Is Deputy Catherine Murphy sharing time?
Central Bank (Supervision and Enforcement) Bill 2011: Second Stage (Resumed)
Question again proposed: "That the Bill be now read a Second Time."
Deputy Boyd Barrett was in possession and was in full flow.
The Deputy can proceed.
It is dangerous to lose possession.
He has, so I am here to take it up.
I welcome the Bill. The Bill is before the House essentially because it has been forced on us. However, it is a Bill that should have been produced in any case. Although some things have been prescribed by the EU-IMF, it does not mean they are all wrong. This proposal is quite good.
Last year's Central Bank Reform Act and the Credit Institutions (Stabilisation) Act gave powers to the Government and the Central Bank to direct enforcement on financial providers and specifically on individuals within such organisations. The behaviour of certain financial institutions in recent years has highlighted the urgent need for appropriate means to conduct forensic analyses into these organisations. In recent days the need was highlighted when the courts are hearing cases to have people who are capable of understanding the minute financial issues at stake. It is important that the appropriate powers are in place so as not to get to that point because the end game in terms of prosecution becomes a very difficult one.
To suggest that our present difficulties could have been avoided if a robust and empowered supervisor was in place may be a little simplistic. That may be an understatement but certainly we can agree that had there been appropriately strong channels through which the Central Bank could discover the true extent of our banking systems' catastrophic exposures certain decisions forced on us in a crisis may never have been needed. We will all pay a heavy price for that into the future. As a citizen I never again want the stakes to be so high and the banks so large and out of control without a regulatory regime where we risked everything as in recent years.
A particular difficulty is that often scant information is available. At its conference last week on mortgage indebtedness FLAC and New Beginning identified the need for the Central Bank to be in control of information from all lenders to enable the extent of indebtedness to be fully captured. There is a strong argument to be made for that proposal. It is important that there are strict and robust powers available to the Central Bank. While there is much criticism of the banks we must not blacken everybody who works in the banking system. I have spoken with people who are tellers who do not want to tell people they work in a bank. It used to be the case that if one worked in the Revenue Commissioners one did not want to tell people but banking used to be the blue chip in so many different ways. However, that has become a real problem for people and there have been some tragedies as a consequence. Those who work in the banking system will be protected by virtue of strong and robust powers being in place.
Obviously the powers available to the Minister and the Central Bank are broad. Given the calamitous situation we have just come through, I agree that in principle the broad powers are a good thing and are needed. However, I can see some grey areas arising in terms of the Bill as proposed in regard to some existing Acts which I propose to highlight. Perhaps the Minister would reply to me on this point because framing amendments will depend on what the conflict might be or whether there is a conflict.
Essentially the purpose of the Criminal Justice Act 2011 was to tackle white collar crime and it gave the Garda defined powers in respect of the investigation of alleged wrongdoing. Under this Act it would appear that the obligation falls to a person, which I take to mean any employee who learns of suspected wrongdoing, to report it to the Garda immediately. We had quite a discussion on that issue. Afterwards I raised the issue with the Minister given that it had been raised separately by Mr. Michael McDowell in a newspaper article.
Section 33 of this Bill places a mandatory reporting obligation only on persons with a pre-approval controlled function. I understand that to mean anyone who occupies a significant position of authority within the organisation in question. It appears to me there is a conflict here. Given that there are to be whistleblower provisions in several different pieces of legislation, would it not have been advisable to have separate whistleblower legislation rather than trying to knit it in with each item of legislation? It is needed and I agree it should form part of the regulatory regime because people will not come forward if they are not protected. Comprehensive protections have been proposed in the Bill but when one Bill conflicts with the other, I can foresee a situation where the terms will be appealed given that one supersedes the other. That is a grey area and I am not sure if it can be amended to be consistent with the other legislation.
Clearly this is not the only area where regulation is needed. We must look at each element of the failure in turn and address each one to ensure we do not end up in the same position as now. Not only is it necessary to put a regulatory regime in place but a change of culture is also needed. A change of culture means having different personnel at the top of organisations. There is not a great deal of evidence of a change of culture in respect of the two key banks. That is a matter of grave concern. We can have all the regulation we like but if people carry on as before it is useless. Obviously there is a different range of rules but they must be matched by a cultural change.
The over exposure to property and the lending practices was not just about the banks, it was also about the planning system and seeing buildings and properties as development rather than planning. We have not changed anything in the way that is done. For example, I was looking at applications for development plans and applications to have land rezoned all over the place. I understand there has been a change in terms of regional guidelines and the national spatial strategy but the controls and the way of doing things have not changed.
The expertise required when one gets to the point of going to court and the length of time it takes to get cases to court makes one question how robust and well-resourced is the Office of Corporate Enforcement. Four or five years ago I recall complaining about the lack of resources in that particular office because there was a backlog in dealing with some of the issues I had brought to its attention. We have got to have not just a good regulatory regime but the practical elements that can get things to a point where if there is a sanction it can be made quickly and appropriately. The legislation is good but it is only part of what is needed. I am happy to support it.
I wish to share time with Deputies Heather Humphreys and Tom Barry.
Is that agreed? Agreed.
I very much welcome the opportunity to speak on the Bill. Over the past decade the banks in this country have become an unregulated feral beast which cannibalised the future of a generation of young people. It took the collapse of an economy and the plight of unemployment for those who were supposedly in charge of regulation to wake up. While previous regulators and Ministers for Finance dithered, it took the European Union and the International Monetary Fund, IMF, to spell out that clear reform was needed — reform which should have been in place. It is important that those who were in charge not just politically, but those who were in charge of banks and the regulator, must be held to account. The people of this country want people to be held to account.
At last we have a regulator who is in charge and who is doing his job. He is regulating. I heard him speak in University College Cork last night. I was heartened to hear him say that he would be breathing down the necks of the banks. It is only a pity that he was not in the same position a couple of years ago as the carnage that happened may well not have occurred.
The EU-IMF programme requires an overhaul of financial regulation and the Bill is the second step of a three-part process which will end with one single consolidated Act governing the Central Bank. I welcome the Minister's initiative in leading this reform. In researching the Bill I was shocked to discover that we are legislating for mechanisms that have been in place in the United Kingdom for more than a decade. The United Kingdom is ten years ahead of us in legislative terms in that regard. While our next door neighbours were reinforcing the regulatory regime we were sitting back doing nothing, allowing the carnage to take place. The skilled persons reports, which are proposed in the Bill, have been in existence in the United Kingdom since 2001. Finally, at the end of 2011, we are getting around to putting the same framework in place. In the meantime we were docile and passive, relying on the honesty of financial institutions to supply information without any independent verification to the regulator or the Government. Let us look at where that got us. That point must not be ignored. Let us look at what the regulatory regime introduced by Mr. McCreevy and his pals have got us. Light touch regulation does not work.
There are a number of benefits to an improved regulatory regime, most importantly that it limits, in so far as that is possible, a recurrence of the current catastrophe. We are taking steps to prevent taxpayers being exposed again to the heavy burden which has landed on their shoulders. I accept many of us are paying for the collapse in the banking regime. That is why it is important that our banks are held to account. As I said last night in the Chamber about the Keane report, the banks must work with the people who need their help the most, be it small business or home owners. They must not fight and intimidate people.
Equally important is the reputational benefit we will gain from having a robust regulatory regime. In the six months from March to September 2009 our global competitiveness among financial centres fell 13 places. Our competitive advantages were eroded and our reputation was shattered. That is why it is important that the Members opposite who complain about regime change and the way Government is doing business must come up with practical, deliverable solutions which will be of benefit to people — an gnáth duine — the ordinary person. I will keep saying that. I challenge the Members opposite to come up with solutions that will work in the interests of the ordinary person that can be sold across Europe.
