I move: "That the Bill be now read a Second Time."
This is one of the more important pieces of financial legislation to come before the House in recent years. The Bill is only the second major change proposed in banking legislation since the passing of the Central Bank Act, 1942 under which the Central Bank of Ireland was established. Taken together with the Insurance Bill, the Companies Bill and the Building Societies Bill, it represents convincing testimony to this Government's resolve to equip the Irish financial sector with an up to date commercial code of law and regulation to meet the challenges of 1992. The Explanatory Memorandum indicates that the Bill covers a very wide area of financial services. Banking is the core element of the Bill, but the Government are also proposing to give the Central Bank the power to regulate firms in the International Financial Services Centre, moneybrokers, and financial futures and options exchanges.
The opportunity is being taken in the Bill to update the legislation in relation to currency and coinage. There are also provisions included to modernise the legislation, some of which goes back to Victorian times, on bills of exchange, bank and public holidays, exemptions from Moneylenders Acts and trustee authorised investments.
The primary functions, of the Central Bank, as set out in section 6 (1) of the 1942 Act, are to protect the domestic and external value of our currency and to control credit. The bank seek to achieve this principally by formulating and implementing monetary policy, having regard to national economic policy which is, of course, the responsibility of the Government. To help carry out this function the bank act as custodian and manager of Ireland's reserves of foreign currency, the official external reserves, and oversee the financial markets. They also have to be consulted on matters relating to exchange rate policy.
The bank's other main functions are to ensure that there is a stable and efficient system for taking deposits, extending credit and making payments within the State and to act as an agent and banker for the Government.
The principal elements of the Bill relate to banking, including the supervision of banks, the establishment of a deposit protection scheme, control of acquisitions by and of banks and the powers, functions and operation of the Central Bank itself. Given this primary aspect of the Bill, I think it is worthwhile to review briefly the development of banking in the State in recent years and to sketch where this sector may be heading in the future.
There are 33 licensed banks in the State with gross assets of over £24 billion. The two main banking groups are Irish controlled and have a dominant position in the market. Compared to 1971, when the last Central Bank Bill was enacted, gross assets of all banks in the State have grown by over 1,200 per cent. Banks continue to be significant employers, with total staff of over 17,000 and the banking and financial sector are important contributors to the GNP of the State.
The development of the banking sector has not been simply a matter of an increase in size. The whole ethos of banking has changed radically. Banks generally have become more customer oriented and have developed new financial services in response to the needs and demands of clients. The introduction of more complex financial products is a worthwhile phenomenon. The economic environment has helped foster these changes. The need to cope with interest rate, exchange rate and asset price uncertainty has brought about new financial products to reduce exposure to risk. The expansion of Irish firms overseas, through trade and direct investment, has introduced many Irish managements to the usefulness of these financial tools.
The Irish banks have not lagged behind in the introduction of new financial techniques. They are expert participants in the domestic and international currency markets. They have built up a pool of expertise comparable to the best abroad. The Government know that this expertise is a key factor in promoting our success in the international financial services arena, and more particularly in the achievement by the International Financial Services Centre of the goals we have set for it. I hope that all Deputies will take note of this. Some seem too ready, for their own reasons, to be dismissive of our strengths in this field, but this does us a disservice in trying to build a brighter future and carve out an international reputation in financial services.
Within the domestic market we have seen many changes since 1971. The impact of new technology and computerisation has revolutionised the retail banking sector. Competition between banks for clients has increased. The "cartel" on interest rates was abandoned in 1985. Banks are trying to attract customers by offering a greater range of financial services suited to the individual's needs.
Much has been written about the blurring of distinctions between different financial sectors. Banks now compete actively for mortgage business. Building societies are seeking new powers to provide the type of services which are at present offered by licensed banks. Life assurance companies have been designing products to attract the ordinary saver. The banks have responded by establishing their own life assurance arms. Banks have become involved also in insurance broking and stockbroking.
These developments are not confined to Ireland. We will see a continuation of this overlapping of functions as we move towards the creation of the single internal market in the EC. The Government will be anxious to ensure that financial institutions in the State should be able to compete with one another on an equal footing. The present supervisory arrangements in relation to the financial sector are currently under review with a view to reducing, where possible, the number of bodies involved in the supervision of the major financial institutions. The Building Societies Bill is an important first step in this direction by transferring responsibility for supervision to the Central Bank.
