I move amendment No. 1:
In page 15, line 27, to delete "1998" and substitute "2001".
Asset Covered Securities Bill, 2001: Report and Final Stages.
Amendment agreed to.
I move amendment No. 2:
In page 15, line 29, to delete "Bank" and substitute "Banks".
Amendment agreed to.
Amendments Nos. 3 and 4 are related and may be discussed together.
I move amendment No. 3:
In page 17, after line 44, to insert the following:
"(5) The Minister may specify in an order made under subsection (3)(f2>a) requirements as to the total prudent market value of relevant mortgage credit assets that can be included in a cover assets pool, expressed as a percentage of the prudent market value of the total mortgage credit assets and substitution assets that are included in the pool. For the purposes of this subsection, mortgage credit assets are relevant mortgage credit assets if they are comprised of mortgage credits of a kind specified in the order.”.
Section 4 defines the credits which may comprise mortgage credits for the purpose of the Bill. Section 4(3) empowers the Minister to designate by order further types of credit which may comprise mortgage credits for the purpose of the Bill. This will build flexibility into the Bill and ensure the Irish asset covered security market can respond to developments in the sector internationally. Deputies will recall that on Committee Stage when Deputy McGrath spoke on the issue the Minister's order making power under the section was extended to enable the Minister to supply or modify certain provisions of the Bill from credits designated as mortgage credits by ministerial order. These provisions related to loan to value ratios and to holdings of mortgage credit assets in G7 countries outside the EEA, Switzerland and other OECD countries. The reason for providing for this flexibility in the Bill was that, as drafted, there would be difficulties in including securitised mortgages in the definition of mortgage credit if the European asset covered securities market develops in that way and the inclusion of such assets is considered desirable.
The proposed Report Stage amendment allows the Minister to stipulate maximum percentages of cover asset pools which may be comprised of assets designated as mortgage credit assets by ministerial order, whether these are securitised mortgages or some other type of asset. This is a prudent measure which will enable the Minister to allow the inclusion of new types of assets in pools while ensuring pools continue to be primarily comprised of residential mortgages. In proposing this amendment, I stress to the House that I have no immediate intention of designating securitised mortgages or any other type of asset as a mortgage credit. What I am seeking to do is ensure the Minister's power to designate new types of mortgage credit enables the Minister to limit the percentage of cover asset pools which may be comprised of these new types of mortgage credit assets. This will build flexibility into the Bill while maintaining the conservative nature and integrity of the product. Amendment No. 4 is an analogous provision relating to public credits.
I thank the Minister of State for bringing forward this amendment which I support. There is a later amendment in my name in relation to credit enhancement mortgages and their acceptance in bonds. Will they be covered in the flexibility about which the Minister is talking in amendment No. 4, which states that the Minister can make orders subsequently or in discussion with the financial institutions and the Central Bank could make facilities available to allow this credit enhancement to take place? Will the Minister of State clarify if that is covered in the amendment or will I need to proceed with my amendment later?
It is not covered directly under the section, but under a different type. We will deal with it when we come to the Deputy's amendment.
Amendment agreed to.
I move amendment No. 4:
In page 19, between lines 6 and 7, to insert the following:
"(8) The Minister may specify in an order made under subsection (6)(f2>a) requirements as to the total prudent market value of relevant public credit assets that can be included in a cover assets pool, expressed as a percentage of the prudent market value of the total public credit assets and substitution assets that are included in the pool. For the purposes of this subsection, public credit assets are relevant public credit assets if they are comprised of public credits of a kind specified in the order.”.
Amendment agreed to.
Amendments Nos. 5, 9, 21 and 26 are related and may be discussed together.
I move amendment No. 5:
In page 31, to delete lines 13 to 24.
This is a drafting amendment. On Committee Stage the definition of "located" was moved from Chapters 1 and 3 of Part 4 of the Bill to the main interpretation section, section 3. The definition is important in the Bill as there are restrictions on the amount of assets which designated credit institutions may hold from different geographical areas. These amendments are housekeeping amendments arising from the movement of the definition.
Amendment agreed to.
I move amendment No. 6:
In page 33, line 5, after "securities" to insert "business".
This is a drafting amendment.
Amendment agreed to.
I move amendment No. 7:
In page 36, between lines 4 and 5, to insert the following:
"(15) Where a mortgage credit asset has insurance or another form of credit enhancement acceptable to the Authority, the Authority may, by notice published in Iris Oifigiúil, increase the relevant mortgage loan to value ratio which applies to the relevant mortgage credit asset by such percentage as is specified in that notice.”.
