Amendment No. 1 in the names of Deputies Bernard Durkan and Seán Barrett. I note that amendment No. 10 is related and amendment No. 9 is an alternative to amendment No. 10. With the agreement of the House, therefore, we will take amendments Nos. 1, 9 and 10 together? Is that agreed? Agreed.
Private Members' Business. - Unit Trusts Bill, 1990: Committee and Final Stages.
SECTION 1.
I move amendment No. 1:
In page 3, subsection (1), to delete line 35.
On Second Stage it was pointed out that the Minister would have an input into unit trust schemes after the enactment of this Bill. Because this function is being transferred from the Department of Industry and Commerce to the Central Bank it might be advisable to remove the reference to the Minister in section 1 (1) and also in section 4 (2). I should like to hear the Minister's views on these amendments particularly in view of the points put forward by Deputies on Second Stage. Does he not think it would be a good idea to delete the reference to the Minister in section 1 (1) and section 4 (2)?
These three proposed amendments would have the effect of deleting the provisions under which the Minister would be enabled to direct the Central Bank to make any authorisation by the bank subject to the imposition by it of conditions or requirements specified in the Minister's direction.
I considered it prudent to provide for ministerial powers as proposed in these sections as a precautionary measure. Assuming that this Bill is enacted, the Oireachtas will be facilitating certain developments in the legislation regulating unit trust schemes. In the circumstances where it is not possible to foresee all future eventualities arising from these more flexible provisions, I consider it wise to preserve power to myself to respond to any future representations which might arise.
It is possible that Members of the Oireachtas might have concerns arising from the annual report of the Central Bank, which the Minister for Finance would present to the Oireachtas in accordance with the provisions of the Central Bank Act, 1989. That report would be required to include a report in relation to the Bank's exercise of their functions under the unit trusts legislation. It is apparent from the Second Stage debate which took place last week that there is a considerable divergence of views among the Members of this House on these provisions. I would be enabled, under section 4, to deal with such representations without the necessity for amending the legislation.
It would also be important that the Minister, being the sponsor of this proposed legislation, would be aware of further developments in the future and be able to deal with any concerns which arise.
Any direction the Minister would give to the bank would be limited to conditions or requirements which related to such matters which the Minister is satisfied, after consultation with the Minister for Finance, do not constrain the prudential supervision of a scheme by the bank.
The provisions in question have several precedents. For example, a similar provision exists in the Central Bank Act, 1989, section 101, dealing with the supervision of financial futures and options exchanges by the Central Bank, under the aegis of the Minister for Finance. Analogous procedures also exist in the provisions of the Companies (No. 2) Bill, 1987, Part XIII, dealing with another form of collective investment scheme, SICAVs or variable capital companies.
Most of what the Minister said on this amendment is fairly straightforward and direct but nothing he has said could be regarded as an argument for maintaining the involvement of the Minister for Industry and Commerce in a function which this Bill intends to hand over to the Central Bank. Indeed, the precedent referred to by the Minister in the legislation concerning the Central Bank is not a precedent for what is included in this Bill because the Minister for Finance is the member of the Government charged with looking after the operations and affairs of the Central Bank to the very limited extent to which they are supervised by the Government. There is no precedent for supervision and monitoring being carried out by the Central Bank where a Minister other than the Minister for Finance is involved.
I appreciate that this provision, and indeed section 4, is in the nature of a precautionary measure to provide against a time in the future when the Minister for Industry and Commerce might feel that something unforeseen needs to be dealt with. However, I cannot understand why it should be the Minister for Industry and Commerce. If an eventuality like that were to arise it seems to me that the Minister for Finance would be the appropriate Minister to deal with it.
As I said on Second Stage, given our system of Cabinet Government with collective responsibility, if the Minister for Industry and Commerce or any other Minister has concerns about things which arise in the course of the operation of a Bill such as this, he has a perfect right and every facility to make those views known to the Minister for Finance and if there is reality behind them the Minister for Finance would act on them.
