Dáil Éireann debate -
Tuesday, 11 May 2004

Vol. 585 No. 2

Adjournment Debate.

Banking Industry.

Mr. R. Bruton

Events have developed during the day, and AIB has indicated that one of its staff has been temporarily suspended from duties while matters are investigated. The handling of this business has exposed a deep problem in the bank. There has been a clear lack of understanding within AIB of the obligations of consumer law. There were no proper compliance procedures to ensure the bank stayed within the law, and even people at senior level, heads of departments, seemed to be unaware of their obligations.

While there are red faces in the AIB Bankcentre, the Government too should have some red faces regarding this issue. The discovery of the offence came from a whistle blower not from effective regulation. It also revealed in very stark terms there is no sanction in the legislation for the offence of charging more than was allowed by the authorities. The Government cannot apply any sanction in the matter. There has been no monitoring of the bank's obligation. Over a period of eight years, even the new financial service regulators, supposedly the most up-to-date in the area of regulation, did not identify this breach of one of the most basic elements of consumer law.

The Government has not put in place any legal obligation on the directors of the banks to have a compliance statement. Currently, the directors of almost all major companies must produce compliance statements on health and safety issues and on an entire range of matters. In financial institutions, a compliance statement regarding observation of consumer law is not required by Government.

These huge gaps have appeared not by accident, but because of the regulatory structure that we have as a direct result of a turf war in which the consumer lost out. When this legislation was going through the Dáil, I demanded, by means of a reasoned amendment, a delay on this Act until we had a full audit of the consumer protection powers we were giving to IFSRA. The Minister refused to have such an audit and now, at the very first challenge to this new regulatory authority, we discover that there are no sanctions to protect the consumer in respect of this issue. That is a serious flaw, and one for which the two Ministers involved, the Tánaiste and the Minister for Finance, must take the rap. There has been heavy spinning by Government, in the hope that AIB would take all the flak, but the Government must face up to its responsibilities in the matter.

This affair has also revealed deeper problems in the banking sector. The sector is not competitive when it comes to small businesses and personal borrowers. We have seen this time and again. The euro rate cuts were not passed on to small businesses or to personal borrowers. Savers are being mis-sold products which are not of a proper standard. Elderly people are being sold long-life products. We need to address much more vigorously the issue of regulation and competition in the banking sector. The Government has received two reports from the Competition Authority, yet nothing has been done.

We need Government action. At the very least, sanctions must first be put in place for the type of offence revealed. New regulations must be enforced to facilitate the smooth moving by consumers of their business from one banking institution to another. We must restrict captive selling, which we have seen as part of the problem in the sale of investment products to elderly people. We must subject the bank clearance system to proper, fair access rules. We need to have bank advisers subject to the same professional requirements which apply to all other investment advisers. Those working for the bank should have to prepare a statement of advice and be able to show that such advice is appropriate to the needs of the person. We need to institute cooling-off periods for investors. Numerous amendments must be put in place to protect consumers.

Sadly, this Government has not even started on that radical agenda. I hope that if anything positive emerges from this debacle, it will be that the Government is alerted to the substantial issues that need to be addressed in this area.

Minister of State at the Department of Health and Children (Mr. Callely)

I thank my constituency colleague, Deputy Richard Bruton, for raising this very important issue and giving me the opportunity to respond.

This in some ways is a first test of the regulatory structure put in place last year. That structure, which was set out in the Central Bank and Financial Services Authority of Ireland Act 2003, brought together into one institution, the Irish Financial Services Regulatory Authority, financial regulatory functions that hitherto had been spread over four different institutions. Among the responsibilities transferred to IFSRA were the functions which formerly rested with the Director of Consumer Affairs under section 149 of the Consumer Credit Act 1995. This Act did not make it an offence to fail to notify correct amounts to the director.

IFSRA is carrying out a serious and detailed investigation and we should not prejudge all the facts until that investigation is completed. A team of senior inspectors has already advanced its work and as a result, IFSRA has established that it should be possible to identify from records at least two thirds of the people who have been affected by incorrect charges. IFSRA has also requested AIB to report immediately on the extent of the impact on its customers, to examine how compensation can be appropriately paid, to identify how the matters could have arisen and persisted over an extended period, and to identify remedial measures to ensure that such matters could not arise again.

Naturally, the focus of the IFSRA investigation is initially concentrated on identifying the amount involved and the customers affected. The next phase of the investigation will involve finding out how this could have arisen in the first place and persisted over an eight-year period, and identifying whatever measures need to be taken to address this issue. IFSRA has also agreed with AIB that a €25 million deposit will be made with the Central Bank to cover anticipated costs of reimbursing customers, including interest.

Regarding ongoing official policing of the 1995 Act provisions. I understand there is a spot-checking system in place and that the majority of these spot checks have concentrated on foreign currency cash transactions.

Mr. R. Bruton

How did they miss the AIB transactions?