At EC level, 1992 will see important steps in the creation of a single market in financial services throughout the Community. The aim of the Community is to give a greater freedom of choice for persons to do business with any properly authorised financial institution wherever located in the EC. There is already a large measure of freedom, under the First Banking Directive of 1977, for banks to set up offices in other member states and to transact business through these offices.
The further steps being taken aim to allow banks to provide services in any part of the Community. Thus a bank will need to have just one banking licence to operate throughout the Community and not 12 licences as at present. The realisation of this freedom is dependent on the adoption of a number of important directives which are currently under discussion. These directives will set up a shared regulatory system to protect depositors and other investors.
The draft Second Banking Co-ordination Directive is the most important of these initiatives and has wide implications for banking in the internal market. Its aim is to remove the remaining barriers to freedom of establishment in the banking sector and to provide for full freedom of banking services. This approach is based on the concepts of harmonisation of the essential features of supervision, the mutual recognition of regulatory and supervisory standards for banks and home country control. Other directives propose to lay down harmonised rules for capital and solvency for banks within the Community.
Irish institutions operating in the internal market will be required to meet these standards. This should not pose particular problems for the Irish financial sector as the regulation of banking here already conforms to required international levels.
The Central Bank have an important role to play in the development of banking and related financial activities within the State and in how these developments relate to what is happening internationally. Since 1971, the bank have acted as the licensing and supervisory authority for banks.
The Central Bank's role in this regard relates not only to the regulation of banking within the State; under both EC and other international arrangements, it supervises the solvency of Irish banks in respect of the totality of their business here and overseas. The bank, therefore, must work closely with other banking supervisors in the EC and, for example, in the USA, where the two main banks have acquired subsidiaries. The bank discharges its duty in accordance with the high standards of banking supervision to which most developed countries subscribe. I know that the financial markets value the professionalism of the bank in this regard. It is vital that nothing should undermine the bank's ability, or independence, in the exercise of that function.
In addition to the licensing and supervisory role over banks, deposit-taking institutions and financial services conferred on it in the 1971 Act and proposed in this Bill, the Central Bank performs a number of other functions, most of which are characteristic of central banks generally. It acts as banker to the licensed banks and to the Exchequer and is currently responsible for registering and paying dividends on certain Government securities and for acting as the Government's agent in certain short-dated Government securities. As the statuory issuing authority for the currency it produces and distributes legal tender notes and coin to meet the needs of the public and is responsible for conducting transactions and relations between the State and EC and other international bodies concerned with financial and monetary issues.
During the debate in this House on the Central Bank Bill, 1942 the then Minister for Finance stated that the bank
...will be independent in the carrying out of its functions. This independence is possessed by almost every central bank throughout the world and is a very desirable provision.
It is generally acknowledged that the most important element in central bank/government relationships is the degree of independence accorded to a central bank in the formulation and implementation of monetary policy. In Ireland, the relationship between Government and the Central Bank rests as much on mutual confidence as on Statute. It has worked well since the bank was established nearly 50 years ago and I know that the bank has always had regard to national economic policy in considering matters relating to monetary policy and I have no doubt that it will continue to do so. Therefore, I see no reason to consider that the provisions in the present Bill will impinge on the ability of the Central Bank to exercise its functions in accordance with the large degree of independence granted to it by the Oireachtas.
I now turn to the detailed proposals in the Bill but I do not propose to comment on each and every one of those. I will try, rather, to highlight the main features and the principal changes being made to banking legislation.
The first 11 sections of the Bill call for few remarks, except in relation to sections 8 and 9 which provide for increases of penalties under the existing Central Bank Acts. I am proposing to increase substantially the penalties for offences, generally, under existing legislation. Fines of up to £1,000 are provided in relation to summary conviction, and of up to £50,000 for conviction on indictment. Terms of imprisonment of up to 12 months on summary conviction, and five years on conviction on indictment, are specified in the Bill.
I have taken the approach of applying a higher monetary penalty in cases where the offence is likely to be committed by a bank or other financial institution rather than by an individual. Under section 11 of the Bill, persons responsible for directing the affairs of a bank or other institution can also be proceeded against and subjected to a fine, or term of imprisonment, if found culpable and convicted. It is only right that the possibility of criminal proceedings should apply in this way to persons in positions of responsibility. I have provided also for continuing offences in cases where a person might profit, if not proceeded against, by a continuing infraction of the law. I am confident the House will support this approach.