I cannot see the relevance of what the Minister said about the Oireachtas perhaps wanting to have an input into this arising from the reports which the Central Bank would make on the operation of these schemes. This Bill does not give the Oireachtas any direct involvement in this and I am not all sure that is the intention of the provision in section 1 (1). Section 4 (2) does not require the Minister to have any regard whatsoever for anything the Oireachtas might say. It provides that the Minister "may direct the bank..." and so on. The Bill as it is framed does not meet the point made by the Minister. If there is any foundation for the point the Minister is making this is not the way to deal with it in the Bill and it should be dealt with otherwise.
The Minister for Industry and Commerce is the sponsor of this Bill only because the Bill transfers from the Minister for Industry and Commerce to the Central Bank the function which are dealt with here. If any other Minister was looking after unit trusts at present he would be the sponsor of the Bill. I do not see any substance in that provision.
The Minister said that the directions provided for under section 4 (2) would be limited by the terms set out in that subsection. That is fine and it amounts to an opinion by the Minister but section 4 (2) does not define what these might be.
It does.
No, it defines their limitations and requires the Minister to make such direction after consultation with the Minister for Finance and in such a way as not to constrain the prudential supervision by the bank of a scheme. It does not say anything about what might be covered by these directions or about why the Minister for Industry and Commerce rather than the Minister for Finance should be the one to do this. I have to say that the response given by the Minister is not in any way conclusive about the need to give the Minister for Industry and Commerce, who is being divested of powers, any residential function. If there is a need for any kind of residual function there is nothing in what the Minister has said, or in the Bill, which would indicate that it should be the Minister for Industry and Commerce rather than the Minister for Finance who should do it.
I do not think amendment No. 1 in the names of Deputies Durkan and Barrett can be accepted. If it is adopted the Bill will be meaningless in some respects. For example, it would be difficult to interpret section 20 (4) if the interpretation clause, which defnies "Minister", was deleted. That subsection states that the Minister and the registrar of companies shall on the passing of this Bill, transfer all documents and so on to unit trust schemes. If the definition section is deleted — I do not think it should — that would be a meaningless provision. It would be more approriate to discuss the substance of this on section 4.
As I said during the course of the debate on Second Stage, I find what is being done rather strange whether it has a parallel in other legislation or not. The purpose of the legislation is to transfer the rights and duties of the Minister in the matter of control of unit trusts to the Central Bank. I have my own views about this but that is not the issue. The issue is that the Minister has decided to do this and so be it. Perhaps, the Central Bank are the appropriate institution but once that decision is taken it seems that the appropriate thing to so would be to leave it with them and let them get on with the job, set up whatever mechanisms and controls are needed, grant the licences, exercise the controls and impose conditions where necessary. Why is there a necessity for the Minister to retain his finger in the pie? If the Central Bank are to be given this job leave them be. Why split the responsibility between the Minister and the Central Bank? This may give rise to contention at a later stage, if something goes wrong, as to whether it was the fault of the Minister or the Central Bank. What is it about the functions and powers being granted in the Bill that requires this odd mix?
Does this mean that we will have two sets of officials dealing with unit trusts, one in the Central Bank and the other in the Minister's Department, perhaps in conflict or having disagreements at times? This will make the operation of the procedures rather cumbersome. I see no reason why we should include it and it should be dropped. If the Minister decides to divest himself of the responsibility and power to license unit trusts he should do this unbegrudgingly, divest himself of it fully and completely and leave the matter in the hands of the Central Bank. One either takes the view that the Central Bank are the capable and appropriate body of men and women to do this job or not. If they are the capable body to do the job, and have the necessary resources and personnel, why then is there a need for the Minister to retain his finger in the pie and have the power to impose conditions? Why would the Central Bank not impose conditions, if necessary, if they were doing the job properly? The Minister has not clarified this issue in any way.
