and statutory instruments contained in the Second Schedule of the principal Act, under which the functions of the bank are performed by the regulatory authority.
As currently drafted, the Minister can only transfer whole legislation and not sections of legislation, which is more relevant and necessary. The McDowell report stated that consideration should be given to a review of the remaining roles and powers of the statutory offices from which powers were transferred to the single regulatory authority - the Director of Consumer Affairs and the Registrar of Friendly Societies. Arising out of discussions in relation to the functions of the Registrar of Friendly Societies, it was recognised that if the Government at a future date decides that the regulatory authority should adopt certain functions of the registrar in relation to societies dealing in financial services, for example the regulation of benevolent societies, the Minister would not have the power to separate legislation that deals with societies dealing in financial and non-financial related services. Subsection (2) is being amended to counter this barrier and to allow the Minister to transfer sections of legislation relating to specific entities or categories of entities to which the particular legislation applies.
In addition to this change, subsection (2) is being amended by requiring the Minister to consult with the bank before adding to the Second Schedule of the principal Act. As the regulatory authority performs functions of the bank under the Second Schedule, the bank needs to be consulted before any change is made to the functions listed under the Second Schedule.
When will the Minister consult with people?
It will happen after the bank has been consulted.
That is the key change. The Minister does not intend to delegate new functions without having consulted the bank.
Yes.
Amendment agreed to.
I move amendment No. 57:
In page 27, line 35 after "promote" to insert "transparency of information for the users of financial services, competition among the providers of financial services, prudent cooling off periods in relation to contracts for financial services, efficient redress grievances in relation to the provision of financial services and any other matters identified by the authority which are in".
The Bill states that "in performing its functions and exercising its powers, the Regulatory Authority is required to promote the best interests of users of financial services in a way that is consistent with the orderly and proper functioning of financial markets, and the orderly and prudent supervision of providers of those services". The emphasis of that phrase seems to make the best interests of users of financial services subservient to the wider and equally, if not more, important functions of the authority. We should spell out what we mean by promoting the best interests of users of financial services by drawing up a check list of things that the regulatory authority is expected or required to do. In my amendment, I suggest that it should promote "transparency of information for the users of financial services, competition among the providers of financial services, prudent cooling off periods in relation to contracts for financial services, efficient redress grievances in relation to the provision of financial services and any other matters" identified by it as being in the best interests of the users of financial services. I propose that we make clear the expectations the Oireachtas will have of the regulatory authority in pursuing the best interests of the users of financial services.
I have a question about the functions and powers of the regulatory authority. Subsection (4) of the proposed section 33C, as outlined in section 27 of this Bill, states that "the Regulatory Authority should take such action as it considers appropriate to increase awareness among members of the public of available financial services and the costs, risks and benefits associated with the provision of those services". In what way will the authority take such action? Neither the bank nor members of the regulatory authority will be liable to any damages arising from a failure to comply. Can any sanctions or other measures be implemented to expose a failure to comply with subsection (4)?
The regulatory authority is required by this Bill, as it stands, to promote the best interests of users of financial services in a way that is consistent with the orderly and proper functioning of financial markets and the orderly and prudent supervision of the providers of those services. The amendment put forward by Deputy Richard Bruton proposes that the authority should promote more specific issues. Transparency of information will be a responsibility of the consumer director, who will be required to include in her annual report information on the extent to which she has promoted the best interests of the consumers of financial services. The consumer director will also be required to include information on the extent to which competition exists among financial service providers in her annual report.
Prudent cooling off periods are dealt with in existing governing legislation - the Consumer Credit Act 1995 - and can be further dealt with in codes of conduct. The question of redress for grievances in relation to the provision of financial services will be covered by the inclusion in the proposed follow-up Bill - the No. 2 Bill I mentioned earlier - of provision for a statutory financial services ombudsman scheme. I am satisfied that the general provision as drafted covers all the matters of concern to the Deputy and I will therefore not be accepting his amendment.
