Markets in Financial Instruments and Miscellaneous Provisions Bill 2007: From the Seanad.
The Dáil went into Committee to consider amendments from the Seanad.
Seanad amendment No. 1. Amendments Nos. 2, 3 and 4 are related. Amendments Nos. 1 to 4, inclusive, will be discussed together.
Seanad amendment No. 1:
Section 19: In page 20, lines 29 to 35 deleted and the following substituted:
""‘credit' means a cash loan (whether or not provided on the security of a mortgage or charge over an estate or interest in land), but does not include credit of a class specified in section 3(2) of the Consumer Credit Act 1995;".
The Seanad has agreed a Government-sponsored amendment to the Bill relating to section 19. The purpose of this section still ensures that all non-deposit taking firms engaged in retail lending are subject to regulation by the Financial Regulator and brought within the scope of its consumer protection code. However, the technical drafting of this provision presented significant legal and technical challenges in particular in the areas of the definition of credit and retail credit firms. The original definitions created the prospect that businesses involved in commercial and corporate finance transaction could be subject to the legal definitions and require to be authorised as retail credit firms.
As Deputies will be aware, the policy objective motivating the legislation related particularly to bringing within the ambit of the consumer protection powers of the Financial Regulator sub-prime lending and other retail lending carried out by non-deposit taking firms that are not currently subject to regulatory oversight other than in a limited way under the terms of the Consumer Credit Act 1995. In order to achieve this objective, credit is redefined as credit extended to individuals, including consumers. This captures the core business of the firms, which are subsequently defined as retail credit firms for the purpose of their regulation. This makes some definitions in the Bill redundant as they refer to forms of credit which are now excluded from the definition and they have therefore been deleted.
The approach taken ensures the Financial Regulator can focus on the activities that require attention without being required to spend time and resources on unnecessary oversight which had the potential to impact adversely on the availability of credit to businesses and the financing activities carried out in the international sector. I am satisfied these amendments provide an effective regulatory system for non-deposit lenders engaged in retail lending. They strike the right balance between the need for appropriate consumer safeguards in the area of retail lending and concerns regarding the inadvertent effect of the original approach on the business and financial sector.
My Department will continue to work with the Financial Regulator as this new regime is implemented to ensure an appropriate regulatory regime is in place.
I welcome this change. It seems the Minister in the original drafting had inadvertently thrown the net too wide. How did this happen? As I understood it, there was a lengthy consultation period and I presume the regulator was aware throughout that period of the breadth of the provision being proposed. Why, at the eleventh hour, did it suddenly dawn on people that what was being proposed was not the correct instrument for dealing with this matter?
I found dealing with the Bill a rather unfortunate process in that one must go back to a number of Central Bank Acts to try to discover precisely what regulations are being imposed and on what bodies. This was made somewhat difficult because we do not have a consolidated piece of legislation with which to deal.
I would like to have assurances from the Minister that the regulator has on this occasion absolutely clarified that what is now being proposed is robust and satisfactory and that, by moving rapidly to fill this hole, which is welcome, we are not inadvertently overlooking the need for full regulation of bodies where these practices which have disturbed financial markets in recent times have become prevalent. While I do not dispute the Minister's amendment, I would like to know how it happened that the net was thrown more widely than is now proposed and why it is only at this stage that the error of the approach has been identified.
As we know from our discussion on the Bill, it is a complex area. We are talking about the attempt to incorporate a directive into our legislation, to deal with many complexities and financial products and to make sure our definitions are correct. These were subject to publication and, since then, various views have been outlined by practitioners in this area with the aim of ensuring we did not extend the definitions beyond what it was we were trying to achieve, namely, that all institutions which interface with consumers would be covered and would have the benefit of the protection code. In that process, it emerged that an amendment to this effect would nuance or redefine the definition more exactly to avoid any unintended effect that may exist in regard to wholesale institutions which conduct their own business but do not interface with the public.