The explanatory memorandum circulated with the Bill states:
The primary purpose of this Bill is to establish, in the public interest and in the interests of investors in unit trust schemes, new and enhanced arrangements for the control and regulation of unit trust schemes by the Central Bank which will assume that statutory responsibility from the Minister for Industry and Commerce.
I agree entirely with that and accept the point made by Deputy Taylor on amendment No. 1. I do not think that is the issue although the point made by the Deputy is valid. Amendments Nos. 9 and 10 states that if the Minister wishes to transfer responsibility, as stated in the explanatory memorandum, he should go ahead and do so. I see no valid reason why the Minister should retain power in certain circumstances to direct the Central Bank to make an authorisation.
Section 6 deals with the refusal of authorisation and the right of appeal, if the Central Bank refuse an authorisation, to the High Court. I can foresee people appealing to the Minister. From my reading of section 4 (2) there is no reason why someone refused an authorisation by the Central Bank could not go to the Minister instead of going to the High Court. Under subsection (2) the Minister could direct the Central Bank to give an authorisation. For the life of me I fail to understand the reason we need subsection (2). I do not think the Minister has given us any valid reason why we should agree to retain this subsection.
Having regard to the fact that there is a time limit on this debate I ask the Minister to accept the principle enshrined in our amendments unless he has some extraordinary reason for retaining this power. I would appreciate if the Minister, when replying, would comment on the point I have made, that under the present wording there is no reason why appeals could not be made to the Minister instead of to the High Court. In other words, in the first instance can a company go directly to the Minister instead of to the Central Bank?
If there is something wrong with the technical aspects of our amendments, then, on Report Stage, I am sure the Minister could substitute different wording for what we suggest or leave in some wording we suggest be deleted. If he is accepting the principle, if he is going to transfer responsibility from himself to the Central Bank, he should do so and, if somebody wishes to appeal the decision of the Central Bank, the Court is there for that purpose.
I am not greatly moved one way or the other by amendment No. 1. I am more concerned about the fact that, on the last occasion, the Minister of State, in the absence of the Minister for Industry and Commerce, did not give us any rational explanation as to why it is deemed necessary — separate from all of the other matters that we might consider in the context of financial institutions, financial transactions, supervision of the financial services sector generally — to proceed at this time with a Unit Trusts Bill, divest the Minister for Industry and Commerce of supervisory powers in that regard and hand them over to the Central Bank.
Unlike my colleague, Deputy Taylor, I took the view that it is probably desirable to have a unified system of supervision of the financial sector. On Second Stage I instanced a trend in that direction. I would like to know from the Minister why it is necessary to proceed at this time with this Bill in isolation from a number of other matters about which we spoke on Second Stage.
As regards there being a perceived lack of uniformity or symmetry about taking the powers on the one hand and giving them to the Central Bank while, at the same time, leaving the Minister with a finger in the pie, I cannot get myself greatly worked up. The role being left to the Minister is a very peripheral one.
Section 20 (4) was referred to but that is no more than a matter of record and the passing on of the books to the Central Bank. The real issue arises in section 4 (2) on the question of the authorisation of unit trusts, whether the Minister may intrude and cause a direction to be given in the circumstances envisaged by the provisions of that subsection. I can see a logic in the argument that suggests it should be the Minister for Finance, if a Minister at all, rather than the Minister for Industry and Commerce. But I do not have any great principled objection to the Minister retaining that function and, presumably, being accountable to the House. I have an amendment tabled later — amendment No. 12 — the purpose of which I will set out when we come to it that does envisage a role for the Minister. I do not really have any major principled objection to the Minister having the involvement suggested here.
I have not a great deal to add to what I have said already. What Deputies should bear in mind is that, at present under the 1972 Act — which is the only legislation dealing with unit trusts and their supervision — the Minister for Industry and Commerce is the only supervisory authority. I have considered that it is appropriate that at least the day to day management of supervision of these bodies might be transferred to the Central Bank because they now undertake a lot of the supervision of bodies like building societies, for example, who were transferred from my Department.