The Minister is missing an essential point, that under the legislation as initiated by him, the annual report of the consumer director has to be approved by the regulatory authority. The consumer director may be interested in pursuing certain matters, but he or she must ensure that the Bill insists that the authority, which mediates every act of the director, also has the objectives mentioned in my amendment on board. It is not enough to point out that the consumer director will have to report on these issues, as they will be diluted if they are not central to the authority's role. From a legal point of view, it would be better to set out clearly that the functions of the regulatory authority include the aspects I have listed.
This Bill makes clear that looking after the best interests of users of financial services is part of the regulatory authority's remit, in order to recognise that the consumer director cannot act alone. I assume the Minister also recognises that the regulatory authority must have this broader remit. Some of the things the Minister has said the director should report upon should also be things that the authority should promote. I am suggesting that the authority should have a more proactive role. Promotion of the objectives in my amendment should be a desirable part of the regulatory process and is preferable to having a passive consumer director, who is under the thumb of the authority, reporting on failure. There is a huge difference between promoting best practice and reporting failure and we should seek to include in legislation an aspiration to meet best practice in relation to consumer issues.
I am not persuaded by the Minister's rejection of my proposal to include details of the matters that should be promoted by the regulatory authority. Inclusion of such details will be not be a redundant measure, as the Minister seems to suggest. The Bill should state that the regulatory authority has a role in promoting a number of specified priorities, rather than passively sitting back to listen to the consumer director's report of failure in the various areas.
I support Deputy Richard Bruton's amendment. The fact that consumer protection is subservient to the other functions of the regulatory authority is the flaw at the heart of this Bill. The governance of the Central Bank is founded on the prudential aspects of its work. This is a reasonable amendment. The financial services field is very large and affects individuals, families and businesses throughout the country. The office of consumer director that is being established is a tame one, as it is not accompanied by a series of additional responsibilities, including transparency, which is mentioned in the amendment under discussion, the various proposals I put forward in relation to the financial services ombudsman and accountability to this House. I do not think the measures in this Bill represent a good deal for consumers of banking services, including small businesses, individuals and families. We will look back with regret on the passing of this Bill. The director of consumer services will be very much under the thumb of the director of the Central Bank and the board of the regulatory authority. A consumer services directorate should be independent and active as a consumer watchdog. It is interesting that in the various submissions I was sent by the industry there was no mention of a need for increased regulation to protect consumers. In fact, the industry finds that the current voluntary system is fine. We will look at that matter with regret after the Bill has been enacted.
There is no need to accept this amendment since the consumer director can be called before the Oireachtas committee and examined by Deputy Burton and others. There is no need to spell out all of the matters Deputy Richard Bruton refers to in the amendment he put down. We should wait to see how the legislation is operating after the passage of a few years.
I am happy the Minister recognises that this Bill may not be perfect and says that it can be reviewed. However, as the Minister well knows we will not get a second chance in practice. The likelihood of the legislative provisions being reviewed is close to nil - certainly in the next 20 years - given their long gestation. We should make a stab at getting it right now. The Minister admitted earlier that one of the most challenging aspects of this matter is putting in one harness two horses which are running in different directions. The two areas involved are consumer protection and prudential supervision. If the Minister insists that consumer protection be included, he must make better provision than simply having the consumer director report passively after the fact with regard to failures in competition, awareness, costs and risk. We want to ensure that the regulatory authority has a sense that in a very real way its job is to promote competition and transparency as well as to ensure the orderly function of financial markets and prudent supervision.
Everyone knows that in the long-term the survival and prudential soundness of the financial system depends on the effective promotion of competition and transparency. If our financial system is not vigorously competitive and consumer oriented, its success will gradually be eroded. By making these amendments we are not setting up a counterproductive set of agenda items. In the long-term, a successful financial industry should be doing all of the things we have mentioned. I appeal to the Minister to modify the provisions of the Bill to provide a stronger consumer protection mandate to the authority. Perhaps on Report Stage he will consider how to do that if he is unhappy with my formulation. It is good that we set out such provisions clearly from the outset because we are suppressing the consumer director who would otherwise be independent. In an earlier contribution I mentioned that in 16 out of the 19 countries in question, the consumer director is entirely independent of the financial regulator.
