Vol. 804 No. 1
57. Deputy Andrew Doyle asked the Minister for Finance if he will outline measures taken at the May ECOFIN meeting to secure protections against excessive financial speculation in the food and other commodity derivative markets through the review of the markets in financial instruments directive; and if he will make a statement on the matter. [23718/13]
The MiFID, markets in financial instruments directive, file was included on the ECOFIN agenda as part of the any other business legislative updates on key files and there was very little discussion on the issues in the file. The purpose of the discussion was to update the member states on the current state of play of this dossier and to reiterate my hope that the Council can reach an agreement on a general approach during the Irish EU Presidency.
Trading in commodity derivatives, including food commodity derivatives, forms part of the regulation of derivative trading in the EU. Regulation of derivatives has been part of Council discussions within the EU since September 2010 when the Commission published its proposal for the European market infrastructure regulation, EMIR, to regulate this market in the context of over-the-counter, OTC, trades. This EU regulation, which is directly applicable in all member states, entered into force on 16 August 2012.
In October 2011, the European Commission published a revised MiFID proposal, MiFID II, which includes within its scope commodity derivatives traded on exchanges. As previously stated, the negotiations on the MiFID review are still under way in the Council of the EU.
EMIR and MiFID II combined are expected to result in a tighter regime for all derivatives, including food securities, whether traded OTC or through exchanges. The measures are intended to keep pace with trends in derivatives trading, in line with G20 commitments made at the 2009 Pittsburgh summit.
The Central Bank of Ireland is the competent authority in this country for the purposes of derivatives legislation. In particular, the current Council text of MiFID II contains important provisions relating to position management, position limits and product intervention. These provisions are in respect of all financial instruments, including commodity derivatives, and have the purpose of providing regulators with tools to avoid excessive speculation in financial instruments, including commodity derivatives. Competent authorities will be obligated to establish and apply position limits on the size of a position in a commodity derivative which a person can have over a specified period.
Furthermore, competent authorities will have product intervention powers whereby they may prohibit or restrict trading of financial instruments or prohibit or restrict investment activities when there is a threat to the orderly functioning and integrity of financial markets or commodity markets. The European Securities and Markets Authority, ESMA, will have contingency and co-ordination powers in position management and product intervention to ensure consistent application across all member states. In the exercise of its powers, ESMA will also have to consult public bodies competent for the oversight, administration and regulation of physical agricultural markets.
When an agreement is reached on Council general approach, the negotiations will move to trilogues between the Council, European Parliament and Commission.
Deputy Andrew Doyle is not in the Chamber as he is chairing a committee meeting. I thank the Minister for his response.
The review of the markets and financial instruments directive is a very complex area. Speculation on food and other commodity derivative markets has significant repercussions not just for producers in Ireland and the European Union but also global consumers. The effect of excessive speculation is contributing to huge price inflation for food, particularly in developing countries. It is not just affecting people’s pockets but is almost a matter of life and death in developing countries. I accept other issues, such as the consolidation of banking in the European Union, will take up much of the agenda at the forthcoming ECOFIN meeting.
However, regulation and supervision under MiFID should be European wide and it should not be left to member states to supervise or regulate their own markets. Over the counter trading must be included in the regulation and not exempted or watered down, and there should be genuine reporting of trading on these markets. We are aware of the algorithms and the processes by which traders and markets operate and the speed with which they operate. There should be a matched response in reporting to the Central Bank to assess these issues. It is a hugely important issue and I urge that the position be taken against the lobbying by the financial industry, particularly in the UK.
Deputy Harrington has raised the kernel of the issue. Price volatility on the world markets has an impact on food inflation. Farmers who have to purchase protein supplements to feed animals can outline the impact of price speculation on their day-to-day livelihoods. This issue is not only about speculators on the commodities markets gambling with the lives of people in the developing world; it is also threatening the livelihoods of livestock farmers in Ireland. An additional 159 million have become hungry because of food spikes in both 2008 and 2011 and food speculation on the derivatives markets was a factor in this regard. Will the Minister clarify that the Government's position is to force position limits across the sector on an individual rather than a market management situation, which it is feared could be the approach taken? Can he ensure the loopholes are not allowed to water down this directive to make sure speculators can get around market speculation through the use of individual limits rather than limits across the sector as a whole?