I might add as an aside and entirely in parenthesis that, in part at least, this is a product of the control of numbers in the public service which is something we have to think about. The Central Bank see themselves as an independent kingdom. They do not seem to be subject to any controls in terms of recruitment or numbers; this is the reality underlying the situation. I say that simply in parenthesis but it does seem to be convenient since they are the principal supervisory authority for these various other matters. However, when we were drawing up this Bill I pointed out that I thought it undesirable that there should be no democratic accountability at all. Indeed that point was made at some slight length by Deputy Taylor on Second Stage. He made that very point: why is the Minister hiving everything off? Why is it that there will now be nobody answerable to this House for a whole lot of functions?
A right of appeal.
Deputy Barrett mentioned the right of appeal. There is no question of a right of appeal to the Minister.
No, I said right of appeal to the High Court.
Yes, but not to the Minister; that would not be appropriate. The Minister for Industry and Commerce is still the sponsoring Minister. His role, as envisaged in section 4 is purely precautionary. He is still the Minister responsible for SICAVs under company law and, I think, for UCITS as well. These are all analogous instruments. If he is answerable to this House in respect of SICAVs and UCITS he cannot democratically entirely wash his hands of some answerability in regard to unit trusts. I thought the argument that would have been made in this House would have been quite different, that it would have been on the lines of that advanced by Deputy Taylor on Second Stage, which was that we were reducing or almost abolishing accountability. I have often taken part in these debates in this House over the years when that was always the point that was made. If the late Major de Valera were alive tonight, Sir, he would be jumping up from whatever side saying that the whole principle of this was wrong.
Whatever side indeed.
It is interesting to recall that the accountability of the Minister in respect of SICAVs in Part XIII in the Companies (No. 2) Bill of 1987 was introduced into that Part as a result of an amendment tabled by Deputy John Bruton, very much at his insistance. Of course, being the open-minded man I am, and have been throughout the Companies Bill, I accepted it. It would be quite contrary to the principle of what Deputy Bruton sought to promote in Part XIII of the Companies (No. 2) Bill, 1987 to do otherwise here. The powers of the Minister are entirely residual. They are entirely non-prudental and, for that reason, in practice, will be rarely, if ever, exercised. But, as a matter of principle, it is important that they be there.
What the Minister has just said in parenthesis is very interesting and deserves to be highlighted. What he seems to be telling the House now, in effect, is not that there is any merit in transferring responsibility on this issue from himself to the Central Bank, not that the exigencies of the position require that that be done, not that the Central Bank, for any particular reason, is the appropriate body to supervise unit trusts rather than himself and his Department but that, because of Government arrangements regarding the recruitment of staff, this back-handed method had to be found of doing this. The Central Bank, being an independent body, can, as the Minister said, recruit staff, whereas he and his Department cannot get staff to do the job, and that is the reason the transfer is being made. That is a very frank admission by the Minister and he is to be applauded for that frankness but it is a remarkable way to do our business.
If the situation requires that it be dealt with in the Minister's Department — which would be my first choice, as I said on Second Stage, and that remains my position for reasons of democratic accountability that I outlined then — then arrangements should be made to provide the staff in the Minister's Department so that he would retain the function he has and which no doubt, if he had the staff, he could discharge very effectively and efficiently. Here we see a backhanded method of getting round the staff recruitment embargo. That is what we are about now, not that there is any great thing, as many Members said on Second Stage, about the tidying up operation, that it should be the Central Bank controlling finances, the banks and all the rest of it. It is all to do with the embargo and that is a remarkable position to find ourselves in. If the Minister is the repository of the control of unit trusts I cannot imagine that human ingenuity in the Cabinet could not devise a method of securing him the staff he needs to do the job properly.