My officials consulted the Financial Regulator on an ongoing basis. The consumer director in the Financial Regulator's office confirmed that the provision of sub-prime mortgages to consumers was a priority in the area of consumer protection. The provisions proposed for the Bill go beyond consumers and include individuals acting in the course of their business, trade and profession. The consumer protection needs of this group were highlighted by Deputies in the passage of the Bill through the Dáil. The Bill meets the consumer protection objective that motivated the introduction of these provisions. Deputies have highlighted to me for some time their concerns regarding the lack of regulation of sub-prime lenders and this regulatory gap is now being closed.
The amendment ensures that the effect of the measure does not extend beyond what is required to secure this objective. In particular, it safeguards the commercial sector against any legal uncertainty as to whether authorisation as a retail credit firm is required. This could have had a serious impact on the international financial services sector in Ireland to the detriment of its current business-to-business activities.
It was on listening to those who are on the front line in the aftermath of publication, and listening to what was stated in the House, that we decided this was important to achieve. Therefore, we went to the Seanad with this amendment. We would be obliged if the House agreed to it.
While we are not discussing the entire Bill and are here to discuss a limited amendment from the Seanad, what has drawn most attention to the Bill is section 16. The only reason for my contribution is to ask whether that provision could be extended to others, such as the garda referred to on the front of today'sIrish Independent, or those drawing social welfare who have limited time in which to claim particular grants. No one is suggesting that someone entitled to a pension should be prevented from drawing it down when he or she has paid into a particular scheme. Will the Minister consider extending the section to deal with people in a similar position? Even if the amount of money involved is not as significant as in the current case, it is significant to them.
To accommodate the Deputy, I will address this matter. An issue arose in this regard which I should explain. There seems to be a view circulating that the provisions of section 16 were not brought to the attention of the House. First, the published explanatory memorandum to the Bill clearly sets out the background to the proposals put forward in section 16. Second, when I made my Second Stage speech to the House on 2 October, I drew the attention of Members to the section's provisions when I stated:
Section 16 makes amendments to the provisions dealing with ministerial pensions, as follows. First, former office holders — Ministers and Ministers of State — on leaving service are entitled to receive severance for up to two years. Circumstances can arise where, through oversight or otherwise, a former officer holder does not apply for the pension within the specified time period, namely, within six months of severance payments ending. The amendment would give the Minister for Finance the discretion to backdate the payment of pension in the case of an application made outside the six-month limit to the date of entitlement and reflects a similar provision which applies to Civil Service pensions.
This is an important point. As Minister responsible for the public service, I had to consider how all public servants are dealt with in this situation. My view was that in a situation where there was a provision that one had to apply within six months, if there was an oversight, that person would be dealt with differently than everyone else in the public service. As Minister responsible for the public service, in considering this situation and taking all of the arguments on board, I felt, while it is never a popular thing to do, it was the right thing to do. It was not right that a person would, because he was a politician and not in another profession in the public service, be denied from the date of entitlement his pension as a result of a provision which was specific, as I understood it, to the particular regulation that deals with pensions for Ministers. I dealt with the matter on that basis and felt it was the right thing to do.
In my Second Stage speech, I also stated:
Second, whereas the current ministerial pensions scheme allows for a pension to be payable after two years service as a Minister, the "old" pre-1993 scheme requires three years service. This amendment would provide for payment of a ministerial pension to a member of the "old" pre-1993 scheme who has more than two years service as a Minister. This has been the position for members of the "new" scheme since 2001.
The amendment, which has been subject to media comment in recent days, compares in no way to the case of a garda who was dismissed from the Garda Síochána in 1973. It was not my intention to raise this matter but it has entered the public domain. The case in question involves a different issue, namely, preservation of pension entitlements. At the time the garda in question was dismissed from the Garda Síochána in 1973, forfeiture of superannuation benefits applied in the case of dismissals and preservation did not become a feature of the Garda Síochána superannuation scheme until September 1976. Therefore, under the terms of the Garda Síochána scheme, he did not, unfortunately, have any superannuation entitlements. The two cases are separate.
