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Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach debate -
Wednesday, 14 Feb 2024

Engagement with the Central Bank of Ireland

We have received apologies from Deputy Stephen Matthews. At an earlier meeting, the committee adopted the minutes for 24 and 31 January.

In today's public session, the committee will engage with the Central Bank of Ireland. On behalf of the committee, I welcome the Governor, Mr. Makhlouf, the deputy governors and their officials. I thank them for their attendance.

I also welcome Ewan Morris in the Public Gallery. He is a student from Ballon, County Carlow, who attends Kilkenny College. He is in transition year and is interested in politics. He wants to see where Mr. Makhlouf is taking the country in the future, for the next generation. He is welcome and I hope he enjoys his day in Leinster House.

I will read a note on privilege. Witnesses and members who are attending here on campus are covered by full privilege, those that are not may have only a part privilege. Members are reminded of the long-standing parliamentary practice to the effect that members should not comment on, criticise or make charges against a person or official outside the House either by name or in such a way as to make him or her identifiable. I invite the Governor to give his opening statement, please.

Mr. Gabriel Makhlouf

I wish the Chair and committee members a good afternoon and the same to our transition year student. I thank the committee for the invitation to appear before it today. I am joined by the deputy governors, Mr. Vasileios Madouros and Ms Derville Rowland.

I will begin by giving a brief overview of the economic outlook and the resilience of household borrowers in the current economic environment and by setting out some of our regulatory priorities for the year ahead.

Turning to the outlook, the most recent eurosystem staff projections show economic activity and inflation for the euro area weakened in the second half of 2023. The short-term outlook for the euro area economy points to stagnation in the face of tighter financing conditions, weak business and consumer confidence and low foreign demand. However, the economy is expected to start gradually improving over the course of the year. A broad-based disinflationary process is unfolding across Europe and is expected to continue during 2024 as the effects of past energy price shocks and other pressures fade. The pace of growth in labour costs will then be the dominant driver of core inflation. Overall, euro area headline inflation is expected to decrease from 5.4% last year to an average of 2.7% this year, 2.1% next year and 1.9% in 2026. Although inflation has fallen in many member states, we have not yet seen the full extent of the lagged effect of monetary policy actions on borrower finances or economic demand. At our most recent meeting at the end of January, my colleagues and I at the European Central Bank, ECB, decided to keep rates unchanged. With disinflation well under way, we are confident in sustainably reaching our target of 2%. Policy rates are now at levels that, if maintained for a sufficiently long duration, will make a substantial contribution to bringing euro area inflation back to target. Although uncertainties remain, it is clear that our monetary policy decisions are working. Finally, and for the avoidance of doubt, I remain open-minded about the path of our policy rates.

As for Ireland, economic activity at home slowed noticeably in 2023. The Irish economy is still expected to grow over the coming years, albeit at a slower pace. We published our latest quarterly bulletin at the end of December, which sets out our latest assessment of the economy. Our forecasts suggest Ireland’s domestic economy will grow by 2.5% this year and by 1.9% and 2% in 2025 and 2026, respectively. Inflation has declined significantly over the course of 2023 and the outlook for inflation is now lower than projections given in our previous forecasts. However, there is a series of general and sector-specific factors that, to varying degrees, underlie recent developments and could affect those current forecasts.

The first is base effects and a post-pandemic normalisation, which mostly relate to the unwinding of the exceptional level of physical investment in the State by multinational enterprises in 2022, as well as in the normalisation of export activity in the pharmaceutical sector post Covid. The second is structural factors such as geo-economic fragmentation in goods and services trade, and capacity constraints in the labour market and in housing, which limit the scope for higher sustainable growth in the domestic economy. The third is the general slowdown of activity globally and domestically, as demand is dampened by tighter monetary policy necessary to bring inflation back to sustainable levels. This is already affecting both external and domestic demand developments for Ireland and is contributing to slower growth than would otherwise be the case over the forecast horizon.