My order of preference as to who would control unit trusts would be as follows. My first choice would be that it should rest with the Minister. I think that would be the correct way to do it. My second choice, very much a second choice, would be that the Central Bank should have the power to do it. My third choice, which gives the worst of both elements, would be to have the mix contemplated in the Bill in its present form. It is neither here nor there. It does not vest the responsibility fairly and squarely in one institution or the other and it gives this peculiar hamble-gam arrangement, a kind of retention by the Minister and his depleted staff, as he acknowledges, of a vague, uncertain control over something he will rarely if ever, use. If he is rarely or never going to use it, what is the point of it being there in the first place? Why not just go back to the Cabinet, get his authorisation and retain the democratic responsibility where it should rest, with himself?
I happen to believe that the Central Bank is the appropriate regulatory authority for financial institutions. I also happen to believe that the input of the Oireachtas and its accountability — we do not talk of that very much — have to be in getting the legislation right the first time, and after that handing over the regulation and supervision to a body who will do it properly. I hope I will offend nobody if I say it is my firm belief, and experience bears me out on this, that the Central Bank has always been better at supervising financial institutions than the Department of Industry and Commerce. I do not say that to criticise any Minister or any civil servant of the Department of Industry and Commerce. I think it is a matter of record.
Of what record?
On the record of my own experience where we had to rearrange matters in financial institutions because supervision had been perhaps not as close as it might be in parts of the supervisory system other than the Central Bank.
Are the Department of Industry and Commerce expected to call the certificates of chartered accountants in this city lies?
No, they are not financial institutions. They are professionals who are operating a service related to finances. That is a different argument.
(Interruptions.)
I am talking about financial institutions.
What about the PMPA?
Difficulties with financial institutions in the form of insurance companies and in relation to insurance activities have far outweighed difficulties we have had with banks as far as banking activities are concerned. For that reason among others I believe the Central Bank is a proper place to regulate these and the input of the Oireachtas——
Would the Deputy like——
Calm down for a moment now.
There was a certain insurance company that was owned by a bank.
That is right and the problem was with their insurance activities as supervised, according to our legislation, by the Department of Industry and Commerce.
(Interruptions.)
The Deputy is in possession.
Would the Minister explain his reason——
The Minister knows perfectly well that blue books are not the infallible source of wisdom they were held out to be from time to time. However, that is by the way. I believe the Central Bank is the right place to do this.
The Minister himself has said — there is no virtue in this — that the Department of Industry and Commerce are currently the only supervisory authority in relation to unit trusts and he takes the view now that at least day-to-day control of their activities should be given to the Central Bank. The Minister goes on to say that the powers here are residual and will not be much used. When the Minister was on a different side of the House and when I was on that side he used to give me long lectures about how nobody can go behind legislation and talk about what the intention of the legislator was when the legislation was passed. Therefore, the Minister's intentions, which I accept in all good faith tonight, about not using these powers much are not worth a tráithnín. What matters is what is written in the legislation and what it allows the Minister of the day to do. Without making any judgments about what the Minister and his successor might do, I am worried about what is written down here and what we are going to enact into law and the Minister's current state of mind about this.
The explanatory memorandum which, of course, as the Minister has pointed out, on previous occasions, is not part of the legislation, says that what is intended here is to complete the adoption of a consistent approach to the control and supervision of these financial services etc. On the question of where the staffing resources are, the Minister may not be aware that the Minister of State based part of his case on Second Stage on the proposition that the measures here would result in "more efficient use of scarce resources and the ready availability of a pool of expertise" which would enhance the quality of supervision. There is apparently some expectation that the quality of supervision and the use of resources would be enhanced by this move to the Central Bank, which says something for the place they are moving from. I would like to have on the record of the House that neither the Minister of State on Second Stage nor the Minister here tonight has given us any indication that there is any pool of expertise or any extra resources.