Sections 12 to 24 relate to the Central Bank itself. Many of the sections re-enact existing provisions of the Currency Act, 1927, which is being repealed. However, there are several important new elements to which I wish to draw the attention of the House.
Section 12 is new and empowers the bank to take certain specific measures, where necessary, to safeguard the interests of depositors. This will empower the bank to make funds available to a licence holder in a rescue situation. Section 62 of the Bill, which relates to the establishment of the deposit protection account, will allow such sums as are expended to be charged on that account. I will go into the question of how the bank rescue powers will operate when explaining later the functioning of the deposit protection scheme.
Section 12 also clarifies that the bank has always had the legal powers to make funds available in the same way as ordinary banks can do. This provision relates to the bank's role in providing funds to compensate depositors in the case of the Irish Trust Bank, which went into liquidation in the seventies.
I am proposing in section 13 of the Bill to remove the requirement that the Minister appoint banking directors to the board of the bank. This requirement has existed in Central Bank legislation since the bank was set up in 1942. The incumbents of the office throughout the years, and up to the present time, have contributed valuable banking expertise to the direction of the bank and have helped establish and maintain the deserved reputation of the bank for professionalism and competence.
However, I have given considerable thought as to whether it is appropriate, in present-day circumstances, to preserve in legislation a specific requirement that two places be reserved for the directors of a licensed bank. In coming to a decision to remove the present legal requirement, I took into account the expanded responsibilities for supervising financial institutions being entrusted to the bank by this and other legislation. I think it would be invidious to have the representatives of one particular financial sector on the board of the bank as of right, to the exclusion of others. No doubt there would be calls for a special seat for all classes of financial institutions. A board selected on this basis would not be conducive to the proper discharge of the functions entrusted to it.
Section 13 provides that the present incumbents will vacate office within three months of the passing of the Bill. I had considered that the present banking directors might continue until the end of their terms, but I felt on balance that the new board constitution should come into operation within a short period after enactment by the Oireachtas. I might say that while the Minister will no longer be required to appoint particular persons to the board as of right, he will have the discretion to appoint persons of suitable banking expertise to the board. As with any board, the Government will be anxious to ensure that the Central Bank board contains the right mix and balance of expertise to enable it to discharge its functions adequately.
Because of its pivotal role in financial and commercial affairs, it is vital to protect the confidentiality of information which comes into the possession of the bank. At present, the officials of the bank are required to take an oath of secrecy not to disclose information.
Section 15 will replace the oath by a general provision relating to all staff of the bank. This confidentiality provision will be no less stringent than the existing requirement, but will allow for exemptions in specified circumstances. These are set out in the section, one of the main exemptions being to allow the exchange of information between duly authorised supervisors, both domestic and international. The section provides for stiff penalties of up to £25,000 and five years' imprisonment for breach of confidentiality by a member of the staff of the bank.
Sections 21 and 22 wind up the legal tender note fund and consolidate the assets of the bank in one fund. This change is primarily book-keeping and has no effect on the issue of the currency or the soundness and sufficiency of the assets backing the currency.
Section 23 deals with the exchange rate arrangements for the Irish pound. The monetary unit of the State is declared to be the Irish pound. The Minister, after consulting with the bank, is being empowered to vary the general exchange rate arrangements for the pound and to make specific exchange rate adjustments consistent with these arrangements. This does no more than give legislative effect to the existing arrangements.
This section replaces the more cumbersome procedures for varying the exchange rate of the pound of the 1971 Act. The 1971 Act provisions were drafted with much different circumstances in mind, and at a time when international monetary conditions were altogether more stable. Given our membership of the EMS, and the need to act quickly and decisively with our partners where exchange rates are involved, the law must allow for flexibility in this regard.
This is not to say that decisions to vary the general exchange rate arrangements or make specific exchange rate adjustments consistent with those arrangements will be made without due consideration, or that the House will not be given the opportunity to debate these decisions. For example, in the case of exchange rate adjustments within the EMS, the practice of the Minister coming to the House to explain the Government's actions will continue to apply.
The current system of supervision of banks in the State was introduced by the Central Bank Act, 1971. Experience has shown that the requirements have worked well, but this does not exclude the need for certain modifications and adjustments to meet particular problems that have arisen.
