COMMITTEE OF PUBLIC ACCOUNTS debate -
Thursday, 20 Apr 2023

Comptroller and Auditor General Section 2 Report on Unauthorised release of funds from the Central Fund of the Exchequer (Resumed)

Mr. Gabriel Makhlouf (Governor, Central Bank of Ireland) and Mr. John Hogan (Secretary General, Department of Finance) called and examined.

An Cathaoirleach

I welcome everyone to this morning's meeting. We have received apologies from Deputy Catherine Murphy.

If attending the meeting from within the committee room, members and witnesses are asked to exercise personal responsibility to protect themselves and others from the risk of contracting Covid 19. Members of the committee attending remotely must do so from within the precincts of Leinster House. This is due to the constitutional requirement that, to participate in public meetings, members must be physically present within the confines of the place where Parliament has chosen to sit.

The Comptroller and Auditor General, Mr. Seamus McCarthy, is a permanent witness to the committee. He is accompanied today by Ms Mairead Leyden, audit manager at the Office of the Comptroller and Auditor General.

This morning we will engage with officials from the Central Bank to resume our examination of the report on the Accounts of the Public Services 2020, Chapter 14 – Assessment and collection of Insurance Compensation Fund Levies; the report on the administration and movement of the Insurance Compensation Fund for the year end 31 December 2021; and the Comptroller and Auditor General section 2 report on the unauthorised release of funds from the Central Fund of the Exchequer.

We are joined from the Central Bank by Mr. Gabriel Makhlouf, Governor, Ms Sharon Donnery, Deputy Governor, financial regulation, and Mr. William Molloy, director of financial operations. We are also joined by the following officials from the Department of Finance: Mr. John Hogan, Secretary General, Ms Scline Scott, principal officer, corporate affairs, Mr. Colm O’Reardon, head of strategic economic development division, and Mr. Michael McGrath, assistant secretary, financial services division. We are also joined by the following officials from the Office of the Revenue Commissioners: Mr. Eugene Creighton, assistant secretary, large corporate division, and Ms Angela O'Gorman, Comptroller and Auditor General and committee liaison. They are all very welcome.

I remind all those in attendance to ensure their mobile phones are on silent mode or switched off. Before we start, I wish to explain some limitations to parliamentary privilege and the practice of the Houses as regards reference witnesses may make to other persons in their evidence. The evidence of witnesses physically present or those who give evidence from within the parliamentary precincts is protected, pursuant to both the Constitution and statute, by absolute privilege. As they are within the precincts of Leinster House, witnesses are protected by absolute privilege in respect of the presentation they make to the committee. This means they have an absolute defence against any defamation action for anything they say at the meeting. However, witnesses are expected not to abuse this privilege and it is my duty as Cathaoirleach to ensure it is not abused. Therefore, if their statements are potentially defamatory in relation to an identifiable person or entity, witnesses will be directed to discontinue their remarks and it is imperative they comply with any such direction.

Members are reminded of the provisions within Standing Order 218 that the committee shall refrain from enquiring into the merits of a policy or policies of the Government, or a Minister of the Government, or the merits of the objectives of such policies. Members are also reminded of the long-standing parliamentary practice that they should not comment on, criticise, or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable.

Before I call the Comptroller and Auditor General, Mr. Seamus McCarthy, to make his opening statement, I want to particularly welcome Mr. Makhlouf to the meeting this morning. We were hoping he would have been here on 23 February. We had a meeting scheduled for that date and had given many weeks' notice to the Central Bank. We received a letter from Mr. Makhlouf three days before the meeting stating he was unable to attend due to a European Central Bank, ECB, meeting in Finland. I also have before me a schedule of ECB governing council and general council meetings for the year, which I am sure Mr. Makhlouf also has access to. I have the full schedule here for 2023. I express the disappointment of the committee at being notified only a few days in advance that Mr. Makhlouf could not attend our meeting. We were also disappointed there was no Deputy Governor here that day. I convey that disappointment to Mr. Makhlouf. The Committee of Public Accounts has a job to do in terms of oversight and it was extremely disappointing for me, as Chairperson of this committee, that we had to abandon that meeting halfway through due to a lack of information or of people who could answer questions on behalf of the Central Bank.

Another matter that I want to bring to Mr. Makhlouf's attention is the fact the Comptroller and Auditor General published a section 2 report on the unauthorised release of funds from the Central Fund of the Exchequer. It relates to the release of €750 million without full authorisation. On 21 December, one day before the Comptroller and Auditor General's report was due to be published, the report was leaked to a journalist in one of the newspapers. An article was published which set out that the Department of Finance took €750 million in Exchequer funds without approval. Only three bodies knew the detail of that report. One of them was the Comptroller and Auditor General's Office, which had prepared the report. The second one was the Department of Finance, in which it is accepted that full approval was not given. That has been accepted by the Department and the committee is happy enough with that. The third body was the Central Bank.

In relation to the settlement with the Central Bank and in regard to the actions taken against PwC in relation to the Insurance Compensation Fund, on 23 February, when the Central Bank attended this committee, officials were unable to give us details of the final settlement in relation to Quinn Insurance Limited and the Supreme Court case against PwC. Yesterday morning, again one day before the key event, the same newspaper and the same journalist were able to set out that PwC paid €53 million to settle the €900 million claim over Quinn Insurance Limited. From this committee's point of view, that leak obviously came from somewhere. The last day senior officials from the Central Bank were here, they were not able to answer that question. They said the information was confidential. I have not been able to find confirmation that there was a legal reason for it being confidential. Now we learn the figure was settled last June. That figure was available but it was not given to this committee. It was given to a journalist, who published another newspaper story on foot of it. Would Mr. Makhlouf like to comment on any of those matters before we start?

Mr. Gabriel Makhlouf

Good morning. I am very happy to comment and to address the points you have just made. Do you also want me at the same time to deliver and go into the statement I sent to the committee yesterday? I am happy to comment on that as well.

An Cathaoirleach

No. Before we go the opening statements, I want you to address those three matters. I want you to address the non-attendance of the Governor or Deputy Governor at the meeting on 23 February and the issue of the two leaks.

Mr. Gabriel Makhlouf

I am very happy to do that. As I said, in my letter I am very sorry that I could not attend the hearing. I am particularly sorry that we did not give clearer and earlier notice of my absence from the country that week. We should have done better and I am sorry that we did not. I do not think that sort of thing will happen again. It was my decision that William Molloy and Adrian Varley, who is not here today, would be the best people to represent the Central Bank to answer the questions on the reports the Comptroller and Auditor General had tabled. My focus was on who would be best placed to represent me at this hearing.

In terms of the leaks, I am afraid the only thing I can assure the committee on is that nobody in my office spoke to any journalist about both the items the Cathaoirleach mentioned. It is incredibly regrettable that leaks happen. The Central Bank is not in the business of leaking and will not be in the business of leaking, but I cannot, I am afraid, explain how it happened.

An Cathaoirleach

We should agree that it is disappointing that both of those happened. In the case of the one about the report from the Office of the Comptroller and Auditor General, that happened one day before the publication and went to a journalist. Obviously, the journalist has to do his job; I would not expect him to do anything else. In fairness to them, that is their business and we need to have a free press. Mr. Makhlouf has come along to today's meeting and yesterday we had another article from the same journalist in the same newspaper regarding the €53 million settlement paid by PwC over the Quinn collapse. Does Mr. Makhlouf not find that a strange coincidence?

Mr. Gabriel Makhlouf

As I just said, I find it incredibly regrettable, not just those leaks-----

An Cathaoirleach

That is not the question I asked.

Mr. Gabriel Makhlouf

-----but any leaks at all.

An Cathaoirleach

Does Mr. Makhlouf find it a strange coincidence that it has again happened one day before this public meeting?

Mr. Gabriel Makhlouf

Absolutely. I think it is a strange coincidence and it looks deliberate.

An Cathaoirleach

How many officials-----

Mr. Gabriel Makhlouf

I can assure the Cathaoirleach that it did not come from the Central Bank.

An Cathaoirleach

How many officials at the Central Bank would have known of that figure of €53 million?

Mr. Gabriel Makhlouf

I could not say, but not many.

An Cathaoirleach

When Mr. Makhlouf says not many, are we talking about three or four or are we talking about 13 or 14?

Mr. Gabriel Makhlouf

I would not like to speculate. It is more than three or four.

An Cathaoirleach

Would it be half a dozen?

Mr. Gabriel Makhlouf

I would be speculating.

An Cathaoirleach

Okay. From the point of view of the Committee of Public Accounts that is very disappointing. All of us here, including the officials from the Central Bank, are all public servants. We have a job to do and we need to do it diligently on behalf of the public who put us here. This practice is very disappointing.

I thank Mr. Makhlouf for that. I accept his explanation for not being here. However, I have to say that there should have been a deputy governor here at least. I understand there are three deputy governors, is that correct?

Mr. Gabriel Makhlouf

Indeed.

An Cathaoirleach

None of them was present.

I now call the Comptroller and Auditor General, Mr. Seamus McCarthy, for his opening statement.

Mr. Seamus McCarthy

The Central Fund of the Exchequer receives most of the State's revenues and is the source of most State spending. The account of the Central Fund is held at the Central Bank of Ireland. Money can only be released from the Central Fund as provided for by law. As Comptroller, I am required to issue grants of credit before any withdrawals of funds from the Exchequer by the Minister for Finance, or his or her agent. These grants of credit are notified to the Central Bank and are limits controlling the Minister's right to access funds.

The special report before the committee this morning outlines a failure of the controls over the withdrawal of money from the Central Fund on 28 October 2022. On the Friday before the October bank holiday weekend, the Central Bank issued to the Minister €738 million more than the amount of credit that remained available to him. The Department of Finance did not identify that the amount of the withdrawal requests it submitted on the day exceeded the value of the remaining credit. The Central Bank also did not identify that the credit limit would be breached and issued the requested funds.

The Department could have applied earlier for an additional grant of credit, but this had not happened. Notwithstanding this, it is a matter of serious concern that a significant sum of money was released from the Central Fund without the necessary credit authorisation. Both the Secretary General of the Department of Finance and the Governor of the Central Bank have advised that a number of changes to controls have been, or will be, made to prevent any recurrence. I welcome their assurances in this regard.

The Insurance Compensation Fund was established under the Insurance Act 1964 to facilitate payments to insurance policyholders in Ireland when a non-life insurance company goes into liquidation. The Act allows the Minister for Finance to lend money from the Exchequer to the compensation fund when required and to recover such loans from the proceeds of a levy on insurance premiums. The premiums are collected by insurers and paid over to the Revenue Commissioners, who subsequently remit the receipts to the fund account.

Payments out of the Insurance Compensation Fund are made at the direction of the High Court. Up to August 2018, the Insurance Compensation Fund was maintained and administered by the accountant of the High Court. Administration of the fund then statutorily transferred to the Central Bank of Ireland and was brought within my audit remit.

When Quinn Insurance Limited went into liquidation in 2011, the fund was unable to provide the amount that was forecast to be required to meet the insurance claims on the company. As a result, between 2011 and 2015, the Minister for Finance advanced Exchequer loans to the fund of just over €1 billion, to allow it to meet those claims. Between 2013 and 2016, there were three further company failures resulting in claims on the fund.

The current levy rate is 2% of the value of non-life insurance premiums. This is additional to the standard 3% Government stamp duty payable on such premiums, which is also remitted to Revenue. In 2021, Revenue paid just under €93 million of levy receipts into the fund. This was down from the level of receipts in 2020, which was just under €101 million. The value of payments from the fund for the benefit of policyholders, in accordance with High Court orders, amounted to just over €11 million in 2021. The excess of receipts over payments allowed for the continued repayment of Exchequer lending. At 31 December 2021, the balance owed to the Exchequer, including accrued interest, was just under €554 million. The fund had cash reserves of €53 million, resulting in an overall deficit on the fund of €501 million.

An appendix to the financial statements indicates the balances owed by the various insurers whose policyholders were compensated through the fund. This indicates a total liability in respect of Quinn Insurance Limited of €1.13 billion at 31 December 2021. No estimate is provided of the amount that may yet be recovered from the company. The notes to the financial statements disclose that a substantial claim by the administrators of Quinn Insurance Limited against their former auditors was settled in 2022. However, the value of that settlement is not disclosed.

As outlined in Chapter 14 from my 2020 report, the collection of the levy income by Revenue was a lengthy manual process that had led to delays in identifying and paying receipts over to the fund. The examination also found that controls over the assessment of levy income were not sufficiently robust and that this had resulted in significant amounts being paid late into the fund. Of course, there have been developments since the report was presented which I think have addressed some of those control weaknesses.

An Cathaoirleach

I now invite Mr. Makhlouf to make his opening statements. He has five minutes.

Mr. Gabriel Makhlouf

The committee heard Will Molloy's opening statement on 23 February at the last hearing. Inhouse, his statement reflects my views; I will not repeat it. I will just make three points. First, on the issue of grants of credit and together with the additional controls the Department of Finance has introduced, I am satisfied that the end-to-end process is significantly stronger and robust enough to avoid a recurrence of the incident set out in the Comptroller and Auditor General's report.

The agreed changes are reflected in the revised service level agreement between the Department and the Central Bank of Ireland.

In regard to the insurance compensation fund, the role of the Central Bank is to administer and determine the contributions of insurers to the fund but does not include policy decisions regarding the use of the funds. The role of the Revenue Commissioners is the collection of the contributions from insurers and the transfer of those contributions to the fund. All the recommendations made by the Comptroller and Auditor General have been accepted and implemented by both the Revenue Commissioners and the Central Bank.

The draft 2022 accounts of the fund prepared on the accruals basis are in an advanced state of preparedness and should be with the Comptroller and Auditor General by the agreed date of 30 June.

An Cathaoirleach

I call Deputy Munster, who has 15 minutes.

Deputy Imelda Munster

I thank the Chair. I wish to touch on deposit interest rates. Will Mr. Makhlouf confirm how much money the three big Irish banks have on deposit with the ECB?

Mr. Gabriel Makhlouf

I do not have those figures to hand.

Deputy Imelda Munster

I am sure somebody does. Is there somebody online?

Mr. Gabriel Makhlouf

We can come back to the Deputy on that.

Ms Sharon Donnery

I am looking for somebody here.

Deputy Imelda Munster

Will it take long? We should have it straight away.

Ms Sharon Donnery

We should be able to get it relatively quickly.

Deputy Imelda Munster

Can we get that during my questioning? What interest rate are the banks receiving on those deposits with the ECB?

Mr. Gabriel Makhlouf

They are receiving the deposit facility rate that the ECB is currently charging, which is 3%.

Deputy Imelda Munster

How much money will they get back in 2023? What is the interest projected accrued for 2023? However, if Mr. Makhlouf does not have the figure---

Mr. Gabriel Makhlouf

I have not got the figure. I am not sure whether we can actually project precisely what we will get.

Deputy Imelda Munster

What is it roughly?.

Mr. Gabriel Makhlouf

If we have that figure, we will give it to the Deputy.

Deputy Imelda Munster

Who is responsible for getting those figures for me?

Ms Sharon Donnery

My colleagues here will contact the office. However, the calculation would depend also on how much the banks have borrowed from the ECB.

Deputy Imelda Munster

In regard to my first question, have the witnesses absolutely no idea how much money the three banks have on deposit?

Mr. Gabriel Makhlouf

We have an idea; I just do not have the information here.

Deputy Imelda Munster

Can they give me a rough idea? Are we talking about €5 billion, €10 billion, €2 billion or €14 billion?

Mr. William Molloy

It is about €60 billion.

Deputy Imelda Munster

How much money would they expect to get back in interest in 2023 roughly?

Mr. William Molloy

They will get back whatever the ECB's deposit facility rate is. That is 3%.

Deputy Imelda Munster

If it is at 3%, can Mr. Molloy provide a rough idea of what that figure would be?

Mr. William Molloy

We can do the maths if the Deputy wishes. It is €60 billion times 3%.

Deputy Imelda Munster

All right. By comparison, what is the deposit rate being offered by the three big Irish banks to customers?

Mr. Gabriel Makhlouf

I am afraid I cannot help the Deputy with that. It varies depending on the product that we are talking about. I do not know.

Deputy Imelda Munster

Does anybody know? I am looking for deposit interest rates. Does anybody have them for AIB, PTSB or Bank of Ireland?

