I move: "That the Bill be now read a Second Time."
This Bill is complementary to the Central Bank and Financial Services Authority of Ireland Act 2003 which was signed into law last year. That Act established the Irish Financial Services Regulatory Authority to oversee the activities of financial institutions, including their treatment of customers.
This Bill provides for establishment of a financial services ombudsman to deal with consumer complaints about financial institutions; establishment of consumer and industry consultative panels to advise the financial services regulator; new reporting and auditing obligations for financial institutions; power for the financial services regulator to impose penalties directly on financial institutions for failure to comply with regulatory requirements, subject to a right of appeal to the appeals tribunal already provided for in the Act; a right of appeal to the appeals tribunal as regards certain supervisory decisions of the authority; new regulatory requirementsfor money transmission and bureau de change businesses; and miscellaneous amendments to financial services regulations.
The greater part of the Bill is based on recommendations of the report of the implementation advisory group on the establishment of a single regulatory authority for the financial services sector. This document, known as the McDowell report, recommended a new architecture for financial services regulation in this country. The Act passed last year put in place a key component of that architecture, the new financial services regulator. This second piece of legislation provides the remaining pieces of the architecture recommended by the McDowell report. The miscellaneous amendments are mainly technical in nature, correcting flaws and errors in existing financial services legislation that have emerged in the course of practice. They are further pointers to the need for a consolidation of financial services legislation, something that was also recommended by the McDowell group. I am happy to be able to tell the House that a consolidation Bill is now included in the Government's legislative programme.
The drafting of the Bill has benefited greatly from the public consultation process on its contents. The consultation process has led to significant changes in certain Parts such as that dealing with the financial services ombudsman. I thank the many organisations and individuals who took the trouble to comment on the original draft heads. The end product is a more considered set of legislative proposals.
I will now comment briefly on the main provisions of the Bill. The financial services ombudsman will deal with complaints from consumers about their individual dealings with financial institutions. Broader issues of consumer protection are the responsibility of the financial services regulator and specifically of its statutory consumer director. The Bill provides for close co-operation with them and the pensions ombudsman.
This will allow the financial services ombudsman to bring patterns of complaint to the attention of the financial services regulator so the consumer-director can consider if regulatory action is necessary to deal with the issues highlighted. Codes of conduct issued by the financial services regulator will form one of the important criteria against which the ombudsman will assess complaints.
There is also provision for close co-operation with the registrar of credit unions within the financial services regulatory authority regarding complaints involving credit unions. Some amendments to the Credit Union Act are also provided for so that members of a credit union will have the same right of access to the ombudsman as customers of other financial institutions.
In terms of how the ombudsman will deal with complaints, the intention is that a customer should first make his or her complaint to the financial institution concerned. It is in everyone's interest that financial institutions deal with their customers in a fair way and treat their complaints seriously. If a customer is not satisfied with the response of the financial institution, he or she can refer the complaint to the ombudsman. The ombudsman will try to reach an agreed solution between the customer and the financial institution. If this fails, the ombudsman will make a formal determination on the complaint. The ombudsman's determination will be binding on both parties, subject to their right to appeal to the High Court.
Overall, my intention is to provide a simple means for aggrieved consumers to have their complaints dealt with fairly and quickly by an independent person, the ombudsman. The Bill provides that the ombudsman's office will be overseen by a council. I will appoint the members of the council following consultation with my colleague, the Minister for Enterprise, Trade and Employment. The council will consist of up to ten persons and must include people from consumer and industry backgrounds. The council will be responsible for the appointment of the chief ombudsman and deputy ombudsmen. It will also be responsible for laying down the detailed rules governing the scheme, including the levying of charges on financial institutions to fund the operation of the scheme.
Strong accountability arrangements are built into the Bill. There is a requirement on the ombudsman to produce an annual report and an annual strategy statement, both of which will be laid before the Houses of the Oireachtas. The chairman of the council and the ombudsman are obliged to appear on request before a joint committee of the Houses of the Oireachtas.
The structure set out in the Bill differs considerably from that originally proposed. This reflects the comments received during the consultation process and subsequent contact with the current ombudsman schemes for the insurance and banking sectors. I am happy to say that the existing ombudsman schemes have agreed, in principle, to amalgamate with and transfer their staff to the new statutory scheme. This should prove a highly advantageous arrangement for all concerned, not least the customer. The statutory scheme will be able to build on the track record and expertise of the existing schemes and their staffs avoiding what would otherwise be a loss of continuity and expertise. Specific provisions are included in the Bill to facilitate the amalgamation. The Bill also provides for investigations commenced under the existing schemes to be continued under the new scheme.
I now turn to the provisions for the appointment of consumer and industry panels to advise the financial services regulator. The establishment of such panels was recommended in the McDowell report. It is obviously desirable that the financial services regulator pay close attention to the views of those whose interests it is mandated to promote, the consumers of financial services and the providers of those services, financial institutions.
The Bill has been altered significantly in light of comments made in the course of the public consultation process. I will appoint the panels following consultation with the Minister for Enterprise, Trade and Employment and, in the case of the industry panel, the Taoiseach. The financial services regulator will be obliged to consult the panels on all general policy issues. I, as Minister for Finance, am obliged to consult both panels before approving the annual budget of the financial services regulator. Reports and opinions of the panels will be published. The financial services regulator can be obliged to publicly state its reasons if it does not agree with a recommendation from a panel. The regulator is obliged to provide appropriate support to the activities of both panels. Either or both panels can appoint specialist advisory groups on specific issues.