The changes proposed in Chapter III of Part II of the Bill are designed to strengthen the Central Bank's powers in the grant and revocation of banking licences, in the issue of directions to licence holders and in the provision of information by licence holders on their activities or the business of any subsidiary or associated company. The bank's supervisory powers over bank charges are also being placed on a formal footing. The bank is being empowered in the Bill to apply to the courts to enforce compliance with the supervisory régime and to ensure that any directions given by the bank are followed by licence holders.
I should also like to refer to the new powers which are included in the Bill in respect of auditors of banks. The Bill requires the auditor of a licence holder to report to the Central Bank on any specific shortcomings he comes across in the operations of a licence holder during the exercise of his auditing function. I think it is generally accepted that the auditor of any financial institution plays an important role in being able, at an early stage, to uncover deficiencies which, if left untreated, can lead to unfortunate consequences.
It is only right that auditors should be required to report on these to the supervisory authority. Other countries have also recognised this situation and have included provisions in their own legislation. I do not see this as an unnecessarily burdensome duty on the auditor. It is one which is justified in the public interest.
Given the central role of the auditor, and the enhanced duties we are placing on the auditor in this Bill, the Central Bank requested that it be given the legal power to object to the appointment of a particular person as auditor if it is not satisfied with that person's suitability. I propose to give the bank this right to vet appointments. This is not meant to reflect in any way on the auditors currently appointed to licence holders, or to undermine the licence holder's right to appoint the auditor of their choice. The power is meant simply as a safeguard for the legitimate concerns of the Central Bank as supervisory authority.
The Bill includes a provision to broaden the definition of banking business given in the Central Bank Act, 1971, both to conform with the relevant definition in EC Directives and to improve the protection of the public from unauthorised deposit taking. Because of the rapid evolution of financial markets and the introduction of new and unfamiliar financial techniques, I have included in the Bill a provision allowing me, by regulation, to apply the supervisory powers in this Bill to any new financial activities which, if left unregulated, would cause a loss to the investing public, or disrupt the operation of financial markets in the State. I believe it is wise to take these powers now rather than wait for the damage that unregulated financial markets might cause before seeking the necessary legal powers.
Chapter IV of Part II of the Bill contains provisions which I hope will have to be used very infrequently, if at all. These relate to the winding up of licence holders and seek to copperfasten the right of the Central Bank to play a key role in the evolution and determination of the winding up of a bank.
Chapter IV will allow the bank to receive notice of winding up, to be heard in court, to be represented at meetings of creditors and to have a licence holder wound up on certain specific grounds. The provisions in this chapter are, for obvious reasons, necessarily tied into the provisions in the next chapter which establishes the deposit protection account.
Before going into details of the proposed deposit protection scheme, I think it useful to make some observations on the rationale and operation of these schemes in general.
The primary goal of deposit protection is to provide a safety net for depositors in the case of a bank failure. Such schemes protect individual depositors, especially smaller ones, and help preserve confidence in the integrity of the financial system. There is, however, a notable body of opinion which feels that deposit protection lessens the role of market discipline in deterring banks from undertaking unsound or risky policies. Proponents of this view can point to practical examples in other states, where the cost of funding the protection of depositors and keeping insolvent banks from closing places a heavy burden on the financial system.
I recognise these concerns and the viewpoint of those who feel it unfair that well run institutions should bear the costs of inefficient competitors which get into difficulty. I believe, however, as I said earlier, that the banking community gains from having a clear mandatory régime to allay public fears where failures occur. I expect never to have to operate Chapter V of this Bill, but I believe that it is best to have the tools available to cope with such a contingency should it arise.
Many of the more developed countries have deposit protection schemes in place, for example, the UK, France, Germany, the USA, Canada, Japan and the Netherlands. The EC Commission has recommended that all member states introduce deposit protection schemes. Indeed, some member states which previously objected in principle to deposit protection have since decided, in the light of experience, to implement such schemes. The coverage of deposit protection schemes varies substantially in the different countries. Most, if not all, have cut-off points beyond which deposits of a specified size are not protected. The cut-off point in some cases seems quite generous. The type of deposit protected also differs but, in the main, it is "consumer", i.e. non-commercial, deposits which are covered.
The Government have examined the issues carefully before deciding on the course of action proposed in the Bill. We have listened to and considered the misgiving voiced about deposit protection. The system we have settled on is, in my view, reasonable and affordable and will contribute to the already high standing of, and confidence in, the financial sector in the State. I know that Deputies will join with me in this assessment.