Ms Sharon Donnery

I do not have the details of every interest rate that is offered by each of the individual banks but, on deposits, the rates range from very low, close to zero depending on whether it is a current account or a demand deposit account.

Deputy Imelda Munster

We would not be too far off by saying, "AIB is offering 0.1%".

Ms Sharon Donnery

Certainly on some accounts they are, yes.

Deputy Imelda Munster

Yes, and it is the same case with Permanent TSB. I am curious. Why would Irish banks not pass on the hundreds of millions of euro they are receiving from their deposits with the ECB? Why are they not passing that on to customers, particularly when their interest rates are only 0.1%?

Mr. Gabriel Makhlouf

That is a commercial decision they are making.

Deputy Imelda Munster

Has Mr. Makhlouf the authority to direct banks to offer more favourable interest rates to customers?

Mr. Gabriel Makhlouf

No.

Deputy Imelda Munster

As a regulator, has Mr. Makhlouf ever sat down and asked the banks for a more favourable interest rate?

Mr. Gabriel Makhlouf

Not to my knowledge. They are making commercial judgments. One of the implications of their judgments is that the lower rates that they are paying on deposits are subsidising the lower rates that they are charging on mortgages.

Deputy Imelda Munster

In fairness, however, there is a quare difference between banks' receiving 3% on their deposits from the ECB, and paying 0.1% to ordinary consumers for theirs. However, as a regulator, Mr. Makhlouf is not too perturbed about that. He would not see that---

Mr. Gabriel Makhlouf

It is not part of our role to set interest rates.

Deputy Imelda Munster

I am not saying the Central Bank should set them, but has it done anything about the unfairness of having consumers receiving a 0.1% deposit interest rate compared with the 3% that Irish banks are getting for their deposits with the ECB? Does Mr. Makhlouf not see that something is not regulated? Will he even go to the bother to meet the banks to see whether they would offer a better interest rate?

Mr. Gabriel Makhlouf

That is not part of our role.

Deputy Imelda Munster

Would the Central Bank be precluded from doing it in the interests of consumers?

Mr. Gabriel Makhlouf

In discussions we have with the banks, we will talk about their business and the judgments they are making, the risks they see and how they are managing them. Those sorts of considerations may come up in the conversation, absolutely.

Deputy Imelda Munster

Part of the Central Bank's remit is the public interest, safeguarding financial stability and making sure that the system operates in the best interests of consumers. However, thus far, Mr. Makhlouf has not met with the banks even to discuss that particular point about deposit interest rates being so low.

Mr. Gabriel Makhlouf

We meet them regularly as part of our supervisory role and we talk to them about their business, how they are operating and how they are managing their risks. In the course of conversation the rates that they are charging on their loans and the rates they offer on their deposits could come up but we do not specifically-----

Deputy Imelda Munster

Did Mr. Makhlouf ever raise it with them to see whether he could persuade them to offer more favourable rates to customers?

Mr. Gabriel Makhlouf

No.

Deputy Imelda Munster

Young people throughout the country are saving for deposits. They may have accumulated €10,000, €20,000 or €30,000 to buy a new home. They are being offered 0.1% interest and Mr. Makhlouf does not think that is something that he as a regulator could be bothered to raise with the banks. It would not concern him in the slightest that people are saving their deposits and they are being offered almost negative interest rates on their savings. He as a regulator would not see that as worthwhile even raising with them because he said he did not.

Mr. Gabriel Makhlouf

No. In a market economy---

Deputy Imelda Munster

We know the market economy. We know all that. I asked Mr. Makhlouf as a regulator. Given his definition of the Central Bank's remit in safeguarding and protecting consumers, he did not see fit to raise that.

Mr. Gabriel Makhlouf

I said it could come up in discussions.

Deputy Imelda Munster

It did not with Mr. Makhlouf; he did not see fit to---

Mr. Gabriel Makhlouf

As a deliberate item for discussion it is not something that we would get involved in.

That is not within our remit. Perhaps my colleague, Ms Donnery, wishes to comment.

Deputy Imelda Munster

The Governor has no concerns about the difference that they receive because if he had then he would have raised it.

Mr. Gabriel Makhlouf

No, the Deputy is putting words into my mouth. That is not what I said.

Deputy Imelda Munster

I asked the Governor if he raised the matter and he said that he did not.

Mr. Gabriel Makhlouf

What I have said is that we meet the banks regularly. The Deputy asked me if I personally raised it.

Deputy Imelda Munster

Yes.

Mr. Gabriel Makhlouf

I personally have not raised it.

Deputy Imelda Munster

That is what I am saying. It was not something on the Governor's radar or a slight concern of his.

Mr. Gabriel Makhlouf

No, it is on my radar.

Deputy Imelda Munster

But the Governor did not raise it.

Mr. Gabriel Makhlouf

No, no. I am very aware of what is happening in the system, what banks are charging and what banks are offering because it is relevant ultimately to our assessment of how the system is functioning. Actually, discussions on specific products that they are offering, and specific rates, is not something that, as a matter of deliberate policy, we would go into. It may come up in discussions that we have with them-----

Deputy Imelda Munster

But the Governor did not particularly raise it.

Mr. Gabriel Makhlouf

-----on all their business.

Deputy Imelda Munster

Half the country is talking about the fact that deposits literally get negative interest rates but Mr. Makhlouf, as the Governor of the Central Bank, did not raise the matter.

How many mortgages did Irish banks sell to vulture funds between 2009 and 2020?

Mr. Gabriel Makhlouf

Can my colleague, Ms Donnery, answer that?

Ms Sharon Donnery

I do not have the number, though I can get them, because I was not expecting questions on these issues.

Deputy Imelda Munster

So the Governor does not have a number.

Mr. Gabriel Makhlouf

No. I am afraid we have come prepared to discuss the two reports by the Comptroller and Auditor General and the fund's accounts.

Deputy Imelda Munster

That is something that is fairly out there. You would imagine that one of witnesses would have a figure.

Mr. Gabriel Makhlouf

No, no. As I said, we have come prepared to discuss the two reports by the Comptroller and Auditor General.

Deputy Imelda Munster

Yes, but the witnesses should be prepared to answer all questions.

Mr. Gabriel Makhlouf

We have come prepared for those but we have not come prepared for the others.

Deputy Imelda Munster

Is the Governor telling me that he does not have the figure for how many mortgages were sold by Irish banks to vulture banks between 2009 and 2020?

Mr. Gabriel Makhlouf

Not to hand, no.

Deputy Imelda Munster

Can anyone get that figure?

An Cathaoirleach

We realise that the issue is not one of the items listed.

Mr. Gabriel Makhlouf

Yes.

An Cathaoirleach

Obviously the Governor knows it is a major question. I ask the Governor to ask one of his officials to provide the figure before the end of the meeting.

Ms Sharon Donnery

Yes, we will do that.

Mr. Gabriel Makhlouf

We are trying to get the information now but I just cannot give it.

Ms Sharon Donnery

I do not want to give an incorrect number either, Deputy.

An Cathaoirleach

Yes, okay.

Deputy Imelda Munster

Does the Central Bank place regulations on those types of transactions? Does the Governor feel, as a regulator, that he has a role to protect people?

Mr. Gabriel Makhlouf

The framework that exists gives borrowers, essentially, exactly the same rights whoever is their lender, whether it is a bank or a non-bank.

Deputy Imelda Munster

Does the Governor not feel that facilitating such a transfer of debt would have serious consequences and negative impacts on ordinary Irish mortgage holders? Does he not feel protection should be offered? Did the Central Bank instruct retail banks to sell off non-performing loans to vulture funds?

Mr. Gabriel Makhlouf

What we were very focused on was the fact that coming out of the financial crisis the banks needed to clean up their balance sheets. Plus, they needed to manage the fact that they had many non-performing loans and find ways to-----

Deputy Imelda Munster

My question was on whether the Central Bank placed any regulation on-----

Mr. Gabriel Makhlouf

I am answering.

Deputy Imelda Munster

No, time is of the essence.

Mr. Gabriel Makhlouf

I am answering the question.

Deputy Imelda Munster

Please answer as quickly as possible, please.

Mr. Gabriel Makhlouf

I am answering the Deputy's question. The process of cleaning up the balance sheet ranged from restructuring the loans of individual borrowers to actually selling the loan to someone else. The focus of the Central Bank was to make sure that at the end of the day the rights of the borrowers were protected and that they were in the same position whether the lender was a non-bank or one of the banks.

Deputy Imelda Munster

They are not actually because many people pay 7% in interest, which is twice what they should be paying so rights have not been protected. Does the Central Bank have the power to cap the interest rates charged by vulture funds?

Mr. Gabriel Makhlouf

No, we do not.

Deputy Imelda Munster

Would the Governor like if the Central Bank had those powers?

Mr. Gabriel Makhlouf

No, we would not.

Deputy Imelda Munster

Am I right that the Governor recently told the Minister that the Central Bank did not want such powers?

Mr. Gabriel Makhlouf

Indeed, yes.

Deputy Imelda Munster

Given that the Central Bank forced the mainstream banks to sell, and the Central Bank has the responsibility to regulate the sector, does the Governor not feel that it is incumbent on the Central Bank to protect people?

Mr. Gabriel Makhlouf

There are regulations in place.

Deputy Imelda Munster

Is it incumbent on the Central Bank to find a solution?

Mr. Gabriel Makhlouf

Absolutely. Sorry, if the Deputy is raising the fact that some borrowers now face paying higher rates of interest, then that is an issue which was discussed at the Oireachtas joint committee when I attended a few weeks ago. We are doing a lot of work to make sure that all lenders understand their obligations. That work is ongoing, including making sure that there are no restrictions on the ability of people to switch from their current lender to someone else.

Deputy Imelda Munster

Not everybody can switch.

Mr. Gabriel Makhlouf

Some people can and some people's circumstances are much harder.

Deputy Imelda Munster

It is ones who are in the most dire circumstances who cannot switch. How many mortgages involved in the tracker mortgage scandal were sold to vulture funds? Do the witnesses have the figure?

Mr. Gabriel Makhlouf

Not to hand.

Ms Sharon Donnery

I have the figures for the numbers with the non-banks but I do not have the figures for tracker mortgages, no.

Deputy Imelda Munster

These went into arrears because of the illegal, if you like to call it, interest rates. They were charged incorrect interest rates so it was through no fault of their own. Now, as has been said, they must pay twice the original interest rate and, in fact, some people are paying 7% interest. So far this morning I have not heard anything from the Governor or his colleagues that would offer comfort to those people who are suffering huge financial distress.

The Governor has said that the Central Bank will do something or is looking into matters and there is an ongoing process. What exactly will the Central Bank do, or is looking to do, for these individuals? Will the Central Bank review these cases and ask the banks to buy back the mortgages?

Mr. Gabriel Makhlouf

We are certainly looking at a range of options. We wrote to all lenders back in November of last year.

Deputy Imelda Munster

Please explain the range of options.

Mr. Gabriel Makhlouf

One of the obligations that lenders have is to make sure that they understand the circumstances of their individual borrowers. If lenders believe that their borrowers would find it difficult to meet their mortgage obligations then the lenders must look at how to support the borrower, including, potentially, through restructuring the loan. So there are a series of obligations on lenders and what we are doing at the moment is making sure that those obligations are being delivered. We are doing a piece of analysis. Next week, we will publish some of the work that we have done but the work is ongoing.

Deputy Imelda Munster

Would part of that be requesting retail banks to buy back some of the mortgages?

Mr. Gabriel Makhlouf

I would not put it quite like that. Some of what we are looking at is to make sure that the switching process is working.

Deputy Imelda Munster

On the switching process, there are many people suffering the most dire financial stress and they will not be able to switch. Is the Governor saying that the Central Bank will correct the switching process? Given what is happening across the State, and the huge financial burden that is on people, to say that it is light-touch regulation would be an understatement.

Mr. Gabriel Makhlouf

It is not.

Deputy Imelda Munster

It is.

Mr. Gabriel Makhlouf

No, it is not.

Deputy Imelda Munster

It is for the families in distress and see no light at the end of the tunnel. It beggars belief the hands-off approach.

Mr. Gabriel Makhlouf

No, I am sorry-----

Deputy Imelda Munster

Regarding my first question, the Central Bank had not even raised the issue. It seems the Central Bank has adopted a hands-off approach. It feels like the Central Bank has thrown people to the wolves or to the vulture funds and that the Central Bank could not care less.

An Cathaoirleach

The Deputy has gone over time.

Mr. Gabriel Makhlouf

I do not agree with that view on that. It is pretty intensive and intrusive regulation. We have to work within the legal parameters and legal powers that we have been given. Our focus is absolutely-----

Deputy Imelda Munster

I am sure that the Governor understands that the Central Bank has instructed the banks to sell the loans to vulture funds and now there is nothing happening for those people.

Mr. Gabriel Makhlouf

No.

Deputy Imelda Munster

They have been left to the mercy of vulture funds due to light-touch regulation.

Mr. Gabriel Makhlouf

All lenders have obligations to look after their borrowers. We are making sure that those obligations are being followed through and we will take action if that does not happen.

An Cathaoirleach

People are paying 5%, 6% or 7% in interest. People did not change their situation voluntarily and the loan book was sold to a vulture fund. That is the concern.

Did Mr. Makhlouf give the figure to the Deputy of 3% of €60 billion? Some €60 billion was on deposit with the European Central Bank, ECB. Therefore, €1.8 billion is the figure.

Because Deputy Hourigan has not joined us yet, the next committee member is Deputy Colm Burke.

Deputy Colm Burke

I thank the governor for coming before the committee and for his presentation. In his statement on the insurance compensation fund, he said the role of Revenue is the collection of the contributions from insurers. In real terms, however, those contributions that the insurers pay is collected from the taxpayers. Am I right?

Mr. Gabriel Makhlouf

Well, the premiums-----

Deputy Colm Burke

No, there is a 2% levy-----

Mr. Gabriel Makhlouf

Yes.

Deputy Colm Burke

-----put on insurance taken out by people. While the insurers can transfer the money, it is actually money collected by the insurers from the taxpayers. Am I correct?

Mr. Gabriel Makhlouf

It is from policyholders.

Deputy Colm Burke

Yes, but they are taxpayers.

Mr. Gabriel Makhlouf

It is the insurers themselves who have to-----

Deputy Colm Burke

In real terms, it is the ordinary person on the ground who is paying those contributions.

Mr. Gabriel Makhlouf

The ones who have taken on out an insurance policy, yes. But not the generality of taxpayers.

Deputy Colm Burke

It is not the insurance companies that are actually paying. It is actually collected from people who are getting insurance. The fund to bail out Quinn came from the taxpayers. The sum was €1.1 billion. Am I correct?

Mr. Gabriel Makhlouf

It is a loan from the taxpayer. That is correct.

Deputy Colm Burke

Yes, and that money then has been collected from the people who are getting insurance in order to pay back that figure of €1.1 billion. Am I correct?

Mr. Gabriel Makhlouf

Correct.

Deputy Colm Burke

At the last meeting in February, I raised the question of the settlement with PwC and about the fact that figure is not being disclosed to us. On the last day, the meeting was adjourned because that figure was not being disclosed to us. The governor has come in here this morning and it is not disclosed to us now either.

Mr. Gabriel Makhlouf

If the Deputy does not mind, I will hand this point to the Secretary General. I want to make it very clear, because I think the Cathaoirleach said something at the beginning that I want to be clear on. Section 33AK of the Central Bank Act prevents us from disclosing information we receive in the course of doing our job.

Deputy Colm Burke

We have a job to do as regards the money and making sure there is a full accountability to the taxpayer. There is taxpayers' money of €1.1 billion that was used to bail out a company-----

Mr. Gabriel Makhlouf

I understand-----

Deputy Colm Burke

-----and there has now been a settlement, according to a newspaper that was published yesterday. We looked for this information back in February and we still have not received it. The governor is coming in here this morning and he is not prepared to disclose it either.

Mr. Gabriel Makhlouf

I want to explain why we did not disclose it in February. This is because the law says that we cannot disclose it. The law does not include a provision that says we can disclose it to a committee of the Oireachtas. It is very clear in stating that we cannot disclose any information-----

Deputy Colm Burke

It is taxpayer's money. We are accountable to taxpayers and to our constituents.

Mr. Gabriel Makhlouf

I agree with the Deputy.

Deputy Colm Burke

Therefore, we are now talking about €1.1 billion being paid out by the taxpayer. We are talking about a settlement, which is €53 million according to a newspaper. This is 5.88% of the total loss the taxpayer suffered. No one is able to account to us as to whether that figure is true or not true.