Mr. Callely

These account for the vast majority of foreign exchange transactions carried out by consumers. Random checks do not pick up everything, and I understand IFSRA will consider any changes to the regulatory procedure required following its investigation in the current case. The chief executive of IFSRA said today: "This case, I believe, clearly demonstrates that we do have powers and we are willing and able to use them on behalf of the consumer." However, he has noted a desire that IFSRA would have additional powers to levy penalties or sanctions in appropriate cases.

As the House will be aware a second Bill, to complement the Central Bank and Financial Services Authority of Ireland Act 2003, has completed Second and Committee Stages in this House, and Report Stage will be taken shortly. This Bill complements the Act passed last year and deals with a wide range of issues. In particular it includes provision for penalties to be applied to financial institutions which contravene a provision of financial services legislation, contravene an IFSRA code of conduct and contravene a direction from IFSRA or a condition or requirement imposed on the institution by IFSRA under financial services legislation. It should be noted that IFSRA may amend its codes of conduct when necessary to keep abreast of the current state of development of financial markets and financial products.

In addition to the penalties provisions, the Bill provides for significant additional powers for IFSRA to require formal statements from institutions in regard to their compliance with legislation — compliance statements — on which IFSRA may also require sign-off by auditors. This provision will be in addition to provisions of the Companies (Auditing and Accounting) Act 2003 which will impose an obligation on the directors of companies to prepare and publish a directors' compliance statement.

To sum up, the Government has sponsored legislation to establish IFSRA, which is already proactively managing the situation that has arisen in AIB. It has, through the legislation, very considerably extended the consumer protection and education functions of IFSRA and has allowed IFSRA the resources to carry out these functions. I agree with Deputy Richard Bruton that further legislation is required. This was signalled during the passage of the 2003 Act. This additional legislation is well advanced in the form of a Bill due to go to Report Stage in this House. We should await the results of IFSRA's detailed investigation before drawing final conclusions on the case. We must all, Government, Oireachtas regulators and financial institutions, learn the lessons that will emerge from this case, to provide greater safety and reassurance to the financial services consumers of this country. The Government is determined to do its part.

Residential Institutions Redress Scheme.

Ms O’Sullivan

I welcome the opportunity to raise the operation of the Residential Institutions Redress Board. Today is the fifth anniversary of the apology by the Taoiseach to the Irish people, to people who were abused in institutions while in the care of the State. At that time a great sense of hope existed that the issues would finally be acknowledged and addressed, giving the survivors the opportunity to tell their story. Measures to compensate the survivors for what happened during their childhood, although it would never be at the level required to compensate for their childhood, were put in place. Five years later, many stories remain to be told and there has been little in the way of either justice, redress, transparency or closure for many of the victims of abuse.

Practically every Member spoke last week to Mr. Tom Sweeney when he was on hunger strike outside the Dáil. I am aware that Deputy Sherlock as well as many other colleagues spoke to him every day during his four week hunger strike. I wish to ensure, now the crisis is over, that we do not forget the issues that were raised by Mr. Sweeney and the other survivors of child abuse who were with him on his hunger strike. We are all relieved that he was able to accept the proposal put to him and I understand he is making a good recovery. On each occasion on which I spoke to Mr. Sweeney, he stressed that his action was not as a result of the lower award but to highlight the operation of the redress board, which he said punished survivors who wanted the opportunity to have their experience outlined in a full hearing of the board. That was certainly his perception and that of many others to whom I spoke in the past few weeks. He and a number of others had their awards substantially reduced at hearing.

There is certainly a perception that this is a deliberate strategy to deter survivors from going to hearing and if this is the case, it must be stopped. Let me stress that it is a perception, but this perception must be addressed, particularly in light of the fact that a man was willing to risk his life to have the issue addressed. Another issue that has been raised about the board's operation is that the former Minister, Deputy Woods, gave an undertaking that awards would be commensurate with those of the High Court. Many have told me that this is not the practice.

One of the problems is that the secrecy that surrounds the operation of the redress board means that it is very difficult to access the facts around these concerns and to know the reality for many people. In that context, I call on the Minister to review the operation of the board to ensure that it is complying with the spirit of the legislation as outlined to the Oireachtas when it was debated and when the regulations under the Act were discussed at the Committee on Education and Science. I participated in the committee debate, although I was not a spokesperson when the Bill was being debated in the House. During the debate, there was no indication in the replies we received from the Department representative in committee or from the Minister in the Chamber that going to hearing might lead to a reduction in the award. We were assured of the intention to mirror the level of award that an applicant could reasonably expect to receive in the High Court. That was spelled out in great detail with a weighting system which defined the level of abuse that was considered to have taken place and the level of damage that was considered to have been done and so on.