Finally, for the sake of completion, let me mention in response to Deputy Taylor regarding section 20 (4), that there is another section about which he should have the same concern in that it refers to the Minister, that is section 19. The way to deal with that is to have no further fancy footwork in relation to the definition section but simply to insert in section 19 and in section 24 (4) after "Minister" the words "for Industry and Commerce" and that will make it perfectly clear what we are at. If the Minister were disposed to accept the amendment we have down now, I am sure we could insert those appropriate words in those two sections on Report Stage.
The Minister seems to forget it is he who is bringing in this Bill. He decided this legislation would be brought in. He says in the explanatory memorandum: "The primary purpose of this Bill is to establish, in the public interest and in the interest of investors" new arrangements whereby responsibility is transferred from the Minister for Industry and Commerce to the Central Bank. He has not explained to us the circumstances under which he himself sees his Department getting involved in this whole question of authorisation. Can the Minister explain the circumstances he envisages whereby he, as Minister in the Department of Industry and Commerce, may have to use his powers under section 4 (2)? It is not enough for the Minister to say that he will not be a means of appeal. There is nothing in subsection (2) to the effect that he may not be a means of appeal. For those good reasons I would ask the Minister to give a more comprehensive reply in relation to the reasons he needs these particular powers. As it stands section 4 (2) contradicts what the explanatory memorandum states quite clearly.
I do not think I can give the Deputy any more extensive dissertation on this. I have already spoken to some relatively extensive degree on a very minor amendment. We have 19 more to go and we have very little time.
We are taking amendments Nos. 9 and 10 together.
I want to repeat to Deputy Barrett that the Minister is not seen as a means of appeal. The Minister's functions, such as they are, that are reserved in these provisions are non-prudential and an appeal simply cannot arise because the direction that would be given under section 4 would be given in respect of more general matters of policy and not in respect of anything that would be appropriate to the prudential supervision of the unit trust concerned. I do not really see how it arises.
I would remind Deputies of what I said with regard to Part 13 of the Companies (No. 2) Bill which was almost entirely analogous with this except that these are units trusts where they are SICAV. I would remind Deputies of the arguments that were made from that side of the House in relation to Part 13, the amendments that were put down and the amendments that were accepted on it.
In conclusion I would say that I think that the aspersions that were cast on my Department by Deputy Dukes are entirely unjustified. I am very well familiar with the two instances he mentioned. I would like to ask him what, for example, a Minister in 1979 or 1980 could have done in the particular circumstances and I think if he casts his mind back to that——
Ask the Minister. He is still in the House.
I was very well aware of dangers that were involved and I was also well aware that in every one of those years — and this of course was true of the other company also — a firm of chartered accountants in this city gave an unqualified certificate in respect of the companies concerned.
I think we are straying.
I feel, Sir, that I am entitled to reply on behalf of the Department which was attacked in that fashion. So far as the other company is concerned, if errors were made because things were concealed, they were not just concealed from the Department of Industry and Commerce. We are now led to believe, rightly or wrongly, that they were concealed from the purchasers of that company who themselves would surely be experts, perhaps the leading experts on financial affairs.
I accept the points made in relation to amendment No. 1 and I shall not be pressing that amendment.
In regard to section 4 (2), notwithstanding anything said by the Minister, I would feel that the continuing interest he retains seems to be somewhat crowding the interest of the Minister for Finance through the Cental Bank and the banks. I feel that perhaps notwithstanding what the Minister said regarding accountability to this House that the Minister for Finance would. In any event, be accountable to this House at a later stage and might perhaps have more of a role to play there. With no disrespect to the Minister, he may not always be the Minister. He may even move to a higher role in which case another Minister might well be there and perhaps the discussions or consultations, as the section states, with the Minister for Finance might lead to some confusion or conflict. For that reason I felt it was somewhat unnecessary to retain that interest.
Amendment, by leave, withdrawn.
I move amendment No. 2:
In page 5, subsection (5), lines 4 to 10, to delete paragraphs (a) and (b) and substitute the following:
"(a) a reference to a section is to a section of this Act and a reference to a subsection is to the subsection of the section in which the reference occurs, unless it is indicated that reference to some other provision is intended;".