Mr. John Hogan

I thank the committee for the opportunity to be here this morning. It is clear that at the last meeting of the Committee of Public Accounts the information on the settlement between PwC and the joint administrators was sought by the committee. It was not possible at that stage to disclose in the context of the proceedings that were ongoing at that time. Since that meeting, there have been a number of specific developments which enable me to be a little bit more explicit in terms of the outcome.

First, we had sought greater clarity in relation to the specific terms of the confidentially agreement between the litigants. Second, it has also been confirmed to us that the joint administrators, such as Quill Insurance Ltd., QIL, will be before the courts on 8 May in relation to a separate matter. As a result of that, the Department has become a notice party to it. Additional information has therefore come into the domain of the Department that allows us to disclose the number. The proceedings between PwC and the joint administrators of QIL were settled and the joint administrators' receipt of the settlement of some €54 million has been remitted to the Insurance Compensation Fund, ICF, in July of last year. That is the settlement sum.

Deputy Colm Burke

That was available. It was July of last year and yet it is not even in any statement we have received. I have had to ask two questions to get it. Our job here is to make sure there is accountability to the taxpayer and to our constituents. Why could we not have received that information previously? I fully understand the issues in relation to the courts. There still seems to be, in accordance with the article that referenced that sum of €54 million, an issue about costs being taken out of that €54 million for bringing the case. I need to know what is the net figure. I have done my calculation. It is 5.88% of the total loss to the taxpayer. Will it now be 3%?

Mr. John Hogan

In relation to the numbers, I am very happy to be here today to confirm what the Deputy was not in a position on the last day to get from the Department.

Deputy Colm Burke

Is the figure of €54 million the net sum after the payment of costs or is it the sum that was paid out before the payment of costs?

Mr. John Hogan

A number of figures were also discussed on the last day in relation to this. The first of these was the settlement figure, which the Deputy now has. The second was the figure relating to the security costs that were associated with taking the case. Can Mr. McGrath give an indication of the arrangement of the costs?

Mr. Michael McGrath

As Mr. Hogan said, the settlement sum is €54 million, as has been reported in the court documents we have seen in relation to this separate issue that is now before the courts. In addition to that, a sum of €29 million in relation to the advanced security of costs has also been remitted back to the ICF. If you add those two figures, the ICF will benefit by that amount, which is €83 million. That figure will form part of the 2022 accounts to which the governor earlier referred. He is working to ensure the accounts are in a position for the Comptroller and Auditor General to audit. Once they are audited, the Minister for Finance will lay the report before the Oireachtas. We anticipate that will be done in the autumn. All along, we assumed that when the figures were correctly audited, that that sum of money would have been part of the audit and would be here before the Houses.

Separate from that is the issue around actual costs. This case that the joint administrator took commenced in 2012. There has been a long series of costs associated with that case over the years in terms of running a court case for a decade in relation to various aspects of it. The figure of €54 million is a gross figure. I understand there were significant costs related to the running of the case. That is probably-----

Deputy Colm Burke

On a note of clarification, is Mr. McGrath saying that the €54 million is before costs are deducted, excluding the €29 million we will be getting back, which related to security of costs, a security that had to be lodged by the State?

Mr. Michael McGrath

The €54 million is the settlement amount that was achieved. But here were costs associated with the case over the last decade.

Deputy Colm Burke

I fully accept that Mr. McGrath may not know what are the costs. In other words, is €54 million the gross figure in real terms?

Mr. Michael McGrath

The €54 million is the gross figure. That was the settlement amount, but there were costs associated with running the case for ten years.

Deputy Colm Burke

I fully accept that, but we do not have an idea of the net figure. In fact, in this case, PwC was the auditor of a company that ended up with a liability to the taxpayer of €1.1 billion and we may be recovering as little as 4% as a result of what occurred.

Mr. Michael McGrath

I would need to be careful in relation to it. The joint auditors sued PwC in relation to issues of its audit duties. Beyond that, the settlement is a settlement between both parties-----

Deputy Colm Burke

Mr. McGrath must accept, though-----

Mr. Michael McGrath

Sorry, the settlement is one without any findings. I need to be careful in relation to that.

Deputy Colm Burke

I am aware that when cases are settled there is no admission anywhere along the line but Mr. McGrath must admit that, where a company went down the tubes and the taxpayer ended up picking up the bill of €1.1 billion, we are now getting less than 4% back from the people who were the stars of the show as regards doing audits in this country and they are walking off the pitch as if no wrong was done.

Mr. Michael McGrath

As I say, we are not party to the case. The administrator was running-----

Deputy Colm Burke

We are all accountable to the taxpayer.

Mr. Michael McGrath

Excuse me, if I can just maybe finish the point. The joint administrator was running a case on what it saw as, what it termed, "red flags" in relation to the auditor. However, the issue in relation to the sum of money the taxpayer paid into Quinn was in relation to a whole range of issues in regard to Quinn Insurance. There were significant-----

Deputy Colm Burke

Quinn Insurance was about one of the things that one needs to have. One needs to have a fund available so that if there are claims, there are moneys there to meet those claims. Surely it is the job of an auditor to make sure. The same as when the Department is looking at the banks, it has to make sure the banks that are under the Department's jurisdiction have adequate security for anything that they are lending out. Likewise, an insurance company, and the auditors attached to an insurance company, should have that role of making sure there are adequate funds there to meet claims. In this case, there was not.

Mr. Michael McGrath

It is best that I do not comment any further on a case that we were not a party to.

An Cathaoirleach

I think the point the Deputy is making is that there were not the reserves there to meet those potential liabilities or liabilities as they may have been. Deputy Devlin is next but Deputy McAuliffe is switching with him and going first.

Deputy Paul McAuliffe

I thank Deputy Devlin. I have a meeting at 11 a.m. and I have to attend for voting.

Let me focus on the point that Mr. McGrath made about us not being a party to the case. I want to focus on the transfer of €29 million from the insurance compensation fund and its use and security of costs in a case which involved no State parties, essentially, private parties, and the governance around that. I am not here to quiz anybody. The ultimate governance arrangements for the insurance compensation fund are the responsibility of the Oireachtas and my questions are trying to elicit what is clearly a governance gap in the insurance compensation fund. It was clear from the previous meeting that almost everybody in the room thought that the insurance compensation fund was somebody else's responsibility and, therefore, I want to focus on that.

The Insurance Act 1964 was there to ensure that policyholders who were left in the case of an insolvent insurance company were protected. My question is: what legal basis or section of the Insurance Act was used to release the funds of €29 million for security of costs by the President of the High Court? I might ask the Department first.

Mr. Michael McGrath

I thank the Deputy. It is probably best to walk the Deputy through the process of how this works and the role of the High Court in it, if that is okay.

Deputy Paul McAuliffe

I am somewhat familiar with it.

Mr. Michael McGrath

For the record of the proceedings here, the insurance compensation fund, ICF, has multiple actors. To get to the core point for the Deputy, the High Court has a significant role in relation to administrators or liquidators. In this case, we are talking about an administrator. Amounts of money paid out of the ICF in relation to any insurer, be it a liquidator or an administrator, would be done with the approval of the High Court in accordance with-----

Deputy Paul McAuliffe

My question was: which section of the Act did they use to release the money?

Mr. Michael McGrath

Sorry, okay. As I understand it, it is in accordance with section 3 of the Insurance Act 1964, as amended by the 2018 Act. The approval is done that way. The administrator of the issue before them, in this case, Quinn, goes to the High Court, presents the case and seeks approval for funds to be taken out.

Deputy Paul McAuliffe

I have read section 3. I am not a legal expert but I struggled to find that basis. The difficulty we have is that the President of the High Court is a member of the Judiciary and, as a Member of the Dáil, I am precluded from second-guessing the decisions of the President of the High Court. Would Mr. McGrath accept that is a significant governance gap where no public body can question or quiz the decisions made by somebody who is administering a public fund?

Mr. Michael McGrath

No. To be honest, it would be unwise of me to comment on the provisions of the High Court in the role between the-----

Deputy Paul McAuliffe

Equally, it would be unwise of me to do it too.

Mr. Michael McGrath

I can only be guided by what is in the-----

Mr. John Hogan

In fairness to Mr. McGrath, Deputy McAuliffe would hardly expect him to comment in the same manner.

Deputy Paul McAuliffe

But does that not show the governance gap that neither of us, despite being responsible for public finances, administrating the fund and holding public bodies to account, can examine or seek transparency around the distribution of public funds?

Mr. Michael McGrath

That is a separation of powers between the courts-----

Deputy Paul McAuliffe

I accept it is the separation of powers.

Mr. Michael McGrath

I am not a constitutional lawyer and I am not sure what more I could say about that.

Deputy Paul McAuliffe

So the Department of Finance cannot assist the Committee of Public Accounts in how we might have greater transparency of a fund which the Oireachtas established.

Mr. Michael McGrath

The Department, in its role, has set out the legislative framework and the accounts are audited and presented each year to the Oireachtas with the information that is in it. There is transparency there. The administrator goes into the court seeking funds in relation to an issue and the High Court adjudicates on that but, overall, there are audited accounts. The Central Bank has to maintain-----

Deputy Paul McAuliffe

Of course, there are.

Mr. Michael McGrath

-----the various audited accounts so there is oversight.

Deputy Paul McAuliffe

Would it be correct that if, in regard to the other duties and responsibilities which the Department had, the Department allocated public funding to any particular source, the Department would be subject to it being examined here before the Committee of Public Accounts?

Mr. Michael McGrath

If it is a voted expenditure, the Minister of the day would be.

Deputy Paul McAuliffe

Every Department is.

Mr. Michael McGrath

Yes, exactly.

Deputy Paul McAuliffe

Even those bodies that receive partial funding from the State are examinable by this committee and by other auditing bodies, such as the local government auditor.

Mr. Michael McGrath

Where we are getting to here is the issue of oversight in relation to any court awards and that is not something I should be getting into in any way.

Deputy Paul McAuliffe

Of course, except the difficulty here is that public money is being gathered for the purposes of the insurance compensation fund and decisions are being made about how that is disbursed. There is a governance gap. I am not blaming the Department. I am not blaming the Central Bank here. I am asking them to assist me in identifying a clear governance gap here where it is not possible to interrogate or to examine the reasons €29 million was transferred, effectively, for the use of third parties. Is that unusual?

Mr. Michael McGrath

Sorry, let me clarify that the €29 million was security of costs that was sought that the Supreme Court had adjudicated. In order for the case to proceed, the joint administrator had to put this money up as a security of cost in the eventuality of a case being lost or costs being found against them. That €29 million came back to the ICF. That is what I said at the outset.

Deputy Paul McAuliffe

Whether it did or did not-----

Mr. Michael McGrath

But it did come back.

Deputy Paul McAuliffe

Whether it did or did not, that is not the discussion I am having. The discussion I am having is that a decision was made to allocate public money. In every other normal course of events, it is possible to have a discussion about that. In this forum, it is not possible for me to discuss the decision made by the President of the High Court because of the separation of power. Does Mr. McGrath agree with that assessment?

Mr. Michael McGrath

On matters that are before the courts, there is a separate issue.

I agree with that. Beyond that I am not sure what I can add to any of it.

Deputy Paul McAuliffe

As a public servant, is Mr. McGrath concerned about it?

Mr. Michael McGrath

I should not comment on the constitutional arrangements, to be frank.

Mr. John Hogan

It is the nature of the framework that was in operation around all of this. We have to operate and abide by that framework. In fairness it is very difficult for us as public servants to comment on the nature of the relationship between ourselves, yourselves and the Judiciary.

Deputy Paul McAuliffe

If I were-----

Mr. John Hogan

The point-----

Deputy Paul McAuliffe

I accept Mr. Hogan's position. I do not know why he is being defensive about it.

Mr. John Hogan

I am not being defensive.

Deputy Paul McAuliffe

I am asking for his assistance in identifying a gap-----

Mr. John Hogan

I think we are all trying to protect our position in relation to this.

Deputy Paul McAuliffe

That is the problem though.

Mr. John Hogan

We do not want to find ourselves breaching a line on the separation of powers.

Deputy Paul McAuliffe

Let us be clear-----

Mr. John Hogan

All of us have responsibilities to abide by that.

Deputy Paul McAuliffe

It is the people on this side of the table who are responsible. We are the ones who set the framework. We set the governance arrangements. I am not looking to blame anybody here. I am looking for Mr. Hogan's assistance to identify what is a clear gap so we can put forward policy amendments and change it. That is what the Oireachtas does. There is no blame game here. I am not looking to hang anybody out to dry. I am looking for the Department to help me to change the governance arrangements. I cannot do that without getting to the bottom of these questions. I ask Mr. Hogan not to be defensive about it. I have not engaged in any rough questioning-----

Mr. John Hogan

I know. In fairness, Deputy, you have not. What we are trying to get to the bottom of here is a way in which we can help the committee. I come in front of it regularly as the Accounting Officer to deal with all sorts of issues. Deputy McAuliffe will find that we in the Department of Finance are as open and transparent as we can be in all of these arrangements.

Deputy Paul McAuliffe

Let me-----

Mr. John Hogan

I ask the Deputy to let me finish. This morning, we have been asked about the number in relation to this. We have been transparent in that. It was not a position we were comfortable with the last time that officials were here. We are as comfortable as we can be in all of these things where there are court processes in place and we can disclose information.

At the end of the day, it is very difficult for us as public servants to comment on the nature of that relationship between the Judiciary, ourselves and yourselves. It is a very difficult area for us to deal with. I caution how we describe it. As a legislator, Deputy McAuliffe can reach his own conclusions on this on the basis of the facts he sees in front of him.

Deputy Paul McAuliffe

I think Mr. Hogan is right there.

Mr. John Hogan

That is as much as I can say on this.

Deputy Paul McAuliffe

I would love to have a forum where I can ask a question about why public funds were used for security of costs for a case that had entirely private parties. I would love to have a forum where I could ask what conditions were put in place for the use of State resources, for example, that there would be full transparency and no confidentiality clause that precluded State bodies from being transparent. These are normal things that somebody who is responsible for ensuring the public finances are protected should be able to ask. Due to the nature of the Insurance Compensation Fund, I do not have a forum to hold to account anybody for the entire fund and, in particular, for the decisions made to disburse the fund. That is incredibly unusual.

Mr. John Hogan

I hear the Deputy's conclusion. What we have attempted to do today is to try to explain the process in the most explicit terms we can around all of this. We have tried to be forthcoming about the numbers associated with it. The figure of €54 million is significant for anybody. The security costs that were put on the table in relation to this, to allow the State ultimately to realise the produce of this particular process, have been repaid to the fund. The fund has increased by €83 million overall. I accept and note the exchange we have had on all of this.

Deputy Paul McAuliffe

I am a Member of the Oireachtas. I am not a subscriber to a newspaper. Information regarding public funds should be made available to me by public servants who report to this House and not by newspaper articles. I am not suggesting Mr. Hogan is responsible for that. The Department of Finance has a policy responsibility in this area to bring forward legislative changes where I identify a very clear governance gap and where there is no accountability or opportunity to interrogate the use or disbursement of funds under the Insurance Compensation Fund. I believe this is a matter for the Department and the Minister.

An Cathaoirleach

I share Deputy McAuliffe's frustration but there is a clear division between the Oireachtas and the Four Courts. That division is there for good reason. Unfortunately, this responsibility has been-----

Deputy Paul McAuliffe

We can discuss it in private session. We asked the participants to come back with more senior representation, and for good reason because Mr. Hogan says he is as comfortable as possible. It is very clear that even with the most senior representation in the room the committee still cannot get to the bottom of why public funds - I see the Comptroller and Auditor General indicating-----

Mr. Seamus McCarthy

The transaction is from 2022. There is an opportunity, as the financial statements are being prepared, to think about the disclosures that would be included in the fund accounts for 2022 and to take away the questions that have been raised by the Deputy and try to answer them as best as possible in the financial statements. The committee will have an opportunity to consider it again when the financial statements are presented.

Deputy Paul McAuliffe

The Comptroller and Auditor General has referenced this in terms of the notes to the accounts that are being prepared. It would be useful that it be considered.

Mr. John Hogan

That is a very helpful suggestion from the Comptroller and Auditor General and I thank them.