This amendment is similar to one I moved on Committee Stage and is a very important part of any new legislation that comes forward in this sector. As the Ceann Comhairle will be well aware from his many years in this House representing his constituents, household mortgages represent a large part of lending in this country – I understand it is about 25% of total lending. We have a very high rate of home ownership here, it is close to 80% which is different to most countries in Europe.
The Bill that is now before the House is modelled on the German model but it is different to it from the point of view of the loan to value rating which we have increased to 75% while it is at 60% in Germany. Individual home ownership is at a much higher rate here. I see a problem with the loan to value rating because some 40% of new mortgages taken out here are higher than the 75% loan to value ratio referred to in this Bill.
The Minister of State will be aware from his own constituency that most young people buying houses now are lucky to be able to put down a deposit of 5%, never mind the 25% that might be required. In those cases people get mortgage enhancement insurance to top up the amount borrowed. This is acceptable in the modern world in terms of a lending arrangement and it is quite secure.
If the legislation goes through as it is now, the mortgage enhancement insurance will not be allowable and it could mean the level of competition and the level of funding would not be available to mortgagees to the extent that it should be. This will discriminate against people who are borrowing high percentages for their mortgage – those who are seeking to borrow more than 75% on the loan to value ratio. People who are better off and can afford to borrow less than that will be able to get into this bond market but not those who are less well off.
If we want to help the lower end of the market and provide competition, then we should accept mortgage enhancement. We are not opening the door very wide on this occasion because there is the added protection that any arrangements made in relation to this and the securitisation of those bonds has to be agreed with the Central Bank. This recognises that it can be done but the regulations and the detail involved in it will be the responsibility of the Central Bank. It can be a help, so rather than shutting the door on it I ask the Minister of State to consider allowing this.
It is already built into legislation in France and is part of proposed legislative change in other European countries. It has the backing of The Irish Bankers' Federation and the Irish Mortgage and Savings Association who are substantial players in the financial market and I cannot understand why the Minister of State will not move in that direction. The Minister of State moved in the direction recommended by the financial institutions with many amendments and that is to be welcomed. A substantial sector of the financial market is asking the Minister of State to include this in the legislation.
I do not want the Minister of State to tell me that we will come back to this at a later date and bring forward an amendment if it is necessary because we have both been here long enough to know that the next time an amendment comes to this Bill we will both be out on grass. This may not be the case with Deputy McDowell as longevity is a feature of the Labour Party as shown by the Ceann Comhairle.
I am ageing very quickly.
I urge the Minister of State to take a serious look at this as it will improve the situation for the lower end of the market here. It is recognised within the financial markets and I hope that will be influential in getting this accepted.
The Minister of State knows this case is largely being made by participants in the financial services sector who believe that we should make enhanced credit an acceptable part of the asset covered base. I started off with a measure of scepticism about it and I am still not totally convinced but I think there is a decent case that must be answered.
The major demand for this Bill has come from foreign-based banks who will use largely foreign-based securities in order to engage in re-financing along the lines set out in the Bill. For most of these banks this is not a problem in any sense because their mortgage base is largely made up of mortgages that are less than 75% and do not use enhanced credit.
If the Irish building societies and banks are to use this method of re-financing in a serious way they will have to or will want to use at least a certain block of mortgages that use enhanced credit. If we do not allow enhanced credit to be considered as part of the base we could, unintentionally, make it more difficult for Irish-based financial institutions, building societies and banks to use this method of re-financing and therefore, at least in part, defeat the purpose that we are intent on addressing in this Bill in the first place.
Enhanced credit is solid and the insurance companies engaged in providing it are triple-A credit rated companies. The argument that has been made to me on that score is persuasive, that if the enhanced credit is solid and reliable and can be called into play in all cases then surely it is reasonable to consider that the mortgage and the loan to value ratio that is used is also fairly solid and reliable.
I actively supported the Minister of State's argument that we should look to ensure that the asset base for re-financing is absolutely rock solid, because if it is not, then we are deluding ourselves and it goes to the core of the Bill. If the insurance which underpins mortgages of above 75% is in itself rock solid then the argument can be confidently made that we can take mortgages up to 90% or even 92% into the asset base on which re-financing can be based. This argument deserves a hearing.
