Stock Exchange Bill, 1994: Second Stage (Resumed).

Question again proposed: "That the Bill be now read a Second Time."

Mr. Rabbitte

I apologise to the Minister, and to my colleagues, for my absence during her speech. We were, perhaps appropriately enough, having a final meeting with the Committee of Public Accounts with the retiring Comptroller and Auditor General and looking at the adequacy and transparency of public accountability procedures which I suppose, in the context of this Bill, is fairly apposite in so much as whatever else the public think or know about the Stock Exchange, transparency and accountability are not two features that first occur to their minds.

I had been here for one minute when I moved the Adjournment and I was confused that the debate at that stage was about the paltry pay of the Taoiseach, at £3 an hour. I would like to put on record my support for Deputy McDowell's proposal for a minimum wage to bring it up at least £4 an hour which would be more in keeping with minimum pay legislation in the neighbouring island. I am not clear what it has to do with the Stock Exchange Bill but that was the subject of discussion when I was here earlier.

An Leas-Cheann Comhairle

I know the Deputy will keep his contribution relevant.

Mr. Rabbitte

Thank you, Sir. I will. It is almost 200 years since there was last major legislation to do with the Stock Exchange. That ought to tell us something. It is extraordinary that there should be an institution of some significance in the State that has not attracted scrutiny and the necessity for reforming legislation over a period of almost 200 years. It is, therefore, all the more important that we get it right on this occasion.

It is not often that we are treated to levity by the Minister for Finance but a number of things in his script caught my eye, one being the fact that one of his predecessors, as Chancellor of the Exchequer in 1799, had to take on board some amendments during the passage of the Bill on Committee Stage. It gives me some hope that the present chancellor of the Exchequer in Dáil Éireann may follow suit.

Mr. Dempsey

I would not bet on it. Some things never change.

Mr. Rabbitte

It is probably a portent of no good, however, that that particular Chancellor of the Exchequer ended up in an acrimonious dispute with Mr. Henry Grattan, and fighting a duel. That was an unusual way to solve parliamentary rows. One wonders whether if we were still fighting duels last week we could have disposed of the little internal difficulty in Government and perhaps have had a clear winner now as distinct from a stand-off, unless Deputy Kemmy, who is next to speak, can enlighten us. I am not clear on how that battle ended up.

I want to deal first with the overriding necessity for the Bill as it is presented deriving from a European Union directive to separate the Dublin Stock Exchange from the London Stock Exchange.

I would like to query the Minister on the background to that directive. My advice is that the European Union was happy to maintain the link between the London and Dublin exchanges provided we devised a regulatory system and that it was London that wanted to get rid of the Dublin connection because of considerations arising from the conduct of affairs on the exchange here in recent years. London regards it as an irritant. It is happy to be rid of Dublin and the European Union had no alternative but to take that on board. I would like the Minister to address that matter. It is a point of significance in the sense that questions are raised about the future viability of the Dublin Exchange in isolation.

Does the Dublin exchange on its own have a viable future? The people currently responsible for the Dublin exchange argue that they have no concerns about the future. They believe they have a viable exchange and that it could be a growing exchange if one anticipates more privatisation and flotations. It is in their interest to say that. The Minister for Finance might comment on the viability of the Dublin Stock Exchange as an instrument for raising equity and development capital for Irish industry and say what he thinks of its future under the new arrangements that will be brought about by this Bill.

For a long time a small number of big companies has dominated the Dublin exchange. Five or six companies account for 80 per cent of turnover and that cannot be an ideal position. I would have thought that under the new arrangements the prudent decision of big companies would be to seek a quoting on the London exchange where they would have access to a wider range of investors and that that practice would accelerate in the new circumstances. That is not to say I do not acknowledge the need to raise equity locally; obviously that need will continue to exist. I do not know of any quantum of measurement in terms of the success of the Irish exchange in providing venture or seed capital for Irish industry. What is the order of its contribution in this area.

A second consideration raised by the Bill is concern about disciplinary procedures and the lack of transparent accountability in the exchange in recent years. The Minister seems to believe that the position will be enormously enhanced as a result of this Bill but I am not clear how that will be so. Since 1973 London regulated this aspect and had the disciplinary powers to tackle these matters. There seemed to be a great lack of transparency and accountability in how that was done. On some of the celebrated questions that arose, which most definitely had a public interest dimension, the public and Members of this House are little wiser now as to how those matters were resolved. On my initial reading of the Bill I see no dramatic change in that position.