Deputy Verona Murphy

On the previous occasion Mr. Makhlouf was to come before the committee, he gave us three days' notice of his non-attendance. Why such short notice?

Mr. Gabriel Makhlouf

I think the Deputy may not have been here when we addressed that point.

Deputy Verona Murphy

I was. I heard Mr. Makhlouf say it was regrettable.

Mr. Gabriel Makhlouf

It was completely regrettable.

Deputy Verona Murphy

I did not hear why.

Mr. Gabriel Makhlouf

It was three days' written notice and it should have been much earlier. It was a mistake. I had expected the committee to have been informed much earlier than that. It should not have happened.

Deputy Verona Murphy

By whom?

Mr. Gabriel Makhlouf

By me and my office.

Deputy Verona Murphy

We got three days' notice. When does Mr. Makhlouf say we should have received notice but did not? Who is responsible for not telling us?

Mr. Gabriel Makhlouf

Ultimately, I am accountable for the fact the committee did not get the formal notice.

Deputy Verona Murphy

Just to alert Mr. Makhlouf, I have ten minutes. Mr. Makhlouf said he thought we would be alerted much sooner. By whom?

Mr. Gabriel Makhlouf

By my office.

Deputy Verona Murphy

Who in your office? Is it anybody who is with you?

Mr. Gabriel Makhlouf

I am not going to start getting into who in my office. I take responsibility for it.

Deputy Verona Murphy

I understand that you take responsibility and so you should because it was absolutely disrespectful. The question I asked was why we only received three days' notice.

Mr. Gabriel Makhlouf

It was an error. You should have received it much sooner.

Deputy Verona Murphy

That was an error.

Mr. Gabriel Makhlouf

My understanding was that we had communicated verbally to the committee. Clearly that was inadequate and I should have written that letter much earlier.

Deputy Verona Murphy

Absolutely, other than thinking it was okay just to send in-----

Mr. Gabriel Makhlouf

No, I did not think it was okay. I thought I was confirming in writing something that was already known. Clearly that was a mistake.

Deputy Verona Murphy

It was very disrespectful.

An Cathaoirleach

I just want to confirm that it was not already known. The first I learned of it was on the Tuesday of that week.

Mr. Gabriel Makhlouf

I am just saying this is what I thought I was doing.

An Cathaoirleach

I am just providing clarity as Chair of the committee.

Deputy Verona Murphy

Mr. Makhlouf is wrong again in that. It had not been identified verbally.

An Cathaoirleach

The first notice I had of it was on the Tuesday.

Deputy Verona Murphy

That is fine. Mr. Makhlouf is wrong twice.

I want to go back to the initial meeting when we discussed the unauthorised transfer of €738 million. What is in place to ensure this will not happen again?

Mr. Gabriel Makhlouf

The process we had in place before-----

Deputy Verona Murphy

Did not work.

Mr. Gabriel Makhlouf

It worked for a long time but it involved checking at the end of the day. It made certain assumptions that other checks had been made by others. What we have now done is changed our process, along with the Department changing its process. I am satisfied that the end-to-end process, which involves making checks before we make payments, will ensure the incident is not repeated.

Deputy Verona Murphy

Is it as simple as that? Were there any repercussions? Was anyone held accountable or reprimanded? Some €730 million was transferred just like that.

Mr. Gabriel Makhlouf

We changed the process. Our policy-----

Deputy Verona Murphy

I know the process was changed. The question I asked was whether there were any repercussion for any employee. Clearly someone was responsible. We might not know who was supposed to advise the committee, other than Mr. Makhlouf, that he could not make it, but surely it is known who was responsible. I am asking specifically who was held accountable and what the repercussions were. I accept the process has been changed. I assume that should have been in place in any case.

Mr. Gabriel Makhlouf

What we have done is-----

Deputy Verona Murphy

Did Mr. Makhlouf hear the specifics of the question?

Mr. Gabriel Makhlouf

I did and I am about to answer it. We implemented a philosophy we adopt in the bank which is that when we identify a mistake we own it, fix it and learn from it. Everyone involved in that process has adopted that philosophy and accepts responsibility for their individual parts in it and have worked to fix it.

Deputy Verona Murphy

Have there been any repercussions?

Mr. Gabriel Makhlouf

Absolutely.

Deputy Verona Murphy

Was anyone's bonus-----

Mr. Gabriel Makhlouf

People are disappointed that such a significant mistake was made. They have all worked to address it.

Deputy Verona Murphy

Okay, I will ask in a simpler fashion. I will ask a binary question. Were there any repercussions for any employee of the Central Bank, yes or no?

Mr. Gabriel Makhlouf

There were the repercussions I have just explained. Is the Deputy asking whether we have dismissed anyone?

Deputy Verona Murphy

Not necessarily dismissed.

Mr. Gabriel Makhlouf

We have not dismissed anyone as a result of this.

Deputy Verona Murphy

For example, was a bonus removed?

Mr. Gabriel Makhlouf

We do not pay bonuses.

Deputy Verona Murphy

Was there any meaningful repercussion?

Mr. Gabriel Makhlouf

Our philosophy is to get people-----

Deputy Verona Murphy

Well, tell me this-----

Mr. Gabriel Makhlouf

I am sorry. This is an important point.

Deputy Verona Murphy

I cannot get the answer I require, so I will ask it differently. What would have happened if this had happened in one of the many agencies the Central Bank regulates? What would the Central Bank have done as the regulator?

Mr. Gabriel Makhlouf

We would have expected them to own it, fix it, learn from it and change their processes. That is what we would have expected. At the end of the day, the Deputy is talking in hypotheticals.

Deputy Verona Murphy

Would the Central Bank have imposed a fine for such a breach?

Mr. Gabriel Makhlouf

Not necessarily. It depends. We are now talking about hypotheticals. It would have depended on the background and circumstances. In this particular case and on this particular issue, the process had worked for many years. On this occasion it did not work and that was absolutely-----

Deputy Verona Murphy

A failing

Mr. Gabriel Makhlouf

-----regrettable and a complete failing.

Deputy Verona Murphy

That the Central Bank takes responsibility for.

Mr. Gabriel Makhlouf

We and the Department have changed our end-to-end processes to ensure it does not happen again.

Deputy Verona Murphy

Is Mr. Makhlouf confident?

Mr. Gabriel Makhlouf

I am very confident.

Deputy Verona Murphy

Is it the same type of confidence we see with respect to leaks to journalists? They are regrettable but they happen.

Mr. Gabriel Makhlouf

I am completely confident that no leaks have come from the Central Bank.

Deputy Verona Murphy

How can Mr. Makhlouf be so confident?

Mr. Gabriel Makhlouf

Because our values-----

Deputy Verona Murphy

Is Mr. Makhlouf saying that it was one of the other two Departments, because it was not the Central Bank?

Mr. Gabriel Makhlouf

I am just being clear. Our values of integrity mean that we would not do this, never mind the legal obligations we have.

Deputy Verona Murphy

Let us go through it then. Is it a coincidence that the leak occurred the day before the Comptroller and Auditor General section 2 report was due to be published and that in December, there was similar leak to the same journalist from the same publication that involved the same two entities that are before the committee today? There is one common denominator to both leaks, which is the Central Bank. Is that just a coincidence? I am not accusing Mr. Makhlouf.

Mr. Gabriel Makhlouf

I am sorry. I do not agree with the Deputy.

Deputy Verona Murphy

Mr. Makhlouf does not agree.

Mr. Gabriel Makhlouf

No, if anyone has any evidence that the Central Bank made those leaks-----

Deputy Verona Murphy

What does Mr. Makhlouf not agree with?

Mr. Gabriel Makhlouf

I do not think the Central Bank is the only party involved in this.

Deputy Verona Murphy

I said that it is the only common denominator. It has been involved in both of the issues.

Mr. Gabriel Makhlouf

I am saying, if anyone knows-----

Deputy Verona Murphy

Does Mr. Makhlouf agree with the point that the Central Bank is the common denominator? There were two leaks. There is one common denominator among the parties involved, which is the Central Bank.

Mr. Gabriel Makhlouf

No, I do not agree with that.

Deputy Verona Murphy

How can he not agree with that? The Central Bank is the common denominator.

Mr. Seamus McCarthy

In fairness Deputy, my office is also a common denominator.

Deputy Verona Murphy

I am sure the Office of the Comptroller and Auditor General would not have released a leak against itself.

Mr. Seamus McCarthy

Believe me, it certainly did not come from-----

Mr. Gabriel Makhlouf

The Department is also a common denominator.

Deputy Verona Murphy

Yes.

Mr. Gabriel Makhlouf

There is more than one party. However, let me repeat this. For every-----

Deputy Verona Murphy

There is more than one party.

Mr. Gabriel Makhlouf

-----for everyone in the room and everyone who is listening, if there is any evidence that a Central Bank official was involved in this leak, I want to know because that person would be dismissed.

Deputy Verona Murphy

I would like to see concern from Mr. Makhlouf.

Mr. Gabriel Makhlouf

I am very concerned and unhappy about it.

Deputy Verona Murphy

Mr. Makhlouf is quite happy-----

Mr. Gabriel Makhlouf

Unhappy.

Deputy Verona Murphy

He is unhappy and he should be. Respectfully, I do not think Mr. Makhlouf can say 100% that it did not come from the Central Bank, any more than anyone can say it did. However, I hope a process is in place to ensure that if it did, the Central Bank would be able to identify it, that there are systems checks. I hope Mr. Makhlouf will instigate some kind of inquiry to ensure his assertion that it did not come from the Central Bank is correct. Will that happen?

Mr. Gabriel Makhlouf

Yes, it is already happening.

An Cathaoirleach

Can the Secretary General of the Department give the same guarantee that the leak did not come from the Department?

Mr. John Hogan

I have no awareness of any circumstances-----

An Cathaoirleach

He has no awareness.

Mr. John Hogan

I have no awareness of any circumstances. I am not sure that it is in the interest of the Department to leak this information and the information we have about the settlement is inconsistent with what appeared in the newspaper yesterday.

An Cathaoirleach

I do not see that the Department has any motive to do it. I agree with that.

Mr. John Hogan

To finish the point, seeing a newspaper headline about an Exchequer breach the week before Christmas is not the sort of publicity the Department seeks. I would prefer to come here with the experts and walk through the issue as it arose and the steps we have taken with the Central Bank to ensure it does not happen again.

Deputy Verona Murphy

Is Mr. Horgan saying-----

Mr. John Hogan

Hogan.

Deputy Verona Murphy

-----that there was no leak?

Mr. John Hogan

It did not come from the Department of Finance to any extent I am aware of.

Deputy Verona Murphy

I heard you say that. However, it sounds like Mr. Hogan's position is or that he is saying it was not a leak. It was a good guess by a journalist-----

Mr. John Hogan

I do not-----

Deputy Verona Murphy

-----as it was inconsistent.

Mr. John Hogan

That is not what I said.

Deputy Verona Murphy

Mr. Hogan did not say that. Will he be carrying out the same investigation as Mr. Makhlouf?

Mr. John Hogan

Hold on a second. I explained to the Chair that I did not see it being in the interest of the Department to leak the information. I cannot see what the upside is of reading about an Exchequer breach on the front page of The Irish Times in the week before Christmas. It makes absolutely no sense to me. I cannot see it. Civil servants by their nature do not engage in briefing the media like this. It is not in their interest.

Deputy Verona Murphy

It was certainly not anyone who is here.

An Cathaoirleach

I had a view on it before I asked that question.

Mr. John Hogan

I thank the Chair.

An Cathaoirleach

I do not see the Department as having the motive. That is not to say that I confirm it did not come from someone in the Department, but it would be unusual for the Department to have leaked the information, given that it would be working against itself.

Deputy Cormac Devlin

I welcome Mr. Makhlouf, Mr. Hogan and all their colleagues and officials from the relevant organisations. Staying with that issue, it is beneficial for this committee to have had an in-depth discussion around that. It was better than our last discussion around it. That is certain. It is better that more information is available, albeit, as Deputy McAuliffe alluded to, there are lacunae that seem impenetrable. However, we can circle that again and come back around to it as legislators.

With respect to Mr. Makhlouf's comments about his last proposed appearance before the committee, it is welcome to have him here this morning to discuss the various issues under his remit and that of the Central Bank. I will stick with the Quinn Insurance issue and the Central Bank first. On the final settlement that has been made, do we know the exact amount? I know Mr. Hogan said there was one amount and another amount reported. Do we have a final exact amount for how much that settlement was?

Mr. John Hogan

It is on the record of this morning's committee meeting. I confirmed that the figure is €54 million.

Deputy Cormac Devlin

That is fine. Has the insurance compensation fund received moneys from the administrators of Quinn Insurance?

Mr. Gabriel Makhlouf

Yes.

Deputy Cormac Devlin

Is Mr. Makhlouf at liberty to say how much that is?

Mr. Gabriel Makhlouf

We received a settlement.

Deputy Cormac Devlin

That is fine.

Mr. John Hogan

Plus the reimbursement of the security costs. Mr. McGrath confirmed that earlier. It was €83 million.

Mr. Michael McGrath

Our understanding is that the €54 million, which was the settlement amount, and the reimbursement of the security of costs, which was €29 million, have been remitted to the ICF. I would expect that the figure of €83 million would be reflected in the accounts that have already been mentioned.

Deputy Cormac Devlin

I hear what the Cathaoirleach has said about the information that has been put into the public domain and I accept what Mr. Hogan said. It certainly does not tally that it would be to the benefit of the Department. Irrespective of that, from the committee's perspective, the involvement of the Exchequer in any way in this has been the big conundrum. If we were to step back from the actual case itself and the individuals involved, if we were to see the collapse of an insurance company or some other organisation of that scale and size again in the foreseeable future, how would things differ from the way they were in the face of the collapse of Quinn Insurance? What has changed from the perspective of the Department and the Central Bank? Does this require legislative change or has there been a systematic change regarding how to deal with it? Could Mr. Makhlouf answer the question first followed by Mr. Hogan?

Mr. Gabriel Makhlouf

Does the Deputy mean the process of managing a business that fails?

Deputy Cormac Devlin

Yes.

Mr. Gabriel Makhlouf

It is worth saying that since 2010, a huge amount has been done to improve the regulatory framework, the supervisory framework and the resources we have put into this area to mitigate the risks of failure, although we can never prevent them. The process of resolving an insurance company has not changed significantly. We and the Department published a consultation document a couple of years ago to look to essentially align the insurance resolution regime with what already happens in the banking world. This has essentially been overtaken by European proposals for a new insurance recovery and resolution framework, which, again, is similar to what the banks have. This is in the process of being implemented.

Deputy Cormac Devlin

Mr. Makhlouf mentioned what has happened since 2010. Could he pinpoint any specifics that have changed? He mentioned systematic change. What would he highlight as the biggest changes? What the committee raised about the leak is important but at the end of the day, the committee is concerned about the public finances and their exposure to a situation similar to what we are discussing now. What has systematically changed for the better to ensure that we are more able to deal with a similar situation?

Mr. Gabriel Makhlouf

Probably two things in particular are worth mentioning. The first is the regulatory framework. We now have a harmonised prudential regime for insurers and reinsurance. In the EU, people talk about it as Solvency II. It has much more comprehensive, risk-based and proportionate capital and governance requirements. It requires insurers to have robust risk management frameworks in place and to be much more proactive in identifying, measuring and managing risks. It also requires them to provide much more qualitative and quantitative reporting. That is the overall framework from Europe.

Domestically, we have made a number of changes. We have the domestic actuarial regime, which builds on what is required in Solvency II regarding actuaries and related governance. Corporate governance requirements for insurers have changed. We have also been given more powers partly to enable us to appoint third-party specialists when we do not have the expertise. The fitness and probity regime has been put in place to ensure that individuals in key and customer-facing positions are competent, capable and honest and there are other powers. All these powers have a significant difference combined with the fact that we have more than trebled the amount of resources we are putting into the insurance sector. We have had tools in place for a while to help us with our own risk assessment so that we direct those resources where we see the highest levels of risk.

Those regulatory and supervisory changes have made a significant difference. Last year, the IMF conducted an assessment of our financial system as a whole. It noted that we have come a long way in strengthening the system. I was there last week talking to senior IMF people about the system and they verbally told me the same thing they put in writing.