There is significant concern about this issue and it was ventilated earlier when we discussed food poverty and the impact that has on developing countries. I would like to focus on the concerns of many groups about the watering down of this directive during the review. There has been a deal of transparency. For example, Sharon Bowles and a number of other senior MEPs have put on record the number of lobbies they have received. Will the Minister put on the record whether he has received any lobbies from the industry, who they were, the number of meeting requests and so on, and take a leaf from Sharon Bowles and others? Barclays won the award of shame last year for its speculation on food commodities. Will he confirm that none of the financial institutions the State owns or in which it has shares is involved in such speculation?
I have had no representation from people in the industry on expanding or watering down MiFID but there may have been representations to my Department. If Deputy Doherty tables a parliamentary question for written answer, I will make sure it is answered adequately.
The best way to reply to all three Deputies is to give a short summary of the current Council text. It states:
First, more products will be defined as derivative financial instruments as compared to MiFID I and will, therefore, fall within the scope of MiFID II and other financial legislation such as market abuse.
Second, MiFID II narrows down exemptions as compared to MiFID I. This means that many commodity firms will fall within the scope of the legislation and will have to comply with all MiFID II provisions.
Third, MiFID II also contains position management position limits and product intervention provisions in respect of all financial instruments, including commodity derivatives, as tools to avoid excessive speculation in commodities.
The current Council text of MiFID II proposals places position limits at the centre of position management and requires limits to be imposed as part of the position management regime for commodity derivatives. Competent authorities will be obligated to establish and apply position limits on the size of a position on a commodity derivative which a person can have over a specified period of time. Investment firms and market operators operating a trading venue which trades commodity derivatives will also have to apply position management controls. Furthermore, competent authorities will have product intervention powers whereby they may prohibit or restrict trading on financial instruments or prohibit or restrict investment activities when there is a threat to the orderly functioning and integrity of financial markets or commodity markets.
The European Securities and Markets Authority will have contingency and co-ordinated powers in position management and product intervention to ensure consistent application across all member states. In the exercise of its powers, ESMA will also have to consult public bodies competent for the oversight, administration and regulation of physical agricultural markets. Moreover, entities and persons otherwise exempt from MiFID II will still have to comply with position limits and position management provisions.
It meets many of the Deputy's requirements. In terms of the Irish Presidency, we are committed to advancing it as a priority and we think we will have it substantially advanced in the last weeks of our Presidency, but it may not be fully in place. However, I think we will have taken it beyond the point of no return.
Will the Minister try to ensure the position limits are set at a European level rather than at a national level? He might take that on board in the discussions.
I will do that.
58. Deputy John Browne asked the Minister for Finance if he has drawn up clear corporate governance guidelines in respect of the way the State should exercise its voting rights in State supported banks; and if he will make a statement on the matter. [23909/13]
I can confirm for the Deputy that my Department takes very seriously its responsibilities in regard to safeguarding the State's assets and maximising the return to the taxpayers of the funds invested on their behalf. In this regard, a number of directions have been issued to the National Pensions Reserve Fund Commission, NPRFC, since the directed investments were acquired pursuant to my powers under Investment of the National Pensions Reserve Fund and Miscellaneous Provisions Act 2009.
The initial directions were issued in 2009 and these have now been superseded by directions given in 2010 and 2011. The 2011 directions require the NPRFC, on an ongoing basis, to notify the Minister for Finance in advance of all corporate actions, meetings or other exercise of voting or other rights the NPRFC has as a shareholder and exercise those rights in accordance with ministerial instructions; exercise its rights as a shareholder to require the bank to convene a general meeting if instructed to do so by the Minister for Finance; not dispose of the directed investments without instructions from the Minister of Finance; and take any action necessary to appoint or remove or maintain the directors as directed by the Minister for Finance from time to time.
The section of the NPRFC Act 2000 - consolidated to 1 October 2012 - that governs voting instructions is section 19B. This section requires the NPRFC to notify me in advance of any meetings or other exercise of voting rights as shareholder and they then vote or exercise those shareholder rights in accordance with my specific or general instructions. Analysis and advice is provided by my Department in regard to the votes cast by me and also in regard to actions taken by me as shareholder.
I reassure the Deputy that when I am entitled to vote or act as shareholder in respect of the State supported banks, I weigh up all the relevant facts and decide in the best interests of the taxpayers who have invested enormous sums in order to support these banks given their vital role in our economy.
I thank the Minister for his reply, a summary of which is that he personally decides on issues as they arise. We all know the issue which brought this into sharp focus was the recent Bank of Ireland annual general meeting. The Minister gave us his rationale for abstaining from the vote, namely, the ongoing Mercer report dialogue in the bank.