I listened carefully to what both Deputies said and I do not see any disagreement between us on this issue. Perhaps we are just coming at it from two different angles and I will try to set out what I hope will clarify the situation.
Following Committee Stage I gave some consideration to this amendment and I discussed the proposal with the industry. After much discussion I decided I could not accept the amendment. What is now proposed fits the criteria set out by most of those who argued in favour of the amendment.
The Bill does not prevent designated credit institutions from including new mortgages which have loan to value ratios in excess of 75% in covered asset pools. They can be as high as they like, there is no bar on that at all. It simply requires that the amount of the mortgage in excess of the 75% ratio is disregarded for the purpose of valuing the pool.
This is important in the context of the strength and quality of the product that will be on offer here. I am aware that in Luxembourg, for instance, where OECD countries are included, they find it very hard to sell the product as there is insufficient confidence in it. The quality of the pool is of vital importance. There can be mortgages of 80%, 90% or 100% but we want to ensure the value and credibility of this pool is real and permanent.
Mortgages can be taken in beyond the 75% of value ratio but anything above that will be disregarded. This will make sure the inherent strength of the pool remains rock solid.
The Bill provides for a loan to value ratio of 75% on mortgages in covered asset pools. The amendment proposes that where a mortgage is covered by indemnity insurance the Central Bank can increase the loan to value ratio and thus the enhanced credit provided by the insurance would be recognised in the valuation of the mortgage and the covered asset pool. Mortgage indemnity insurance provides that when a mortgage is defaulted on, the lending institution repossesses and sells the property. If the realised sum for the sale is less than the amount of the mortgage the insurer pays the difference to the lender.
However, the key concept behind the covered asset pools is their dynamic nature. When a mortgage becomes non-performing it should be removed from the pool and replaced with a new performing mortgage credit or substitution asset that generates an income that can be used to meet the claims of security holders. Thus, by the time an institution receives a payment from a mortgage indemnity insurer in respect of a non-performing loan, the mortgage should have been removed from the covered asset pool anyway. It does not remain in it and, therefore, the sum received from the insurer is of no benefit to the holders of the institution's asset covered securities.
This is different to the position in regard to conventional securitisation. Bonds are backed by a fixed pool of assets in conventional securitisation. Mortgages on which there are defaults cannot be replaced. It makes sense in these circumstances to have indemnity insurance on mortgages backing the bonds as this will assist in ensuring the claim of bond holders can be met. Credit enhancement may be of use in covered asset pools in scenarios of extreme stress such as when institutions have become insolvent and no new assets may enter the pools. The Bill provides for this through the use of covered assets hedged contracts, which were mentioned on Committee Stage.
However, all of us would agree there is no reason to increase loan to value ratios in pools because of extreme circumstances. In France, 100% loan to value ratios are allowed on some mortgages in covered asset pools. This is because the French Government guarantees the mortgages of some mortgagees if they get into financial difficulties. It is a different position to Ireland. If this guarantee is called, the payments on the mortgage continue. It does not go into default and can, therefore, remain in the pool because it is guaranteed by the state. This is quite different to the circumstances in which mortgage indemnity insurance would be called on.
During the drafting of the legislation I tried to facilitate domestic lending institutions as much as possible. The increase in loan to value ratios from 60% to 75% on Committee Stage was a direct result of representations by the industry. However, it is also vital to its success that the Irish mortgage covered security is regarded internationally as a conservative product similar to other European mortgage covered bonds. I am not in favour of providing an increase in loan to value ratios in the circumstances proposed in the amendment. I emphasise that because the loan to value ratio is 75% that does not mean higher mortgages cannot be included but their value is disregarded above 75%, which is prudent.
I seek clarification. Is the Minister of State saying part of a mortgage can be included in the bonds up to the value of 75% and the balance is not considered so that the mortgage is divided for the purposes of the asset pool?
The entire mortgage is included but only a value of 75% is placed on it in the pool. Mortgages are not divided. Only 75% of the mortgage is given a value in the pool. That is prudent and ensures the value of the product.
If the financial institutions, who will be instructed and guided by the regulations drawn up by the Central Bank, are happy with the enhancement value of mortgages, does the Minister of State think a case could be made for its inclusion because, if he excludes it, many financial institutions feel they will be at a competitive disadvantage, which will mean mortgage applicants will also be at a competitive disadvan tage as they will have to pay more for their mortgages as a result? The Minister of State could surely accept the amendment on that basis and the Central Bank could provide the guarantees to which we have referred. We want the guarantees to be rock solid but the amendment should be accepted because of the strong case made by certain quarters in the financial services industry. I ask him to reconsider the amendment.