I now turn to the resilience of household borrowers in the current economic environment. I would like to highlight two key points. First, at an aggregate level, the Irish household sector has proved resilient in the face of these challenges and we expect that to continue if economic conditions evolve in line with our forecast. Second, there are, of course, some borrowers who are more vulnerable and we have been working to ensure the financial system is ready to deal with cases of financial distress in a consumer focused way. Overall, the frameworks we have in place have been working, and we intend to ensure this remains the case. The impact of inflation and rising interest rates on Irish household borrowers has been cushioned by nominal income growth, fiscal measures and the relatively slow pass-through of monetary policy by lenders to household borrowing rates. The resilience of households has also been supported by more than a decade of balance sheet repair since the previous crisis, fixed borrowing costs for many, low levels of debt and prudent new lending following the introduction of our mortgage measures. We also have a strong labour market with more than 300,000 jobs created in the past few years.

As I said, households have been broadly resilient in this environment but there are pockets of vulnerability and, for some, mortgage repayments have increased significantly, particularly for those on tracker rates but also some borrowers on variable rates and those newly applying for credit. Mortgage switching has played a role in ensuring consumers access what they consider to be the best option for their circumstances. Switching volumes have increased from €1.3 billion in 2019 to €3.7 billion in 2022, with borrowers continuing to benefit from switching even after the ECB tightening cycle began. Moreover, the switching rate of mortgage holders at non-bank lenders increased during 2023. Our estimates suggest that it now stands at around the same level as the switching rate for mortgage holders at retail banks, having been substantially below that for many years. We also saw credit unions beginning to play a growing role in switching last year.

Nevertheless, we continue to remain focused on how lenders deal with borrowers in financial distress. As I indicated, over the past year we have been particularly focused on ensuring the financial sector is ready to respond to borrowers who find themselves in a difficult financial position. The most important thing for people who find themselves in difficulty is to contact their financial services provider without delay. We know that early engagement leads to better outcomes.

Through our work we have seen firms enhance their early-warning indicators and customer engagement, widen the suite of alternative repayment arrangements they offer, including certain limited fixed-rate options, and the introduction of new support measures for borrowers through the BPFI's dealing with debt campaign. The broadly stable arrears trend in 2023 masks some movement in the depth of distress. Long-term arrears cases, a scarring legacy of the previous crisis, continue their long-term decline, while early arrears cases and those missing three payments but not yet in long-term arrears both increased by an offsetting amount.

Though every case represents a person or household in distress, when compared with historical levels, the household sector continues to appear resilient at an aggregate level. Tracker rate borrowers, in particular those with a history of previous repayment challenges dating back to the global financial crisis, appear to explain the modest rise in early arrears cases seen up to the middle of last year. However, challenges remain. We recognise that there is a proportion of mortgages in long-term arrears where resolution of these arrears will require system-wide initiatives and we will continue to work with firms and with the broader system on this. We cannot be complacent, notwithstanding the robustness of our framework and our work to enhance consumer protections and supports for those in difficulty. We continue to look to mitigate the risks to consumers of financial services from increased costs beyond the mortgage market. This has included work to enhance the transparency in the investment market around fees and the risks of complex products. We have also implemented new regulatory regimes for short-term and high-cost credit, as well as running high-impact consumer awareness campaigns on frauds and scams, including scams relating to advance fee fraud.

In regard to our plans for 2024. Every year we set our priorities for financial regulation and supervision in the context of our domestic and international responsibilities and current and emerging issues in the large and increasingly complex financial sector that we regulate. Overall, the financial system in Ireland and throughout Europe has proved to be financially and operationally resilient in the face of the turmoil of recent years. However, as the sector continues to grow in size, complexity and connectivity, we need to continue to deal with the medium-term implications of the evolving system and ensure that our policy frameworks remain fit for purpose for the future. Our overarching objective remains ensuring we have a stable, resilient and trustworthy financial sector, operating sustainably in the best interests of the public and consumers.

Particular milestones in our work programme this year include putting in place a revised and modernised consumer protection code, continuing to progress work both internationally and domestically to address systemic risks from the non-bank sector, and implementing both the individual accountability framework and the new Credit Unions (Amendment) Act. We will, in particular, work with the Department of Finance on implementing recommendations from the retail banking review in developing a framework to protect access to cash services and the resilience of the cash system. We welcome the draft legislation on maintaining access to cash which we believe is an important public policy intervention.