I felt it was important to get clarity on how decisions are made. This is particularly important with regard to Bank of Ireland, which is in a different category from AIB and Permanent TSB. In the future, the decisions that will have to be made on certain issues will require recourse to shareholders. I refer to the re-election of directors or - please God - the payment of dividends. It is important for us to understand the process the Minister undertakes when he arrives at the decisions he makes on behalf of the Government and, by extension, the Irish people for whom he holds these shares. Perhaps he can elaborate on that. When these individual decisions arise, from whom does he seek advice so that he can exercise his vote accordingly?
It is fair to say the general public was sickened when the Minister decided not to exercise his right to vote against the remuneration of the CEO of Bank of Ireland, Richie Boucher, who receives a salary of €843,000. He holds the citizens' votes in trust. He holds them on behalf of the citizens who bailed out the bank. I would like to join Deputy McGrath in asking the Minister to explain the decision. Did the Minister receive formal advice from within the Department or from the Central Bank? Did he receive any advice that was contrary to the direction he has taken? Will he make the advice public? If not, will it be available under freedom of information? It is very important for us to know what type of advice the Minister is getting on this issue and other issues. If he decides to sell the shares in one of our banks, for example, it could be a very negative issue for the State and its directed investment if the wrong price is achieved. Some banks have lost substantial sums of money because they sold at the wrong time. Will the Minister make the advice available? Did he receive any contrary advice on the remuneration issue?
The salary paid to the CEO of Bank of Ireland was negotiated by the relevant Ministers in the previous Government, which was led by Fianna Fáil and the Green Party. While we would like the salary to be lower, we have been legally unable to dismantle it. This Government has provided for a much lower ceiling for remuneration for CEOs. I will not take any lectures from Deputy McGrath about extravagant salaries because his party provided for such salaries when it was in government.
I gave no lectures. I asked valid questions.
I would like to address the issue of the abstention at the AGM. As we have just 15% of the vote, our decision to abstain, vote against or vote for was not going to influence the outcome. All the other investors voted in favour of what was recommended. I gave my reasons previously. I think they are valid. I think the decision to abstain was a very good one. Arising from the recommendations of the Mercer report, I have written to Bank of Ireland and the other domestic banks to instruct them to respond by the end of the April outlining their strategies for the delivery of savings of between 6% and 10% of total remuneration costs. We have discussed this already. I did not consider it appropriate to endorse the directors' remuneration at Bank of Ireland in advance of receiving a response to my instruction. Therefore, I decided to abstain on this resolution. I can confirm that I voted in favour of each of the other resolutions. That is the position. It is a very valid position, contrary to what has been suggested in various contributions inside and outside the House. In his capacity as a journalist, Deputy Ross has written several articles criticising me. If my predecessor had followed the Deputy's advice in respect of Anglo Irish Bank, Seánie FitzPatrick would have been the CEO.
Come on. That is an old line now.
That was the advice given by Deputy Ross in 2004.
He did not say that.
I did not hear the Minister. What did he say?
Deputy Ross heard it all right.
I did not lecture anybody. I asked about the corporate governance guidelines that are in place to enable the Minister to make decisions on behalf of the citizens of this State when questions arise at the AGMs of the banks in which we hold shares. I accept that the final decision is made by the Minister. Who advises him? Is he advised by the NTMA or by the banking unit within the Department of Finance?
That is the issue that brought it into focus, which is fine, but more issues will arise in the future. The question is how the Minister arrives at those decisions.
I will be succinct in the hope of getting a reply. Did the Minister receive any contrary advice on the direction he took, which was to abstain in regard to Mr. Boucher's remuneration or salary? Did he receive any contrary advice, other than to abstain?
As on all matters, this is a democracy and the Government, which has a majority in the House and is elected to govern the country, governs it. The Minister for Finance's mandate comes from the electorate and he takes advice from the appropriate authorities and makes decisions as best he can. That is the way it works. The NPRFC is the body that holds the shares and the officials from my Department are appropriate advisers, as are the NTMA and the Central Bank, depending on the issue. I take advice all the time and I then make up my mind and make a decision.
I take it he got contrary advice given the fact he will not give it out.
59. Deputy Niall Collins asked the Minister for Finance if the National Asset Management Agency has changed its strategy to give greater preference to loan sales rather than direct asset disposal; and if he will make a statement on the matter. [23914/13]
As the Deputy is aware, NAMA is obliged under section 10 of the NAMA Act to obtain the best achievable financial return to the State on the assets acquired by it. I am advised by NAMA that there has been no change in its strategy. For any particular asset or group of assets, NAMA assesses whether the best return to the taxpayer is achieved through the sale of the underlying property by a debtor or receiver or through the sale of the loan by NAMA itself.