A new regime will be introduced to protect whistleblowers and increase fines by up to 10% of turnover. It will give real and substantial powers to the Central Bank to help re-establish our international reputation as a place to do business. It will also offer some level of certainty to businesses who wish to invest in people and the future of this country. I see little point in the Oireachtas passing this legislation to put in place a framework for robust regulation if it is not enforced. The legislation must be enforced. If the rules are broken, then someone must be held to account. If someone impedes or obstructs an authorised officer he or she can be fined up to €250,000 or imprisoned for up to five years. Fines that can be imposed by the Central Bank for administrative sanctions are being doubled to €1 million for an individual and €10 million or 10% of turnover for a firm. If the powers to summon witnesses is obstructed, the penalties will increase by up to €5,000 and result in a prison sentence of up to 12 months. If the rules are broken the full force of the penalties must be used.
Many Members on the Government side of the House are frustrated and angry that we have not seen anybody punished for the recklessness in the financial sector that has bankrupted the country. People must be held to account. Nobody, no matter who they are, should be allowed to walk away, washing their hands of the consequences of their decisions. The Financial Regulator must maintain his healthy scepticism of the motives of the banks. He must not be afraid to use the powers given to him by us, the Oireachtas. I hope he follows through on his tough talk and that he continues to breathe down the necks of the banks.
I welcome the opportunity to speak on the Bill. It will provide for enhanced powers to the Central Bank of Ireland with regards to supervision of regulated service providers and it will also enhance the powers of the Central Bank in the enforcement of financial services legislation. It is yet another Bill to address an area that has been pinpointed by the IMF as one in need of reform. That is something we have become used to saying but it is a key area.
For most of us there is a realisation that the IMF was stating the obvious. Reform in the area is critical to bringing back confidence and especially credibility to our financial sector. Under the new Government there has been a determination to first establish how deep the financial problem was and is and, second, to address it. It is scarcely two years ago that the then Minister for Finance, the late Brian Lenihan, reiterated that this country's top two banks were solvent and working well. That was and is untrue. I wonder whether it was political naivety or the dissemination of misinformation that brought about the situation. It is not however simply a matter of tightening regulations. The individuals who oversee the application of the regulations must ensure that we do more than just tick the boxes. It is about making sensible and correct decisions within the parameters of the regulations. That is where our system has failed us so badly in the past.
Most people have memories of how the previous Financial Regulator drew large sums of money in pension and lump sum entitlements. I referred to a similar situation last week with regard to another individual. The previous Financial Regulator received a lump sum payment of €630,000 and an annual pension of €142,000, yet after receiving those public moneys he refused to meet with the Oireachtas Joint Committee on Finance and the Public Service to answer questions on his conduct and the conduct of his staff. Bar the Committee of Public Accounts, committees past and present, even though the regulator may not have wanted to address them, were perceived as being toothless with the power only to report their findings to the Dáil. It is worth reminding people of the attitude taken by certain sectors and individuals who were asked to attend such committees in the past. This is a timely reminder in the context of tomorrow's referendum which proposes to extend the powers of committees.
Part 2 allows for skilled persons to be employed to investigate firms that provide financial services, the cost to be borne by the firms in question. The skilled person can be an auditor, actuary, accountant, lawyer or person of relevant business experience. Therefore, when the Central Bank seeks information we will know that it will get truthful and concise information. We must have information on which we can rely and trust because as with a business one can only work on correct figures. Otherwise, a Minister could say something in the House when in fact the opposite is true. It will be an offence to obstruct these people. We must legislate in minute detail to ensure that what happened in the past is not repeated.
Part 3 defines the powers of the authorised officers. These are extensive. They are allowed to enter any premises where they believe relevant records are kept but they will require a warrant to enter a private dwelling. Authorised officers may also attend meetings of regulated financial providers. When officers remove records, which they must do, they must provide a copy of the documents or return them within 14 days. I am concerned that 14 days might be a little too long. Perhaps copies should be done immediately and returned within seven days. These days it is quite easy to make copies of documents. We do not want the operations of these authorised officers to obstruct normal business.
Part 4 allows for protected disclosures. There will be protection for a person who, in good faith, relays information regarding what he or she believes to be an offence under the financial services legislation. We do not want to see a repeat of the Eugene McErlean case. In 2001 Mr. McErlean, a group internal auditor of Allied Irish Bank, conducted a report into charges and uncovered a major overcharging problem. He was victimised and lost his job. The episode was like something that might happen in a Third World country. Unfortunately, it happened in Ireland. We cannot forget the past when we address problems and look to the future. Mr. McErlean was vindicated but the incident caused him enormous distress. The Criminal Justice Act 2011 relating to white collar crime will address bad behaviour in white collar crime. We need to be able to trust our banks. We need to make sure the information provided and given to line Ministers is correct. We must not see recent failings repeated in the future.
We have seen the introduction of stiff regulation in the agriculture industry, and it has worked out well. Irish agriculture is now flying, but it is going well only because we have strict regulation. It took a long time to accept regulation but we are now regarded as major food players for quality and procedures all over the world. If we get regulation right our banking industry may, in time, be seen in the same light, even though many see that as a far away field.
I welcome the opportunity to speak on the Central Bank (Supervision and Enforcement) Bill 2011.
At this stage we are all aware of the failures to apply appropriate regulation to our financial institutions in the past. This was one of the key reasons we now find ourselves in our current economic difficulties. There have been numerous reports conducted into the banking crisis and all have pointed to abject failures on the part of our regulators. A lack of necessary supervision and poor risk assessment were the key factors in leading us to where we find ourselves today — not in control of our own economic destiny. Indeed, the Bill is a further requirement of the EU-IMF programme of support for Ireland.
The Government and the Minister for Finance, Deputy Noonan, are working hard to rectify that situation and to restore our economic sovereignty. In that respect, the Bill will form a crucial part of the new platform for banking in the future. The Bill will strengthen the powers of the Central Bank and provide it with the ability to impose and supervise compliance with the regulatory requirements. Further to this it will allow the Central Bank to intervene where necessary and in a timely fashion.
In respect of our banking system some of the previous speakers have said the Bill could be seen as a classic case of locking the stable door after the horse has bolted. However, if we do not learn from our mistakes we are destined to repeat them. In that respect, we are fully aware of the mistakes that were made in the past in our credit institutions and the aim of the Bill is to ensure that they are not repeated in the future.
We are all well aware of the fact that our banking system and regulatory authorities failed us completely, but we need to acknowledge the role of others in this catastrophe. What was the role of auditors in the banking collapse? They signed off on the accounts presented to the public, and some of these same auditing firms continue to provide services to the State. What was the role of commentators and analysts in the daily and Sunday newspapers, telling people to buy property and invest in shares? Nobody shouted "Stop". If one delayed one was made to feel like a fool and to be missing out on a great opportunity.
Our banks were over-exposed, poorly governed and had inadequate risk management. Our regulatory controls did not work for us and these weaknesses subsequently proved to be disastrous for our banking sector and the wider economy. The Bill seeks to address this issue and gives the Central Bank extensive powers in the area of supervision and enforcement. These powers need to be used effectively and efficiently while working to clear objectives. There needs to be clear lines of accountability and I urge the Minister to ensure that the Central Bank is held accountable and responsible for its actions and where necessary justify why a certain course of action was taken or not taken. I would also ask the Minister to ensure that there is an appropriate skills set within the regulatory authority to enable staff carry out their duties to the highest level.