I accept the Minister of State's comments which make sense. I am a little concerned about the obligation the legislation puts on those monitoring the assets within a particular pool to keep a tally. They must first calculate the prudent market value of a property and then they must disregard some of the mortgage or the security.
Not in all cases.
But then they must calculate the value of the security, its loan to value ratio and discount part of that value. I doubt there are systems in place which would provide for that work to be done in a rigorous fashion.
It is only calculated when the mortgage goes in and if it is removed—
Is it not the case that the mortgage is devalued—
I must point out to the Deputy that he has already contributed twice.
No, in the context of the legislation the Deputies will appreciate extensive discussions were held with the IBF and other industry representatives which covered everything. This issue was raised at the last minute but we have given it a great deal of consideration. We have consulted industry representatives and we have been more than fair. It is an excellent product and it would not be wise to go any further. However, nobody is disenfranchised because his or her mortgage has a higher value. The entire mortgage is included but its value is disregarded above the 75% loan to value ratio. We are being more than sensible in that approach.
Amendment put.
Tá
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Allen, Bernard.Barnes, Monica.Belton, Louis J.Boylan, Andrew.Bradford, Paul.Browne, John (Carlow-Kilkenny).Bruton, John.Bruton, Richard.Burke, Ulick.Clune, Deirdre.Connaughton, Paul.Cosgrave, Michael.Coveney, Simon.Crawford, Seymour.Creed, Michael.Currie, Austin.Deasy, Austin.Deenihan, Jimmy.Dukes, Alan. Durkan, Bernard. |
Tá–continued
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Farrelly, John.Flanagan, Charles.Hayes, Brian.Hayes, Tom.Higgins, Jim.Hogan, Philip.Kenny, Enda.McCormack, Pádraic.McGahon, Brendan.McGinley, Dinny.McGrath, Paul.Mitchell, Gay.Mitchell, Jim. |
Mitchell, Olivia.Naughten, Denis.Neville, Dan.Noonan, Michael.O'Keeffe, Jim.Owen, Nora.Perry, John.Reynolds, Gerard.Ring, Michael.Shatter, Alan.Sheehan, Patrick.Stanton, David.Timmins, Billy. |
Níl
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Ahern, Bertie.Ahern, Dermot.Ahern, Michael.Ahern, Noel.Andrews, David.Ardagh, Seán.Aylward, Liam.Blaney, Harry.Brady, Johnny.Brady, Martin.Brennan, Matt.Brennan, Séamus.Briscoe, Ben.Browne, John (Wexford).Byrne, Hugh.Callely, Ivor.Carey, Pat.Collins, Michael.Coughlan, Mary.Daly, Brendan.Davern, Noel.de Valera, Síle.Dempsey, Noel.Dennehy, John.Doherty, Seán.Ellis, John.Fahey, Frank.Fleming, Seán.Flood, Chris.Foley, Denis.Fox, Mildred.Gildea, Thomas.Hanafin, Mary.Harney, Mary.Haughey, Seán.Healy-Rae, Jackie. |
Jacob, Joe.Keaveney, Cecilia.Kelleher, Billy.Kenneally, Brendan.Killeen, Tony.Kirk, Séamus.Kitt, Michael P.Kitt, Tom.Lenihan, Conor.McCreevy, Charlie.McDaid, James.McGennis, Marian.McGuinness, John J.Martin, Micheál.Moloney, John.Moynihan, Donal.Moynihan, Michael.Ó Cuív, Éamon.O'Dea, Willie.O'Donnell, Liz.O'Donoghue, John.O'Flynn, Noel.O'Hanlon, Rory.O'Keeffe, Batt.O'Kennedy, Michael.O'Malley, Desmond.Power, Seán.Roche, Dick.Ryan, Eoin.Smith, Brendan.Smith, Michael.Treacy, Noel.Wade, Eddie.Wallace, Mary.Walsh, Joe.Wright, G. V. |
Tellers: Tá, Deputies Bradford and McGrath; Níl, Deputies S. Brennan and Power.
Amendment declared lost.
Acting Chairman
Amendments Nos. 8 and 10 are related and can be taken together by agreement. Is that agreed? Agreed.
I move amendment No. 8:
In page 39, lines 32 to 36, to delete all words from and including "This" in line 32 down to and including "creditors." in line 36.