This amendment represents a very minor tidying up of the draft. I understand the draftsman had a reference to a sub-pararaph and sub-paragraphs do not arise in the Bill, so he has changed the reference to subsection.
Amendment agreed to.
Section 1, as amended, agreed to.
Section 2 agreed to.
SECTION 3.
Here we have an amendment in the names of Deputies Durkan and Barrett. I oberve that amendment Nos. 6 and 8 are related. I am suggesting, therefore, that we discuss amendments 3, 6 and 8 together, by agreement. Is that agreed? Agreed.
I move amendment No. 3:
In page 5, subsection (1), line 23, after "trust schemes", to insert the following:
"including such unit trust schemes managed by bodies corporate incorporated under the law of the State or of any other member State of the European Communities or of any other State as may be authorised by the Bank in accordance with the provision of this Act".
The purpose of this amendment was to cover the possibility of unit trust schemes incorporated outside of the European Community or outside the State. Perhaps the Minister would like to respond.
I am afraid I will not be in a position to accept these three amendments. The provisions in question in the Bill deal with the authorisation of unit trust schemes and their registration by the Central Bank. They are founded on the analogous provisions of the Unit Trusts Act, 1972 as they were amended in 1977 to take account of Ireland's responsibilities in the Community. They provide a suitable framework within which the Bank can enforce its supervisory requirements and conditions as necessary in accordance with the powers under this Bill. It would not be appropriate if these incorporation requirements were extended to allow incorporation in countries outside the European Community. The requirements for the management company and the trustees to be incorporated in Ireland or in any other Community country are not likely to be objectionable to those seeking authorisation for unit trust schemes to operate in Ireland.
I can see what the Minister is getting at. Perhaps the Minister would explain to me why, although section 4 (1) (b) which deals with the authorisation of unit trust schemes refers specifically to management companies incorporated under the law of this State or of any other member state of the European Community, the register of authorised unit trust schemes makes no such reference. I am not necessarily saying that we would insist on having this particular amendment made. I want to ask the Minister why no reference is made in the section that provides for the drawing up of a register.
Which section is that?
Section 4 (1) (b).
I see that but what is the other one referred to.
We are proposing to amend section 3 (1). Is there not a need to make the two sections concordant or coherent with one another, or can the Minister give me any reason why a reference is made to companies incorporated in other countries in one section but not in the other?
An authorised unit trust scheme is defined in the interpretation or definition section 1, as a unit trust scheme authorised under section 4. Therefore, the section 4 concept prevails and there is no conflict between them.
Amendment, by leave, withdrawn.
Section 3 agreed to.
SECTION 4.
Amendment No. 4 is in the names of Deputies Durkan and Barrett. I observe that amendments Nos. 5 and 7 are related and I suggest, therefore, that we discuss Nos. 4, 5 and 7 together, by agreement. Is that satisfactory? Agreed.
I move amendment No. 4:
In page 5, subsection (1) (a), line 42, after "trustee" to insert ", or their agents or intermediaries.".
The purpose of this amendment, as I am sure the Minister will readily recognise, is not in any way to be criticial of the management of unit trusts but is simply an effort to protect the investor, particularly the unsophisticated or irregular investor, the person who does not have, except perhaps once or twice in a lifetime, an opportunity to invest and who has to have recourse to an agent or a broker. An investor must satisfy himself that the agent is in good standing, is fully accountable, has the imprimatur and the full authorisation of the management company before he proceeds to invest. There have been instances where the relevant authorisations have been signed by the investor with the agent purporting to invest in a particular scheme and the person finding ultimately that, the funds were not used for the correct purposes. If the agent or intermediary is operating with the authority and on behalf of a larger body or the manager of a scheme, surely that authority should also carry with it some responsibility to the investor in the event of mismanagement by the intermediary.