The Minister for Finance will get a report from the discipinary committee, but that is as far as the report will go. Will the Minister have the freedom under the Bill to advise this House of the finding of such a disciplinary committee report or the contents of the report? Will he have the freedom to publish such reports and what will be his disposition in the matter? For example, on the controversy that took place surrounding the placing of Greencore shares by Davy's, would the Minister, if he had access to the report, publish it in those circumstances? I am tempted to the view that initially that will still be a matter internally for the Stock Exchange authorities. The Minister has a right to seek the report but it is not clear whether, even where there is a public interest dimension, the Minister can apprise this House of the issues involved or whether it would be his intention to publish such reports.

A similar question is raised about the role of the Central Bank as a regulator. It is an improvement that regulation of the Stock Exchange will be transferred from a committee of stockbrokers meeting in private to the Central Bank. That seems to be a step forward, but it gives rise to questions that are hardly ever debated in this House about the suitability of the Central Bank as a regulator. What is the proven record of the Central Bank as a regulator? For example, by accident or intention, the Central Bank has vested in it regulatory authority to deal with virtually all financial institutions, banks and building societies. There will probably be an enhancement of its role in that regard in other areas of the financial areas services industry and in its role relating to some of the financial services located at the Custom House Dock.

The Central Bank has no record as a spectacularly good regulator. During the period of high activity in terms of exchange controls there does not appear to be evidence of a single prosecution initiated by the Central Bank. I do not believe one should be complacent or take automatic comfort from the fact that it is the Central Bank that will have this authority in the future. How much does the Central Bank, no more than this House, know about the way in which the Stock Exchange does its business? I presume these points will be teased out on Committee Stage as they are important. Initially, the Stock Exchange will act as regulator and only when something is manifestly wrong will the matter be referred to the Central Bank. This is not satisfactory.

As regards the future of the Stock Exchange there is a credibility question. I hope it is correct that it has a viable future because it is an instrument of some significance in terms of raising equity locally. The Minister ought to be sufficiently concerned about this policy area to address it in detail in his reply.

The Minister proposes to make changes in the board of the Stock Exchange. It will now contain some outsiders. Up until now it has been an incestuous — I do not use that term in a derogatory way — in-house committee. What would the Minister's attitude be to a proposal on Committee Stage that the chairperson of the board of directors should be an outsider? The Minister of State said:

Accordingly, the Bill provides that the board of directors of an exchange will have to be broadly based and that the composition of the board will have to strike a balance between the interests of the member firms and the users of the exchange, and the public interest. Furthermore, the board will have to include enough independent members to promote the protection of investors and the maintenance of proper standards of conduct and practice.

I agree with that as an aspiration. It is because it is a closed shop and a secretive incestuous internal committee there is public suspicion that self-regulation is entirely inadequate. I would like to be satisfied on Committee Stage that participation by outsiders will be meaningful. Given that non executive directors — I mentioned Greencore in a different context a few moments ago — do not have a great record it will be difficult to expect them to come to grips with the issues which will arise on a day to day basis in a specialised agency such as the Stock Exchange. I put it to the Minister that it would strengthen public confidence in the new arrangements if the chairperson of the board of directors was an outsider and seen to be independent.

Despite the major hiccups which have been of public interest it seems, as Deputy McDowell so colourfully put it, the last thing one will have to do is hang up one's Armani jacket on the back of a cell door in Mountjoy Prison. In the United States legislation positively encourages the role of whistle blower and conviction seems to be the norm when it has been established there has been a breach. This rarely happens in London and never happens here. The report of the Stock Exchange for last year adverts to the fact that three cases were referred to the Director of Public Prosecutions but so far as I am aware no prosecutions have been initiated. This is unlikely to happen. It seems therefore that one can commit these offences almost with impunity.