As I did on Second Stage, I draw attention to the part of section 16 which amends the provisions of a new ministerial pension scheme introduced in 1993 under which serving Members had the option to remain in the old pension scheme or accept the terms and conditions of the new scheme. Under the new scheme, the qualifying period for a ministerial pension has been two years since 2001. When this matter was raised with my predecessor in 2001, he indicated he would amend the legislation governing the old scheme to bring it into line with the new scheme. The official advice to me was that such a change was warranted and could be accommodated in the Bill transposing the Markets in Financial Instruments Directive into Irish law. The amendment ensures both ministerial pension schemes have the same qualifying period, as was originally intended. Beneficiaries will also apply.
I appreciate that the Minister took the time to explain the amendment given the limited time available to us. I also accept that he acted with the best intentions. Nevertheless, certain individuals, not only the person to whom I referred, would appreciate having the same courtesy shown to them through legislation. I ask that the Minister consider any such cases that Deputies may refer to him.
I understand that under social welfare regulations the Department of Social and Family Affairs will make a pension payable from the date on which it becomes aware of an entitlement, even if an application is submitted subsequently. In the normal run of the mill case, the Department only becomes aware of an entitlement when it receives an application. Under the rules of the scheme it is proposed to amend, there was an awareness that the individual concerned had an entitlement. The problem was that he did not understand that the scheme imposed on him a requirement to make an application in writing. I speak as the Minister with responsibility for the public service. If one wanted to make an analogy with the circumstances envisaged in the regulations in place in the Department of Social and Family Affairs, an entitlement would have existed from the point at which there was an awareness of such entitlement. On that basis, the argument for the change can be made.
As I stated, while this may not be a popular measure, Ministers, in dealing with the cases which come before them, must act justly, even if it is not perceived in the wider domain as being such or is unfairly portrayed otherwise. I felt that the conditionality applied in this case, which is not applicable in respect of pension entitlement for any other public servant, should not be applied in this category either and made my decision on that basis.
As I have indicated, I have ensured that the old and new pension schemes will have the same qualifying period, as was originally intended. This will be of benefit to those applying under the new scheme.
The Minister referred to social welfare pensions. Given that PPS numbers are now on record, the Department could consider introducing a measure to ensure that letters issue to those about to qualify for a pension, perhaps a year before they reach the age of 65 or 66 years, informing such persons that they need to apply for a pension. This facility is not currently available. As the Minister is aware, it takes at least six months to process an application for a social welfare pension. It would be a relatively simple matter to inform those approaching pension age that they are entitled to a pension and would probably require integration of the computer systems in the Department of Social and Family Affairs and the Revenue Commissioners. A simple letter could issue automatically in which those approaching pension age are informed of the need to apply for a pension. I ask the Minister to consider this proposal.
Will the Minister explain the reasoning behind amendment No. 4, which will exempt certain persons from having to hold authorisation as a retail credit firm? It is a lengthy amendment which Deputies have not had much time to consider. Will the Minister elaborate on the reason it is being proposed?
I discussed the amendment which I dealt with in my capacity as Minister with responsibility for the public service. I will bring the issue raised by Deputy O'Donnell to the Minister for Social and Family Affairs.
The amendment to which the Deputy refers inserts a new section 29A in the Central Bank Act 1997, which allows the Financial Regulator to exempt both individuals and categories of persons from the requirement to be authorised where this does not pose any real risk to consumers or any real regulatory concerns. Circumstances in which such an exemption might be given are lending of very large sums of money to sophisticated borrowers; transactions related to wholesale financial services transactions which are irrelevant to consumers; and lending which is only carried out for public or charitable purposes on favourable terms.
The Central Bank can impose conditions on an exemption and revoke an exemption if these conditions are not followed or where circumstances make the exemption no longer appropriate. While exemptions and revocations are to be published inIris Oifigiúil, in the event that they are not published the exemptions or revocations will stand.
The legislation also provides that the requirement not to carry out a regulated business without an authorisation does not apply to persons granted exemptions from authorisation under this legislation provided the person does not carry on any kind of regulated business other than that to which the exemption relates and complies with all conditions under which the exemption was granted. This is the reason the amendment has been proposed.
The Minister has provided a technical explanation for the amendment. The status of retail credit firm was introduced to provide security to those who borrow on the sub-prime market. The first circumstance in which an exemption may be given is where large loans are provided to borrowers who have sufficient legal and technical advice. This runs counter to the spirit of providing security across the board. What is the specific reason for introducing the amendment?