The Central Bank must have a clear understanding of the outcomes of the decisions it makes. In view of the extensive powers being given to the Central Bank I ask the Minister to ensure objectives are put in place such as market confidence, public awareness, protection of consumers and reduction of financial crime.
Consideration must also be given to sector development. Otherwise we could regulate our industry out of existence. We do not need regulation for the sake of it. We want a sound financial sector properly regulated but at the same time remaining competitive in a global context.
In discharging its functions, the Central Bank must be mindful that a burden or restriction that is imposed on a financial institution should be proportionate to the benefits, and consideration should be given to what the expected result will be from the imposition of that burden or restriction. The Central Bank needs to take account of the international character of financial services and markets, the desirability of maintaining the competitive position of Ireland and the need to minimise the adverse effects on competition in the industry which may arise from such actions. It also needs to be careful that innovation and market growth is not stymied by its approach.
Sweeping regulation across the financial sector needs to be considered carefully, and particularly the effect it will have on the credit union sector. I welcome the fact that the Minister has referred the Bill to the Commission on Credit Unions for a recommendation on its application to credit unions. I also welcome his commitment to give this issue further consideration as work on both Bills progresses
In most other jurisdictions with a significant credit union presence, such as Canada and the United States, credit union legislation is housed within a framework that takes account of the not-for-profit, people-centred ethos of credit unions which is at the core of its principles. I ask the Minister to take this into consideration. I also impress upon the Minister the importance of carrying out a regulatory impact analysis on any material changes to the Credit Union Act. No regulatory impact analysis was carried out in respect of the amendments to section 35 of the Credit Union Act. Credit unions had sought a relaxation of longer term lending restrictions and the Financial Regulator took the opportunity to amend section 35 and put in place very restrictive provisioning requirements which mean many credit unions now find themselves priced out of the ability to lend to their members or reschedule loans to members who are now unemployed or on significantly reduced incomes. Proper regulatory impact analysis must not be sacrificed in the interest of easier oversight.
In my experience the success of the credit union movement lies in the fact that it is cemented in the community for the community. Local knowledge, coupled with the trust and loyalty and special relationship with their membership that credit unions enjoy, is one of their greatest assets which cannot be measured in the balance sheet or taken into account in stress testing exercises. When considering supervision and enforcement of credit unions we need to take account of the special voluntary structure of credit unions which has served the movement well. We need to take cognisance of the continuing unique role of credit unions in society and in all of our communities, particularly in these difficult economic times.
I welcome the Bill but reiterate that with increased powers comes increased responsibilities and accountability. This should always be the case. It is important to remember that we do not live in an economy and that people are not just economic tools, rather we live in a society and community in which each of us has a responsibility for each other.
I wish to share time with Deputy Seamus Healy.
Is that agreed? Agreed.
In essence, this Bill gives the Central Bank more powers to scrutinise the practice of private banks, which everyone will welcome and will not have a great problem with given what the banks got up to in the absence of adequate regulation. That said, I am not sure of the extent of the scope of this Bill in terms of what other institutions are covered. It is not entirely clear to me whether the practices of major players in the financial sector such as, for example, the IFSC, which many people, including myself, consider to be nothing more than a glorified tax haven, are covered by this legislation. My first question to the Minister is if they are not covered by this legislation, why is that the case? What we have witnessed during the past number of years is an explosion of the financial sector. While banking was originally developed to facilitate trade and the distribution of goods and services, whole sectors of the financial market are nothing but glorified gambling institutions given the movement of derivatives and so on, which are toxic products that can impact on the economy proper. Are these organisations and institutions covered and will they be scrutinised under the provisions of this legislation? That is essential.
The Bill provides for the Central Bank to appoint what are deemed skilled persons such as accountants and so on to scrutinise books and to examine the loan capital ratios and transactions which would give an early indication of trouble in a bank. I do not wish to slag anyone off but the record of accountants and auditors — I trained as an accountant — in the current financial crisis does not inspire confidence in their being capable of adequate and independent scrutiny of the private banking systems. They are not the best people to scrutinise bad practices.
While there is nothing per se objectionable in this Bill, the premise of it is inadequate. This legislation aspires to our having a fully functioning privately owned and run banking system. In other words, we are giving the impression that all we need to deal with the current financial crisis is a complex system of external regulation and that had this been in place we would not have had the excesses demonstrated by Anglo Irish Bank or Northern Rock, which captured major market share through lax lending practices, which in turn acted as a type of contagion to other more reputable financial institutions and major banks. I do not buy that argument. It does not stack up. One could possibly argue that had these measures been in place in advance of the current situation the scale of the crash and legacy of bad debt might not have been as severe. However, what is being put forward is not an adequate solution to the problems that exist.
Perhaps the Minister will comment on the following aspect. Currently our banks are largely State owned but continue to be privately run. This Bill makes much play of the fact that we are putting in place substantial fines to deal with bad lending practice, depending on the scale of the wrongdoing, its impact and so on. Is it not the case that we are facilitating a situation whereby the Central Bank could issue banks, which are largely State owned, with substantial fines for which the taxpayer would be asked to foot the bill in order to protect their interest? That is the logic of what we are doing.
The solution in respect of largely State owned banks is not to restore them to private ownership but to have in place a better system of democratic control and accountability in terms of how they are run. There should be a revamping of the boards of the banking sector, incorporating workers and elected representatives of ordinary depositors and customers of those banks whose franchise is not linked to the scale of their deposit balance but to the viewpoint of ordinary depositors. Also, there should be on banking boards representatives of wider society whose job would be to oversee banking policy. Who is best to deal with this? It is believed that one needs experts to deal with these situations. The experts have had their day and we are now dealing with the legacy of that.
Despite the billions of our money that has been pumped into the banking sector, small businesses and first time buyers cannot get access to loans to advance their business or put a roof over their heads. We need more democratic accountability which would examine initiatives such as releasing the banks' money and using that wealth to benefit the public interest in a real sense. This, rather than the measures proposed, is a far better way of protecting the public interest.
The system of external scrutiny being proposed will further enrich audit and accountancy firms, including the big four and the very people who were part and parcel of the rubber-stamping ethos that led to the financial crisis. I do not believe we will achieve what the Bill sets out to achieve because the wrong lessons are being drawn from the economic crash. The reality is that it is, and was, an inevitable result of a system based on private ownership of key sections of the economy, including the banks, and the absence of any rational economic planning in society. Rather than addressing these systemic issues, the establishment consensus, which centres around deregulation in the 1970s, is to respond by dealing with aspects of the situation rather than getting to the heart of the problem. For that reason, the measures being put in place through this Bill will be of limited value.
Part 6 empowers the Central Bank to initiate regulations independent of the Minister for Finance, although it provides for or requires a certain element of consultation to take place with the Minister. I would like more detail on that. It is not clear what will be the role of the Oireachtas, Dáil or Opposition in that regard. The Bank of England is cited as a source of inspiration in that it is independent of the British Government. However, I do not foresee any situation wherein the Central Bank, like the European Central Bank or Bank of England, would or should have this type of decision making power. It is fashionable to say that a central bank independent of politicians will lead to independent decision making. While it may be fashionable to say that there is no evidence to support that viewpoint. There is nothing independent whatsoever about a privately owned financial system, as witnessed during the course of the recent crisis. In that scenario, any Government that attempted to marshal the financial resources of the banking system in order to benefit the people would find itself clashing with those at the top of these so-called independent banks, the interests of which would be the feathering of their own nests rather than the good of society as a whole.
While no one will be crying over the banks being subject to more scrutiny, I do not believe this legislation is the panacea because it does not address the root cause of the problem and leaves banking in privately owned hands, which is what caused our problems in the first instance. I do not believe these measures will get us out of the situation we are in.
