As Mr. O'Connor stated, there has been a great deal of change in the legislative environment in the regulation of stockbroking firms and we thought that a brief history would assist our discussion today.
The Stock Exchange Act 1995 established the then Central Bank as the competent authority for the oversight of stock exchanges and its member firms. The Act required the Central Bank to draw up and issue a code of conduct for exchange member firms. However, as the exchange's rule book covered this area, the Central Bank, and its successor, the Financial Regulator, was not required under the Act to develop its own rules. In addition, legislation required the exchange to have a complaints procedure in place. As a result, between 1995 and 2005, the exchange, through its rules supervised and monitored conduct of business of member firms and investigated complaints by consumers and non-consumers. It is noteworthy that many credit unions fall under the definition of non-consumer as their turnover exceeds €3 million. However, the Central Bank-Financial Regulator approved the exchange's rules and any rule changes relating to them. It also had its own rules covering stockbroking firms that were not members of the Irish Stock Exchange.
On 1 December 2005, the Financial Services Ombudsman assumed responsibility for the investigation of consumer complaints against stockbroking firms. The enacting legislation allowed the ombudsman to "look-back" at complaints for a period of six years. The exchange amended its rules to reflect the fact that our role in investigating consumer complaints had ceased from that date.
Between December 2005 and November 2007, the exchange continued with the supervision of conduct of business of member firms, as well as the investigation of non-consumer complaints. In that period, we received one complaint from a non-consumer but that was subsequently withdrawn by the complainant.
On 1 November 2007, the EU Markets in Financial Instruments Directive, MiFID, came into effect in Ireland. MiFID required the oversight of stockbrokers to rest wholly with the Financial Regulator. The Stock Exchange Act was repealed and the exchange deleted its rules relating to conduct of business and the investigation of complaints by non-consumers. The Financial Regulator approved the deletion of these rules.
It is important to note that MiFID did not provide an explicit mechanism for investigating non-consumer complaints against providers of financial services, including stockbrokers. As the definition of "consumer" in Irish legislation is relatively narrow, the exchange was concerned that this previously available mechanism was to be removed. However, the Financial Regulator took the view that all consumers of financial products should have the same legal recourse and, therefore, these rules were anomalous. This was a reasonable position for the FR to take, as it means that clients of stockbroking firms now have exactly the same rights in complaints as clients of other financial services providers.
The current position is that the Financial Regulator is the relevant competent authority for the supervision of stockbroking firms for activities after 1 November 2007. Consumer complaints go to the Financial Services Ombudsman. Non-consumers can take legal action against the stockbroking firms and seek redress through the courts. The exchange has no role whatsoever.
There is, however, a legal gap relating to the supervision of stockbroking activities prior to 1 November 2007. It is important to understand, first, how this arose and, second, how it can be resolved.
Where responsibility for oversight moves from one authority to another, generally the applicable legislation will make clear who is responsible for what in the transition period. For instance, as I mentioned already, the look-back clause provided for the FSO would be fairly typical. Unfortunately, there were no such provisions in the MiFID transposition. Because of this, we understand that the Financial Regulator currently has no powers to commence a conduct of business review relating to activities prior to 1 November 2007. Furthermore, because the complaints procedure for non-consumers available before that date has been abolished, this recourse is not available either. Obviously, recourse to the courts remains a viable, albeit potentially expensive, option.
The exchange has a senior counsel's opinion which confirms that, post the deletion of our rules, which I mentioned earlier, we also have no legal ability to conduct these investigations. It subsequently emerged post-MiFID implementation that there appears to have been an expectation that the exchange could and would continue its supervisory role post 1 November 2007, notwithstanding the fact that we deleted our rules and this was approved, as would be practice, by the Financial Regulator. Unfortunately, this expectation was misplaced and ignores the legal realities of our position.
We would emphasise that at no point leading up to the transposition of MiFID did we foresee any ongoing role for the exchange in the oversight of stock brokers beyond closing out pre-existing investigations. We believe it was reasonable for us to have believed that if the authorities wanted the exchange to have a key ongoing role, they should have told us and informed the market and it should have been put beyond doubt in the legislation. Unfortunately, none of this happened.
When the legal gap emerged after the legislation was enacted and our rules deleted, the exchange tried to make the best of a difficult situation and assist the Financial Regulator, but when we were advised it was not legally possible to continue this approach, we stopped.
We are led to believe that the Financial Regulator has received complaints against stockbroking firms relating to the period prior to 1 November 2007. However, we are not in a position to confirm this or to speculate on the exact nature of the issues. As neither organisation has current investigative powers, there would appear to be a significant legal gap.
Obviously, this is a situation which must be addressed in the public interest. A solution that is credible, legally robust and delivers confidence to the market and affected parties must be found.