I congratulate the Minister on retaining his post as Minister for Finance. When the financial history of the country is written he will emerge as one of the finest and longest serving Ministers for Finance. This Bill and all the other Bills he has introduced in this House have addressed the vital issue of reform, either of the way financial services operate or the way in which the tax code operates. This Minister, Deputy McCreevy, has not neglected the essential duty of all Ministers to reform our administration. He deserves a pat on the shoulders for his work in this area.
I make no secret of the fact that for a long time I have been an advocate of retaining the regulatory function of the financial services within the general ambit of the Central Bank. I took the matter up in a number of Dáil committees and forcefully made the argument in this regard and contrary to the recommendations of the McDowell report. I was very much an advocate of what the Minister now advocates in the Bill whereby the regulator is strongly regulated from within the Central Bank.
It is important to recognise the contribution the financial services have played in Ireland, particularly the role of the Irish Financial Services Centre, which led to the resurgence in our economic fortunes in the 1980s. It is no accident that the IFSC has become a flagship of our renewal, recovery and improvement as an economy. It was the decision by Dermot Desmond and the former Taoiseach, Mr. Haughey, to set up the Financial Services Centre which led to the stabilising of the economy and the renewed interest from abroad in investing in Ireland. It is no accident that planting the flag in the docklands brought about a situation whereby international investors took a different view of Ireland. Some of the biggest players in the financial services scene decided it was worth investing there. The whole thing is a huge success story with over 6,000 employed.
We must not forget that over the years the financial services have made a huge contribution towards restoring our economic fortunes. It is no accident that officials from the Department of Finance used to be embarrassed at the riches the Financial Services Centre contributed in terms of Exchequer returns. I recall as a journalist reporting on many Exchequer returns where this item was politely hidden at the back of the returns. The taxes raised from the Financial Services Centre made an enormous contribution to the improved balance sheet of the national books. This is something we must be mindful of going forward. We must protect what exists in the Financial Services Centre, albeit some of it tax driven. Much of it is driven by the skilled people who work there. I suppose I have a vested interest because my wife works there and I need her to continue. I am making an argument in my own interest that we must continue to protect the Financial Services Centre. We must develop and build on the level of skills because in future from a tax treatment point of view those jobs will to an extent be insecure. Given that the tax advantages of locating in this area are being eroded, this must be replaced by a high skill factor. The pull for investors must be the clear advantage for them to invest in the area because of the skills and support available. Importantly, innovation skills and financial instruments can be availed of by international investors.
I emigrated to England in the 1980s at the time of the fabled "big bang" where the financial services sector was encouraged to go electronic. It was a very interesting time to arrive in London and witness what was happening in the financial services area. We must be careful how we regulate here. That is why the regulation of the financial services by the Central Bank, with a new regulator and new transparent procedures, is very important because international investors require world class regulation. If we depart from that we will lose out.
It is important to remember that many investors like to be regulated by a central bank. It is noticeable that this Minister won the debate in Cabinet. This is important because the head of the European Central Bank, Mr. Duisenberg, made it very clear on numerous occasions that he would prefer if the Central Bank retained that function. I am pleased his intervention led to this result from the Cabinet and I congratulate the Minister on achieving it.
It is fashionable to denigrate the role and work of the Central Bank over the years but it is less fashionable to understand that the financial markets have gone through an enormous transformation over the last few years, not just in Ireland but at a global level. What we are seeing is more liberalisation, more deregulation, more globalisation and more sophisticated financial instruments, not least in the area of derivatives, swaps and other forms of security. I was very proud to have played a role with the Minister in introducing the Asset Covered Securities Bill. This legislation will allow our financial services to grow further. It will try to make the financial services more attractive for people who wish to invest here.
I was intrigued at Deputy Naughten's statement last night that the new body had no power to impose sanctions against directors or senior executives of banks or financial institutions who behave in an improper manner. That is simply not the case. The existing legislation provides for a role by the Central Bank when it comes to the appointment of senior managers, senior executives or director level appointments in banks. All these appointments must be cleared in advance by the Central Bank. It is a role the Central Bank has played in a very active manner over the years. This is not advertised in the newspapers and perhaps that is the reason Deputy Naughten was not aware of the particular function. In effect, it is a vetting procedure, not unlike the procedure adopted by the Garda Síochána when it comes to crucial or key appointments. Naturally, that is an issue that is not advertised, but what happens is very simple. Appointments are assessed by the Central Bank and if it regards a person as unsuitable or as lacking the experience to work in a vital area involving financial risk and control, that is indicated and the appointment does not gener ally go ahead. The banks get the message and do not appoint such persons. It is an important matter and I am glad it was raised because, increasingly, we are seeing new walls in the banking industry between the traders who take the risks and those who control the risks in the control rooms. It is vital that continues to happen more and more and the financial services authority will play its role in the encouragement of that trend. We have had a number of very high profile cases internationally. The Rusnak affair has its own lessons for Allied Irish Banks and there was also the Nick Leeson rogue trader affair in which a great, blue-blood, blue-chip bank went out of business overnight. It is important that the rogue traders are controlled and policed properly. This Bill will provide for that while maintaining the primacy of the Central Bank.
I am glad we did not go down the same path as the UK. Having two regulators is flawed and the British are even having second thoughts about that. We have gone the right route in not copying their example and in going ahead and regulating properly.
There are a few points which are new and interesting about this. The role of the credit union is important in financial services, as is the recognition of that by the Minister. Increasingly, people will depend on the credit unions for their small loans, such as those for going to the World Cup. Why would they not? In relation to the issues raised by Deputy Rabbitte, the Minister has addressed wholesale tax evasion in the banking industry, as was uncovered by the DIRT Inquiry. It is important that the Central Bank has the power to refer cases where it sees widespread or concerted tax evasion by a particular industry. That will happen when the Minister brings in this new legislation.
We are also providing for an ombudsman for financial services, which is important from the customer's point of view. In our constituency work we all run into people who feel they have been unfairly treated or charged the wrong interest rate over a period of years. Some of us have uncovered extraordinary stories where financial institutions were docking too much in interest over periods of ten or 14 years, which people only discovered when it was too late. Often, when people seek redress they are bombarded with paper work and asked to produce documentation which they cannot find for obvious reasons, given that it is ten years old. It is important to have an ombudsman to investigate these matters on behalf of those who feel their rights have been transgressed. I discovered after switching banks on one occasion that I was being docked for a loan that I had paid off.