I welcome the opportunity to speak on this Bill and I will start with two brief case histories. A self-employed individual had a house — a family home — with a mortgage. He was doing well and was able to get along. When he had a fourth child, he thought he should trade up to a four bedroomed house for the convenience and comfort of his family. He decided to go to the local bank which knew him well. He wanted to put his existing house on the market, put the proceeds of its sale towards the cost of a four bedroomed house and apply for a mortgage for the balance. He was told the bank would give him a loan for the second house and to hold on to the first house and rent it out.
Foolishly, this individual accepted the advice from the bank which, at the time, he thought was good advice. He ended up with two houses and two loans. He was reasonably well able to meet the repayments for a while but as the recession deepened, he found he could not pay for the second house. His business went into liquidation as work dried up and he found himself in receipt of social welfare payments. He now has two houses with loans costing him approximately €1,500 per month and he can repay neither loan. That was the kind of culture in the banks.
A small company had a loan with a particular bank but it went bust as companies have done over the past few years. It was in arrears on a particular loan to the tune of €300. The bank wanted its money and would not allow the person to add the €300 to the end of the existing loan and give him a bit of time to pay it off. The bank wanted him to take out a new loan thereby effectively penalising him for the small amount of €300. Lo and behold, the bank was on to him to pay it. A man with no identification knocked on his door on a dark evening looking for €300. The bank later confirmed that this individual was acting on its behalf. That is the kind of conduct of banks.
The question is whether that culture has changed. Many of us in this House know that the conduct of banks, in particular in regard to small businesses, self-employed people and mortgage holders, has not changed a whit. Banks are still telephoning people at all hours of the day and night, they are still into maximisation of profit and they still have the same culture.
Anyone who attended the Joint Committee on Finance, Public Expenditure and Reform recently and heard the Irish Bank Officials Association make a presentation will have come away from that meeting with the clear understanding that the culture has not changed. That is the fundamental problem.
The previous speaker said we are closing the stable door after the horse has bolted. There is nothing wrong with that. We should have done so before but at least we are doing it now. She also rightly said that we should learn from experience. The real question is whether the culture and priorities of banks have changed but, of course, they have not. The IBOA presentation showed that clearly. The ECB guidelines to banks have not changed. They still refer to profit maximisation as being the priority of banks. As long as that is the case, we will have serious difficulties in regard to banks and bankers.
There is no doubt that the various provisions in this Bill are welcome but the real question is whether they are sufficient to ensure banks are properly regulated. Legislation on the Statute Book is all very well but it is always down to the implementation of the regulations and the law. In the past there were regulations and laws governing the Central Bank but the political will was not there to ensure they were implemented. Despite the improvement in this Bill, if the political will is not there to ensure these regulations and legal provisions are implemented, we will have the same situation we had previously.
In the past, it was all about light touch regulation. The regulations were there and they will be stronger in the future but will they be effective? They can only be effective if the political will is there to implement them but I am not sure the political will is there. I am particularly unsure of it when I hear that next Tuesday, this Government will pay €700 million to Anglo Irish Bank bondholders. I was astounded when the Taoiseach told us this morning that the reason he will pay the €700 million next Tuesday is not that he believes it should be done but because Fianna Fáil agreed to do so. There was nothing about what he and his partner in government, the Labour Party, said during the general election that the bondholders would be burned and that not a single cent more would be given to the banks. He has now made a statement which is totally illogical that Anglo Irish Bank bondholders must be paid this €700 million because Fianna Fáil agreed to pay it. Is the Taoiseach the Taoiseach and is the Government the Government? I am not at all sure how that fits in with the regulation of banks. It is a view that is very difficult to understand. There is absolutely no logic to it.
We have also been told by various Ministers, including the Minister for Finance, and the Taoiseach that the Greeks have already got a 21% write-down but that they will now get a write-down of anything from 40% to 60% as a result of what is effectively a negotiated default. Apparently, we do not want that benefit at all. Why do we not want it? The inference is that, if we get the same write-down as the Greeks, we will put 35,000 public servants out of work or undertake the same austerity measures as Greece, but the opposite is the truth. If we had the benefit of a write-down, money would be available for job creation and the maintenance and reversal of social welfare rates and cuts, respectively, and the implementation of household charges could be stopped. The money could be used as an engine for growth in the economy, job creation and consumer spending so that we might exit this recession. The suggestion that 35,000 public servants would be put out of work is ridiculous, illogical and unbelievable.
I welcome that the Bill gives the Central Bank further powers, but whether it will be successful is another question. The political will to implement the legal position and the various regulations arising from it is the key to the success of the legislation. Given the Government's comments to date, I am not satisfied that there is such a will.
I wish to share time with Deputy Donohoe.
Is that agreed? Agreed.
I am pleased to be able to contribute on this welcome Bill. To put it in context, consider what has happened in the banks in recent years. A key component of the financial crisis was the lack of proper regulation. For example, two people are in business together. Both have young families. One person does not abide by the rules whereas the other tries to abide by them. If the latter does not go along with the former, he or she does not get any business. If there is proper regulation, the pitch is levelled for the good person.
The problem is that not only were the banks reckless, but there was no enforcement or regulation. We still do not know the full circumstances surrounding the former Financial Regulator's activities in respect of the banks. In the fullness of time, I hope this information will come out in a proper banking inquiry. We need to know the full details.
Parts 2 and 3 relate to the report of a skilled person, an important matter. Part 4 is also important. A Deputy referred to Mr. Eugene McErlean, a decent and honourable man who worked at a bank. People working in banks throughout the country knew there were major problems with the level of borrowings. Instead of having their opinions taken on board, they were told to accept and send applications up the line. It is important that whistleblowers be protected.
Two components of the Bill are worthy of comment. These are the power to give direction under Part 5 and the power given to the Central Bank to make regulations. I caution that we should not have regulation for the sake of regulation. We want a financial system that is sound and prudently regulated and can operate in a competitive global market. We have a significant financial services industry and must ensure that regulation does not make the banks and financial institutions uncompetitive. This issue must be taken on board if we are to maintain our competitiveness.
I welcome the Minister's amendments to recent legislation on credit unions and his indication that upcoming legislation will be referred to the commission on credit unions for review. It is important that we retain the ethos of the credit union system while ensuring credit unions are on a sound financial footing and remain competitive.
I welcome the broad thrust of the Bill, which will play an important role in the architecture of our financial services sector. It will strengthen the sector's international competitiveness. However, where regulation is enforced, we must examine its effect. When the Governor of the Central Bank examined previous regulation, he gave the impression that there was general formal regulation but did not go into specific detail. For this reason the reports of suitably skilled people will be important. This interactive process will involve the regulator, the Central Bank and the financial institutions so that they might have a better understanding of the industry and will help to ensure that the interests of the customer can be protected. The latter point is paramount. When international observers consider Ireland, they will see a well regulated, competent and competitive financial sector.
I welcome the Bill. During a Topical Issue Debate two weeks ago, I highlighted the degree of regulation of mortgage brokers and financial intermediaries. Last week, the Central Bank published the detail of the new regulations it is seeking to implement to protect consumers better and to ensure that people availing of the services of mortgage brokers and others are able to honour their financial commitments and are treated in an honest and professional manner. I welcome the progress represented by last week's announcement.
If we are to ensure proper regulation of the sector, an important point that I raised in the House two weeks ago must be remembered. If a judgment is pending against someone in respect of his or her work in another industry, it should make practising as a mortgage broker or financial intermediary more difficult for that person. We should do all we can to reduce the level of self-certification. Clients are asked to produce evidence of their income and debt levels. That is then taken as solid evidence in deciding whether they are able to afford to repay a loan.
