Dáil Éireann debate -
Tuesday, 23 Apr 2002

Vol. 552 No. 3

Written Answers. - Financial Services Regulation.

Bernard J. Durkan

Question:

53 Mr. Durkan asked the Minister for Finance the extent to which Irish financial institutions have adequate controls in respect of their overseas subsidiaries, having particular regard to indications given to the Committee of Public Accounts to the effect that the rules and regulations imposed by the Central Bank do not extend to their overseas subsidiaries; if his attention has been drawn to the threat this presents to the economy; his plans to implement measures to address the situation; and if he will make a statement on the matter. [12423/02]

Bernard J. Durkan

Question:

105 Mr. Durkan asked the Minister for Finance the steps he proposes to take to ensure the solvency of Irish financial institutions with overseas subsidiaries following on the information given to the Committee of Public Accounts regarding the lack of controls available to the Central Bank in such circumstances; and if he will make a statement on the matter. [12565/02]

Minister for Finance (Mr. McCreevy)

I propose to take Questions Nos. 53 and 105 together.

As I have mentioned in replies to previous questions, the primary responsibility for managing a bank and preventing fraud lies with the management of that institution. No regulatory authority can put in place a supervisory regime to ensure that a financial institution can never be a victim of fraudulent activity from within. It is up to the management of the bank, in the first instance, to ensure that their own internal control policies are properly complied with at subsidiary and group level.

I take it the Deputy's reference to the Committee of Public Accounts relates to the contribution made by the Secretary General of my Department to the Public Accounts Committee on 19 March of this year. On that occasion the Secretary General explained that it was established international practice that host country regulators supervise local subsidiaries of internationally active banks. The home country regulator of such banks look at the group on a consolidated basis.

Before an Irish bank is allowed to open a subsidiary abroad, the Central Bank requires that it operates in a jurisdiction which has a well established system of financial supervision. It would also establish a relationship with those local supervisors. Co-operation between the home and host country regulators is always a feature of such arrangements. Thus the primary supervision of overseas subsidiaries of Irish banks is carried out by local regulators in the jurisdictions in which they operate, just as the Central Bank supervises Irish subsidiaries of foreign banks. It would, therefore, be misleading to suggest that this means there is a lack of supervision of Irish banks operating abroad.

The case raised at the Public Accounts Committee related to Irish banks operating in the USA, where they have been active for many years. The USA has a well developed system of financial regulation. However, the risk of unexpected financial loss cannot be eliminated even by the most advanced systems.