The purpose is to ensure we have a flexible business environment while at the same time protecting, where required — as was the objective of the part of the Bill — those who have taken out mortgages in the sub-prime market, as we all understand the term.
The definitional requirements are to ensure that the Financial Regulator has flexibility with regard to others who operate within the circumstances outlined in the three cases to which I referred. Rather than imposing an obligation which might be detrimental to conducting business, the amendment enables the Financial Regulator, where he is satisfied that there is no risk to consumers, to allow such business to proceed. It is a question of finding a mechanism which allows the Financial Regulator to decide whether the exemption should apply given the type of business in which some of the people in question are engaged and, at the same time, ensure there is no risk to consumers.
To incorporate this matter would have been beyond the remit of what we were trying to achieve in the definitional context of the discussion.
Initially, will it be deemed necessary to apply for authorisation whereas institutions can apply for an exemption, that is, exemptions will not be automatic?
My reading of it is that they will be exempted from the requirement to be authorised. This may be a general exemption, given the line of business in question.
Instead of the exemption being given, will it be the norm for authorisation to be necessary, but exemption can be applied for? It would provide greater regulation and security.
My understanding is that where the regulator is satisfied that there is no consumer issue involved, he or she could use the new section to exempt such businesses from authorisation in respect of the types of transactions I have outlined in the interests of the business being conducted without a time lag or the problems that would arise were the need for authorisation a general part of the Bill.
Exemption must be applied for or it will be open to the Financial Regulator to grant the exemption to classes of lenders. He or she will be prepared to give an exemption to certain people whereas others must apply. It will depend on the circumstances.
The Tánaiste has clarified the issue. If there is any dealing with the consumer, a business will be regulated. If it deals at wholesale level, it may not be regulated. If there is a chance that the business deals in junk bonds, the regulator will have the discretion to say yea or nay about the products.
Deputy Bruton is correct. Given the nature of the business, discretion is being left with the Financial Regulator's office rather than the Oireachtas in imposing non-exemptions that may militate against the conduct of business wherein the regulator does not perceive a consumer problem. Without mentioning names, I have sought to address other matters that have given rise to comment. People have jobs to do, but this is a matter between the pensioner and the authorities concerned.
This issue arose previously. I acknowledge that the Tánaiste explained the basis of his decision without mentioning names or sums of money. I accepted the Tánaiste's principle, namely, that we may not have had all the details regarding costs, but we did not seek the details. We accepted the principle as fair and I will not change my opinion because of the furore, as the principle the Tánaiste enunciated is not unreasonable. If this is the only area of pensions within the public service to which such a restriction applies, it is not fair that someone should fall foul of it. It would be hypocritical to change our opinions now that there is a great deal of discussion about the individual and the amounts involved.
I appreciate the Deputy's comments. Questions asked on Committee Stage related to the arrears issue, with which I dealt in full conscience with a view to giving the full information. Given the sensitivity of these issues, it would have been better to have consulted Opposition spokespersons and explained the source of the proposed amendments, including the amendments regarding the change from three years to two years, in which both schemes would be put on an even keel, and the potential beneficiaries. I make this point not to be coy, but to respect the situation and to be answerable to the House. I do not want to preach anything further.
Seanad amendment agreed to.
Seanad amendment No. 2:
Section 19: In page 21, lines 6 to 44 deleted and in page 22, lines 1 to 11 deleted.
Seanad amendment agreed to.