On the other hand, it is worth making a few points. We do not operate a zero-failure regime. We cannot prevent the failure of all insurers in all circumstances. The same applies to banks. Ultimately, the commercial risks are taken by the managers, the boards and, ideally, the shareholders of firms. Our job is to make sure that the system functions as a whole and that any risks to taxpayers are as whole minimised and ideally eliminated and that if a firm does fail commercially, as firms do, arrangements are put in place to ensure the resolution of the firm is done in a way that mitigates or minimises the impact on the community, economy and taxpayer.

All those changes about which I have just spoken do not stop us recognising that the financial system - insurance as well as the rest of it - is constantly changing so we need to be constantly ready to make sure that our regulations and toolkit for our supervision remain up to speed. Ms Donnery is leading a lot of work on transforming our supervisory work, which is a major focus for us.

Deputy Cormac Devlin

What Mr. Makhlouf is effectively saying is that from the Central Bank's perspective, the regulatory regime and oversight has improved over the past decade. It has initiated a number of changes.

Mr. Makhlouf mentioned third-party expertise that the bank did not possess. Despite the fact that it did not possess such expertise, Mr. Makhlouf made reference to the fact that it was somehow a new power that the bank had to be able to bring it in. It is somewhat unnerving for him to say that this was a big change in the past decade. I would have thought that the Central Bank would have had the ability to bring in expertise in any area, as required, without a need for legislative change. Is that something that is relatively new?

Mr. Gabriel Makhlouf

It has been in place for a few years. Essentially, there are areas throughout the banking world that are very specialist in nature. This applies to insurance as well. We do not necessarily at all times have all the skills that we need to do particular tasks. We were prevented previously from being able to do what we now can do. Certainly, one of the things we pride ourselves on is employing very capable and skilful people, developing them and giving them the tools to do the job. At the end of the day, we need to do the best job that we can do. If this means that we need to bring extra skills in, at least we can do so.

An Cathaoirleach

Is Deputy Devlin okay with that?

Deputy Cormac Devlin

Yes, that is fine.

An Cathaoirleach

I thank the Deputy. We are going to break----

Mr. Seamus McCarthy

Before we do so, Deputy Auliffe inquired as to the provision of the 1964 Act under which the court was able to order funds or at least approve the release of funds. Section 3C(1)(a) provides that amounts which are, in the opinion of the court, required in to enable the administrator to carry on the business of the insurer and to perform his or her functions in relation to the insurer, may be paid out of the fund. That seems to have been done by means of a 2018 amendment of or insertion into the 1964 Act. I believe that answers the question.

Deputy Paul McAuliffe

That is great. I thank McCarthy.

An Cathaoirleach

I thank Mr. McCarthy for that clarification.

Sitting suspended at 11.03 a.m. and resumed at 11.14 a.m.

An Cathaoirleach

Going back to Quinn Insurance, there was a €1.1 billion hole in its finances when it collapsed. The Central Bank was the regulator prior to that. Some of the briefing documents outlined when the Central Bank realised there was financial instability, which would appear to be around 2008. Is that correct?

Mr. Gabriel Makhlouf

Yes.

An Cathaoirleach

At that point, it is clear that matters were going seriously wrong in insurance. Would that be correct?

Mr. Gabriel Makhlouf

Well, it is clear that there were issues, but I would not say that we were clear on what all the issues were.

An Cathaoirleach

I accept that Mr. Makhlouf was not Governor at that time. In hindsight, does he feel that the Central Bank should have acted quicker in taking action about Quinn Insurance?

Mr. Gabriel Makhlouf

I think it is quite difficult to make that sort of assessment, bearing in mind that so much was going on at that particular time. I have not seen anything in the review of some of the papers that I have done that tells me the Central Bank missed something.

An Cathaoirleach

Looking at the basics of this, there were liabilities of €1.1 billion. How much was there in the reserves at that point?

Mr. Gabriel Makhlouf

I cannot give that specific-----

An Cathaoirleach

Is there anybody here who can answer that question? I have tried to nail it down from the briefing documents.

Mr. Gabriel Makhlouf

What I can say is that one of the issues, which we have highlighted in the past, was that there was a discrepancy between what the actuary was signing off and what the auditors were signing off.

An Cathaoirleach

I read that in the briefing notes. Mr. Makhlouf has his senior officials here today. At that point when there was €1.1 billion in liabilities with Quinn Insurance, what were the reserves there? Was it €30 million? Was it €300 million? What was it?

Mr. Gabriel Makhlouf

I do not know. I can try-----

An Cathaoirleach

Mr. Molloy was at the meeting the last day as well and would have heard us trying to get to some of these issues.

Mr. Gabriel Makhlouf

I do not think Mr. Molloy knows the answer to that either, but we will try to get that answer for the committee if we have it.

An Cathaoirleach

I find that incredible. It is like handing out a loan to somebody who has no potential to pay it back and not being sure of what their income is or what cash they had in hand. We are talking about huge money here, a €1.1 billion hole that had to be filled. The taxpayer had to pony up for this. The taxpayer ponied up. Mr. Makhlouf and Mr. John Hogan from the Department of Finance are here this morning. I am absolutely astounded that nobody can tell me. They may not have it to hand now, but within the next hour or so somebody should be able to tell us what was in the reserves. What was there in Quinn Insurance at that point when the liability stood at €1.1 billion? That is the key question here.

I have never worked in insurance. I have been giving insurance companies money for years. I would understand the basics of that. If I was running a corner shop, I would understand this. We have a whole array of officials here - I am trying to go easy on them and I am not trying to wade into them too hard about it. With a whole array of officials here I cannot believe that nobody can give that figure to me. At that crunch point, when the main issue on the agenda here this morning is the collapse of Quinn Insurance and what has happened since, nobody can tell the committee or the public how much was in reserves with Quinn Insurance at that time. Can anybody guess? Can anybody even estimate? Was it €100 million? Was it less than €100 million? Was it €500 million? Was it €5 million? Can the Comptroller and Auditor General shed any light on this?

Mr. Seamus McCarthy

No. I think there is one point to make, which is that the Insurance Compensation Fund does not compensate for the full amount.

An Cathaoirleach

I understand that.

Mr. Seamus McCarthy

The amount that was extended from the fund for Quinn Insurance would have been at most two thirds of the value of the liabilities that were there. I think the figure the Cathaoirleach is looking for a matching reserve for is a figure of about €1.5 billion rather than €1.1 billion.

Ms Sharon Donnery

I thank the committee for the opportunity to be here today. We will get that figure. I assure the committee that at the time of the difficulties in Quinn Insurance, the Central Bank and teams involved in the supervision of Quinn Insurance were fully familiar with the figures. The issue is only not having to figure to hand now and not wanting to give incorrect information to the committee.

An Cathaoirleach

Can Ms Donnery see this from the public's point of view? One of the largest companies in the State was allowed to run this situation to where it did without having the necessary reserves. Mr. McCarthy has just clarified that the full liability was actually €1.5 billion. The taxpayer had to step in. The committee has given that process a good airing. We understand how that works and I thank the witnesses for the information but the taxpayer had to come up with that money.

Ms Sharon Donnery

I totally accept that. As Mr. Makhlouf has said, over the last number of years, the Central Bank has made significant enhancements to its whole approach to insurance provisions. We will get the figure. To add to what the governor said, I think the focus at the time was on the issue of the discrepancy between the reserve calculations carried out by Quinn Insurance's actuary and by the auditors. In addition, there was ongoing engagement with the bank and the firm in relation to that. It is very important to put on the record again the issue of the previously unknown guarantees that were in Quinn Insurance because the financial impact of those had a very material effect.

An Cathaoirleach

I ask Ms Donnery to get back to me with that figure. I want to deal with what has happened since Quinn Insurance. We had the collapse of Lemma Insurance in 2013, then Setanta Insurance in 2014 and Enterprise Insurance collapsed in 2016. What concerns me is that this happened with Quinn Insurance in 2010 and 2011 but that did not stop it from happening again. We have been hearing about the frameworks and extra supervision that have been put in place and the requirements that the Central Bank is putting on the insurance companies. However, here we are since then and we are looking at liabilities piling up to the figure of €1.54 billion. That is what it now stands at looking at the figures presented here in the briefing documents in the report of the administration and movement of the Insurance Compensation Fund, ICF, for the year ending 31 December 21. That is just the liability left standing at that point. I did a quick calculation on it yesterday and it comes to €1.4 billion at that point.

Will Mr. Makhlouf comment on how this happened with all of these other companies since then if there were lessons learned with Quinn Insurance? The committee and the public are looking for an answer to this question. I remember the collapse of PMPA in 1984 because I was a customer of the company. We had a reprieve for a couple of decades and then we had a series companies going into liquidation and the taxpayer and the ICF having to pony up. Why do we keep going back to this? We have had three more failures since Quinn Insurance. The Central Bank, the body that Mr. Makhlouf heads, has allowed this to happen.

Mr. Gabriel Makhlouf

I will ask Ms Donnery to come in but I just want to repeat what I said a few minutes ago. The regime - the new supervisory framework, the new regulatory framework and the resources we have put it into this - does not at the end of the day eliminate the risk that firms will fail. It does not eliminate the fact that managers, directors, and boards of companies make the commercial decisions. In the end, some firms will fail because their business model, ultimately, is inadequate. Our job is to make sure the impact is minimised to the largest extent possible and that the financial system and consumers are protected to the largest extent possible.

An Cathaoirleach

A basic of any business model is that a company has to be able to cover its liabilities. When a company starts having more liabilities than it has the potential to fulfil and does not have the assets or sureties to do so, surely that is not just a red flag, that is red lights flashing all over the place. At that point, surely the Central Bank should do something. We are not just talking about Quinn Insurance here. In the briefing notes I see the figures for all of these other companies that have gone into liquidation since. The ICF, that is, the public, has had to come up with the money for these. In my naivety, up to very recently, I would have seen the Central Bank as having substantial powers which I still believe it does. I also thought it had very strong oversight and would be very diligent about these matters, particularly after the collapse of Quinn Insurance. The collapse of PMPA rankled with the public and customers. That was certainly a sore point with people in the 1980s and here we are now in the 2020s, some 40 years later, with it still happening. I understand that companies fail. That is the way business works. Some businesses fail. We had this with Anglo Irish Bank bank and all that went on there with people getting by on money fairy kind of money. However, the insurance industry can be monitored. These companies will have annual financial statements and surely it is the job of the Central Bank to make sure the reserves and sureties are there to meet any potential liabilities that arise. Looking at these figures, it is clear to me that this did not happen. The Central Bank has failed to do its job properly.

Mr. Gabriel Makhlouf

No, I am sorry but I disagree.

An Cathaoirleach

Mr. Makhlouf is entitled to disagree with me but these pages tell me and the public a different story.

Mr. Gabriel Makhlouf

What they are saying is that firms fail. They do not say that the Central Bank did not do its job. Each case obviously fails on its own facts but that is what the evidence says. What the evidence does not show is where the Central Bank has taken action to prevent the losses being much bigger.

Ms Sharon Donnery

I completely agree with the Cathaoirleach about the matter being of public concern. I totally accept the issue of the size and scale of the numbers that are being discussed and why they are a matter of public concern. The Central Bank spends so much time on the regulation and supervision of all of these firms because we totally accept that.

Going back to the €1.1 billion figure, there was engagement with Quinn Insurance at that time and we will get the numbers that have been requested. Two material things happened that the Central Bank did not expect or was not aware of. The first was that the bank had been informed that there would be an injection of €35 million into Quinn Insurance to help stabilise it. However, that did not happen. Then there were the unexpected guarantees which the Central Bank had no sight of and which in the end, in terms of the overall stability of the firm, raised the most material concern. That is not to detract from the fact that there had been ongoing concerns for quite some period before.

The other calls on the ICF which the Cathaoirleach mentioned are Lemma Insurance, Setanta Insurance, Gable Insurance and Enterprise Insurance. It is important to emphasise that these firms operated in Ireland on a European basis. They were operating here on a freedom-of-service and freedom-of-establishment basis, which is provided for in European legislation for firms to operate on a cross-border basis. This means that supervision and oversight of those firms is the responsibility of the home jurisdiction. The firms in question were set up in Gibraltar, Malta and Liechtenstein. The Central Bank had responsibility for these firms regarding conduct of business and how they were interacting with their customers but it did not have oversight or review of their financial positions.

An Cathaoirleach

Does the European Central Bank have it?

Ms Sharon Donnery

I will explain. The ECB does not have responsibility for insurance. As the Cathaoirleach knows from the information he has, those failures happened in 2013, 2014 and 2016. As the Governor mentioned, since then we have had the introduction of new legislation at European level, the so-called Solvency II directive, which was introduced in 2016 against the backdrop of a number of these failures and was a prime legislative tool to try to mitigate against failures in the future. We also have now-----

An Cathaoirleach

Is Ms Donnery saying the Central Bank would not have been able to have sight of the finances of those companies in terms of being able to say they were trading in this jurisdiction?

Ms Sharon Donnery

Correct.

An Cathaoirleach

They were trading in this jurisdiction. Is Ms Donnery saying the Central Bank would not have had any access to any information, either at national or European level, whereby it would have been able to have at least some level of comfort as regards the ability of these companies to be able to stay afloat?

Ms Sharon Donnery

At that time, there was very limited information shared-----

An Cathaoirleach

But there would have been information.

Ms Sharon Donnery

-----across a European basis, for example. We had-----

An Cathaoirleach

There would have been information though.

Ms Sharon Donnery

There would have been information, certainly, that they were operating in the State and on the customers they had here.

An Cathaoirleach

The Central Bank regulates those companies here and is in a position to say to them that, if they want to operate here, they should show the Central Bank their balance sheets.

Ms Sharon Donnery

We were not in a position to say, "If you want to operate here, show us your balance sheet", because if a firm is authorised in another jurisdiction, it can operate here across European borders.

An Cathaoirleach

The Central Bank regulates firms here. The Central Bank is the regulator of insurance here.

Ms Sharon Donnery

We are the regulator of insurance companies that are established here and operate from here, but not insurance companies that may operate here on a cross-border basis.

An Cathaoirleach

The point is the public is stuck with this. I personally feel the Central Bank could have done more. The Governor of the Central Bank sits on the governing council of the European Central Bank. I accept it is not the Central Bank's direct responsibility, but it is dealing with people involved in finance on an international and European level. Surely, before a company is allowed to trade here, particularly given what happened with Quinn Insurance in 2010 and 2011, there should have been some examination of those matters.

I welcome the fact a new European framework is in place. It is to be hoped that will give the public some confidence, but we have to do better than that nationally. The fact we have wound up in this situation, where a huge amount of money will now have to be withdrawn from the Insurance Compensation Fund, is not satisfactory. We need to do better on it.

I will bring members back in for a second round of questions.

Deputy Paul McAuliffe

Let us come back to the €29 million. We have reached the limit on the governance side. As regards the discussion on whether there will be a transfer of funds or letter of comfort issued, will Mr. Hogan talk us through that process? Who issued the letter of comfort? I should reference it is a letter the Department of Finance issued a copy of to the committee in April. That is for the benefit of the public.

Mr. John Hogan

I will let Mr. McGrath walk through the process around all that because he is closer to the challenges and issues in it. When we were faced with the situation where the expectation was that the State would actually put something on the table around all this, we looked for alternatives. One of the alternatives was this idea that a letter of comfort would be made available. Will Mr. McGrath walk through that for the committee?

Mr. Michael McGrath

As the Deputy knows, Quinn Insurance failed in 2010. A court case then ensued. The joint administrator informed the court in July 2012 that it was going to sue the auditors for negligence. In January 2018, I think, the High Court refused an order for Quinn to provide security of costs but, in June of that year, the Supreme Court then overruled that and made an order in favour of PwC that security of costs had to be given. In July 2021, we were advised by the Insurance Compensation Fund, ICF, of the Central Bank that the joint administrator was looking for a substantial sum of money to be withdrawn from the ICF by way of security of costs. Previously, a sum total of about €5.5 million had been used for security of costs.

We first of all queried this, looked to see where we would go on it, and arrived upon the view that it would be appropriate for a letter to be submitted to the courts to say that, ultimately, the State would be standing here, as it were. That went to the courts but, effectively, by the end of 2021, the courts found with PwC that that was not sufficient and, therefore, if the administrator wished to proceed any further-----

Deputy Paul McAuliffe

In 2014, there were some discussions between the joint administrators, the Department and the ICF in regard to-----

Mr. Michael McGrath

No, sorry. In 2021.

Deputy Paul McAuliffe

In 2021.