The consultative panels will provide a very useful reality check for the financial regulator on how its activities are impacting on consumers and financial institutions. Again, the public consultation process has provided the impetus for change in the proposals set out in the Bill which I believe will further enhance the effectiveness of the panels.
The general recommendations of the review group on auditing have been given legislative expression through the provisions of the Companies (Auditing and Accounting) Act enacted at the end of last year. Apart from establishing the new Irish Auditing and Accounting Supervisory Authority, the Act includes a further important chapter which strengthens corporate governance standards in Irish companies. Of particular importance are the provisions for an annual statement from directors covering the company's compliance with company tax and other laws material to the company's financial position. The compliance statement must be reviewed by a company's auditor who is obliged to give a view on its reasonableness or otherwise.
The Bill covers the add-ons recommended by the review group on the financial institutions. It provides that the financial services regulator can require financial institutions to provide it or another statutory authority with reports on compliance with obligations under financial services and other legislation. It provides that auditors must make an annual positive statement that they have not come across anything in their examination of a company's finances that would trigger a duty to report to the financial services regulator under various existing statutory provisions. It also gives the regulator the power to require an auditor to provide it with information relevant to its statutory duties. The provisions in this Part of the Bill should be viewed in the context of the Government's determination that we must do all we can to promote the highest standards of corporate compliance in this country.
The McDowell report recommended that the financial services regulator should have the power to directly impose penalties on financial institutions, subject to a right of appeal. Currently, the financial services regulator can only do so through the courts. The Bill provides that the financial services regulator can penalise a financial institution directly if it breaches a requirement of an Act, regulation or code of conduct. The penalty can take the form of a reprimand, a fine, public disclosure or a combination of the three. There is also provision for managers to be disqualified from employment in the financial services sector. The financial institution or manager is given an opportunity to present a case to a sanctions panel and to appeal a proposed penalty to the appeals tribunal already provided for in the Act passed last year.
The McDowell report also concluded that the appeals tribunal provided a suitable mechanism for review of the financial services regulator's supervisory decisions. I have, therefore, tabled amendments to existing financial services legislation to provide, in general, for a right of appeal to the tribunal rather than the High Court.
The system of authorisation which currently applies to bureaux de change is being extended to persons engaged in money transmission business. The main purpose of the authorisation system is to facilitate the effective implementation of the anti-money laundering and anti-terrorist funding provisions of the Criminal Justice Acts. The current authorisation regime that applies to bureaux de change is also being amended to encompass the objective of preventing the financing of terrorism. The new provisions address international concern at the possible use of such businesses as conduits for the financing of terrorism.
The Bill includes a wide range of mainly technical amendments to various items of financial services legislation. A small number of these amendments are more substantive in nature, as I will now describe. Some of the amendments to insurance legislation go beyond the purely technical aspects. I refer in particular to the amendments designed to restore the right of an administrator appointed to an insurance company in difficulty to have access to the insurance compensation fund. While we have not had an insurance failure for almost 20 years, it is important to have in place a range of options to deal with such a situation. The amendments restore the option that was availed of by the then Governments when PMPA and ICI got into difficulty in the early 1980s.
I also draw attention to the proposed amendment to section 77 of the Central Bank Act 1989 on mergers and acquisitions in the banking sector. The heads of the Bill published last year provided for the removal of the role of the Minister for Finance in this area, as recommended in the banking sector strategic issues report published in August 2000. While I respect the arguments put forward by the distinguished members of that working group, I have decided, with Government approval, that it would be going too far to remove the element of political judgment and accountability that the current arrangement provides. The proposed revision to the 1989 Act sets out the criteria that the Minister for Finance must use when exercising his or her judgment.
I refer to three proposed amendments to the Consumer Credit Act 1995. One amendment provides that I, as Minister for Finance, may extend the provisions of the Act to cover business consumers. This arises from a McDowell report recommendation that non-consumer moneylending should be treated in the same way as consumer lending. I only intend to exercise this power after consultation with the financial services regulator and careful consideration of all the arguments.
Another amendment arising from the McDowell report provides that all institutions that lend on the security of a borrower's principal home be made subject to Part IX of the Consumer Credit Act. Part IX provides protection to a borrower by imposing various obligations on housing loan lenders, for example, to warn the borrower explicitly about the danger of losing the family home if repayment conditions are not met. The third amendment extends the definition of mortgage intermediaries to cover so-called introducers. This amendment is being made on foot of the recommendation from the Director of Consumer Affairs.
I will table a number of amendments on Committee Stage, the majority of which will be technical. I will propose more substantive amendments in two areas. One set of amendments will deal with concerns raised by, among others, the European Central Bank regarding the new provisions on sanctions and the appeals tribunal. The second set of substantive amendments will respond to a reasoned opinion from the European Commission about the current exclusion of credit unions from the terms of the consumer credit directives.
Following the passage of the Bill, we will have put in place the essential building blocks of a modern, consumer focused regulatory system for the financial services sector in Ireland. We will also have contributed significantly to the objective of maintaining Ireland's reputation as a business-friendly, but well regulated domicile for international financial services activity. I commend the Bill to the House.