Vol. 430 No. 5
5 Mr. Yates asked the Minister for Finance if he will clarify the discussions, if any, which he or his officials have had with the Central Bank in relation to the operations of building societies; and if he has any proposals to ensure greater transparency of building society management in the future.
9 Mr. Rabbitte asked the Minister for Finance if he will confirm media reports that he has requested officials of his Department to ask the Central Bank whether existing regulations on building societies are adequate to safeguard the public interest; if so, if he has yet received a reply to the query; if he intends to amend, in any way, the legislation governing the building societies; and if he will make a statement on the matter.
I propose to take Questions Nos. 5 and 9 together.
The Central Bank supervises the building societies under the Building Societies Act, 1989. The Central Bank wrote to all the building societies on Thursday, 29 April 1993 requesting that they forward to the bank reports on their compliance with the provisions of the Building Societies Act, 1989, concerning transactions by, and interests of, directors and their disclosure. They were also asked to have these reports confirmed by their auditors.
Following receipt of the reports, the bank will decide whether further action is warranted. The bank is also examining whether the provisions regulating building societies under the 1989 Act could not be improved in the light of recent developments.
In the meantime, my officials are continuing to monitor the situation with due regard, of course, to the statutory independent role of the bank. I am awaiting the results of the bank's investigation.
If, in the light of these results further action is necessary in this regard, the Government will consider the necessary changes. Legislation in relation to building societies is a matter for the Minister for the Environment.
Finally, let me say that the Central Bank has stressed that it has no concerns about the financial stability or soundness of any of the societies.
Does the Minister share the sense of outrage felt by most members of the general public in relation to executives of building societies giving themselves payments of £300,000 in the form of a golden handcuff even though their renewable contracts have many years to run? One executive gave himself over £400,000 to refurbish and improve his house. Would the Minister agree that this was not what building societies were set up for? Will he introduce measures to ensure that perks paid to management are itemised on an annual basis for shareholders and that there is a fair election system so that an outsider will have a real chance of success at the AGM?
I agree with the Deputy that it is not in the best interests of the building societies or those who invest in them if something is not transparent to shareholders or policy holders. As I have publicly stated, I join with those who have expressed reservations about some of the activities which have come to light in recent times. I should mention that the Central Bank is examining the question of whether the provisions of the 1989 Act which regulate building societies should be improved in the light of recent developments. It would seem that all the issues raised so far are covered by the 1989 Act, perhaps with one exception about which there might be some minor doubt.
The Central Bank's questioning of some of the building societies moving towards PLC status was of assistance in bringing some matters to light. The Central Bank has written to all the building societies asking them to comply fully with all sections of the 1989 legislation and to have this confirmed by their auditors.
Would the Minister indicate the one minor exception to which he has referred in regard to the 1989 Act? Does he believe that the payment of £300,000 in a golden handcuff ought to be legal in a mutual society? Is he prepared to condone a situation where the constituents of every Member of this House are sometimes obliged to sell furnishing in order to prevent themselves being evicted, while somebody at the top of a building society can help himself to hundreds of thousands of pounds of a building society's money to furnish his house?
Clearly, no one could consider it fair or reasonable that money should be expended in that way. In due course, following the examinations, the contents of the agreements will be confirmed. The term "golden handcuff" is not mentioned in the 1989 Act, this practice has only developed since then. The Central Bank and the Attorney General believe that under the 1989 Act the Central Bank has the power to question these arrangements. The 1989 Act is broad and offers a range of areas of fraud but whether individual financial transactions that continue to be invented are covered is a matter that I will have clarified. The legal advice to date suggests that they are covered but this is not specifically mentioned in the 1989 Act.
The Minister says the 1989 Act is satisfactory. Does that Act debar individual executives from receiving commissions which are due to the society? Is he aware that under the provisions of this Act the Central Bank is forbidden to make statements in relation to particular incidents? The Central Bank is renowned for dealing with liquidity and solvency but it does not have a press officer. Its public relations is appalling. Does he agree that the law in relation to the Central Bank and to the payment of commissions needs to be changed?
I said previously during the debate on the Comptroller and Auditor General (Amendment) Bill that it was unfortunate that we had the opportunity only to debate the Central Bank report. The Central Bank has not had a high profile but in fairness that does not mean that the prudential controls, regulations and transparency of financial institutions should not be examined. We need to find a mechanism whereby the Central Bank can highlight the excellent work it does. Having said that, there were good reasons for legislation being drafted in that way, both here and in other countries. The intention is to keep the Central Bank separate from the political system. In France they are moving to bring their legislation into line with our 1989 Act.
I agree with the Deputy that the good work of the Central Bank should be aired in this House. Often I as Minister for Finance would know all that it is doing.
Does the Minister intend to amend the legislation to prevent practises of the kind we have seen in at least one building society in obstructing the election to the board of a representative of the ordinary members of the society? Does he acknowledge that the general public expect him to take legislative measures to prevent the kind of practices we have seen in some building societies, where a self-perpetuating oligarchy helped themselves in secret to enormous remuneration? Does he con done the practice whereby huge emoluments to directors are agreed in secret? Is there any reason that the emoluments paid to directors of mutual building societies ought not be made public and easily accessible?
I will deal with the Deputy's last question first. I should prefer the affairs of all financial institutions to be transparent and accessible to the public. An important provision of the 1989 Act is that the Central Bank asks directors of institutions and companies to state precisely what and how they are paid and if such payments are in compliance with the 1989 Act. Let me assure Deputies that if the building societies, for which the Minister for the Environment has responsibility, and the Central Bank decide that amendments to the legislation are required, they will be brought forward speedily.