Mr. Michael McGrath

From the summer of 2021, the ICF notified us there was potential for a large withdrawal from the ICF by way of security of costs. That was when we-----

Deputy Paul McAuliffe

The Department had no interaction with the joint administrator in advance of that. In our earlier discussion, we essentially established that the administrator had a right to apply for this to the High Court and it did. Those funds were to be made available. Is it correct that the idea of a letter of comfort was obviously an attempt by the Department to provide an alternative?

Mr. Michael McGrath

Yes. That piece of the puzzle, if you want to call it that, was happening in the second half of 2021. That is the timeline there.

Deputy Paul McAuliffe

At that stage, the 2018 amendment referenced by the Comptroller and Auditor General was already in place, whereas prior to 2018 it would not have been in place.

Mr. Michael McGrath

No, it would not have been. That is where it moved from the High Court over to the Central Bank.

Deputy Paul McAuliffe

Clearly, when a letter of comfort is being issued, there is still potential that those costs may be incurred, and €29 million is a very significant amount of money. Was there any cost-benefit analysis, or any analysis, of the likely chance of winning?

Mr. Michael McGrath

We are not experts in running such cases, so we sought the views of the State Claims Agency. Mr. Ciarán Breen was before the committee previously and laid out his role specifically in that regard and, to use the Deputy's phrase, did cost benefit and due diligence on the matter. He effectively gave us an opinion that this was an appropriate use to recover a larger amount of money. As it turned out, the costs came back and a sum of €54 million has been remitted back.

Deputy Paul McAuliffe

The State has ultimately benefited from that case being taken.

Mr. Michael McGrath

Yes.

Deputy Paul McAuliffe

I admit it was not to the benefit of recouping the entire cost of the Quinn Insurance debacle but there has been benefit as a result of taking the case.

Mr. Michael McGrath

There has been a net positive to the ICF.

Deputy Paul McAuliffe

The query is it could not have benefited it as well. There is a scenario that the cost of both the administrator and the other side would have been very considerable. Would that be fair?

Mr. Michael McGrath

I can only but assume and should not really speculate on that. As with any court case, it always-----

Deputy Paul McAuliffe

It could have been €29 million.

Mr. Michael McGrath

-----could go the other way. There is no question of that, as with any court case. As I said, we discussed it with the State Claims Agency to get its assessment because it is involved in running cases quite often on behalf of the State. It felt there was a strong case-----

Deputy Paul McAuliffe

It was a very considerable calculation by the Department. That €29 million is a huge amount of money. We have established that it is very difficult to interrogate the Governor regarding the decision of the President of the High Court, but the Department was clearly involved in making that calculation when it talked about issuing a letter of comfort.

Mr. John Hogan

Along with the guidance of the people who are very familiar with dealing with these cases, which is the State Claims Agency. The other thing the Deputy has to remember is the counterfactual, which is that costs had already been incurred in pursuing this case. It seemed to us from the advice we were getting from the State Claims Agency that, on balance, pursuing this case would work. If we had gone against that advice and decided to roll up our tent and walk away, the committee could have us here to ask us why the legal costs were invested in that case up to now, that the guidance we were getting would have brought us in a certain direction, and why the case was not pursued.

In all these things, there is a balance that must be struck. On balance, the Department felt it was the right course of action. Ultimately, as we see, it facilitated a settlement that allowed for the return of €29 million plus whatever was the benefit of the-----

Deputy Paul McAuliffe

I do not disagree with Mr. Hogan.

It was ultimately a commercial or a speculative decision and I accept that.

Mr. John Hogan

The Governor mentioned this idea of a risk-free industry. When going into any court case, and we see examples of it all the time, it is not risk-free.

Deputy Paul McAuliffe

We discussed earlier the application to the President of the High Court and the fact that sums would have been released by virtue of-----

Mr. John Hogan

Of the decision.

Deputy Paul McAuliffe

-----the decision. How much was that a factor in the Department's decision to be persuaded that it was something to pursue? Do not forget that it was already sort of accepted that the State was on the hook here by way of the ICF.

Mr. Michael McGrath

First of all, we might go back to section 3 of the 1964 Act. The Comptroller and Auditor General has referred to the specific part of it. The joint administrator at any point can go into the court and if the court adjudicates that it is appropriate to release funds from the ICF, it can do that. There is, therefore, a kind of a role.

It was because of the size of the amount that the ICF came to us. There had already been funds released, as Mr. Hogan mentioned a moment ago, in that there were already sunk costs, if you want to call it that, in terms of pursuing this. As I said, we took the view of-----

Deputy Paul McAuliffe

The Department was in a very difficult position because, by virtue of the Act, it was likely that it was going to be able to secure the funds from the ICF in any case. Therefore, the idea of offering the letter of comfort was really an attempt to try to mitigate the risk.

Mr. Michael McGrath

We were attempting to try to mitigate any exposures that were there. We thought a letter of comfort was the best way and it proved not possible.

Deputy Paul McAuliffe

I accept all that. My question, though, was that prior to the 2018 amendments, the Department would not have been in that bind. Would it be fair to say that prior to 2018, when the amendment was introduced by the Department, it would not have had that Hobson's choice or Solomon's choice of knowing that the State was already on the hook?

Mr. Michael McGrath

No. During much of this, the issue of security of costs was-----

Deputy Paul McAuliffe

To clarify my question, I am really trying to interrogate why that 2018 amendment was brought forward.

Mr. Michael McGrath

I am sorry; as I understand matters, the 2018 amendment was brought forward to try to simplify the framework and consolidate the actors. It took the responsibilities from the accountant of the High Court into the ICF fund of the Central Bank of Ireland in terms of issues around managing and maintaining the fund, preparing the accounts and so forth, as has already been stated.

The 2018 amendment did not change the role of a liquidator or an administrator - in this case, we are talking about an administration - in terms of access to the funds to run the business of trying to secure recovery of costs. That is the position.

Deputy Paul McAuliffe

Okay. I have one brief final question. Does Mr. McGrath believe it would have been possible for the administrator to apply for funds to pursue for securities of costs prior to the 2018 amendments?

Mr. Michael McGrath

They did.

An Cathaoirleach

I will let Deputy McAuliffe in again if he feels he has other questions. I call Deputy Verona Murphy.

Deputy Verona Murphy

I want to go back to the section 2 report. For the benefit of the committee, can Mr. Hogan explain how his Department's controls allowed it to request €738 million?

Mr. John Hogan

This was an oversight, unfortunately. The credit was not in place to sufficiently cover it. There was not an awareness when the request was made to the Central Bank of Ireland that the necessary credit was in place to allow for the cover to be there to enable that transfer to take place. As I said, it was regrettable; it should not have happened. It was indeed-----

Deputy Verona Murphy

I have only five minutes.

Mr. John Hogan

Yes, I know.

Deputy Verona Murphy

I am sorry; the question I asked was how it happened. I know it is regrettable. Everybody agrees on that.

Mr. John Hogan

It was an oversight. In the normal course of events, and Mr. O'Reardon might be able to walk us through some of the arrangements with regard to this-----

Deputy Verona Murphy

An oversight would be not putting a saddle on a horse if you got up to ride it. How did it happen?

Mr. John Hogan

An oversight can be as significant as this because that is exactly what I would describe it as. It was a failure as a result of an oversight that allowed for the transfer or the request to be made to the Central Bank.

Deputy Verona Murphy

Therefore, someone had to make the request. Is that not correct?

Mr. John Hogan

That is the way these things operate. What it demonstrated to me is that there are systems that need to be strengthened. There was a failure there.

Deputy Verona Murphy

To be fair-----

Mr. John Hogan

Immediately, when we became aware that there was an issue here, it was brought to the attention of the Comptroller and Auditor General.

Deputy Verona Murphy

Who ultimately was responsible for making the request?

Mr. John Hogan

I mean, this-----

Deputy Verona Murphy

No, I have to-----

Mr. John Hogan

I do not like to personalise a situation where there was a systems failure. The organisation's systems should have been stronger to allow for -----

Deputy Verona Murphy

A figure of €738 million of a mistake is not personal. It is Exchequer funding. I do not want to argue with Mr. Hogan. I am asking straightforward questions on behalf of the people who elect me. This is the Committee of Public Accounts. I am not going to take an attitude with Mr. Hogan. Is he not answering that question? It is straightforward. There was somebody in a position responsible for making that request. Has Mr. Hogan identified that person?

Mr. John Hogan

Yes, I mean-----

Deputy Verona Murphy

I am not asking him for his or her name.

Mr. John Hogan

Yes, it is a member of the team-----

Deputy Verona Murphy

Fine.

Mr. John Hogan

-----that was involved in this.

Deputy Verona Murphy

It is a member of a team-----

Mr. John Hogan

Yes.

Deputy Verona Murphy

-----but was that person available then?

Mr. John Hogan

What does the Deputy mean by "available"?

Deputy Verona Murphy

Who identified the mistake? Where was the person when it was identified?

Mr. John Hogan

The Central Bank picked up the mistake at the end of that day.

Deputy Verona Murphy

Where was the person who made the request when the mistake was identified?

Mr. John Hogan

Where was the person who made the request?

Deputy Verona Murphy

I asked where the person was who made the request when the mistake was identified.

Mr. John Hogan

The circumstances of this arose on a bank holiday weekend. The Central Bank in its clearance at the end of the day identified the issue-----

Mr. Seamus McCarthy

It was Friday evening.

Mr. John Hogan

-----on the Friday, and it would have made it known on the Friday late in the day.

Deputy Verona Murphy

To whom?

Mr. Seamus McCarthy

To the Department.

Mr. John Hogan

To the Department.

Deputy Verona Murphy

Would the Department have said it to the person Mr. Hogan said was responsible for making the request? Did he contact that person and ask them whether they did this? Mr. Hogan said there was a person responsible for making the request.

Mr. John Hogan

Yes. That is the way these things operate in that somebody has as part of their role-----

Deputy Verona Murphy

Was that person then on the bank holiday weekend-----

Mr. John Hogan

-----where there is a need-----

Deputy Verona Murphy

I am sorry; was the person then on the bank holiday weekend brought in to answer as to what happened?

Mr. John Hogan

I do not think it was picked up until the following Tuesday.

Deputy Verona Murphy

It was not; I am sorry.

Mr. Seamus McCarthy

As I understand it, the notification was very late in coming-----

Mr. John Hogan

Yes, it was.

Mr. Seamus McCarthy

-----on Friday evening because-----

Deputy Verona Murphy

It was a bank holiday weekend.

Mr. Seamus McCarthy

-----the mechanism that was in place at the time was an end-of-day reconciliation and so I think it was around 5 o'clock or maybe after-----

Mr. John Hogan

I think it was later.

Deputy Verona Murphy

On the Friday.

Mr. Seamus McCarthy

-----on the Friday evening that the thing was identified. The Central Bank contacted the Department of Finance but I think there was a difficulty. I am not sure whether a telephone call was involved or a message was sent. Then, on the Tuesday morning, the Department officials recognised that there was a problem and contacted us immediately.

Deputy Verona Murphy

Okay, so, it was identified and there was a four-day lapse. Is that what Mr. McCarthy is saying?

Mr. Seamus McCarthy

Yes, as it happens.

Deputy Verona Murphy

Is that simply because it was not taken seriously or because it was a bank holiday weekend?

Mr. John Hogan

We take these things extremely seriously. It was just the unfortunate falling of the weekend on the bank holiday.

Deputy Verona Murphy

I am taking it seriously.

Mr. John Hogan

Yes.

Deputy Verona Murphy

Was there a four-day lapse in which nothing happened?

Mr. John Hogan

There was a four-day lapse in which nothing happened because there was not an awareness that there had not been a problem until the Tuesday morning.

Deputy Verona Murphy

Have I misunderstood this? It was identified at 5 o'clock on the Friday.

Mr. John Hogan

Yes, as I understand it.

Mr. Seamus McCarthy

It was identified later on Friday.

Mr. John Hogan

It was late on Friday.

Deputy Verona Murphy

To whom?

Mr. Seamus McCarthy

In the Central Bank.

Deputy Verona Murphy

It was in the Central Bank. Mr. Hogan is saying that the Central Bank did not notify the Department until Tuesday.

Mr. John Hogan

No, I think the Central Bank notified the bank on Friday evening-----

Mr. Seamus McCarthy

It did send a notification.

Mr. John Hogan

-----but the message was not picked up until the Tuesday morning.

Deputy Verona Murphy

Okay. In other words, there was-----

Mr. Seamus McCarthy

It could have happened on a Tuesday and it would have-----

Deputy Verona Murphy

It would have been identified on the Tuesday.

Mr. Seamus McCarthy

-----been dealt with on Wednesday morning.

Mr. John Hogan

Yes. It was just-----

Mr. Seamus McCarthy

It was just unfortunate that it happened to be a bank holiday weekend as well.

Deputy Verona Murphy

That is one word for it. However, the fact is that a request of this nature was made and it was just taken for granted.

Mr. John Hogan

What does the Deputy mean "taken for granted"?

Deputy Verona Murphy

I am saying that it was never followed up in any shape or form that this could have been identified. Surely, Mr. Hogan has identified that there is an issue-----

Mr. John Hogan

Oh, yes.

Deputy Verona Murphy

-----given that he has now reviewed the situation.

Mr. John Hogan

Yes.

Deputy Verona Murphy

I do not know why Mr. Hogan is looking at me so incredulously. I did not make the mistake; he did. Does he understand?

Mr. John Hogan

I understand. I am sorry; I-----

Deputy Verona Murphy

It is not incredulous. It is here on paper. If Mr. Hogan is thinking that what I am saying is mad, I am not sure he really has identified the issues.

An Cathaoirleach

Deputy Murphy-----

Mr. John Hogan

In fairness, Deputy-----

Deputy Verona Murphy

I cannot really get this.

An Cathaoirleach

In fairness, the Deputy should allow Mr. Hogan to address the matter.

Deputy Verona Murphy

He is looking at me incredulously but his actions suggest that he is not taking it very seriously.

Mr. John Hogan

I am taking it extremely seriously.

Deputy Verona Murphy

If Mr. Hogan is taking it seriously-----

An Cathaoirleach

The Deputy should not personalise matters.

Deputy Verona Murphy

I am not finished yet.

An Cathaoirleach

Do not personalise your remarks Deputy.

Deputy Verona Murphy

Mr. Hogan sent a briefing document to this committee.

Mr. John Hogan

Yes.

Deputy Verona Murphy

Has he signed a new service level agreement, SLA, that takes all of the issues into account in order to prevent this from happening again?

Mr. John Hogan

The SLA covers all of the issues in relation to this.

Deputy Verona Murphy

Has the Department signed a new SLA? That is what the document says. It states that all lessons learned would be reflected in an updated SLA. When was that signed and what is contained in it?

Mr. John Hogan

I do not have the date for when the SLA was signed but we can get it for the Deputy. There is absolutely no issue with that.

Deputy Verona Murphy

Is it three weeks? Is it four weeks? When was it signed?

Mr. John Hogan

Perhaps Mr. O'Reardon has detail on the SLA, including when it was signed.

Mr. William Molloy

It was signed on 13 April.

Deputy Verona Murphy

Thanks. Is it possible for the committee to have a copy of that?

Mr. John Hogan

I have no issue with the SLA being made available to the committee.

Deputy Verona Murphy

I ask Mr. Hogan to submit that for the benefit of the committee.

Mr. John Hogan

For the record, I am not being incredulous in relation to all of this. I am just trying to interpret the way the Deputy is asking the questions.

Deputy Verona Murphy

The people that are looking in will judge for themselves. As I said, a number of mistakes are outlined in two reports. There are lots of small mistakes and little issues. I understand, having been in business for 30 years, that companies go bankrupt and go into liquidation but people persistently ask, what is the point of regulators? Ashtrays on motorbikes is how people who have come to me referred to regulators. Our last regulator told us that the banks were fully capitalised but we know how that ended. It is not good enough for any of our guests to come in here and say "Ah sure, these things happen". The taxpayer and the Exchequer are always on the hook for the mistakes made by Departments and regulators. Nobody seems to be accountable. Mistakes are identified, they are regrettable but the money for them comes out of everyone's pocket at a rate of 2%. First we had PMPA; then we had Quinn, Setanta and the others that have been mentioned. We will not go back to the regulator because it was not Mr. Makhlouf but I very much hope that our banks are capitalised and that he is on top of it, unlike his predecessor. We will be paying for that mistake for generations.