Section 37 provides that an asset or property is included in, or removed from, a covered assets pool when the appropriate particulars are recorded in the register of mortgage covered securities business. This register contains details of securities issued, the assets in the covered assets pool and cover assets hedge contracts entered into. The circumstances where it is not necessary to make an entry in the register to include assets in, or remove assets from, a covered assets pool are set out in the first sentence of the section, "except as provided by section 36(3)”. These circumstances are where moneys received in respect of redeemed assets comprise part of the cover assets pool. Until such time as they are used to purchase new assets, discharge claims or preferred creditors are removed from the pool because it is over-collateralised. Because these circumstances are dealt with by the reference to section 36(3), the second sentence of section 37 is superfluous and it is proposed to delete it. Furthermore, the sentence is incomplete as it does not refer to the removal of moneys received in respect of redeemed assets from cover asset pools where such pools are over-collateralised.
Amendment No. 10 is really a house keeping amendment.
Amendment agreed to.
Acting Chairman
Amendment No. 9 arises out of the proceedings drafting amendment and has already been discussed with amendment No. 5.
I move amendment No. 9:
In page 43, to delete lines 28 to 37.
Amendment agreed to.
Acting Chairman
Amendment No. 10 has already been discussed with amendment No. 8.
I move amendment No. 10:
In page 51, lines 26 to 30, to delete all words from and including "This" in line 26 down to and including "creditors." in line 30.
Amendment agreed to.
I move amendment No. 11:
In page 52, line 14, to delete "credit".
Amendment agreed to.
I move amendment No. 12:
In page 54, line 47, to delete "(if any)".
Amendment agreed to.
Acting Chairman
Amendment No. 14 is an alternative to amendment No. 13. Amendments Nos. 13 and 14 can be taken together by agreement. Is that agreed? Agreed.
I move amendment No. 13:
In page 56, between lines 5 and 6, to insert the following:
"(4) If the Authority refuses to approve such an appointment, the designated credit institution concerned shall, within such period as may be specified by the Authority (being not less than 7 days), appoint another qualified person to be a cover-assets monitor in respect of that institution.".
I accept the principle of Deputy McDowell's amendment. My officials tried to contact him yesterday to agree a period. However, I feel more flexibility is required in the period within which such a designated credit institution must appoint a new cover-assets monitor. In normal circumstances 14 days may be too short. However, there may be occasions on which the appointment of a cover-assets monitor is required sooner. For that reason I have proposed an alternative amendment which leaves the period within which the new monitor must be appointed to the discretion of the Central Bank with the proviso that the period cannot be shorter than seven days. I ask Deputy McDowell to withdraw his amendment.
Clearly this arises from a discussion we had on Committee Stage when I was anxious to ensure that the Central Bank had the authority to ensure the monitor was a genuinely independent person.
The section did not provide clearly enough for the capacity of the authority to refuse to appoint a particular monitor. I agree that both amendments do that and, since the only difference is in timescale, I am happy to accept the Minister's amendment.
Amendment agreed to.
Amendment No. 14 not moved.
Bill recommitted in respect of amendment No. 15.
I move amendment No. 15:
In page 56, line 49, to delete "and" and substitute "or".
Amendment agreed to.
Bill reported with amendment.
I move amendment No. 16:
In page 59, line 30, to delete "(£)" and substitute "(£787.56)".
Amendment agreed to.
I move amendment No. 17:
In page 62, line 24, after "designated" to insert "credit".
Amendment agreed to.
I move amendment No. 18:
In page 64, line 18, after "to" to insert "the".
Amendment agreed to.
Bill recommitted in respect of amendments Nos. 19 and 20.
I move amendment No. 19:
In page 65, lines 7 to 10, to delete all words from and including "This" in line 7 down to and including "creditors." in line 10 and substitute "This section applies irrespective of whether the claims of creditors other than preferred creditors are preferred under any other enactment or any rule of law and whether those claims are secured or unsecured.".
Section 83(1) states that where a designated credit institution, its parent entity or any related company becomes subject to an insolvency process, preferred creditors are entitled to have recourse to the covered assets in the covered assets pool ahead of members of the institution, contributories to the institution and any other creditors of the institution. The purpose of the amendment is to confirm that preferred creditors under this Act are preferred as provided for in this section irrespective of whether or not other creditors are preferred under our legislation or rules of law. The sentence being deleted does not achieve the same.
Amendment agreed to.