The way in which the deposit protection scheme will work is set out in Chapter V of the Bill. I will be happy to answer particular questions on Committee Stage, so I will confine myself to outlining the general operation of the scheme in my remarks at this stage.
The scheme aims to protect ordinary bank depositors in respect of deposits of a particular size. The Bill excludes certain classes of depositors, notably those persons connected with the insolvent licence holder, while deposits eligible for compensation are defined to exclude both deposits by other specified financial institutions and deposits in a form which are normally only available to the larger, commercial depositor.
The deposit protection account will be funded by the licensed banks through a contribution to the deposit protection account related to the size of the licence holder's deposits. The relevant percentage is 0.2 per cent of Irish pound deposits, with a minimum contribution of £20,000.
In the event of an insolvency, the liquidator of the insolvent licence holder will have access, firstly, to that licence holder's deposit in the deposit protection account. Where this deposit is insufficient to pay to depositors the compensation amounts set out in this Bill, the Central Bank will pay the shortfall and charge it to the deposit protection account. The bank will also advance payments and charge the deposit protection account where the liquidator is likely to take an unreasonable time in realising assets to compensate depositors. The bank will be able to claim these advances from the proceeds of the liquidation in due course and credit the deposit account with the proceeds.
The compensation amounts are based on the following formula. A depositor may be compensated for 80 per cent of a deposit of up to £5,000 (or of the first £5,000 of a larger deposit), 70 per cent in respect of the next £5,000 of a deposit and 50 per cent in respect of the next £5,000.
Maximum compensation therefore will be £10,000 for a qualifying deposit of £15,000 or more. Account is taken in the formula of any amounts paid or payable by the liquidator to depositors other than out of the deposit protection funds.
To give a practical example, if one had a deposit of £15,000, with no amounts being available to compensate from the proceeds of the liquidation, the maximum compensation which can be paid from the deposit protection account is £10,000. If the proceeds of the liquidation allowed the payment of, say, £4,000 to the depositor, the balance to be paid by the scheme would be £10,000 less £4,000, i.e. £6,000.
The purpose of placing these graduated limits, and setting an overall cap on the amount of compensation, is to keep the scheme within reasonable financial proportions and to retain a risk element for depositors, so as to encourage prudence. As I have said earlier, this feature is not unique to our scheme. Cut-off points apply in schemes abroad also.
For certain depositors excluded from compensation because they were connected with the insolvent bank, there is the right to appeal to the High Court. To save expenses to individual depositors, the Central Bank itself can appeal to the court on behalf of particular depositors where it feels that the stringent exclusion provisions in the Bill should be waived and the depositors compensated.
In the event of payments being made from the deposit protection account, I am providing for the reconstitution of the account by further contributions by licence holders, subject to a maximum contribution in any one year of 0.2 per cent of each bank's Irish pound deposits; but the Central Bank will be permitted to waive the extra contribution in the case of individual banks in particular circumstances.
The bank is allowed under the scheme to use the deposit protection account to advance funds to a licence holder where it is in the interests of depositors to do so. Let me say that the particular cases in which this power will be used will have to be weighed carefully by the bank. I would expect that if the bank saw that the application of funds would have a good chance of success, and would cost less than having to compensate depositors should the licence holder fail, then it would consider the use of the account in this way. The Bill leaves this decision entirely to the bank. The bank must, however, inform me, and licence holders generally, of the principles which will guide it in the exercise of these powers. In addition, the holders of licences will have the right to make representations to the bank in relation to the application of those principles.
It will, of course, be necessary to review how the deposit protection scheme works in practice. Chapter V places a statutory duty on the bank to conduct such a review and to recommend to the Minister what changes, if any, should be made. Section 68 of the Bill allows the Minister by regulation to give effect to such changes.
As I said at the outset, I hope never to see this scheme actually being operated, but we must provide for the contingency. This does not rule out the need for other measures, legislative or otherwise, in the event of any bank failure, depending on the nature and size of the failure. However, we cannot anticipate such matters in legislation now. This chapter in the Bill at least lays the groundwork for a co-ordinated response to problems of this sort, should they arise in the future.
The move towards the completion of the Community's Internal Market has seen considerable interest on the part of all firms in the possibilities of acquiring shareholdings in other firms, either on the basis of outright or substantial control, or mutually beneficial cross shareholdings.
I do not think that it is possible to read the business press these days without seeing one or other such link-up between different institutions in the member states, and indeed between non-EC firms and firms already established in the Community.