Mr. Sweeney felt so strongly about this issue that he was willing to put his life at risk. We as representatives of the public and the Minister for Education and Science, as the responsible Minister, must examine the issues he raised. If the legislation or the operation of the board is found wanting, changes must be made. However, I stress that I am requesting the Minister to undertake this review to ensure that no faults exist in the legislation or in the operation of the redress board. Anyone who spoke to those outside the Dáil last week know that they had genuinely felt concerns that must be addressed. In a sense the redress board is a step away from the Department of Education and Science and there is a difficulty in having the matters addressed, but the Minister must review the situation and come to a conclusion as to what, if anything, needs to be changed.

Mr. Callely

I thank Deputy O'Sullivan for giving me the opportunity on behalf of my colleague, the Minister for Education and Science, Deputy Noel Dempsey, to speak on this matter and clarify the position on the operation of the Residential Institutions Redress Board and the Residential Institutions Redress Review Committee.

I welcome Deputy O'Sullivan's acknowledgement of the Taoiseach's apology five years ago. It should be acknowledged that while many Taoisigh had the opportunity to address this issue, they failed to do so. The current Taoiseach, Deputy Bertie Ahern, took the courageous step. He was concerned that victims of such abuse would have the opportunity of redress and that it should be as easy as possible. Deputy O'Sullivan noted the perception of reduced awards, and I would like to clarify that the redress board is not there to reduce the awards, but the opposite.

I will address issues that should clarify the position to everybody's satisfaction, but most importantly the redress board and the review committee were set up to resolve issues rather than what is perceived. The Residential Institutions Redress Act was enacted on 10 April 2002. The Act provided for the establishment of the Residential Institutions Redress Board to provide a mechanism to make financial awards to victims of abuse to assist them in their recovery and enhance the quality of the remainder of their lives. It also provided an alternative to them having to pursue traumatic civil court cases to obtain compensation for injuries. While the civil courts operate on the basis that a plaintiff must prove his or her case on the balance of probability, the redress board operates on a much lower threshold of proof and does not make any finding of guilt in relation to an individual or an institution. An applicant can engage the services of a solicitor to assist him or her in submitting an application and all reasonable legal costs associated with it will be covered by the board.

In 2002, the compensation advisory committee established by the then Minister for Education and Science produced a report, entitled Towards Redress and Recovery, which established a weighting scale for the evaluation of the severity of abuse and consequential injury. In addition to this, it set out redress bands for the offer of financial awards which are in line with High Court awards made in personal injuries cases. These scales have been incorporated into the regulations governing the operation of the board in assessing the amount of awards to be offered to applicants.

In some cases, the board will make an applicant a settlement offer solely based on the victim's written application. In the event an applicant is not satisfied with the offer, the person can opt to pursue an oral hearing of his or her case. If a person decides not to accept a settlement offer and proceeds to a hearing, that hearing takes place independently of the settlement talks. Members of the board who hear the case are not informed of any settlement process. In effect, this amounts to a new hearing of the case.

Following the hearing, the board notifies the applicant in writing of the award on offer and the applicant has a period of one month to accept it. The applicant can use this period to reflect on the offer and consider any legal advice received from her or his legal representative on the merits of the award. The redress board has published information on its website today which indicates that 57% of cases which were sent to hearing after failure of the settlement process were increased, 29% had the awards reduced and 14% remained the same.

In the event that an applicant is not satisfied with an award, the person is entitled under the Act to submit the application to the redress review committee, which will review the entire case. The review committee may uphold the amount of the award or increase or decrease the amount. The review committee stage of the process is, effectively, the final option available to an applicant under the redress Act process. However, an applicant still retains the right to pursue a case through the courts.

As the Deputy is aware, Mr. Sweeney, who had been on hunger strike outside Leinster House because he was dissatisfied with the outcome of the redress process, agreed to come off his strike last Thursday and has taken the option of recommencing his case in the courts. The Government has agreed to do everything it possibly can to expedite a hearing and, taking into account the papers already lodged for the purpose of his civil case, to agree that the case will proceed on the basis of an assessment of damages only.

While Mr. Sweeney was dissatisfied with the outcome of his application to the redress board, the operation of the redress board and review committee must be viewed objectively and adverse judgments regarding the process should not be made on the basis of just one case. To date, in excess of 3,500 applications have been made to the redress board and awards have been offered in more than 1,000 of these cases. The remaining cases are at different stages of the redress process. This indicates a high level of satisfaction with the operation of the board and the process of redress.

I am aware that some of the groups which represent survivors of abuse have requested a meeting with officials in the Department of Education and Science to discuss issues regarding the operation of the redress board, and this will be dealt with in the normal way. I also understand that officials from the redress board have met group leaders as well as hosting general meetings where issues raised by the leaders have been discussed and clarified. I am satisfied that this process will continue.

In the circumstances, the Department of Education and Science does not see a requirement to bring forward amendments to legislation which is working to the benefit of the majority of survivors. I thank the Deputy again for giving me the opportunity to explain the position in this House.