I move amendment No. 20:
In page 67, lines 10 and 11, to delete "prevent the security or contract from being enforced or rendered void" and substitute "render the security or contract void or unenforceable".
This section specifies that nothing in this Act shall, in relation to any securities issued or any contracts made in relation to the assets covered securities business, supersede the operation of laws which would normally prevent the securities being issued or invalidate the contracts on the grounds of fraud. This is a drafting amendment to clarify that if another law stipulates that a security or contract is rendered void, the law overrides the provisions of this Bill relating to preferred creditor status, obviously if there is fraud involved.
Amendment agreed to.
Bill reported with amendments.
I move amendment No. 21:
In page 67, to delete line 44.
Amendment agreed to.
I move amendment No. 22:
In page 71, line 38, after "committed" to insert "or, if the offence involved misleading or deceptive conduct, 2 years after the date on which the Authority has become aware of the commission of the offence".
This amendment arises out of Committee Stage where it was suggested that the period in which proceedings could be brought in relation to an offence should be longer than two years. I think both Deputies McDowell and McGrath raised the issue. I agreed to look at extending the period on Report Stage and my officials have consulted the office of the Attorney General on the issue. The amendment proposes that for those offences under the Bill which may not be discovered immediately, prosecutions may be brought up to two years after the Central Bank becomes aware of the offence. That more than covers the matter.
For other offences which would be discovered immediately, such as failure of a financial institution to comply with a Central Bank directive, prosecutions must be brought within two years of the date on which the offence was alleged to have been committed as originally provided for in the section. The amendment achieves a balance between not having prosecutions hanging over persons indefinitely and ensuring that those who have committed offences do not get away with them through successful concealment for a period of time. This very neatly meets the issues.
Amendment agreed to.
I move amendment No. 23:
In page 72, line 6, after "both" to insert "or on indictment to a fine of 20,000 or 5 years imprisonment or both".
This amendment arises out of the lengthy debate we had towards the end of the Committee Stage proceedings in relation to the offences and the fines that can be levied by courts. The specific offences are set out in section 98 of the Bill and can be committed by virtually any of the players in terms of this Act, including the monitor or manager appointed in respect of a designated credit institution. The maximum fine or penalty provided for in the Bill is 1,900 or six months imprisonment on summary conviction.
My amendment seeks to provide for the possibility of a conviction on indictment and I am suggesting a figure of 20,000 or five years imprisonment or both would be more appropriate. What we could be talking about, and we hope it never happens, is a significant measure of white collar crime where fraud, failure to disclose information or wrongdoing of a similar kind could be involved. It seems that in those circumstances, a maximum fine of 1,900 or six months imprisonment simply does not meet the measure of the crime that could be committed in terms of failure to comply with responsibilities imposed by this Act. I suggest that the Minister should provide for convictions on indictment and appropriate penalties to meet that.
I was sympathetic to the point the Deputy made at Committee Stage and understood it and in my mind saw nothing wrong with it. However, following Committee Stage, I considered an amendment of the type proposed by the Deputy and my officials raised the issue with the Office of the Attorney General. Their view was that offences of the type set out in this section should be dealt with summarily and do not warrant being made into indictable offences. It should also be noted that if an offence under this section is serious and, for example, involves fraud, a separate criminal prosecution can be taken in respect of the fraud under other legislation, the point being that the Attorney Gen eral's office wanted this offence as a summary offence, not an indictable offence, and did not want to go down that road as it is more than adequately covered by other legislation.
Regarding sanctions generally, I would point out that section 96 of the Bill enables High Court orders to be obtained against persons who are contravening provisions of the Bill. Persons who did not comply with such an order would be in contempt of court and would face further sanctions in this regard. Having considered the matter, I am of the view that the penalties under the Bill are adequate in the context that I have set out.
We have had similar difficulties in assessing how offences under the Companies Act should be dealt with by the courts because on the face of it those offences can be summary offences. They can appear to be relatively trivial or simply paperwork and it is extraordinarily difficult to prove that someone set out with the intention to defraud, which is what is necessary to get a conviction for fraud. One has a huge grey area where there is at the very least a suspicion that somebody deliberately turned a blind eye or did not complete paperwork, for example file company accounts in order to hide something. It seems that since it is becoming almost impossible to secure a conviction for fraud without the proof of intent there should at least be the capacity to impose heavier fines for non-compliance with the strict wording of the Companies Act and, for that matter, this Act. A fine of 1,900 in those circumstances strikes me as simply insufficient.