The Minister of State said that we should not criticise the Bill on the grounds that it does not address the question of insider trading; that the question is addressed in the Companies Act, 1990. There is a great deal of cynicism in this town about insider trading. I fail to see why this question is not addressed in the Stock Exchange Bill which is the first of its kind in over 200 years. I understand that the commentators and experts agree that it is virtually impossible currently to prove insider trading and there is nothing in this Bill which will change that. It is interesting to note that the London Stock Exchange is embroiled in controversy at present concerning the Jeffrey Archer affair. I understand it is examining its rules and that changes are likely to be made. It is likely that the burden of proof will be shifted to the defendant. At present, as it is difficult to secure a conviction, prosecutions are not initiated. We seem to be incapable or unwilling to address the question of white collar crime and this adds to the cynicism of the public. It is a major defect in the Bill that it does not address separately and distinctly the question of insider trading.

We have had some bad experiences in this jurisdiction where ordinary people were the casualties of financial institutions. There have been a number of heart rending collapses for the unfortunate investors, small investors in the main, rather than for those who controlled the financial institutions concerned. The Minister of State, Deputy Dempsey who is present in the House will be familiar with the book Gibgate produced by one of his constituents, a Mr. Flynn, which refers to the liquidation of a bank incorporated in Gibraltar, the principals of which are from this jurisdiction. A significant number of unfortunate people lost their life savings in that scam, a great many of whom are members of the Unionist community in Northern Ireland. The Minister of State and I have met them on occasion. We seem to be incapable of addressing that question or securing any remedy for those people. They have been arguing for a long time that a High Court inspector should be appointed under the Companies Acts to see what can be rescued, if anything, from the shambles.

I hope the Minister of State, Deputy Dempsey, will not mind my saying that it appears he has changed his position since his days in Opposition because he then supported a position that I support, as indeed did Deputy Ruairi Quinn, who as Minister for Enterprise and Employment has responsibility for this matter, that we should seek to do what we can to tackle the situation. The Government seems to have taken up the position that because the company in question has been incorporated outside the jurisdiction it is not possible to address it. I would have thought that in these days of global economies, growing internationalisation, membership of the European Union and North-South rapprochement it ought to be possible to intrude that shameful collapse into these discussions at some level and by some stratagem seek to get some relief for the unfortunate people who were cheated in that scam.

The extraordinary saga surrounding the placing of shares by Davys in the Greencore affair ought to be recorded. After all the brouhaha and the creation of a major political and public controversy at the time, the procedures of the Stock Exchange are such that after this investigation, which we were promised would reveal so much and have a definitive conclusion, we are still in a situation that the public knows virtually nothing about the outcome. One has to be sceptical about the adequacy of internal procedures in a major case such as that. Presuming the investigation is concluded, which I believe it is, one has no accessible result from the investigation and inquiry into the serious issues that arose in that affair.

In summary, anything that enhances the regulatory procedures of the Stock Exchange is welcome. However, it is not clear whether the Central Bank is prepared to act as a policeman as well as a regulator. The Central Bank may well be willing — and I do not know if it is able — to take on the role of regulator but when it comes to policing the procedures I greatly doubt if the Central Bank will consider that is its task. Judging it on its record, I think it leaves something to be desired. The mere transfer of these powers to the Central Bank alone is not something that should be considered automatically acceptable and hopefully this matter will be teased out on Second Stage.

The Dublin Exchange has been in decline for some time; at a minimum it is fair to say that it has been static. That stems partly from its reluctance to modernise itself and its reliance on the link with London. That link is now severed and it raises a question about the viability of the exchange. It is surprising that there has been no public debate on the matter. I cannot say that my constituents — and I am sure the Northside constituents of the Minister for Finance are no different — think of little else other than the rules of the Stock Exchange but nonetheless it is an important public issue.

It is surprising — and I do not know if it is related to how we do our work — that there has been virtually no public comment on this recently published Bill. That is extraordinary. It is a sufficiently remote and secretive organisation in the eyes of a great many people, but I would certainly welcome expert commentators bringing some of these issues into the public arena before we proceed to Second Stage. I trust the Minister will give us some latitude between the conclusion of Second Stage and Committee Stage to deal with some of the questions I have raised.

Mr. Kemmy

While reflecting on Deputy Rabbitte's contribution I looked around and saw few in the Chamber, the empty public and press galleries and I thought of the lines from McNamara's Band "although few in number we are the best band in the land". This is typical of what happens during debates in this House.