The provisions in section 4 (1) relate to the authorisation required, but the focus of control by the bank is on the principles involved, that is the management company and the trustee company under the unit trust scheme. I do not consider it either necessary or desirable that this focus should be widened to cover agents or intermediaries of those principles. Such provision could prove unworkable in the context of this Bill. Indeed, there is a considerable emphasis on the trustee company in that it bears a responsibility on behalf of the investors under the trust law.
The question of the regulation of agents or intermediaries is beyond the scope of this Bill. This question is best dealt with in a coherent way relating to intermediaries more generally. There already exists regulatory legislation relating to insurance intermediaries, and stockbrokers under bank ownership may be covered by bank regulatory legislation. However, the main point is that the question of further development of regulation in this area is best dealt with in a broader context than just unit trusts. Such developments would probably have to take account of proposals for Community directives currently under consideration. I have in mind in particular the Draft Investment Services Directive which is before the Internal Market Council at present.
I recognise the need for the control of what are broadly called investment agents or investment brokers, now that we have covered insurance brokers, but it would not be appropriate to deal with it in this Bill. A broker who is acting as an intermediary for investment between the public and any investment institution should be covered by some further legislation and that is being considered at present. It would probably not be legislation appropriate to my Department, the Department of Finance because of the scope of the investment possibilities, but I hope it will be done.
I appreciate what the Minister has said in relation to possible alternative legislation and I hope it will be introduced. I would have preferred to have seen the provision incorporated in this legislation for the reasons I have already outlined. There have been a number of instances where the parent company, as it were, the trust or scheme, whether it be dealing in bonds or whatever, is operated by an agent or intermediary who may be operating satisfactorily and above the law but because of circumstances outside his or her control, there may be a fairly serious loss to the investor. The investor may not have regular dealings in such instances and because of that may suffer a great loss. I hope the Minister will encourage his colleague to introduce the necessary legislation to cover that. From the time the investor places the funds with the intermediary, agent or broker and they have been accepted on behalf of the scheme or trust, a contract exists between the investor and, as it were, the parent company. That is where the problem has arisen so far, but, hopefully, when the alternative legislation referred to by the Minister is introduced it will cover that matter.
Amendment, by leave, withdrawn.
Amendment No. 5 not moved.
I move amendment No. 6:
In page 6, subsection (1) (b), line 5, after "Communities" to insert "or any other State".
I would like to raise a point which, although it relates to the earlier amendments, deals with section 4 (1) (b) which covers the authorisation of unit trust schemes. It provides that the bank shall authorise a scheme if, among other things, the management company or the scheme is a body corporate that is incorporated under the law of the State or any other member state of the European Community. I would like to know why it is limited to companies incorporated under our law or the law of other member states of the European Community since — although this does not happen very often or on a very wide scale — unit trusts operated by companies incorporated outside the European Community may also be sold here. Why is this restricted to member states of the European Community?
Principally for prudential reasons, I would think. It is much easier for us to enforce the regulations in regard to management companies that are registered within the Community. It is harder for the Central Bank, or whoever the authority happens to be, to follow those who are found to be delinquent but who are based outside the Community because they are outside our effective jurisdiction. There is, as has been mentioned, a draft directive on investment services which will cover many of these instances. If is, of course, a directive that will apply to the whole Community. Therefore, it would be foolish to leave ourselves open to encouraging people to have their management companies elsewhere.
I am sorry to interrupt the Minister——
The effect of what the Minister is saying is the opposite to what he intends to——
I am sorry to interrupt the proceedings but, as it is now 11 o'clock, I am required to put the following question in accordance with an order of An Dáil of this day: "That the amendments set down by the Minister for Industry and Commerce for Committee Stage, and not disposed of, are hereby made to the Bill; in respect of each of the sections undisposed of, that the section or, as appropriate, the section, as amended, is hereby agreed to in Committee; and that the Title is hereby agreed to in Committee; and that the Bill, as amended, is hereby reported to the House; that Fourth Stage is hereby completed and that the Bill is hereby passed".
Amendment put and agreed to.