I understand the point Deputy McDowell is making. As I explained, we consulted the Office of the Attorney General. Either fraud can be proven or it cannot be proven, irrespective of the Deputy's point. Clearly there is legislation in place that is more than adequate to deal with it in that context.
Altering this section would have made it a different section. It would have been moving into an indictable area, which was not necessary as we already have strong fraud legislation which has recently been substantially enhanced. Instead the offence remains a summary offence. I am not dismissing the Deputy's point but I have gone as far as I can with it. I wish to keep this as it was intended originally in the Bill, not in an indictable sense. The reality is that if there is fraud it must be proven, no matter under which heading one tries to prove it.
It is a pity we are not going to agree on this, but again I make the point that the function of the monitor is crucial to this Bill. If the monitor is not doing his or her business then the whole validity or solidity of the pool may not be guaranteed and the pool is certainly not being monitored in the way it should. The consequences, downstream, of a failure to comply with the provisions of the Bill are quite considerable and could result in people losing money. We should emphasise that point with higher fines. I will push this at least to a voice vote.
Amendment put and declared lost.
Acting Chairman
Amendment No. 24, in the name of the Minister, arises from Committee proceedings. It is a drafting amendment.
I move amendment No. 24:
In page 72, line 16, after "institution" to insert "or formerly designated credit institution".
Amendment agreed to.
Acting Chairman
Amendment No. 25, in the name of the Minister, arises from Committee proceedings. It is a drafting amendment.
I move amendment No. 25:
In page 72, lines 31 and 32, to delete "the body corporate" and substitute "that body".
Amendment agreed to.
Acting Chairman
Amendment No. 26 is a drafting amendment and has been discussed with amendment No. 5.
I move amendment No. 26:
In page 73, to delete line 30.
Amendment agreed to.
Acting Chairman
Recommittal is necessary in respect of amendment No. 27 as it does not arise from Committee proceedings.
Bill recommitted in respect of amendment No. 27.
I move amendment No. 27:
In page 77, to delete lines 22 to 42, in page 78, to delete lines 1 to 54, in page 79, to delete lines 1 to 55 and in page 80, to delete lines 1 to 33 and substitute the following:
"1. Section 2(a) In subsection (1), insert the following definitions after the definition of ‘associated body':
"‘associated designated credit institution", in relation to a building society, means a designated mortgage credit institution in which a society has invested in accordance with section 28;
"‘associated home loan", in relation to an associated designated credit institution, means a housing loan (as defined in section 2 of the Consumer Credit Act, 1995) in respect of which the institution is the creditor or one of the creditors;';
(b)In subsection (1), insert the following definition after the definition of ‘deposit':
"‘designated mortgage credit institution" has the meaning given in section 3 of the Asset Covered Securities Act, 2001;'; and
(c)In the definition of ‘housing loan' in subsection (1), insert ', but does not include an associated home loan' after ‘section 22'.
2. Section 9 In subsection (2), substitute ‘any ancillary or incidental powers that are related to the furtherance' for ‘any incidental powers that are necessary for the achievement'.
3. Section 16 Substitute the following subsections for subsection (2):
‘(2) A society may, if its rules permit, allow a person–
(a) o whom a housing loan or associated home loan is made, or
(b) to whom a loan secured by a mortgage of a freehold or leasehold estate or interest in a house has been made under the repealed enactments,
to be a member even though the person does not hold shares in the society. However, the liability of a person who is allowed to be such a member must not be any greater than would be the case if the rules treated the person as being a holder of shares in the society because of the making of the loan.
(2A) Subsection (2) continues to apply to a person referred to in that subsection even if the society's rights in respect of the loan are disposed of under section 18(6).'.
4. Section 18(a) In subsection (1), substitute the following paragraph for paragraph (b):
‘(b) by receiving deposits or issuing securities or any other means (other than the issue of shares of the kind referred to in paragraph (a)).';
(b) Substitute the following subsection for subsection (3):
‘(3) A society shall ensure that its total liabilities under subsection (1)(b) do not exceed such proportion of its total liabilities under subsection (1)(a) as the Central Bank specifies in a notice given to the society. The Central Bank shall issue a notice for the purpose of this subsection whenever the occasion requires.';
(c) Substitute the following subsections for subsection (5):
‘(5) A society may give security for–
(a) any money that it borrows or raises, or
(b) any money borrowed or raised by a body corporate or an approved housing body in which it has invested, or that it has supported, in accordance with section 28.