Some would say that this is the inevitable consequence of the creation of a Single Community market for products and services. The quickest, and possibly the cheapest, way to enter a new market is to acquire an existing market participant. One way to forestall unwelcome entry to one's home base, as well as to develop new markets, is to enter into a mutually supportive shareholding arrangement with other appropriate firms.
The financial sector is no less touched by these developments than others. The work proceeding at EC level on the completion of the internal market will reinforce these trends. Already, domestically, the main banks have been expanding by acquisition into other related financial areas, constructing broad financial conglomerates.
I have no wish to prejudge the issues involved here. The purpose of the provisions in this Bill is not to signal a hostile attitude towards acquisitions, nor to place obstacles in their way, but to allow the authorities to make an informed and prudent judgement on the acquisition by others of major interests in a licensed bank, or acquisitions by that bank of other concerns. The supervision provided for in the Bill is based on the need for prudential control by the Central Bank; for example, is this acquisition good for the security of depositors or would it conflict with the orderly and proper regulation of banking in the State? But there is also an important national interest in certain cases and this is reflected in those sections where the Minister for Finance, and other Minister where relevant, have a role to play.
The provisions in Chapter VI of Part II of the Bill give statutory backing to the control already being exercised by the Central Bank over (a) the ownership of licensed banks and (b) acquisitions by licensed banks in both the banking and non-banking areas. With regard to the first objective, the Central Bank is concerned to secure an appropriate ownership structure in order to facilitate the maintenance of the capital adequacy of banks.
The bank is also anxious to minimise the risk of appreciable holdings in a bank coming under the control of unsuitable persons or institutions. The second objective is equally important in the context of the orderly and proper regulation of banking. It is advisable in the interests of protecting depositors that the Central Bank should have adequate powers to control acquisitions by licensed banks so as to ensure that banks do not expand in a manner that might weaken their capital base, dilute their management resources or increase to imprudent levels the risk associated with their operations.
Under the proposals in the Bill, the bank must be notified of proposed acquisitions in or by banks. The relevant minimum percentage holdings in the shares or voting rights which must be notified to the bank for approval is 10 per cent. I will be able, by order, to alter this figure, but any alteration will have to be approved beforehand by both Houses. The bank must also be notified of acquisitions of less than 10 per cent of shares if the shares confer any rights over the appointment of some or all of the directors of the undertaking concerned. The provisions in Chapter VI are framed so as to include direct or indirect holdings, e.g. via a subsidiary company or in concert with other persons.
For an acquisition to go ahead the bank must either give its approval in writing, or refrain from objecting to the acquisition, within the period laid down in the Bill. This period is three months in the case of an acquisition requiring only the bank's approval, and six months in cases where the approval of the Minister for Finance is required.
Ministerial approval will be required where the proposed acquisition would result in over 20 per cent of the assets of all licence holders in the State coming under the direct or indirect control of one person, whether that person is another licence holder or not. The Minister may attach conditions to any approval which he may give. The bank, in addition, may prescribe its own conditions as it sees fit. These latter conditions can be applied to all cases and not just those acquiring transactions required to be approved by me.
Under the Bill, the bank may conduct such detailed inquiries as it see fit, either on its own behalf or at my request, into the circumstances of the proposed acquisition. Stiff penalties are prescribed for any persons who do not assist in the inquiry or who try to impede its progress.
The Bill imposes penalties for the contravention of any approval given under the relevant sections but also provides that where an approval is refused the aggrieved parties may appeal to the court. I am sure that the House will find the powers being taken in this part both necessary and reasonable. They will be applied in a fair and practical way with the aim of protecting the interests of depositors and the wider public good.
Chapters VII to IX of Part II of the Bill give the bank the responsibility for supervising IFSC companies, financial futures and options exchanges, moneybrokers and other entities designated by the Minister for supervision by the bank. The broad terms of the supervisory provisions are similar in many respects. The purpose is to allow the bank to specify particular regulatory requirements to be followed by the financial institutions concerned.
The bank is at present undertaking the supervision of certain financial institutions which have been licensed to operate in the International Financial Services Centre. The provisions of Chapter VII place this supervision on a statutory footing.