It is clear that there is a societal demand and need for cash, and the Central Bank, along with the rest of the Eurosystem, remains committed to the provision of cash.

In conclusion, the Central Bank will continue to focus on maintaining monetary and financial stability and ensuring the financial system works for consumers and the wider economy in 2024. We are happy to take questions from the committee.

Thanks. Just to go back to my clumsy introduction earlier, Mr. Madouros and Ms Rowland are very welcome. Both are deputy governors of the Central Bank. I met six representatives of the bank outside, which means the other three are in the Public Gallery. You are all very welcome. Senator Higgins is first, to be followed by Deputy Doherty.

Thank you very much Chair. I thank Mr. Makhlouf for the presentation. I am going to focus on the issue of sustainability. I am aware of the sustainable investment charter that the bank produced in 2022. Within that charter there are three areas of focus in the context of sustainable investment, the first of which is the integration of environmental, social and governance, ESG, criteria into investment. The second area of focus is impact and looking to potentially positive areas for green and sustainable investment, including green bonds. The third area is the one I want to focus on today, which is the question of exclusions, that is, companies, products and areas in which we should not be seeing investment. The Central Bank itself has an investment exclusion policy and I want to focus on that.

Global research from ActionAid has shown that bank financing to the fossil fuel industry in the global south reached $3.2 trillion in the seven years since the Paris Agreement on climate change was adopted. In fact, since that agreement banks have provided 20 times more financing to fossil fuels and agricultural activities in the global south than all the climate finance provided to countries on the front line of the climate crisis. This includes many of the large banks across Europe including HSBC, BNP Paribas, and Barclays, as well as Citigroup in America and others. I am not going to list all of the other international banks involved but I am interested in the role that the Central Bank of Ireland is playing in relation to promoting and pressing for sustainable investment and in particular, with regard to the exclusion of investment in fossil fuels. Is it part of the Central Bank's own investment exclusion policy that it will not invest in fossil fuels? This relates to some of the other issues this committee considered when it looked at the Ireland Strategic Investment Fund. It was a matter of very serious public concern that over €4 million in funds was invested in companies operating in occupied Palestinian territories. That is of serious concern to me as a co-sponsor of the Control of Economic Activity (Occupied Territories) Bill. I do not think we should be trading at all with occupied territories. Does the Central Bank have any investment in occupied territories, in fossil fuels, in conflict, in defence industries or in military manufacturing? Separately, in its charter and in the context of its leading role in setting policy on sustainability, ethics and human rights, does its investment exclusion policy cover fossil fuels, occupied territories and military or weapons manufacture? Are those areas part of the investment exclusion strategy promoted by the Central Bank?

Mr. Gabriel Makhlouf

I will ask Mr. Madouros to address some of those questions but before doing so, I will take a step back and make some general points in response. First, there is a lot of work taking place globally, across the Eurosystem and in the Central Bank, to address climate change issues in particular. Ms Rowland is leading on a lot of work within Europe and internationally on what is known colloquially as greenwashing and addressing the challenges it poses. At the ECB we have made decisions on our investment portfolio and as Senator Higgins said, the Central Bank of Ireland, in the context of its non-monetary policy portfolio, has made decisions on what we describe as its "sustainable investment exclusion policy".

We have a policy of not investing in fossil fuels. I do not think we have any investments in the occupied territories. I do not know whether Mr. Madouros knows but we can check that. I do not know the position at all. We do not actually have a policy specifically around that either. Within our own actions, outside of our financial investments, we are very proud that our premises have won awards for their environmental friendliness. I will ask Mr. Madouros to respond now.

Mr. Vasileios Madouros

As the Governor mentioned, there is a lot of work going on in the Central Bank on climate change and sustainable investment. I will try to cover it under each of the categories, if that is okay. The role of the financial system in the transition to net zero is absolutely critical because the financial system will help to finance that transition. It will help to channel people's savings into sustainable investment that enables the transition to a net zero economy. This private finance dimension is absolutely critical. In that context, I would identify two dimensions at a high level that we are particularly focused on. The first is making sure that the financial system itself is resilient to the risks posed by climate change, whether that is the physical risks associated with climate change or the potential risk that might stem from the transition to net zero. That is really important because it is critical that the financial system is resilient to those risks because it will need to finance that transition. That entails a number of dimensions, including understanding-----

I am sorry to interrupt. I am very interested in this area and would happily spend the next hour discussing each detail of the climate crisis but I disciplined myself to focus on the area of exclusions rather than on the area of other investments because I am conscious that other members of the committee will want to come in. Perhaps our guests could focus their replies on the question of the areas of non-investment, on the exclusions rather than the overall health of the financial system, which is an interesting but wider topic. I am just conscious of time pressures.