(5A) Any such security may include mortgages held by the society and any interest in those mortgages, subject to compliance by the society with—
(a) any requirements made under subsection (6A), and
(b) the requirement to obtain the approval of the Central Bank, and
(c) the terms of those mortgages.
(5B) For the purposes of subsections (5) and (5A), "security" means any kind of security recognised by law.';
and
(d) Insert the following subsections after subsection (5B):
‘(6) A society may dispose of a mortgage, or any interest in a mortgage, that it holds as security for a loan or other form of credit, together with any other security that it holds in relation to the mortgage or interest.
(6A) The Central Bank may, from time to time, serve on a society a notice specifying requirements that the society must comply with in relation to its exercise of the powers conferred by subsection (5), (5A) or (6).
(6B) A society shall comply with requirements specified in a notice given to it in accordance with subsection (6A).'.
5. Section 28 In subsection (2)(a), insert ‘(other than an associated designated credit institution)' after ‘body corporate'.
6. Section 71 Substitute the following subsection for subsection (2):
‘(2) For the purposes of this section and Part XI, a person is a borrowing member of the society at a particular time–
(a) if at that time the person's indebtedness to the society, or to an associated designated credit institution, is in respect of–
(i) a loan made under the repealed enactments, secured by a mortgage of a freehold or leasehold estate or interest in a house, or
(ii) a housing loan or an associated home loan,
and
(b) if in either case the amount of the mortgage debt is not less than £500 or, if the Central Bank, by regulation, prescribes some other amount for the purposes of this subsection, that other amount.'.”.
This Schedule amends the Building Societies Act, 1989, to facilitate building societies' investments in, and transfer of assets to, designated credit institutions. This will enable building societies to access the cheaper form of financing envisaged by this Bill and will make sure that they can continue to compete with other financial institutions. At the same time it is important to ensure that the rights of building society members continue to enjoy the same level of protection as they have done. Items 4 and 6 of this Part achieve this by amending sections 16 and 71 of the Building Societies Act, 1989, to specify that if a person's housing loan is transferred from a building society to a designated credit institution in which it has invested, that person, subject to the rules of the society, continues to be a member of the society.
This is really an avoidance of doubt provision since the legislation is currently silent on such matters. Current practice is that building society members whose mortgages are transferred in more traditional securitisations continue to be treated as members of the building society. The remainder of the amendments allow building societies greater flexibility in funding, subject to the regulation of the Central Bank providing that building societies may invest in designated credit institutions and enabling them to transfer mortgages that they hold.
The effect of these provisions is to create a framework in which building societies may use asset covered securities as a funding mechanism but in which the rights of members are copperfastened. It is vital that, for certainty, we copperfasten the rights of the members. To avoid any doubt we decided to rewrite the Schedule rather than trying to insert a load of amendments. I hope that meets with the Members' approval.
Amendment agreed to.
Bill reported with amendments and received for final consideration.
Question proposed: "That the Bill do now pass."
I thank my colleagues, Deputy McGrath and Deputy McDowell, for their assistance. Collectively we have learned a lot and it is to be hoped that we are wiser about what it all means than when we started. It is interesting legislation and very significant. It brings into the Irish market, both to the IFSC and to our domestic institutions, the possibility of a new and very interesting product. It should broaden the base of the financial products available.
I particularly thank the officials for their courtesy to me and to the spokespeople in the other parties, and for the way they have helped to explain the Bill and drafted it and for their assistance throughout. I deeply appreciate that and the way the House has dealt with the Bill.
I am glad this Bill is now passed and going to the Seanad for completion. It will be a help to many people as they may be able to secure mortgages at lower rates. I thank the officials at the Department and the Minister for his co-operation.
I have to confess that when I saw this Bill first I got a headache. I was not looking forward to getting it through the House. It did strike me, and I know the Minister shares my view on this, that although it is on the face of it a very technical Bill, it is also potentially quite an important one and certainly quite important for players in the financial services sector. I compliment the Minister and his officials and those within the IBF and the Irish Mortgage and Savers' Association who took the initiative in bringing this to the Department.
The point made by Deputy McGrath is vital. This provides for a new method of refinancing which will be of immediate interest to financial institutions. We hope, with good reason I hope, that within a relatively short time that will be demonstrated by way of longer fixed term mortgages which would be of benefit to mortgage holders. From the point of view of the consumer and the ordinary citizen, this is what we are primarily interested in.
Question put and agreed to.