Chapter VII allows the bank to supervise the firms directly, or, if need be, through the establishment and recognition of self-regulatory bodies. The Government are committed to the application of the appropriate regulatory standards to firms in the IFSC. It is important that the reputation of the centre should be safeguarded. The bank may apply to the court to enforce compliance with its regulatory requirements and may also notify the Minister of non-compliance; the Minister has the power, under the Finance Acts, to withdraw a tax certificate of the company operating in the centre or to vary the terms and conditions of the certificate.
The establishment of financial futures and options exchanges in the State is a very recent development. The bank has already undertaken the informal surveillance of the rules and activities of the exchange which has already set up here. The powers being given to the bank in Chapter VIII confirm this supervisory role over not only the existing exchange but also over any others which may establish in the future.
I do not think that there will be any disagreement that this supervision is required. Futures and options exchanges transact significant financial dealings, which, if unsupervised and unregulated, could have grave effects on the reputation of the State and on the operation of all financial sectors in the State. The role of the bank as supervisor will extend to the relevant activities of members of the exchanges as well. No exchage will be allowed to establish unless the bank has approved its rules. The bank will be empowered to issue directions to the exchange to suspend trading in particular circumstances. Severe penalties are provided for unauthorised trading or for breach of the bank's supervisory requirements.
Moneybroking is a small but important sector of financial activity. Moneybrokers act as intermediaries arranging the disposition of funds between institutions on the interbank market. Chapter IX of Part II of the Bill gives powers to the Central Bank to supervise moneybrokers and to allow the bank to gather information for statistical and supervisory purposes. One particular provision prohibits licensed banks from acting as moneybrokers. This is to reduce the potential for conflicts of interest and to maintain competitive markets.
I am sure the House will not object to the expanded role envisaged for the bank. We are embarking on new and unaccustomed aspects of financial supervision. We may need, as mentioned earlier, to extend this supervision to other financial activities. I know that the bank will bring to this new supervision the skills and expertise which it has gained in many years of banking supervision, and I am confident that it will follow its usual high standards of supervision.
The responsibility for the issue of the currency rests with the Central Bank. The bank has had this function since the 1927 Currency Act, when the forerunner of the bank, the Currency Commission, was established by law. Because we are repealing the 1927 Act, it is necessary to re-enact those sections in that Act dealing with the issue of the currency. The relevant provisions in the 1927 Act are re-entered with only minor changes, which I can detail on Committee Stage.
The Central Bank issues the coinage on behalf of the Minister. I am proposing a number of small changes to the Decimal Currency Act, 1969, under which the current coinage is issued. The Decimal Currency Acts require that every order to introduce new coins, or to amend the size, shape, design, or composition of existing coins, must be approved in draft by both Houses before the order can be made. The Bill proposes to retain this requirement, generally, but to allow the Minister to make certain minor changes to the weight and standard composition of coins by order without the need to seek prior approval. This order would, of course, be subject to annulment by each House within the usual 21 days. The Bill also proposes that the legal tender amounts for coins should be standardised at a ratio of 20 times face value.
I hope the House will accept these amendments. For the information of Deputies, I should add that the Government are considering further changes in the coinage relating to the size, composition and design of existing coins and, in particular, the introduction of a new £1 coin. Whatever proposals emerge from this review will be brought before the Houses and there will be an opportunity for a full discussion before any new coins are issued.
The final provisions in this Bill are by way of up-dating miscellaneous Acts governing particular financial transactions. These are the Bankers' Books Evidence Act, 1879; the Bills of Exchange Act, 1882; the Money-lenders Acts, 1900 to 1933; the Trustee Acts, 1893 and 1958, and the Stock Transfer Act, 1963. The explanatory memorandum to the Bill explains the amendments which are being made. One notable provision, however, is contained in section 128 which empowers the Minister for Finance to direct the closure of banks and other financial institutions or exchanges where the protection of the currency or the national interest so requires. These are very much emergency powers. They are not new in that the Government have always had the power to declare bank holidays. Bank holidays, however, are also public holidays which are regulated by the relevant public holidays legislation. It has been decided to repeal the existing legislation on bank holidays, which exists in various Acts from 1871 to 1973 and, in so far as the traditional bank holidays are now superseded by the law on public holidays, to leave this aspect to the Public Holidays Act, 1973. The particular powers of suspending financial transactions by, for example, declaring a bank holiday are thus being re-created in an expanded from in this Bill.
I have gone into more detail than is usual in Second Stage comments, but I felt it was useful to do so because of the scope of the Bill, and the new powers which are being taken. I hope that the House has found this useful and that my remarks will contribute to an informed debate.