Mr. Vasileios Madouros

That is perfectly fine. The Senator asked about our role in our investment assets. In terms of our own operations - not what the financial system is doing but what the Central Bank is doing - which is a small----

And the charter, of course-----

Mr. Vasileios Madouros

Yes and the charter, which applies to our own investment assets. We think of this as trying to effectively practice what we preach in terms of where we want the financial system to get to. As the Senator mentioned, we have a sustainable investment exclusion strategy. That has resulted in the exclusion of coal companies and companies involved in the manufacture of prohibited or controversial weapons as defined in the relevant international treaties. That is one dimension of the exclusion strategy but I would like to explain a couple of other things we are doing in the context of our own investment assets. For the first time, last year we reported our own climate-related financial disclosures. Effectively, we reported the carbon footprint of the assets in which we invest.

It was the first time we did it together with the rest of the Eurosystem. We want the financial system itself to go in that direction, so we want to be practising what we preach. For the equity part of our portfolio, we adopted an EU Paris-aligned benchmark and we invest a proportion in green and sustainable bonds as well. From the perspective of our own investment assets, there is the exclusion policy, which is one dimension of it, but there is the broader direction of trying to get towards a more sustainable portfolio, which we are in the process of doing.

And on the occupied territories?

Mr. Vasileios Madouros

My apologies on that as I do not know. We might take that away and come back to the Senator.

Cuirim fáilte roimh achan duine go dtí an coiste. I wish to begin by dealing with an issue I raised last week with the Minister for Finance. It is one I get quite frustrated about. I think members of this committee have been told untruths in reality. I deal with the 2015 credit servicing Act. In the intervening period, Ministers have come in, taoisigh have mentioned that protections will follow when loans are sold to vulture funds and the director of consumer protection at the Central Bank stated "All the protections remain there" but now we actually find out that is not true. Does the Governor accept that all the protections with regard to loans that were originally with banks do not remain there, despite the assurances that were given by the Central Bank?

Mr. Gabriel Makhlouf

I am not sure exactly what example the Deputy is alluding to. I will ask Ms Rowland to come in on this.

With respect to Mr. Makhlouf, I will give the example. I do not intend for him to follow all of what has been debated here with the Minister and the issues that appear in the Irish Independent today. The FSPO does not have the same reach a bank would have. Thousands of households that have thousands of loans that have been sold to vulture funds do not have the same protection that they used to have when their loan provider was a main street lender. The Financial Services and Pensions Ombudsman has made a number of determinations to say that the conduct that people complain about is outside the scope of its investigations as a result of the loan being sold to a vulture fund. An example of a very basic issue that is complained about is a standard financial statement for anybody who is with a vulture and is in financial distress. A standard financial statement is defined in law as a key decision and therefore the key decision lies not with the credit servicing firm but with the owner of the loan - the vulture fund, or the unnamed entity, in most people’s eyes - which is unregulated or at least was unregulated for the main part up until 2019. Therefore, anybody who has an issue with how his or her standard financial statement was dealt with and what offering was provided to them cannot make a complaint to the Financial Services and Pensions Ombudsman. That is a basic right that people should have in respect of financial dealings with institutions. They were sold a pup by members of the Central Bank’s own staff. I have a quote here from Bernard Sheridan. He stated:

The legislation has achieved a lot in terms of consumer protection. All the protections remain there.

I ask the question of the Governor, his staff and the Central Bank; I acknowledge he was not there then. How does that apply to Elizabeth McAuley, who has a determination from the FSPO, which I have here, that the protections do not remain there? The FSPO cannot even look at her complaint because the conduct she complains about happened by an unregulated entity, despite the assurance we are given all the time that in 2015, because of the credit servicing Act, that this would be captured. It is not captured and that is only the first part. We are talking about tens of thousands of people who do not have access to the FSPO.