The quality of the debate has been excellent. I do not always agree with Deputies Yates and McDowell. Usually I disagree profoundly with them but they made some very good points during their measured contributions to this debate. A great deal of thought had gone into what they had to say and they showed some liberal streaks, which I found rather surprising. It was a pity they did not try to put some of those ideas into practice during their time in Government. Deputy Rabbitte also made some excellent points. Deputy McDowell ruined his contribution by his ritual denunciation of public enterprise and his plea for privatisation. Ideology should serve the people instead of the other way around. We are far from being infallible but Deputy McDowell never seems to see anything wrong with his own doctrine and appears to think he is infallible. A real politician would understand that we do our best to find solutions to problems most of the time but there are certainly people who are more skilled and gifted than we are.

A long time ago I learned in the catechism that a mystery was defined as something one could not fully understand. The Stock Exchange reminds me of that as it is a mystery that most mortals do not understand. I am not claiming that all the figures in it are sinister villains but most ordinary people have no understanding of what goes on there. The last time legislation governing the Stock Exchange was passed was in 1799, almost 200 years ago. That speaks for itself. America, the land of the free, of liberty and of market forces has the most convoluted and modern business laws governing the Stock Exchange. In the land of the Mafia and of organised crime people go to jail and are fined huge amounts for such misdemeanours. Anyone who reads about Wall Street will know that they have very important laws to deal with the Stock Exchange and those laws exist side by side with organised crime and the Mafia whereas in Ireland we rely on unreformed law.

This Bill is timely and the fact that there are very few Members in the House is no reason for not debating it thoroughly and amending it. That might sound strange coming from a Government Deputy but that is how I feel about it. I am not here to speak for the Government or to answer the questions posed by Deputy Rabbitte. I cannot say whether the Central Bank is the best mechanism to deal with the Stock Exchange because I do not know. I agree that an appropriate body with outside influence should have the teeth to deal with the Stock Exchange as that is necessary to protect the public interest and people's democratic rights. There is need for transparency, openness, democracy and, most importantly, public accountability in those structures. We have not had that in the past but that does not mean we cannot have it.

I have an open mind about the body to benefit that role. If the Central Bank has the confidence, the efficiency and the experience, I will accept that. Several speakers, including Deputies Yates and McDowell, cast doubt on the competence of the Central Bank to fulfil this role in our society but that issue can be dealt with.

Deputy Rabbitte asked why the separation from the London Stock Exchange has occurred now. I do not know why and the answer has not been provided by the Minister. Perhaps there was pressure from the European Union; there was a reference to that in the Bill and the Minister also referred to it and the need to bring our legislation governing stockbroking into line with other EU countries. Perhaps the Minister will answer those questions.

The Minister stated that the Bill will meet our EC obligations and that it was important for us to have common international laws and regulations that would operate throughout the 12 countries of the EU and even further afield to govern transactions. We learned to our cost 20 months ago, during the monetary crisis, how money can be moved from country to country at the press of a button and it highlighted the ineffectiveness of national governments in controlling speculation at that time. We must have some international code of practice governing that activity.

It is important also that the Stock Exchange has the support of firms here because we have had some spectacular failures of stockbroking firms and companies. If Lester Piggott or Ernest Saunders had lived here they would never have been charged, let alone sent to prison, for their misdemeanours. Deputy Rabbitte was correct when he said one would have to think long and hard before one could remember somebody being convicted of wrongdoing in this area who went to prison.

In regard to white collar crime and fraud, our fraud squad and police force are lagging behind in their ability to tackle this problem. Many of the criminals involved in white collar crime simply laugh at the police and at the politicians because they believe we are only amateurs operating in an area where the professionals have been able to pull the wool over our eyes. We must tighten our laws and their application so that money cannot be easily moved around.

There is also a need for more informed financial journalism. I read the Phoenix magazine — perhaps I should not — merely to see if my name appears in it. When it does not I am fairly relieved. However it is interesting to read about the various financial transactions although they are not written about in a serious way. I had hoped some years ago with the development of financial journalism that people would understand a little more of what goes on and journalists would write about wealthy people not to lionise them or show them in their expensive hats and coats at racecourses and so on, but in a critical way in regard to how they made their money and whether it was in the public interest. What we read, however, are reports of how these people spend their leisure time, their parties, their sons and daughters and their divorces. There is no critical analytical assessment of them and that is unfortunate.

One of our colleagues in the upper House, Senator Shane Ross, is a former stockbroker turned journalist. He is well placed to write about high finance and business transactions but he seems to spend much of his time condemning people such as me and the Labour Party in the Sunday Independent. I am sure there are other equally large targets to write about but for a man with such a background he writes very little about stockbroking and some of the activities I have described. That is a pity because we could benefit from more informed journalism in that respect.