I have seen with my own eyes the consequences of people having been loaned money they cannot afford to repay and the difficulty in evaluating accountability where there is a third person in the link between the lender and the lendee. The Central Bank is making progress in regulating that area. I know it is investigating it but I use this occasion to add to the importance of the point of dealing with the issue of self-certification and to do more to ensure that the people practising in the industry do not have judgments or findings against them that would indicate they are not fit to perform the role they have.
Section 33 provides protection for whistleblowers in this area. It builds on a provision in the Central Bank Reform Act 2010, which was passed in a previous Dáil term when I was a Member of the Seanad. That Act introduced the concept of a controlled function in terms of a number of roles in a bank that were very sensitive to the financial viability of the bank, and maybe even to the State, and that a heightened level of supervision and responsibility was endowed on those roles. This legislation now extends a greater degree of protection to a person who might be in such a role who believes something wrong is happening and wants to make that known to the appropriate authority.
It is important, when implementing this Bill, to make clear to those working in the financial services industry and the banks the heightened degree of responsibility that is now on their shoulders due to the passage of the 2010 Act and this Bill and the greater consequences they will face if, for whatever reason, they do not comply with the greater degree of responsibility conferred on them by the Central Bank Reform Act 2010 and by the protection available through the passage of a Bill such as this one.
I wish to follow up on a point Deputy O'Donnell raised when he said that people who worked in bank branches knew that large quantities of money were being lent to people who might not be in position to repay it. I would like clarification of whether unwise commercial activity, as opposed to illegal commercial activity, falls within the ambit of the whistleblower protection provision in this Bill and if such protection would be extended to a person who was unhappy about the sustainability of lending by a bank to a company or a group of individuals. I would like that point clarified. It relates to my earlier point that we need to make it clear to people working in these industries who have controlled functions that there is heightened responsibility on them and protection available to them due to the passing of this Bill.
I am delighted to say a few words on this Bill. I welcome it and compliment the Minister on bringing it forward. However, I have some worries and reservations about it in terms of whether it goes far enough and will have teeth such that it will put manners on many of the reckless bankers. I am talking about senior bankers, not the ordinary bank staff or local management, to whom many speakers referred this evening and previously, in that they had a knowledge of people and had built up a relationship with them, whether regarding a mortgage to purchase a house or a loan for a small business. They had an important and respected role throughout the country, but the banks, like other institutions, fell into providing poor public performance.
In the main control was taken away from the local managers in banks who had the pulse of the people. They knew who had or had not the ability to repay and they also gave good counsel but then the Johnny-come-lately, whippersnapper whizz kids came along. They all worked on a commission basis and therefore wanted to lend as much money as possible as quickly as possible to as many people as possible, and there was no regulation. People were paid to regulate but they were either asleep at their desks or did not care. Light touch regulation was the order of the day, they dished out the money and ignored the rules and took the view that if they ignored the bubble that was getting bigger it would never burst. It was like a snowball rolling down a mountain that gets bigger as it goes along. They felt they could attract new people and adopted the attitude that if the odd one fell off, why worry about it. There was no regulation, no enforcement and no one was brought to account.
When the crisis hit, and there are many anecdotal stories involving the hard work done by the late Brian Lenihan, God rest him, and the work landed on his desk and that of the then Taoiseach, the view was taken that there were too many problems and that we had to be bailed out. The bankers pulled the wool over many people's eyes and while the then Minister and Taoiseach paid the price for that we must ask what advice did the many people who were in advisory positions, not only in the banks but also in government, with their so-called financial expertise, give? What was the reason for the rush? Why did the bailout have to happen? I know there were fears of contagion and so on but it was like the downfall of rain we had on Monday night. It was a sudden flood and the whole thing came crashing down with devastating consequences for business people, home owners, families and ordinary people.
Throughout all this the banks have not been upfront, honest or in any way compliant. They gave reports and commitments to the previous Minister for Finance and the Government side voted for it as well. The banks were supposed to give €3 billion per year to small business but it was a total con job, despite the commitments they gave. The plans had to be in by a certain date, I believe by 30 April, but when they came in they were rejected by the Minister and his officials. Further plans were submitted in a glossy presentation but they never followed through on them, and they never intended to follow through on them. They did not have a red cent to lend but the way they got away with pulling the wool over the eyes of Ministers, officials and those of us in this House is what sticks in the craw of the ordinary people who are being persecuted and pilloried. My colleague from south Tipperary highlighted anecdotal cases, one of which involved a person who wanted to buy a house to trade up in the market who was told to keep the one he had and buy another one. That is the way it was at the time. Young couples starting out in life with a family got more than they applied for. They were told to throw into their application the cost of a holiday, an SUV or whatever they were having themselves. There was no talk of saving for a rainy day or that things might change.
The banks have not been honest. Local management in the main were good people. There are still many good people in the banks but the control has been taken from them and they have been sidelined. My own bank manager in south Tipperary, who shall be nameless, who is my age or a little older told me that he knew what was happening but that he would have got rapped on the knuckles if he had said anything. He said he would have been told to step up to the plate or retire. That was not said in so many words but he understood that to be the case if he did not comply and allow the young Turks who were under him to take control. He was sidelined to some extent. He was told this money had to be lent and that we had to catch up with Anglo Irish Bank and so on. There are many good people in the banks and they are all suffering now and are being pilloried. In some cases they are subject to unfair abuse thanks to a system that abandoned everybody. Greed took over and that is a sad situation.
I also welcome the provision on the protection of whistleblowers. It is vitally important that where an official in any job but particularly in the banking system is concerned about issues he or she will not be victimised, banished and that his or her promotion prospects will not suppressed.
I also welcome the provisions involving the reports of skilled persons. These provisions are based on a similar approach in the UK. We should examine best practice elsewhere and I hope that the Minister will. The ability of the Central Bank to collect information to ensure proper regulation must be water-tight. It is not only in Ireland that there were Central Bank problems, but it was very bad here and that is why we are in this perilous position.
With regard to the reports by skilled persons, if there are some other reports to be done the Bill also provides that the firms being reviewed must pay the costs of an independent report. This is not a bad development. While one will get any report one pays for, when there is a bit of sense, and there are checks and balances, this aspect will have to change.
This is progressive legislation. From where we stand or, should I say, from where we slipped or sleep-walked into this most awful position, any measure would be progressive. However, it must have teeth, it cannot be tokenism and it must be tough. It must bring back confidence among the public, the business community and the ordinary taxpayers that somebody is taking action. We are the ones charged with that. We are voted in here, the new Government and all of us, collectively, to try to restore some semblance of decency and responsibility in stepping up to the plate, being honest with the people and providing true reports rather than hiding from them.
Most credit unions of which I know kept the show on the road, were prudent in so far as they had to be and abided by the guidelines. There were many on their boards who were living in the community. They never lost touch.
We are told there are a few credit unions which could be in trouble but there is no list. We were constantly told we could not burn the Anglo Irish Bank bondholders and go hard on the bank because so many credit unions around the country had invested their depositors' savings in it. None of my colleagues, who asked the previous Minister and others, heard how many were involved. I believe it was only a smoke-screen.
The credit unions kept many families on the road, whether to cover expenses with back to school, for a holiday or for ordinary maintenance, damage to property or whatever in time of crisis, such as what happened in this city the other night. They are the only financial organisations with which people can have a relationship and from which they can get a loan fairly easily to keep the show on the road, to keep their families together, united and with a little pride and dignity, and to not be thrown to the moneylenders, whose activities must be examined given the racket in which they are involved.