The Central Bank has a key role in consumer protection. People look to the Central Bank for trust and independent analysis. When it tells a committee of the Houses of the Oireachtas and it tells consumers they are as fully protected as they were before, people believe that. However, it is not the case. I think the Governor needs to explain very clearly how they got that wrong. Is the Central Bank planning to fix this? This is not the only issue; I will come to another part of it in a minute. I expect an explanation.

Mr. Gabriel Makhlouf

I will start and then I will pass it on to Ms Rowland. The Central Bank is not responsible for the FSPO. Let us just be very clear about that. I cannot comment on the judgments the FSPO has made, not least because I am not aware of exactly what judgments it has made, but we are not responsible for them. The Deputy has insinuated that members of the Central Bank lied to Members of the Dáil. I really do not accept that. I have not seen the precise text of what people have said but I can understand why people may have given you the impression that all the protections offered by the bank's consumer protection code and the code of conduct on mortgage arrears apply, irrespective of who the lender is. I do not think we were making comments on what an independent entity like the FSPO was or was not going to do. Perhaps Ms Rowland can come in on this.

Before we go to Ms Rowland, with respect, let me clarify this. The comments were made. I do not suggest that Bernard Sheridan or anybody else came in deliberately to mislead us. Let us be clear on that.

Mr. Gabriel Makhlouf

I thank the Deputy for that.

The point is that we now have a clear interpretation of the legislation that shows that the words and assurances that were given by the Central Bank are not true. It is not just about a judgment by the FSPO, and I am sure Ms Rowland will deal with that. The key issue is that credit servicing firms were regulated under the 2015 Act. However, the definition of a credit servicing firm – the Central Bank engaged in that legislation – excludes key decision-making. The FSPO has determined that key decision-making is material decisions in relation to the sale of your assets and the assessment of the standard financial statement. Therefore, they are unregulated. The owner of the loan is unregulated and therefore, the FSPO cannot make a determination with regard to those decisions. The owners of the loan only became regulated after the 2019 Act on which they had three months to seek regulation. Many of them, in the first quarter of 2019, were still unregulated. Therefore, the FSPO has no reach for conduct that happened between those years. There is a separate matter I will come to later on but this affects tens of thousands of people who potentially had decisions made in respect of their loans who cannot complain to the FSPO anymore. That flies in the face of all of the assurances that were given by the Central Bank before Mr. Makhlouf’s time, by the Ministers and by taoisigh. They sold a pup by supporting the sale of the loans.

I stood so hard against this. The Central Bank had its own guidelines that it should not even happen but all of that was allowed to be ignored and all the rest. I refer to the statutory guidelines, which were deleted from the Internet afterwards. They were there for two decades but they just got rid of them. The guidelines stated that loans should not be sold without the consent of the loan owner. These loans should never have been in the hands of the vulture funds. To add injury to insult, now that they are in the hands of the vulture funds, their interest rates are going up and there is only a short-term focus with regard to their family homes in many cases and many of them cannot even complain to the financial services ombudsman about this. What option to they have? Do they go to court and spend thousands of euro on legal fees and barristers? The mechanism that exists in every member state is a free independent arbiter with regard to financial services, which people are now locked out of because of a Government decision, supported by the Central Bank, to sell tens of thousands of loans to vulture funds.

Ms Derville Rowland

I will come in, if I may, to deal with the specific issue, which is, as far as I understand, a recent determination of the financial services ombudsman about its own jurisdiction to cover some of the subject matter of complaints made. It resulted in it making a determination that it cannot deal with some aspects of some complaints.