An Cathaoirleach

Their balance sheets are fairly healthy at the moment. Their profits are up healthily in the past six months.

I want to go back to the issue of the levy. There is a 2% levy in place, and there is a substantial amount to be paid off. How long more will that levy on insurance policyholders need to remain in place? That levy is used to fill the gaps left by insurance companies going into liquidation. Is it likely to remain in place for another five or ten years, for example? What is the future of the levy?

Mr. William Molloy

All things being equal, there was €380 million outstanding at the end of 2022 in terms of the loan to the Exchequer. Typically, the levy takes in between €90 million and €100 million in a year. There are some potential outstanding claims amount to around €30 million. One must think about the variables. First, there is the levy income that could come in. Let us say that is €90 million to €100 million a year. Then there is what we know about in terms of potential claims, which would be about €30 million. Finally, there is the interest on the loan itself, which obviously adds to the total. I would say four to five years. That is without any further claims.

An Cathaoirleach

That brings me to the next question. Four to five years more would deal with what is there at the moment. One would hope, given the guarantees we are hearing about this morning about a better framework being in place both at a European level and nationally in terms of the regulation of the insurance industry, that we will not have too many of these events in the future. We hope that no insurance company will be allowed to get as far as these companies got by the time the State stepped in to pick up the liability. This could happen again in the future but hopefully not on the scale that we have seen to date or as frequently. Am I correct in saying that the Central Bank believes there should be a permanent insurance guarantee fund in place? Would that be the view of the Central Bank?

Mr. Gabriel Makhlouf

The fund exists because the 1964 Act created it.

An Cathaoirleach

Sorry, let me clarify my question. Will there be a continuation of the 2% levy, even after all of the claims are settled? Is it the view of the Central Bank that we need to continue with a levy?

Mr. Gabriel Makhlouf

No. If the loans which are reflected in the fund have been repaid, there would be no reason to have a levy.

Mr. Seamus McCarthy

If the levy continued, what could happen is that we would have moneys going into a fund that can only be spent for a purpose that is specified in law and it would be undesirable to see a large accumulation of funds for which there is no immediate purpose. That is why the Exchequer is in a position to be able to make an advance.

I would like, if I may, to correct the record. Section 3C of the Act was inserted by the Insurance Compensation Act 2011. Obviously, at the time it was anticipated that there would be a payout in relation to Quinn Insurance. It was also anticipated that there would be an issue around expenses for an administrator appointed.

An Cathaoirleach

Do we have a figure for the reserves in Quinn Insurance at that point in the context of the €1.1 billion gap vis-à-vis liabilities?

Ms Sharon Donnery

The assets and liabilities of Quinn Insurance at the end of 2008 were €1.46 billion and €1 billion, respectively. Subsequent to the appointment of the administrator who verified the figures in 2012, it was confirmed that the liabilities had been underestimated by €936 million and the assets overvalued by €450 million. We can send these figures to the committee in writing, if that would be helpful.

An Cathaoirleach

So it turned out to be as bad as it looked.

I wish to ask Mr. Makhlouf about dual pricing, particularly in the context of motor insurance. He will know that in this Oireachtas my party colleague, Deputy Pearse Doherty, had a particular interest in this issue and did a considerable amount of work on it on foot of evidence received from the public. Loyal customers were being charged more than customers who were taking out an insurance policy with a company for the first time. The Central Bank has done some work on that. Has that issue been sorted, from the Bank's point of view? Is Mr. Makhlouf clear about the issue I am referring to?

Mr. Gabriel Makhlouf

Yes, you are referring to differential pricing and price walking. We introduced new regulations last year but they have not run for a full year yet. It would be important to see them operate in practice, but subject to seeing the evidence of what actually happens, I am satisfied that we went through a pretty thorough exercise and came out with some changes which did strike the right balance. Obviously, we are going to keep this under careful review, to see what happens as the regulations become more established and if we need to make changes, we will do so.

An Cathaoirleach

Mr. Makhlouf is fairly confident that the measures that have been put in place will be effective. I do not want to misinterpret what his words, but Mr. Makhlouf seems to be stating that if further measures need to be put in place to get on top of this, the Central Bank is willing to act. Is that right?

Mr. Gabriel Makhlouf

What I am saying is something that applies to all the regulations that we make, namely, that we keep them under review. If we feel they need to be changed, then we will change them.

To make judgments on some of these things and come to a final view, you have to allow time.

Mr. John Hogan

May I add to that and then ask Mr. McGrath to comment?

An Cathaoirleach

Yes.

Mr. John Hogan

What has been said is absolutely right, but we also included a specific provision in the Insurance (Miscellaneous Provisions) Act 2022 requiring the Central Bank to provide a report to the Minister for Finance in this area. Does Mr. McGrath want to cover that?

Mr. Michael McGrath

That is the exact point I was going to make. The Insurance (Miscellaneous Provisions) Act 2022 required a report within six months of the first anniversary. The legislation came in last year. Therefore, by early 2024 there is to be a report from the Central Bank for the Department and Minister setting out its views on how the measures are operating. Obviously, having considered those views, the Department will make a recommendation to the Minister on whether further interventions are required. There is, I suppose, a review clause.

An Cathaoirleach

That is a space we will be watching. I welcome the fact this is being taken seriously because there is a very serious problem with the premiums being charged and the discrepancy between loyal customers and new ones.

Mr. John Hogan

There is an opportunity for it to be laid before the Houses of the Oireachtas. The Cathaoirleach will have an opportunity to see it in real time.

An Cathaoirleach

I thank Mr. Hogan for that. Could I ask the Governor about AIB? Seventy branches of it were to go cashless. What happened in relation to that? There was no follow-through on that. Does the Governor have any information on what happened?

Mr. Gabriel Makhlouf

The company clearly made certain judgments and announced them, and then, within a few days of announcing them, retreated from the judgments.

An Cathaoirleach

Was there any interaction between the Central Bank and AIB in relation to that?

Mr. Gabriel Makhlouf

No.

An Cathaoirleach

There was not.

Mr. Gabriel Makhlouf

In advance of AIB making the decision, there was none.

An Cathaoirleach

As far as we know, three quarters of the ATM network is no longer under the control of the retail banks. There are independent companies. The ATMs are being sold to ATM companies that are unregulated. Is that correct?

Ms Sharon Donnery

The ATM companies the Cathaoirleach is speaking of are not currently regulated. I do not want to cross with the Department because colleagues from the Department may want to say something. As the Cathaoirleach knows, the Minister undertook the review of the retail banking sector, and colleagues in the Department and the Central Bank have obviously worked together on that. One of the proposals in the retail banking review is to look at issues such as access to cash and the regulatory environment for providers of ATMs and cash-in-transit companies. The Department and bank will be working on that.

An Cathaoirleach

It has become a serious issue in some other European countries in that the rates being charged for withdrawals at ATM machines are extortionate. The fear here is that three quarters of the companies are not regulated, as far as we could find out before today. Obviously, there is an issue in this regard. The companies need to be regulated because they can charge. People who have been abroad will tell you there are serious problems with the rates at machines operated by companies that are independent of the banks. There are charges running into double figures for simple withdrawals at ATM machines. Mr. Hogan from the Department of Finance might want to state whether his Department has looked into putting measures in place or proposing legislation to the Oireachtas to nail this down.

Mr. John Hogan

Ms Donnery mentioned the retail banking review conducted last year, the details of which were published in November. It is fair to say that, in the course of the banking review, one of the big issues that came through for us was access to cash and the importance to consumers of retaining access to cash. That was against the backdrop of our having just come through the pandemic, in which a lot of the behaviour in relation to the use of cash seemed to be moving in a different direction. We had a public consultation event in Tullamore. One of the issues that arose there was access to cash, and indeed support for the SME sector, financial literacy and so on. It allowed us, as part of the retail banking inquiry, to develop our thinking on all this, aided by the Central Bank. We are looking at bringing forward legislation on access to cash through the course of this year.

An Cathaoirleach

I know it is a policy matter but I wish to ask about going cashless. A large section of the public is absolutely terrified of that. A lot of people are not terrified about it but do not want it because they feel that, if they are buying a cup of coffee, they do not really need the bank manager with them. They feel they can deal with the shop assistant and keep the transaction between the two of them. You pay for the product and the shop owner pays the VAT and other tax to the Revenue Commissioners, and the world keeps moving. Does Mr. Hogan understand the concerns around that?

Mr. John Hogan

I absolutely understand the concerns. I will mine the policy space for a second, if the Cathaoirleach does not mind, and just keep it between the ditches, if I can describe it that way. The Cathaoirleach mentioned the ATM operators. We are very mindful of their unregulated space. One of the recommendations from the retail banking review is that we look at granting the Central Bank authority to operate in the supervisory space in this regard. That is a really important piece of work.

More than that, we are looking at developing a national payment strategy that would recognise the role of cash within society and how things can best be managed around all that. That will be developed over the next year or so. I am sure we will have an opportunity to have an exchange on that the next time I am before the committee.

An Cathaoirleach

Are there moves at higher official level in the Central Bank to nudge things along in a cashless direction, or does Mr. Makhlouf feel it is good we still have cash?

Mr. Gabriel Makhlouf

We are very committed to cash. As part of the euro system, we can say that all the banks in the euro system and the Central Bank are committed to continuing to make sure cash is available, notwithstanding the fact we are also investing quite a lot of effort into thinking about a digital euro. We are not seeing that as a replacement of cash but as a companion to cash. What is interesting in Europe is how different cultures are reacting differently to cash. There are some countries where cash is disappearing fast and there are others where the reverse is happening. From the perspectives of the euro system and the Central Bank of Ireland, our job is to make sure cash is available, and then consumers can make a choice whether to use it.

An Cathaoirleach

I do not expect Mr. Makhlouf to have detailed knowledge or figures on my next question. From his sense of trends from having been on the board of the European Central Bank, does he believe the countries that are hanging on to cash, or maybe going back a little towards it, are mainly eastern European?

Mr. Gabriel Makhlouf

I cannot remember off the top of my head, to be honest. What I know is that if you travelled to Germany, you would be surprised how often people do not take plastic. Therefore, even countries as big as Germany and Austria have different attitudes. Maybe Austria is eastern Europe. We have seen in Sweden, which is not part of the euro system, that cash was pretty close to disappearing, although that has now been paused. The Netherlands is much further down. Different societies are reacting differently to how they want to use cash.

An Cathaoirleach

From Mr. Makhlouf's answer, particularly his reference to Germany and Sweden, it is not necessarily the poorer, emerging economies in eastern Europe that are reverting more to cash.

Mr. Makhlouf is saying that some of the wealthier countries that have higher GDPs, like Germany, are doing it.

Mr. Gabriel Makhlouf

Yes. I am sure there are reports on cash usage across Europe-----

An Cathaoirleach

In terms of Ireland-----

Mr. Gabriel Makhlouf

We can let the committee have the latest and up-to-date report. Perhaps Mr. Molloy might know more.

Mr. William Molloy

Yes, the ECB undertakes a study on the payment attitudes of consumers in the euro area, SPACE, survey that goes through the use of payment instruments across each jurisdiction. There is a dispersion. While we are one euro area of 20 jurisdictions, every jurisdiction actually has its own idiosyncrasies. Some of this comes down to alternatives. In terms of digitalisation, some of these jurisdictions are quite advanced and this is because the option is there. In other jurisdictions, because of the financial and banking system, that option is not there. People then retain cash.

An Cathaoirleach

There would be a cultural aspect as well.

Mr. William Molloy

Absolutely.

An Cathaoirleach

Regarding Ireland, there was a move to cashless transactions during Covid-19. Many people had to do much of their buying online because many retail outlets and businesses were closed and were not customer-facing, to use that term. Since we have over the last year, thankfully, emerged from Covid-19, or perhaps not just yet but we are nearly there, hopefully, has there been a move back to using cash? Do we have any read on what is happening in this context?

Mr. William Molloy

I would need to confirm the figures, but my sense is, and I think the Banking & Payments Federation Ireland, BPFI, has data on this, that certainly the volume of contactless payments, and this is an indication of non-cash transactions, has continued to increase. This is the volume of contactless payments-----

An Cathaoirleach

This is as we emerge from Covid-19?

Mr. William Molloy

Yes.

An Cathaoirleach

I would not expect Mr. Molloy to have scientific figures for that. I thank Mr. Molloy. I call Deputy Verona Murphy.

Deputy Verona Murphy

I just wish to come in with some questions for the officials from Revenue because I would not want them to feel left out. It is very simple. A misclassification error was identified in the 2020 annual report. I wish to raise this issue for the benefit of the committee. If I am correct, that error was of the value of €33 million. It was based on the levy income dealt with by the Revenue and then handed over to the Central Bank of Ireland. I ask the witnesses to explain how this occurred and what has happened to rectify it.

Mr. Eugene Creighton

I thank the Deputy for the question. As this is my first opportunity to intervene, I open by saying on behalf of Revenue that we sincerely apologise for and regret the errors identified in our administration of the collection of and accounting for the insurance compensation fund contributions. Those errors have now been fixed. They arose because of a change we made to our payments system back in 2016. The IT changes were made with the best of intentions and were designed to improve the tax payment system for taxpayers by introducing an electronic payments platform, known as RevPay. This platform applied to about 30 taxes and duties. These were previously paid by way of cheque and electronic fund transfer, EFT.

Unfortunately, the IT changes made in introducing RevPay adversely affected the way the contributions to the insurance compensation fund were accounted for. The contributions paid under the new RevPay system were incorrectly allocated to the Exchequer as part of the receipts for the insurance stamp duty levies instead of being paid to the Central Bank of Ireland for inclusion in the insurance compensation fund. It was €33 million that was misallocated over the three-year period. The Revenue has now fixed the IT errors and has introduced for the stamp duty levies and the insurance compensation fund contributions a new and much improved pay-and-file system, which will ensure that a similar situation will not reoccur and that the system will account for the payments and the filing of returns in real time. This will mean there will not be a historical build-up of a misallocation of funds.

Deputy Verona Murphy

To be clear, it was an IT glitch.

Mr. Eugene Creighton

Yes. Unfortunately, we developed this RevPay platform for a large range of taxes and duties, more than 30 as I said. It was designed to make it easier to pay taxes and duties. The IT people designing the platform did not quite talk to the right people in respect of the nature of the insurance compensation fund. They assumed the insurance compensation fund was similar to the various levies-----

Deputy Verona Murphy

Back up there now for a minute. When Mr. Creighton says "they", clearly expertise was required in identifying what was needed for such a robust system. It was not that the system had a glitch; it was the fact that those who developed it were given misinformation.

Mr. Eugene Creighton

No. It is not that they were given misinformation, but that they did not quite talk to the right people.

Deputy Verona Murphy

Did they know what they were talking about? The people Mr. Creighton is telling me were eventually employed to put in this system either did not understand or did not have the expertise.

Mr. Eugene Creighton

They had the expertise to do what they were doing, but they assumed that all the taxes and duties concerned were Exchequer taxes and duties. The insurance compensation fund comes in alongside a 2% non-life insurance levy. It comes in on the same form, so those undertaking the development looked at the form and assumed-----

Deputy Verona Murphy

When Mr. Creighton says they "looked at the form", what kind of in-depth analysis was there before this project went into play? I ask this because this could have been a much more serious issue, and I know a figure of €33 million is already very serious. The sum went missing for a while and then came back. I am a bit staggered by the answer. I thought this had occurred because of manual inputs, but it means we procured something that was not fit for purpose. The question I am really asking Mr. Creighton is whose fault this was. Was it on the side of Revenue when it was identifying what was required, or was it that when Revenue received what it requested it was wrong? In that case, I hope compensation was paid because I am damn sure this cost a lot of money to fix.

Mr. Eugene Creighton

The mistake and error arose at the time of the development. The developers, which would have been a mix of in-house staff and contractors, assumed it was an Exchequer tax. They did not talk to the technical experts who would have told them that the insurance compensation fund element of the payments being made by the insurers should have been diverted to the Central Bank of Ireland.

Deputy Verona Murphy

How much did it cost?

Mr. Eugene Creighton

To develop?

Deputy Verona Murphy

To rectify.

Mr. Eugene Creighton

In a sense, what happened is that rather than being a cost, this occurrence has actually improved the whole system because we were able to modernise and make an argument to introduce a modern pay-and-file system which will ensure this will never happen again.

