Dáil Éireann debate -
Thursday, 31 Oct 1991

Vol. 411 No. 8

Adjournment Debate. - Finance Matters.

Mr. Hogan

The regulation of investment advisers is urgently required. The recent collapse of a number of investment firms and the subsequent major financial loss to clients highlights a substantial gap in the regulation of the investment services sector. The Government are effectively putting an individual's life savings at risk by not taking immediate action.

Any investment intermediary selling non-insurance products, such as unit trusts, is not obliged to satisfy any requirements in respect of the handling of client funds, the provision of bonds or the issue of appropriate documentation to clients. It is not acceptable that individuals should be exposed in this way.

Consumers investing in life assurance products through insurance intermediaries have a reasonable level of protection following the enactment of the Insurance Act, 1989. It is vital that equivalent protection is given to consumers investing through investment advisers in non-insurance investment products. While I recognise that legislation is complex, it is important that any legislation introduced is both practical and cost-effective and will be of real benefit to consumers.

I understand that an inter-departmental committee have been discussing this matter for the most of 1991. I am disappointed that no proposals have emanated from that committee to date.

At present any investment adviser involved in the sale of life assurance products must observe certain conditions. It is logical then to suggest that a similar regulatory regime should be introduced for non-insurance packaged investment products. This would give equality of competitive conditions for competing investment products and would also make compliance by investment advisers involved in selling both insurance and non-insurance investment products much simpler.

The Minister for Finance has indicated his intention of producing proposals to protect the consumer with the provision of new regulatory guidelines in respect of investment products.

Consumers are grossly unprotected at the moment and this should not be allowed to continue.

Minister of State at the Department of the Taoiseach (Mrs. Geoghegan-Quinn)

The Minister for Finance is concerned that we do not yet have adequate controls in respect of certain investment activities, and the Minister is anxious that the gaps in our present regulatory system be closed so as to avoid the problems associated with the failure of investment intermediaries.

The insurance-related activities of investment intermediaries are governed by the 1989 Insurance Act, the operation of which is a matter for the Minister for Industry and Commerce. The non-insurance areas of investment activity are not, however, currently subject to regulation. The principal activities that come under this heading are investment in UCITS and Unit Trusts. The Minister for Finance considers it appropriate that persons and firms providing an investment service to the public should be licensed and should have to satisfy supervisory requirements in respect of all their investment activities.

Regulation in this area is closely bound up with the draft European Community Investment Services Directive which will set out the parameters for national legislation. However, adoption of the Directive has been delayed by the complexity of the issues involved and the question of introducing supervisory arrangements here in advance of the adoption of the Directive is now being considered. The investment sector is a complex one and discussions have been taking place with the different interests involved. The Minister for Finance hopes that it will be possible to announce progress on arrangements for supervision of the investment intermediaries without delay. He has already announced that legislation is being prepared to change and update the regulation and supervision of the Irish Stock Exchange. The intention is that the Exchange will be subject to the Central Bank as regulatory authority.

In conclusion, I would urge people to think carefully before they entrust part of their life savings to investment operations which hold out the prospect of spectacular returns. Investors should be careful to check out the status and credentials of any investment firm whose services they wish to avail of.

Mr. Cotter

I want to raise with the Minister the high cost of certain goods and services in Ireland compared to our EC partners. I realise that the Minister for Finance has responsibility only for the element of prices which is relevant to taxation.

Our rate of VAT is the second highest in the EC, with only one country having a higher rate at 22 per cent. The cost of our telephone service is the highest in the EC by a wide margin. The cost of travel in Ireland is also the highest in the EC by a wide margin. The price of motor cars here is the tenth highest in the EC. It is interesting to note that only Portugal and Greece are more expensive than Ireland in that category. The reason cars are so expensive here is that VAT and excise duties push the price way up. It is also interesting to note that car sales this year have collapsed. Many garages are in extreme difficulties and are finding it difficult to remain open.

A further interesting statistic is that consumption of goods and services in Ireland is higher only than in Portugal and Greece. Obviously this would suggest that disposable income is extremely limited in Ireland. Allied to all this we have the highest unemployment rate in the EC. I suggest that all these matters are interconnected. I am interested in hearing the Minister's proposals for bringing these matters under control.

Mrs. Geoghegan-Quinn

As a general comment I would point out, of course, that there are many goods and services which are, at present, priced competitively here vis-à-vis the rest of Europe. Energy is a case in point. Of course, there are many factors at play in relation to how the price of any good or service is constituted. Tax, for which the Minister for Finance is responsible, is only one of them. Apart from tax, different prices may prevail in different markets for a variety of reasons such as consumer preference, access costs, marketing practices or distribution costs. Very detailed analysis would be required to separate out how these various components of retail price interact with one another as between one member state and the next. Such analysis would not be a function of the Department of Finance.

In so far as our relatively high tax rates impact on prices here, the Deputy must look at the wider perspective. Tax rates are not pitched at high levels because of any whim of Government or the Minister for Finance. Rather they reflect the economic and budgetary pressures that are brought to bear by factors such as unemployment, the extent of State borrowings and the level of public expenditure. High levels of debt and excessive public spending during the last decade meant that tax levels were, in many cases, pushed to intolerably high levels. Resolute action since 1987 has restored order to the public finances, and, at the same time, real benefits have been conferred on consumers.

Looking specifically at taxes on spending, good progress has been made in reducing the standard rate of VAT which applies to the bulk of consumer goods and services. We no longer have the highest standard rate in the Community and there is now only a three-and-a-half percentage points gap between Ireland and the UK, compared to ten points only two years ago. Our levels of excise duties have been held static generally and indeed, in the case of televisions, videos, camcorders and records, either abolished of reduced. This combination of measures has been welcomed by consumers and traders alike and has considerably reduced the tax-based incentive to shop outside the jurisdiction.

The advent of 1992 will, of course, bring further advantages. As tax borders disappear there could well be pressures to further reduce indirect tax rates differentials and, as rates of VAT and excise duties in the Community converge, consumers should experience still greater benefits through price competition.

The Dáil adjourned at 5.35 p.m. until 10.30 a.m. on Friday, 1 November 1991.