We do not have any more information about the Financial Services and Pensions Ombudsman's decisions in advance, or special insight into his decisions because his is an independent statutory office. However, we understand that some of the complaints that people have made with respect to the credit servicer are in scope and can be determined. That is clear, but the issue has arisen where the Office of the Financial Services and Pensions Ombudsman believes there is a limit on its jurisdiction because the underlying loan owner from the period from 2015 to 2019 is not designated as a regulated financial service provider, which is a prerequisite for the matter to be determined. That is a new decision. The system was not aware of that determination before now. It is of the utmost importance that the financial services ombudsman is supported in any way to close that gap. Of course, I do not tell the ombudsman what to do. We are simply part of a system of financial services, each being independent in our role, but we must work in an interlocking way. We are supportive of the ombudsman and his role. Anything his office thinks is necessary in order to close a gap, we would be absolutely supportive of because we want to make sure that the system serves all customers who have legitimate complaints to make.

Deputy Doherty was involved previously when there was an issue around the jurisdiction going back in time for complaints made and the ombudsman's mandate was amended to allow longer periods of time for older complaints because there had been a problem with limitation periods.

I do not say what the solution is but I completely join our voice to say that a solution should be found but it will be something on which the Attorney General may wish to opine or others who are part of the legislative process. However, it is possible to close gaps. The Deputy has been party to those efforts before, successfully, by joining with others to see that the scope of the ombudsman has been improved. We absolutely support people being able to make legitimate complaints about the financial services packages regardless of the complexity. We would add our voice to any remedy the ombudsman would wish to see in order to close a gap.

It is unfortunate that this has come as an issue later in time. That is true, and it is not something that we wish to see persist.

Does Ms Rowland accept that, as things stand, homeowners who have had loans sold to vulture funds do not have the same protection today as they would have had if their loan had stayed with a main street lender?

Ms Derville Rowland

I read a newspaper article this morning which had some very limited information. With that limited information, I can say that, as regards some parts of the complaints that he has received from people who have issues with their loans that are in the non-bank sector, the ombudsman has made a determination in regard to the scope of the complaint with the credit servicing firm that his office can make decisions on those responsibilities but he seems to have determined that his mandate will not allow his office to make decisions on other parts of that. I can only see what I read as well and I take that at face value. I can only repeat that we are fully supportive of that being closed in whatever way that is material and possible.

Mr. Gabriel Makhlouf

For the avoidance of doubt, the code of conduct on mortgage arrears and the consumer protection code applies irrespective of who the lender is.

No, it does not. That is the problem. It actually does not. This has blown everything out of the cloud. With respect to Ms Rowland, what she will not say, which is fact and I think she knows it is fact, is that, as matters stand today, households which have had their loan sold to vulture funds do not have the same protection as those that have their loans with regulated financial institutions, namely, main street lenders. That is the fact. Is that not the factual position as of now?

Ms Derville Rowland

I do not agreed with that. The code of conduct of mortgage arrears is the principal policy framework that supports customers who are at risk of or in arrears, and the full extent of that policy framework is applied to banks and non-banks. The current position since 2019 is that the underlying loan owner is also covered by virtue of that legislation that has extended. As it stands today, the policy frameworks apply equally, without fear or favour, to both sectors. That is the way the law is constructed, applied and given force. I perfectly understand that there are different viewpoints about the starting point and approaches but the policy framework is applied in equal measure to both. There is no word difference and there is no difference in that policy framework.

With respect, that is not the point I made. Can somebody who has their loan with a vulture fund make the same complaints to the Financial Services and Pensions Ombudsman as somebody with a mainstream lender can if the complaint that they are making was a key decision which was carried out by the owner of the loan as opposed to the servicers of their loan, before 2019?

Ms Derville Rowland

I fully agree with what I have read today, that as regards the jurisdiction of the ombudsman, he himself has determined that there is a limitation on some aspects of the complaints. I fully accept what is in the public domain and it is a gap-----

Therefore, the code of conduct does not apply equally, in terms of its enforceability, to all loan owners.

Ms Derville Rowland

I am not trying to undermine the importance of closing the gap for those affected customers, where they may have complaints about issues arising from matters related to the underlying loan owner in the relevant period. I am not trying to say anything other than we fully support that gap being fixed in any way that is possible so that people are fully and effectively protected in terms of their remedies to complain to the financial services ombudsman. I hope I would be ad idem with the Deputy and others on that to seek that policy outcome. However, that is different and distinct from saying that the code of conduct on mortgage arrears applies in a lesser way to others. It is absolutely true that the remedy after a complaints procedure with the regulated entity has been exhausted and where a person is not satisfied is that they have recourse to the ombudsman. At that point, it would appear a decision has been made that there is a gap. I fully support that being fixed. However, it is different to say the policy framework is not in effect.