Seanad amendment No. 3:
Section 19: In page 22, between lines 16 and 17, the following inserted:
"(c) in section 28, by inserting the following definitions after the definition of “regulated business” (as substituted by paragraph (b)):
"‘regulated financial service provider' has the same meaning as in section 2 of the Central Bank Act 1942;
‘relevant person' means a natural person within the State, other than—
(a) a natural person who is, or satisfies the criteria to elect to be treated as, a professional client for the purposes of the European Communities (Markets in Financial Instruments) Regulations 2007 (S.I. No. 60 of 2007), or
(b) a person who is a regulated financial service provider;
‘retail credit firm' means a person prescribed for the purpose of paragraph (g) of the definition of ‘credit institution’ in section 3 of the Consumer Credit Act 1995, or any other person who holds itself out as carrying on a business of, and whose business consists wholly or partly of, providing credit directly to relevant persons, but does not include—
(a) a person who is a regulated financial service provider, or
(b) a person who is an authorised credit intermediary under Part XI of the Consumer Credit Act 1995, or
(c) in relation to credit that was originally provided by another person, a person to whom all or any part of that other person’s interest in the credit is directly or indirectly assigned or otherwise disposed of, or
(d) a person who provides credit on a once only or occasional basis, but only if the provision of the credit does not involve a representation, or create an impression (whether in advertising, marketing or otherwise), that the credit would be offered to other persons on the same or substantially similar terms, or
(e) a person who is exempted, or who belongs to a class of persons that is exempted, under section 29A from being required to hold an authorisation as a retail credit firm;“;”.
Seanad amendment agreed to.
Seanad amendment No. 4:
Section 19: In page 22, between lines 21 and 22, the following inserted:
"(d) in Chapter 2, by inserting the following section after section 29:
29A.—(1) The Bank may exempt a person from being required to hold an authorisation as a retail credit firm in relation to the provision of credit if, in the opinion of the Bank—
(a) the total amount or value of the credit that is to be provided by the person is such that it is reasonable to assume that the borrower will be in a position to negotiate on equal terms or to obtain appropriate legal and financial advice, or
(b) the person is one who, under section 8(2) of the Central Bank Act 1971, is exempted, or is a member of a class of persons that is exempted, from being required to hold a banking licence, or
(c) the person is one who provides credit solely for charitable or public purposes and at a rate of interest or on other terms more favourable than those that are currently available commercially,
and the exemption would not be inconsistent with the proper and orderly regulation of the provision of credit and the protection of customers of retail credit firms.
(2) The Bank may also exempt the persons belonging to a specified class of persons from being required to hold an authorisation as a retail credit firm in relation to the provision of credit if, in the opinion of the Bank—
(a) the total amount or value of the credit that is to be provided by those persons is such that it is reasonable to assume that borrowers from those persons will be in a position to negotiate on equal terms or to obtain appropriate legal and financial advice, or
(b) the persons are ones who, under section 8(2) of the Central Bank Act 1971, are exempted, or belong to a class of persons that is exempted, from being required to hold a banking licence, or
(c) the persons are ones who provide credit solely for charitable or public purposes and at a rate of interest or on other terms more favourable than those that are currently available commercially,
and the exemption would not be inconsistent with the proper and orderly regulation of the provision of credit and the protection of customers of retail credit firms.
(3) The power to exempt a person, or the persons belonging to a specified class, from being required to hold an authorisation as a retail credit firm may be exercised by the Bank either on its own initiative or on an application made by or on behalf of the person, or the persons or any of the persons belonging to that class.
(4) An exemption granted under this section is subject to such conditions as the Bank thinks fit to impose.
(5) The Bank may at any time by notice in writing—
(a) impose additional conditions on a person to whom, or on the persons belonging to a class in respect of which, an exemption has been granted under this section, or
(b) vary or revoke a condition imposed under subsection (4) or this subsection.
(6) The Bank shall revoke an exemption granted under this section if it is satisfied—
(a) that the circumstances relevant to the exemption have changed and are now such that the exemption would no longer be granted, or
(b) that a condition of the exemption is not being, or has not been, substantially complied with.
(7) The Bank shall publish inIris Oifigiúil a notice of every exemption granted, and every revocation made, under this section.
(8) Failure to comply with subsection (7) does not affect the validity of an exemption granted, or a revocation made, under this section.
(9) Section 29(1) does not apply to a person who, or a person belonging to a class of persons that, is exempted under this section so long as the person—
(a) does not carry on any kind of regulated business other than that to which the exemption relates, and
(b) complies with all conditions subject to which the exemption is granted.“;”.
Seanad amendment agreed to.
Seanad amendments reported.
A message will be sent to Seanad Éireann acquainting it accordingly.