It is appropriate that we frequently debate the role of the Central Bank, even though, unfortunately, it is presented to us in piecemeal form by a series of financial Bills giving it greater powers in limited areas. I say this because nobody is more responsible for the banking crisis than the former Financial Regulator and the Central Bank. Without their role in the financial crisis, in the lending and in the property frenzy, we would not be in the state we are in.
There was no regulation worth talking about in Ireland in the banking sector in the years leading up to the crisis in 2007. I wrote a book, The Bankers. I am not plugging it as it is out of print. The book opens with what was a telling scene, with Central Bank officials being wined and dined by the top bankers in Ireland. Several top officials in the Central Bank, including a departing chairman and a chief executive, were wined and dined by those whom they were supposed to be regulating. This was not an unusual event. The Irish Bankers Federation was hosting an unnecessary dinner for one of the central bankers and this sort of get-together was normal in Ireland at the time. Yet, those in the Central Bank were meant to be policing the banks.
The problem was that the bankers and the regulators were far too close. They were so close that the regulators completely took their eye off the ball, with the exception, if I may say, of the golf ball. Another little feature was that they, certainly AIB but also other banks, used to entertain the central bankers and the regulators to golf outings and the instructions to their members was to lose the matches because it was what they called "customers golf". That is an extraordinary, but true, story about the closeness of the bankers to the regulators in those days.
What worries me about this kind of legislation, which is excellent as far as it goes, is that it does not tackle the real problems in the Central Bank itself. It is not possible to impose good regulations on a bad culture. When I look at what has happened inside the Central Bank in terms of personnel and changes, I do not see any great cause for encouragement.
The previous Minister for Finance, the late Deputy Brian Lenihan who, in retrospect, will go down as a very great man, did make some improvements to the Central Bank and the Office of the Financial Regulator. He replaced the old guard, the old system of replacing automatically each Governor of the Central Bank with the Secretary General of the Department of Finance, a practice which was an appalling mistake because it meant that the culture passed from one to the other and there was no real difference or change. The changes introduced meant that the system whereby the regulator was appointed on a strange, but normally internal, basis was changed. Professor Honohan was brought in — an outsider — to take the place of the Governor and Mr. Elderfield was brought in to take the place of the regulator following the departure of their predecessors.
That was commendable but there is little sign of change elsewhere in the ranks of the Central Bank. The same names keep appearing. The same persons who were there throughout the bad years appear to be there and still in charge. As a result, the same culture appears to be still intact and there is plenty of anecdotal evidence for that.
Worse is the fact that the board of the Central Bank is still politically appointed. I do not want to name names. I do not know whether it is even in order to name names of board members; it is not necessary in any event. Certainly, the Central Bank, before the board was reformed, had names on it who were clearly identified with political doctrines and political parties. I do not know whether they were asleep at the wheel as a result because it was not required of them to do anything except collect their stipend of €15,000 plus a month and keep quiet. They certainly did not do a good job. The fact that they were politically appointed was not to their advantage and was not to the advantage of the State.
It depresses me somewhat that the new board of the Central Bank was politically appointed and certain people whom I have named elsewhere but will not name here were appointed. They have absolutely no obvious credentials for the job of being on the board of the Central Bank except that they had expertise in other areas which were utterly irrelevant in the current crisis. Little has changed, in my view, and little has changed in the culture of the Central Bank. I hope this will be addressed in a future Central Bank Bill but there is no sign of this happening. It is unfortunately in the nature of governments to retain that sort of power of patronage even in circumstances where it is quite obvious that this is a disadvantage. It would be immensely to the Government's advantage if it took the membership of the boards of such sensitive areas where they are meant to be utterly independent and contain expertise which is vital, out of the political arena. This Government has not yet had the opportunity, as far as I know, to make appointments to the board of the Central Bank. I plead with the Government when it does so to use a process which is at least at arm's length to a direct ministerial appointment.
The other area which should be addressed is that of appointments to the boards of banks. This matter is not addressed in this Bill but it is undoubtedly true that the Central Bank will have to have an input into these boards and eventually these too will be political appointments. I am sorry the senior Minister is not in the House but I ask what is the delay in filling the many vacancies which exist on the State-owned banks. Is this because of a need to save money or because people are not offering or available?
Everybody now knows that advertisements have been put in the newspapers with regard to membership of these boards. I recall that in the initial stages, approximately 480 applications were received from members of the public and these were filtered down in number. Officials from the Department of Finance interviewed the applicants and the names were to be submitted to the Ministers. For some reason, nothing has happened. This process began in the spring and none of these vacancies has been filled. It may be there is a lack of suitable people. My information from those who have applied and who have been refused is that there were plenty of suitable applicants and they have been turned away. I fear that the public application process, the advertising of these jobs in the newspapers which has been paraded as a kind of new broom, is not working properly or else that it will be ignored. The final say for these appointments lies with the Minister and he does not have to choose anybody from that public application process. The process is also flawed because it is quite obvious — I am not saying it happens — that if a devious politician or a devious Minister in whatever Department wanted to make an appointment of one of his friends or cronies as happened, certainly, under the previous Administration, he or she could easily advise that person to apply under the public application process. The name could then be chosen by the Minister as having come through that particular channel. I do not believe that the boards of banks should be picked in that manner but the record of the previous Government, long after the crisis broke, was absolutely deplorable. Certain people were appointed — I will not mention their names because I am feeling in a charitable mood but I have mentioned them elsewhere — who had quite obvious connections with political parties and had no expertise in banking. If this is going to continue, the culture of the banks will not change and what is more serious, the culture of the Central Bank will not change.
This Bill is a welcome measure but we need to tackle the disease and not just the symptoms. We must not merely paint a picture of reform when real reform has not happened. I welcome the attempt in the Bill to address the problem of whistleblowers. I have tabled a Private Members' Bill on whistleblowers to be heard in the near future. It is a sticking plaster approach to the financial services area whereas a comprehensive whistleblowers Bill is necessary in all sectors of the economy and in all companies and other areas. I ask where is the Government's comprehensive whistleblowers Bill which was promised initially for October. We were then told there might be a need for a referendum on the topic but I do not think that is true. I do not know whether the Government is rethinking its policy or whether there is a delay. I ask the Minister to reassure me. There is a widely held sceptical belief of strong resistance to a comprehensive whistleblowers Bill not just in the Department of Finance which is notably conservative about issues of this sort, but also in IBEC which is dominated by the banks. As the Minister will know, IBEC is kept alive by the oxygen of the funding given to it by the banking and the semi-State companies. Its biggest funders were, and may well still be to a certain degree, Bank of Ireland, AIB and a few semi-State companies. This is pretty bad company to be keeping but these were the people who were dictating the pace of IBEC policies. It would be very depressing if the Minister confirmed to me that IBEC had been lobbying against a comprehensive whistleblowers Bill because he was acting as a voice of the banks.
We have to be aware that despite the fact they appear to be on the back foot, the bankers are still as strong a lobby group as one will find in this country. In Europe the bankers are successfully resisting the haircuts being imposed by governments. The bankers have several means of lobbying the Government and effectively controlling it. One of these is the Irish Banking Federation which is immensely well connected politically and always has been. It is in close contact with the Department of Finance and always has been. It runs an extraordinarily effective public relations machine. The Institute of Bankers in Ireland is a lobbying group and IBEC is one of the key social partners, one of the big organisations traditionally with clout — not so much now — in this land. Such a grouping can directly lobby through the Irish Banking Federation and through IBEC which is probably the less powerful of the social partners, but still powerful. One must realise one is dealing with a very professional organisation with money and clout and a certain amount of control. I ask the Minister to bear that in mind when he is considering the whistleblowers Bill and whether it will be comprehensive rather than piecemeal legislation.