The Bill outlines how to set up a stock exchange and how firms can qualify for membership. That is important because every firm, including the stock exchange, must have proper directors, officers and shareholders but, above all, they must be accountable to the people who invest, to clients and to the general public. There has been very little accountability in the past. Indeed 200 years have passed since legislation governing stock exchanges was last enacted. If one examines the history of banking here in the last century one will find that most of the banks set up then collapsed very quickly. When there was a run on the money in banks in Cork, Dublin and Limerick, many of them folded up causing consternation, recrimination and great misery for the people who invested in them. While the banks more recently have remained free of crisis in that respect, many people who invested their money wisely and with good intention have been rooked. In some cases people even lost their pension funds because of unscrupulous people.

I mentioned at the outset the difficulty firms experienced in entering the Stock Exchange which was like a closed shop or an old boys club and as far as I am aware it was run by men only. The attitude seemed to be "you scratch my back and I'll scratch yours". It was a cosy club and nobody on the outside seemed able to become a member. There are a few examples of small banking firms able to break into this area and they required great ingenuity, determination and courage to do so because their way was blocked. That is not good enough. We must have openness and transparency. We cannot have a closed shop in this area.

Deputy Rabbitte referred to the Greencore debacle and Deputy Yates asked earlier whether insider trading took place here. Of course it takes place. The Greencore affair is a glaring example of insider trading where people used privileged information to enrich themselves at public expense. That takes place throughout our society but we never hear about it. The Greencore affair was merely the tip of the iceberg but there are many other "Greencores" about which we have not heard because there has not been sufficient proof and therefore they have not made the headlines.

This Bill is an important and serious attempt to introduce legislation to a vital part of our lives. Its provisions affect not only the directors, officers and shareholders of the stock market but also investors and, most importantly, the general public. We must get it right because it has implications not merely for the rarefied segment in the stock market but for society as a whole. We are talking about behaviour that is illegal and people operating in this area must behave in an honest and ethical way. We cannot have one law for people engaged in stockbroking and another law for the rest of us.

We are a small player in the world of finance but it is important for us to do things right and to be honest in our affairs. In any society, even where market forces operate, we need laws and regulations to control monetary affairs. I do not care how much an unbridled capitalist one is. One cannot say "I believe in a free market. I believe in market forces that will dictate to society". One cannot have such a simplistic attitude. There must be rules and regulations governing economic life in any society otherwise there will be chaos and anarchy. People would use inside information to enrich themselves and impoverish the rest of the community.

The Bill allows for the imposition of penalties for illegal and unauthorised activities and there is provision for up to £500,000 to be paid to the Central Bank. I am not sure how that will be enforced. The Bill also provides for penalties up to £1 million or ten years' imprisonment for offences committed, including failure to keep proper records and books, providing false and misleading information to an auditor and misappropriating clients' funds. In spite of that, some laws are honoured more in the breach than the observance. When penalties, no matter how draconian, are put on the Statute Book they should be enforced to deter unethical behaviour.

The Bill is a late response to the crying need in society to regulate our monetary affairs and bring our legislation into line with European countries. I believe in learning from the experience of others and I wonder if the Minister has examined the position in other countries to see how they closed loopholes in their legislation. We must seek to make the banks and other financial institutions more accountable to the House.

The Bill provides for the separation of our stock market from the London stock market. Too often in the past we were not seen as an independent stock market but as an adjunct to London. If we will have greater autonomy and if it will be beneficial in bringing greater transparency to the stock market then it will have been worthwhile. If not, I would like to know why this is being done now.

Time will tell if the Bill is a good one and if the Central Bank is capable of fulfilling the role entrusted to it. The Minister must address the doubts that have been cast on the competence and skill of the Central Bank personnel to carry out this function. In my limited experience of dealing with bankers and financiers, a freemasonary operates. It is a small world and dog does not eat dog. However, we must protect the public interest. I see the Bill as an attempt to bring the legislation up to date. The only way we can test the effectiveness of the Bill is to see how it works in practice in making the stock market more accountable to the House and the public.

Debate adjourned.

Dáil Éireann debate - Thursday, 13 Oct 1994