As set out in response to recent parliamentary questions on the topic of NAMA loan sales - Questions Nos. 179 to 182, inclusive, of 16 October 2012; Question No. 167 of 16 January 2013; Questions Nos. 279 and 280 of 19 February 2013; and Question No. 216 of 23 April 2013 - NAMA has adopted a very thorough approach in line with accepted international market best practice for the sale of loan portfolios. NAMA operates a phased and orderly programme of disposal of both assets and loans to achieve the best possible outcome for the taxpayer. NAMA’s policy in regard to loan sales, as with the sale of properties by its debtors and receivers, is that other than in exceptional circumstances, loans should be openly marketed. To date, loan sales have been mainly triggered by third party approaches. After receiving such approaches, NAMA’s practice is to appoint loan sale brokers to market the loans and to deal with offers from the original bidder and from other interested parties.
As the Deputy is aware, the unaudited accounts for NAMA for the fourth quarter of 2012 were published last month and these accounts highlight the progress that NAMA has been making in delivering on its business plan. A detailed account of debtor strategies will be included in NAMA’s annual report and financial statements for 2012 which have been submitted to me and will be published in the coming weeks.
NAMA has maintained a strong cash position, generating over €10 billion in cash, it has repaid €4.75 billion in NAMA bonds and I am advised that it will meet its target to redeem €7.5 billion by the end of this year. In addition, NAMA is playing a key role in supporting employment in the property and construction industry and is continuing to work with a wide range of public bodies, including Government Departments, local authorities and State agencies.
The reason I put down the question is that I noticed a lot of recent activity in NAMA has centred around the sale of loan portfolios as opposed to the sale of actual property assets. There was one high profile sale, Project Aspen, which was in regard to a joint venture, and another which was subsequently cancelled in regard to a portfolio called Project Club. I know the Minister has issued guidance to NAMA in regard to how the sale of property assets is to be conducted with a view to ensuring they are open market sales. The Minister referred to a certain procedure involving the appointment of loan brokers who then put the portfolios out to the market under certain circumstances. He might advise as to whether he has issued comparable guidelines to NAMA in respect of the sale of loan portfolios as he has already done in respect of the sale of property assets.
As the Deputy knows, NAMA operates under the NAMA Act and, in general, it operates totally independent of politics. The Deputy knows that while one may inquire for information from NAMA, it is a criminal offence to make representations to NAMA. The same rules apply to the Minister for Finance as to everybody else, apart from the specific bars the Minister has under the Act. The way I proceed is that the chairman of NAMA, Mr. Frank Daly, keeps me informed of all the major issues. When required, I seek the advice of the gentlemen I appointed to advise me in accordance with the Act, sometimes on the telephone or, about once a quarter, they come in and we have a formal meeting on that basis. That is the way it works. There is a general awareness of what is going on. As I said, it is a property organisation that is operating independent of politicians, but it is, of course, accountable to the Dáil. Its CEO and chairman report to the Dáil committee quite frequently and they report to the Minister on an ongoing basis.
We need a very big debate in regard to the direction NAMA is taking, given the fact it has now bunched these loans into projects such as Project Aspen and Project Club. I am glad Project Club has been cancelled because there are serious questions in regard to individuals around that. Given the decision to sell portions of projects instead of individual assets, it is very clear NAMA is now incapable of managing the loans. We were told, from the establishment of NAMA, that it was to pursue developers to the ends of the earth to get the last penny from them. However, if these loans are sold on as they are, below par or at par value, these developers will in many cases walk free from their debts - that is the reality.
We have to ask why NAMA is not using the measures established under the last Finance Bill or the real estate investment trusts, or REITs, legislation, which allows these assets to be transferred, which would have a benefit for the Irish economy, and why it is actually mass-selling projects at this time. Is it incapable of doing its job, which, we must remember, is as an asset management agency, or is there a fundamental shift in the way NAMA is approaching matters? We have seen the cancellation of Project Club. How can we be sure developers who owned the original loans are not advising potential bidders? What is there to stop that? The Minister knows I have put down a number of parliamentary questions in this regard and I am glad these assets have been brought off the market since then.
As I have said, it is an independent organisation put in place by the Houses of the Oireachtas and I have confidence in it as an organisation. I believe it is doing what it says on the tin. It is behaving in accordance with its mandate and it is profitable at present. I have no plans to introduce amending legislation at present and I am not going to interfere with its process either. It is accountable both to the Minister and to the Houses of the Oireachtas. I will maintain that accountability but I will not interfere in commercial decisions being made by NAMA. As property prices rise in the country, I hope it will continue to be successful.