The briefing document we got on this Bill from the Oireachtas Library and Research Service, which is very helpful on legislation such as this, picked out the case of Eugene McErlean, who was a whistleblower in AIB around 2002. It was interesting in his case that he was not just a whistleblower on AIB. Having worked in AIB as the internal auditor, he blew the whistle on overcharging to the Central Bank. However, the Central Bank behaved in a way which — I am choosing my words carefully — did not give any credibility to McErlean's charges and obstructed them. Not very long afterwards, McErlean lost his job. He was threatening to blow the whistle on massive overcharging. A settlement was made with him and he was forced to sign the confidentiality clause. Pressures, which were irresistible within a bank of that sort, were brought on him to leave. The Central Bank sang schtum, silent, and co-operated with the wishes of AIB in the case.
That case eventually came to a climax when Eugene McErlean came before the Oireachtas Joint Committee on Economic and Regulatory Affairs and AIB was forced to make an apology to him. Eugene Sheehy, in what was a noble gesture for a man who is not universally respected for what he did — and rightly so — apologised to him and said what AIB did to him was wrong. It was totally wrong, because he was an honest man who was removed from his job for blowing the whistle on gross overcharging. The overcharging scandal hit the media later on and what McErlean had to say was found to be true in every detail. Perhaps the committee in question was the Oireachtas Joint Committee on Finance. I am not quite sure as I attended both committees at the time. In a similar meeting of the joint Oireachtas committee later, the new Financial Regulator, Matthew Elderfield, having reviewed the case, exonerated McErlean and regretted what had happened to him. The lesson of the McErlean case was not that AIB had wronged him — it had grievously wronged him and deprived him temporarily of a career — but that the Central Bank, the guardian of the State's and of consumers' interests and the ultimate invigilator and patroller of the banks, had co-operated in the demise of an honourable man.
What concerns me about this Bill is not what is in its detail, but that it does not go far enough. My concern is that the culture of closeness between the Central Bank and AIB, Bank of Ireland and the other banks still exists. What I would like to see is a root and branch Bill which reforms the Central Bank from top to bottom so that we are guaranteed not just that the rules will change, but that the culture will change forever. There is very little sign of it changing within the banks themselves.
I am glad to have the opportunity to speak on this important legislation. It is ironic that the need for this legislation was evident several years ago, not just in the past few weeks, months or year or two. I agree with many of the sentiments expressed by Deputy Ross. I do not always agree with him, nor he with me and I would be worried if that were the case.
I agree with much of what he said concerning whistleblowers. I recall a previous well-known whistleblower in the same financial institution mentioned by Deputy Ross who was identified as having leaked crucial information to the media which indicated clearly there were serious weaknesses in the way the particular financial institution was operating and with regard to the way that financial institution was observing the rules and regulations laid down by the banking system and in legislation. He also indicated the institution was circumnavigating the system successfully and in such a way as to deprive the State of a considerable amount of revenue. As Members will know, this ultimately became the subject of the DIRT inquiry. This happened several years ago, but, sadly, no lessons were learned.
It is sad that we are back in the same place, having reverted to old habits. All of the issues raised by Deputy Ross, such as the incestuous relationship between auditors and financial institutions, were identified as being seriously detrimental to stability in the financial system. All of those issues were addressed and guidelines were set down. The regulatory system was introduced, as there had been no regulatory system as such previously, and regulatory guidelines were put in place. What happened as a result? Nothing. There was no observance at all as a result. The kind of attitude Deputy Ross mentioned continued. There was a kind of laissez-faire attitude to everything and an attitude of: “Let us get on with the real business and forget about these kinds of regulations.” Sadly, we reached a situation where there was total contempt for legislation and regulatory guidelines and a total contempt and lack of respect for any kind of authority. The result was financial disaster and that is where we are now as a consequence.
I do not wish to blow my own trumpet, but I remember the fateful day of 29 September 2008. The curtain was drawn back and we all got to see and hear what was about to happen. At the time, I could not understand why the Central Bank, the Secretary General of the Department of Finance and the Financial Regulator were not all before committees at that time clarifying what went wrong. Some of us knew what went wrong. What was wrong was something I have tried to raise on numerous occasions in this House, a contempt for company law. In the early 1990s, some of us who were here then spent 18 months dealing with Committee Stage of the Companies Act. I am aware that it is due for review and consolidation now. There are so many flagrant and blatant breaches of company law on a regular basis here that it has become a serious issue which requires emergency treatment. That is the philosophy that has grown here.
If there are breaches of company law in the United States and if the company is at risk as a result of those breaches, action is taken against the perpetrators and against those directly responsible. In this country, a different situation exists. Here in this country we get an evaluation of the interests of the so-called investors or stakeholders.
In other jurisdictions, other interests must be taken into account, such as the common good and the general exercise of the functionaries in place. Failure to observe those regulations carries serious penalties.
Sadly, there is distinct disquiet at any attempt to investigate the issues that caused the problems we face. Observe the furore in recent days about Oireachtas inquiries. I am strongly in favour of ensuring due process and natural justice prevail. That is how it should be but that is not how it is intended. There is no intention of allowing that to happen in the lifetime of this Dáil because too many vested interests and sacred cows will be upset and too many ivory towers will be cracked. For reasons that may be good and genuine, the legal profession is concerned about Dáil committees of inquiry taking on a role of addressing these issues. I can understand why they are concerned. It will be a shorter and less expensive system and there is no guarantee that due process and natural justice will always prevail. However, in those cases the courts must prevail and there must be access to the courts.
The hysterical reaction at the present time leaves me speechless and I cannot understand it. Relatively speaking, the DIRT inquiry cost nothing, approximately £700,000 or £800,000, and brought in £1.2 billion in receipts to the Exchequer over a period of ten or 15 weeks. Legal advice was available to it. Several attempts were made by powerful vested interest groups, under the radar, to dethrone the committee. These groups attempted to torpedo the activities of the committee and its investigations. This occurred several times. The issue is not whether natural justice will prevail but whether anyone in a parliamentary system will be allowed to investigate the activities of people to whom responsibilities were devolved under the democratic system in this country. That is a serious issue and it is one we need to observe and address now. If we walk away from it, hold up our hands and say that we should leave it to someone else, it would be an abdication of responsibilities. It is something for which this or any other generation of public representatives will not be forgiven. From practical and personal experience, I emphasise that the points referred to, many of which have been raised by Deputy Shane Ross from a different perspective, are valid and need to be addressed urgently. If not addressed, we will have a series of similar discussions in this House or another House in future and that does not represent progress.
We all know the functional role of the Central Bank and the Central Bank knew its role over the past number of years. The Central Bank was overawed by political authority, which is not its function. The function of any institution with a statutory role to play is to do its job and, by all means, answer the questions raised by the political authorities but not to be overawed by them, subsumed into them or pushed aside by them. The Central Bank traditionally did its job in this way. In the 1950s, 1960s, 1970s and 1980s it was not uncommon for the Secretary General of the Department of Finance or the Governor of the Central Bank to speak out of sync with Government policy. That is not to say the Government was conceding its authority. We can have all the expertise we want but the job of the Executive is to ask the questions and test the case made. It is the job of the Executive to test the case made by the Central Bank but it obviously did not do this in the past. Each body became overly reverential towards the other's position. The result was a friendly, common approach that was in someone's interest. Eventually, the whole thing took on an impetus of its own and that lead to a downward slide at an alarming pace that brought the country to its knees.