Amendment put and declared lost.
Amendments Nos. 91 and 98 are related to amendment No. 58 and may be discussed together, by agreement.
I move amendment No. 58:
In page 27, line 46, to delete "costs" and substitute "cost to consumers".
Section 33C deals with the functions and powers of the regulatory authority and subsection (4) requires the authority to take whatever action it considers appropriate to increase awareness among members of the public of the costs, risks and benefits associated with the provision of financial services. Section 33T of the principal Act provides that the consumer director prepare an annual report of his of her activities during a particular financial year. Subsection (3) of section 33T lists the information that must be included in such a report.
These amendments clarify references within the sections to the costs of financial services since the word "cost" can be interpreted as the cost to the consumer or the cost of production or both. The intention was to refer to the cost to the consumer. For this reason, the texts of subsection (3)(b) and subsection (4) are being amended to read “cost to consumers”. The intention was that awareness be increased of the price of financial services to consumers. However, there is no intention that the IFSRA will be engaged in price control beyond its functions under the Consumer Credit Act. The use of the word “price” might create the mistaken impression that the IFSRA had powers of price control.
It is welcome that the authority will promote awareness among members of the public of the costs, risks and benefits of certain services. However, there is unease about the types of financial products which are being offered. The Minister should also provide that the authority can do more than promote awareness in the cases of financial products which sail close to the wind in the way they are packaged and sold. The authority should be able to impose conditions. There has been some comment on the manner in which one of the building societies is selling the notion that parents should remortgage their homes. There has also been some comment about selling the notion that you should be running a mortgage current account. Perhaps there is a need for the authority to impose additional obligations such as cooling off periods or to issue warnings in bold letters. In such cases the authority would not only promote awareness, it would also say that certain products have a Government warning attached. The authority should be in a position to ask financial institutions to reconsider certain products, even if they are not illegal or imprudent in the narrow sense. They may, however, promote risky financial undertaking by consumers which is something we ought to be trying to avoid.
As I pointed out in an earlier reply, the EU is to issue a consumer credit directive. That directive will encompass a wide variety of provisions of the sort referred to by the Deputy with which our legislation will have to comply. The directive will impose additional burdens, though that might not be the appropriate word, regarding what a consumer must be told when obtaining credit. I am sure the matter will be dealt with in that way.
There is much consumer credit legislation in place already. Is the Central Bank taking on the obligations set out there or is it leaving them with the director of consumer credit?
The IFSRA will take on those particular obligations.
In that case there is a need to be more alert to this, rather than say the EU may come up with provisions at some point down the road.
Responsibility is being taken for the consumer measures as they relate to the IFSRA and the authority should be able to deal adequately with the matters to which the Deputy referred. If additional requirements are imposed by an EU consumer credit directive, they will have to be enacted in Irish law and will subsequently be taken on board also.
I welcome the tenor of the amendment. What concerns me is that a number of financial institutions and providers of certain financial products, including building societies, impose savage penalties when customers default on payments. Sometimes the debts of people who have got into trouble with credit cards and lending institutions are passed on to other agencies and frightening levels of penalty can be charged on very ordinary financial transactions. That is one of the reasons I emphasise the need to reign in some of the providers of financial services products with regard to the penalties they charge businesses and consumers.
Amendment agreed to.
As it is 6 p.m., I propose that we conclude consideration of the Bill as agreed earlier. We will meet again tomorrow morning at 9.30 a.m. to resume our consideration of the Bill. I thank the Minister and his officials for attending today's session and look forward to seeing them again tomorrow morning.
Progress reported; Committee to sit again.
The select committee adjourned at 6.05 p.m. until 9.30 a.m. on Wednesday, 5 February 2003.