Deputy Verona Murphy

I hope the people who did that at least confirmed that what they had said they looked for was being brought in. Does Mr. Creighton understand what I am saying?

Mr. Eugene Creighton

Yes.

Deputy Verona Murphy

We talk about expertise and we have PwC being sued based on an audit. When we hire experts, I often wonder what it is that makes them experts. I really do wonder about that. I have to question this point every day and it is probably something I am going to question more. Mr. Creighton is saying he had his own people in the Revenue speak to experts in IT development in respect of developing software that would not allow this to happen, but either all the facts were not taken on board or were not given.

Mr. Eugene Creighton

That is correct.

Deputy Verona Murphy

I am trying to ascertain if the facts were not taken on board or if they were not given.

Mr. Eugene Creighton

Back in 2016, when the original RevPay system was developed, the consultation undertaken was not wide enough.

Deputy Verona Murphy

Look, I think the reality is that the Revenue has obviously carried out an internal review-----

Mr. Eugene Creighton

Yes.

Deputy Verona Murphy

-----which has now resulted in this finding. I will be quite honest in saying I was not expecting Mr. Creighton's answer. In that context, I would like him to submit a report in this regard, or to submit whatever report was carried out, to the committee so we will be able to see if there was a cost to what happened, other than the €33 million that was missing for three years and subsequently rectified. Perhaps the Comptroller and Auditor General might like to come in here.

Mr. Seamus McCarthy

The money was not missing at any stage.

Deputy Verona Murphy

No, I understand that.

Mr. Seamus McCarthy

It went into the wrong account. It went into-----

Deputy Verona Murphy

It was misallocated.

Mr. Seamus McCarthy

-----the Exchequer. There was then a subsequent repayment, so-----

Deputy Verona Murphy

No, what I mean is-----

Mr. Seamus McCarthy

-----the money was not missing at any stage.

Deputy Verona Murphy

What I mean by a "cost" is that this happened, but then we obviously had to rectify the IT system. Had this project originally being carried out as it should have been, there would have been no need for a rectification or upgrade.

It probably should all have been done at the time at which, as Mr. Creighton said, this consultation was being carried out. That is what I mean by there being a cost. It is as if you are building a house and then, when it is done, you build the extension. It would probably be more cost-effective to have done it at the same time. In the event that the house was built with a room missing, who is at fault? Is it the architect or the builder? That is what I am trying to identify.

Mr. Eugene Creighton

We can provide the cost of the original 2016 development. The element may be referrable to the insurance levies and the cost of the new pay and file system, which was introduced last year.

Deputy Verona Murphy

Did Mr. Creighton see it as a problem? Again, it comes down to somebody was at fault.

Mr. Eugene Creighton

As I said, there were 30 taxes and duties. The bigger the IT project is, the more likely something will go wrong. We partly identified it when we realised a parliamentary question gave misinformation to the Dáil. We corrected that in October 2016. At the same time, in or around October or November 2016, the Central Bank came to us questioning the allocation to the Insurance Compensation Fund. That is when we realised something serious was wrong. In conjunction with the Central Bank, we identified the problem. We moved then to introduce a brand new, more sophisticated pay and file system that will cater not just for the insurance levies and the Insurance Compensation Fund contributions, but will also deal with the financial cards and the health insurance levy that is also collected by Revenue on behalf of one of the Department of Health agencies. It is a big improvement across the board. In effect, identifying this problem has led to a much improved system across many tax heads.

Deputy Verona Murphy

I am glad to hear it.

Mr. Seamus McCarthy

The events Mr. Creighton described were probably in 2018 or 2019, rather than 2016. I think the original development was 2016, but the difficulty arose later. In fact, I think it was an approach to the Central Bank that actually triggered queries in the first place. One of the great advances here was that this was quite a significant fund that was not amenable to transparency and accountability to the Oireachtas until the 2018 legislation was passed. That is an improvement.

Deputy Verona Murphy

Is that what identified it?

Mr. Seamus McCarthy

I think it was the fact-----

Deputy Verona Murphy

It was identified through the-----

Mr. Seamus McCarthy

Yes. The Central Bank was looking at developing its own systems of assurance because it had an obligation that if it was putting financial statements to me for audit, it had to be satisfied that the figures were correct. It was, if you like, all of a piece.

Deputy Verona Murphy

I ask that be submitted so we can have a look at it.

I have one quick question for Mr. Makhlouf. The ECB first increased interest rates last August. Perhaps it was July. I was elected three years ago. In that time, I have persistently called for loan-to-income ratios to be increased. What was behind the Central Bank's thinking to increase them in early 2023? From a layman's perspective, people's ability to repay went down and all of a sudden we have the increase in the loan-to-income ratios from the Central Bank. I did not understand it. At a time when people's ability to repay was dwindling, the Central Bank decided to increase the loan-to-income ratios. I am wondering why this was not done in the three years previous.

Mr. Gabriel Makhlouf

This is one of the most important policy areas that the Central Bank is responsible for. The Deputy talked about rules regarding loan-to-income ratios. Essentially, the borrower-based measures were introduced in 2015. Since they worked very well for six years or whatever, we decided that we ought to review the whole framework to make sure that they would work well for the following six years. I am a great believer in reviewing things, even if they are going well, because it is important that they are sustainable for the longer term. We started a pretty comprehensive review of the measures, which included international conferences, commissioning research papers and consultation of the public, and we came to our conclusions. These were announced in September 2022. The monetary policy decisions that we made at the ECB did not play a part in the judgments that we were making on the macro-prudential framework or the borrower-based measures. They essentially need to function almost irrespective of what is happening in monetary policy.

Deputy Verona Murphy

I know that and I would expect that to be the case.

Mr. Gabriel Makhlouf

So we made-----

Deputy Verona Murphy

How long did the review take from start to finish?

Mr. Gabriel Makhlouf

It took about a year. I think we started it in 2021. It got delayed because of Covid.

Deputy Verona Murphy

In the three years since I was elected, people have said that they cannot afford a mortgage. They cannot get one. Now, we cannot afford the houses, regardless of the loan-to-income ratios. It still does not meet the requirement. My point is that the Central Bank was a little late with the review. Albeit that it may be welcome, it is of little benefit because the interest rates have taken up many people's surplus income. There are many individuals on very small tracker mortgages who have experienced increases that have led to them paying €100 a month extra. That is a lot of money to some.

Mr. Gabriel Makhlouf

I hear what the Deputy is saying. It is important to remember that what the ECB is trying to do with monetary policy and increasing interest rates is tackle inflation, which is the problem that hits everybody in the country.

Deputy Verona Murphy

I know that is outside of Mr. Makhlouf's control.

Mr. Gabriel Makhlouf

Actually, I am a member of the governing council of the ECB, whose job it is to maintain price stability. We made the decisions to raise interest rates in order to get on top of inflation.

Deputy Verona Murphy

I appreciate that. However, it took a long time to review the loan-to-income ratios. It appears that people are being given conflicting messages. Mr. Makhlouf understands what I am saying from a layperson's perspective. The Central Bank increased the ratio when people had less ability to pay. Previously, they could have possibly acquired mortgages when their ability to repay was greater and when interest rates did not really apply. Houses and many other things were cheaper previously. That is all I am saying.

An Cathaoirleach

Before we conclude, I ask that we look for the figure of the number of mortgages sold to vulture funds between 2009 and 2020.

Mr. Gabriel Makhlouf

We will send that in writing.

An Cathaoirleach

We do not have it. I was hoping we would have it by the end of the meeting.

Mr. Gabriel Makhlouf

We have some numbers but I am not sure we are in a position to confirm precisely.

An Cathaoirleach

-----next week or so.

Mr. Gabriel Makhlouf

Absolutely. We can provide some headline numbers now.

An Cathaoirleach

Okay.

Ms Sharon Donnery

With a view to confirm the dates the Cathaoirleach mentioned – between the two dates-----

An Cathaoirleach

Between 2009 and 2020.

Ms Sharon Donnery

Yes. The number of mortgage accounts outstanding today is approximately 712,000. Around 597,000 of those are with the retail banks and the remaining 115,000 are with the non-banks. I think the number of tracker mortgages with the non-banks was also asked for. Of the 115,000 mortgages with the non-banks, around 38,000 of those are tracker mortgages. Those are the figures as of today.

An Cathaoirleach

It looks like 115,000 were sold to what are described as vulture funds. How many were trackers?

Ms Sharon Donnery

Some 38,000. That is outstanding as of today. I think the Cathaoirleach wanted the-----

Mr. Gabriel Makhlouf

Sorry. It is very important that the committee gets something from us in writing.

An Cathaoirleach

They are the outstanding ones.

Mr. Gabriel Makhlouf

One reason being new mortgages have been taken out with non-banks, which are included in that number.

An Cathaoirleach

I have dealt with many constituents over the last 12 years in cases in which mortgages and loan books were sold and the property was subsequently sold and disposed of by a vulture fund, a third party, for a fraction of what the actual loan value was initially, sometimes a quarter of the value. The reaction from the public is understandable. Had that person gotten it for half of the original loan and if they could have gotten a 50% write-down, never mind 75%, they would have been in a position to continue paying. There have been cases in which it has been as little as 25%. The original loan could have been €200,000 and the property disposed of afterwards for perhaps €55,000 or €50,000. The person who took out the loan is then without a home and they think that if they could have gotten it for €55,000, it would have been easy work. Had they gotten it for €100,000, they would have managed it. The witnesses said today that they do not have the power to cap interest rates on vulture funds. In terms of the transaction and the disposal of it, did the Central Bank pressurise or request the pillar banks or retail banks to dispose of those? Was pressure put on them by the Central Bank to dispose of those loans determined as not performing or not performing properly? Was there pressure from the Central Bank to do that?

Ms Sharon Donnery

There was certainly an expectation from the Central Bank that the banks would deal with the challenges in their loan books, whether they did that by restructuring those loans or, as the Cathaoirleach said, in some cases selling loan books. The pressure was to resolve the situation regarding mortgage arrears because that was bad also for customers and so on, in terms of having banks with a sustainable business model.

An Cathaoirleach

It still left a huge shortcoming in the sale value, which we can only ascertain by what happened with those properties afterwards. Certainly, the ones I and others have seen were disposed of for a fraction of the actual value of the original loan or the value of the property initially at the point of purchase, perhaps during the 2000s. My point is that if the borrower, the householder, had gotten that deal or a deal that was half as fair, they would still be in their homes. What was the Central Bank doing at that time? That puzzled me. I did not have an answer for people. I am trying to figure out at this point, removed from it all when many of these have been disposed of, if there was anything the Central Bank could have done. Did it play a role in advancing this? I understand that underperforming loans could damage the bank's loan book, performance and balance sheet. On the other hand, by them being sold off for a fraction, perhaps 25% or 30%, of their value, that also left a big hole in the banks, which the public had to fill. What role did the Central Bank have in all of that?

Ms Sharon Donnery

Whether the loans stayed with the banks or were sold to non-banks, a primary focus of the Central Bank throughout that period was dealing with affordability challenges for individual consumers. That is why the code of conduct on mortgage arrears, which I think the committee is familiar with, was put in place. Significant effort was continued by the bank throughout those years and indeed, even now, to ensure that arrangements, whether restructuring or various alternative arrangements, are put in place by the banks and non-banks in dealing with customers. So, it was to try to find the most affordable way forward for anybody.

An Cathaoirleach

They finished up in the least affordable way forward because they wound up in a poorly regulated private rental sector or some of them became homeless. That is what actually happened. The Central Bank failed to intervene, or, if it did intervene, it may have actually added to the problem. It resulted in a situation in which those people who are still in their homes, when the loans have been sold to vulture funds, are paying 6.5% and 6.75% interest. We were told this morning by Mr. Makhlouf that the Central Bank does not have the power to cap it. Does the bank want the power to cap it? No, it does not. That is extraordinary. Who is going to protect those people, members of the public and mortgage holders? On one hand, there is one cohort whose mortgages were sold as part of a loan book sale to a vulture fund, and on the other, there are members of the public and householders who are still in their homes but are paying extortionate interest rates to vulture funds. I am trying to find out how we are going to protect these people. In fairness, Mr. Makhlouf stated that the bank is carrying out a review, I think, and examining what can be done. Will the witnesses clarify that before the end of the meeting? Will they provide an answer? How can we help these people with their housing needs, being able to make repayments and dealing with these issues? Surely, someone somewhere has the wherewithal to do something about this. I do not wish to misquote Mr. Makhlouf, but I think when he replied to one of the members, he said a review is being carried out and some actions may be taken. Will he clarify that?

Mr. Gabriel Makhlouf

What I said and what Ms Donnery just spoke about is that, over the last few years, we have been focusing on affordability, making sure-----

An Cathaoirleach

We get all of that. I know what that is about, but this is a different point.

Mr. Gabriel Makhlouf

They are all connected. As I said earlier in my response to somebody, borrowers have the same rights whether they borrow from a bank or a non-bank.

An Cathaoirleach

I know people who had interest rates of-----

Mr. Gabriel Makhlouf

No-----

An Cathaoirleach

Mr. Makhlouf is saying people have the same rights who had a 2.5% interest rate and are now paying nearly 7%. That is no right. They have the right to be trapped and ensnared by the vulture fund. What is going to be done to help those people?

Mr. Gabriel Makhlouf

We have made clear to all lenders that they must deliver on all of their obligations, including the code on mortgage arrears. The code requires them to be able to identify borrowers who are not in arrears but are at risk of arrears and help those borrowers with their issues, whether that is restructuring the loan, or whatever. They have an obligation to do that.

An Cathaoirleach

The specific question I am asking is about interest rates.

Mr. Gabriel Makhlouf

Interest rates are not something we control.

An Cathaoirleach

Can the Central Bank influence it? Obviously, the bank has engagements with these funds. In those discussions, are there opportunities to raise that issue and try to influence it?

Mr. Gabriel Makhlouf

No, we are trying to understand what their charging policies are and ascertain precisely what the funding costs are for their business models to satisfy ourselves that we are not seeing excessive pricing. On the evidence-----

An Cathaoirleach

One moment please. I do not want Mr. Makhlouf to misunderstand what I am saying to him. The facts are these. They are buying loans for 30% or 40% of the original value but are charging interest on the full amount. The business model is fantastic. One could not make it up.

Mr. Gabriel Makhlouf

The business models are different for each of these firms.

An Cathaoirleach

It is a wonderful business model.

Mr. Gabriel Makhlouf

The business models are different.

An Cathaoirleach

How can they lose? How can these vulture funds lose?

Mr. Gabriel Makhlouf

The business models are different because some of these are actual lenders and some are firms that are just servicing loans which are owned by other people. On the evidence so far, some of these firms, though not all of them, have passed on the increase that the ECB has made. That is all we have seen. What we are trying to do in the analysis that we are now undertaking is to understand, in as much as we can because some of this information may not be obtainable, the overall business models so we can understand their funding costs and better understand what pricing judgments they are making. Establishing the facts and understanding them clearly is a precursor for us before we can work out precisely what to do.

An Cathaoirleach

Where the Central Bank ascertains that these firms are doing very well, have healthy, substantial margins and have extremely healthy balance sheets, will it say to them at that point that they must cut back a little on the fat because Joe Public, the borrower, is suffering unduly?

Mr. Gabriel Makhlouf

You are asking me to speculate.

An Cathaoirleach

Have you done that? I am not asking you to speculate.

Mr. Gabriel Makhlouf

At the end of the day, I am not in the business of speculating. On this issue, I want to establish the facts, understand everything that I can understand and then we can make judgments.

An Cathaoirleach

If you find that they are overcharging unduly, will you use your power as Governor of the Central Bank to try to curtail that and ease the pressure on borrowers?

Mr. Gabriel Makhlouf

If we see that there is undue profit seeking, I am pretty sure we will have serious discussions with the firms involved.

An Cathaoirleach

Thank you for that. That concludes our hearing. I thank the witnesses from Revenue, the Department and the Central Bank for being here this morning and for preparing documents and briefing notes for this meeting. I also thank the representatives from the Office of the Comptroller and Auditor General for attending and assisting here today.

We have asked for some follow-up information. Is it agreed that we will seek this follow-up information and carry out any agreed actions? Agreed. Is it agreed that we will note and publish the opening statements and briefings provided? Agreed.

We will take a break now and resume at 1.30 p.m., when we will deal with correspondence and any other business.

The witnesses withdrew.

Sitting suspended at 12.43 p.m. and resumed at 1.30 p.m.