I disagree with Deputy Shane Ross on the following point. Experts do not have the answer to everything. If anyone believed that the expert opinion we have heard expressed in this country over the past three years or the past ten years was accurate, it was not. The Executive failed to question expert opinion. I and others have talked about this point on several occasions. The Executive failed to question expert opinion on the basis that it was not qualified to do so and I strongly disagree with Deputy Shane Ross on this point. It does not fall to those with a particular expertise to be the be all and end all in regard to what they know most about. An old official in a local authority gave me very good advice many years ago, saying that if I ever wanted to take on a person in an unassailable role, the area they least expect to be taken on is the role in which they have the greatest expertise and are most qualified. He told me that was the weakness.
There was so much deference to expertise, with the attitude of "Howya Seanie?" and that everything is going okay and how could it be going wrong in any case because it was going right last year. No one questioned the basis for this opinion, how the person had come to this conclusion, who they consulted with, whose paper they referred to and what people thought of certain policies, papers or opinions. As every Member of this House must always do, I reserve the right to question expert opinion and to have an opinion of my own. I will stand by that opinion and will ask the question again and again why conventional regulatory procedures were not followed. This was simply because new women and men had new, brighter and better ideas but no one tested the ideas and there was no basis for coming to such conclusions. We know the result.
There is a tendency for people with expertise in a particular area to become alarmed when someone questions their authority. No one should be alarmed when their authority is questioned. They only have to answer simply and explain the situation. If they cannot explain the situation, they have a problem. We must examine the attitude we have in respect of questioning people in authority, particularly on economic issues and what seems to be the preserve of an elitist group of people who seem to have the answers to everything but seem not to know the cost of anything. Let us consider a simple example. The Central Bank had a direct link to the ECB and vice versa.
Moreover, the ECB interacts with the regulatory system and the Government finance department in each eurozone state. Given such apparently robust oversight, how did it all go wrong? The basic reason is that people did not observe the terms of reference of their job. Moreover, the authorities which appointed these people to do the job did not appoint them to perform their function in accordance with the terms of reference but rather to maintain the status quo and ensure no feathers were ruffled. We know where that brought us.
The important question now is whether our experiences in the last ten to 15 years will serve as a useful guideline in the future, or will they be observed for a time and ignored when it becomes convenient to do so? That is what happened in the aftermath of the DIRT inquiry. It is amazing that nobody seems to want to dwell on the fact that we have been here before, long before we got into the type of difficulty we are now experiencing. All of the issues and weaknesses were identified, all the necessary regulations were made and all the legislation put in place. Unfortunately, all of that was ignored.
I do not agree with Deputy Shane Ross's view that the answer is to ensure there is expertise available to financial services and in devising fiscal policy. We hear from many experts, or those who presume they are experts, in this House. Yesterday morning, they told us we should all identify with Greece and seek to emulate the benefits of the Greek financial situation. That was only 24 hours ago. Having read the newspapers in the meantime, I am not surprised they have rapidly resiled from that position. That is where expertise gets us. Our experts do not seem to be as expert as they claim to be. I will not go into the details as to why that might be, but suffice to say that vested interests is one of the reasons and political advantage is another. Neither of those two issues should be to the fore at the present time.
The solution lies not with so-called experts but in ensuring the relevant people abide by the terms of reference of their role. It must be a requirement that one follows the rules and regulations, observes those regulations from day one and does not deviate from them in any way without providing a compelling reason for doing so to the authority which appointed one to the role. Had that been done, we would not be where we are today.
This country is facing an extremely serious economic situation, but I have no doubt that we have the ability to survive and that we will survive. Nor do I doubt that there is a commitment on the part of most people, both in and outside this House, to ensure we survive. However, there is always the tendency to take the quick-stick opportunity, to claim there is a better, easier or quicker way. The bottom line is that there is no such way. The time has come to knuckle down, put our shoulder to the wheel, accept reality and do what must be done. In doing so, we must be careful to stand by the many people throughout the State who are vulnerable. Nobody knows better the circumstances in which people are struggling than those who meet them on a daily basis. We have sometimes had lectures from Members in this Chamber as though they were the only people who ever met anybody outside the House and that the political system was impervious to everything except their eyes and ears. The rest of us also meet with people and have done so for a long time.
It is imperative that this country achieves certain objectives. First, confidence must be restored in the institutions that are here to protect us all. That is of more importance than ever. Second, everybody must be seen to put their shoulder to the wheel, make sacrifices and bear their fair share of the burden. Third, everybody must accept responsibility to effect change, including ordinary Members of this House, the Government and the various bodies and institutions — financial, statutory or otherwise — throughout the country with a direct responsibility to observe and enforce the law of the State. I welcome the legislation and hope it will be effective. It must be observed in the letter and in the spirit. It is to be hoped that as a result of this and similar legislation, we will never again have to revisit this issue.
I thank Deputies for their contributions and for their constructive engagement with this legislation. The Minister for Finance is looking forward to a more detailed consideration of the provisions on Committee Stage. I wish to respond to some of the issues raised by Deputies in the course of this debate. We will have an opportunity to deal with the other matters on Committee Stage.
Deputy Michael McGrath raised the issue of consultation. The Department of Finance has consulted with a broad range of sectoral interests and further consultations are planned. Any body or group wishing to be involved in that should contact the Department and it will be accommodated.
The role of the Financial Services Ombudsman was raised and it was suggested that there should be a mechanism to allow for the valuable information gathered by the ombudsman to be shared with the Central Bank to assist it in carrying out its regulatory functions. I am advised that a memorandum of understanding was signed between the Central Bank, the Financial Services Ombudsman and the Pensions Ombudsman in April 2006 to facilitate the exchange of information of systemic importance between those bodies. Section 57CQ of the Central Bank Act 1942 sets out the duty of the Financial Services Ombudsman to co-operate with the Central Bank and his or her power to make recommendations to improve financial regulation. This is an important feedback loop in the system which allows real-world experience to inform the ongoing improvement of financial regulation.
In regard to skilled persons reports, Deputy McGrath suggested that it would be more appropriate for the Central Bank, rather than the financial service provider concerned, to appoint the reviewer. The Central Bank already has the power to appoint persons to carry out investigations on its behalf, through, for example, the authorised officer powers set out in Part 3. I agree with the Deputy, however, that those appointed as authorised officers should be people of the utmost integrity.
Deputy McGrath also raised served points regarding the whistleblower provisions in the Bill, with particular reference to the use of internal processes and the interaction with the mandatory disclosure provisions in criminal justice legislation. The Bill does not require the use of internal processes in the first instance, as the matters protected relate to legal and compliance issues, which are enforceable by the Central Bank rather than in-house management. It is also difficult to protect the identity of a whistleblower where the person is first required to exhaust an internal process. The Criminal Justice Act 2011 provides that it is an offence for any person to fail to provide relevant information in regard to the commission of a serious offence under Irish financial services law. However, the provisions of this Bill relate to a different context under the Central Bank's fitness and probity regime.
Deputy Mary Lou McDonald suggested that the Central Bank should be under a duty to act on disclosures made to it by whistleblowers and others. I agree that we should not put measures such as these in place without an expectation that they will be used to full effect. The Deputy has indicated that her party intends putting forward amendments related to this point on Committee Stage and I expect that will provide an opportunity to deal with the matter at greater length.
Deputy Boyd Barrett mentioned the role of markets and competition in the financial crisis. That is a wider issue than can be dealt with in this Bill. I would make the point, however, that the responses to the financial crisis, both in Ireland and internationally, have been framed on the basis that markets do not always know best and that regulation is necessary to check unsustainable risks both within firms and affecting the wider financial and economic system.
I hope there will be an opportunity to discuss the other matters raised by Deputies as the Bill continues its progress through the House. I thank Deputies for their contributions and assure them that the Minister for Finance will give careful consideration to all the issues raised. I commend the Bill to the House.
Question put and agreed to.