Okay, let us get agreement. The policy framework is the same.

Ms Derville Rowland

Yes.

The big difference is that if I am with a vulture fund and Rose is with AIB or Bank of Ireland, Rose can go to the Financial Services and Pensions Ombudsman and I cannot.

Ms Derville Rowland

No.

I cannot do so if the issue about which I am complaining, in terms of the code of conduct, is a key decision that was taken by the loan owner, which was unregulated prior to the first quarter of 2019.

Ms Derville Rowland

I am in full agreement with Deputy Doherty-----

That is, therefore, the case.

Ms Derville Rowland

-----that on one set of issues, not all but one set of issues-----

Okay, it is one set of issues. Ms Rowland made the point-----

Ms Derville Rowland

It is one set of issues but it is important it be fixed.

Ms Rowland makes the point fairly and we agree it needs to be fixed. I made the point to the Minister that we have legislation going through the Dáil which needs to be held, if need be, in order that this issue can be dealt with and sorted. It must allow for complaints still to be made to financial institutions that are leaving the jurisdiction. It is perfect legislation for fixing this. Ms Rowland made the point that the FSPO can inquire into and investigate some matters but not others. That is absolutely true.

Ms Derville Rowland

That seems to be what the ombudsman is saying.

It is. The issue at the heart of this is that the definition under the 2015 Act is that a credit servicing firm excludes key decision-making. This was dealt with on Committee Stage at the time when this was put to the then Minister of State, Deputy Simon Harris. He said there is another section below the relevant section which basically states that if the owner of a loan forces the credit servicer to do anything that would be a contravention, then this credit servicer cannot do it. However, contraventions are dealt with and are specific in themselves. The issue here is with key decision-making. The FSPO has determined, for example, that an assessment of the standard financial statement is a key decision, as would be a decision on the sale of a house.

This is not just a unique situation by the way. The FSPO wrote to me giving an example which is separate from the case referenced in the paper. I have the ruling in that case in front of me. It relates to Jerry, which I assume is a made-up name, and refers to a complaint to a credit servicing firm and a special purpose vehicle loan owner where only part of the complaint can progress. It states that Jerry's loan fell into arrears and his bank sold the loan to the special purpose vehicle, which was not regulated by the Central Bank. The SPV was legally obliged to appoint a credit servicing firm to manage day-to-day operations on the loan, and it did so. Jerry was dissatisfied with the way the credit servicing firm managed the loan between 2017 and 2018 and made a complaint to the FSPO that the credit servicing firm had done two things. First, it delivered poor customer service to him and, second, it unfairly hindered his effort to sell the property securing the loan by taking an excessive amount of time to consider the offer he had received from a potential buyer.

The sale fell through, and so on and so forth, with major financial consequences to him. The FSPO determined poor customer service in respect of the first complaint. That was the credit servicing firm, which was regulated. If that issue can be dealt with, that is fine. The major problem he has is that it took forever to make a determination on whether he could sell the loan or property to an individual. The FSPO states it can only investigate the conduct of regulated financial service providers as defined by the Act, and the Consumer Protection (Regulation of Credit Servicing Firms) Act defines "credit servicing" as specifically including the maintenance and control of key decisions relating to credit agreements. The FSPO determined that this was a key decision, which it is. We know it is a key decision. That was all discussed. An unregulated entity took that key decision. The FSPO has no reach to it. The Central Bank has no reach to it, even though it has the role of consumer protection. These unregulated entities are making key decisions and nobody had a reach into them, until at least the later part of 2019, which I will come to shortly. That is the problem.

While the FSPO can deal with stuff, it is dealing with the lower issues. Any substantial issue, or key decision regarding how people are being dealt with, including interest rates, sale of a property and not being afforded an alternative arrangement they should have been afforded with, is falling under the scope of the FSPO, if it falls between the period from 2015 to the start of 2019.

Ms Derville Rowland

I have not had the chance to analyse the import and impact of this. I take what the Deputy said. I learned of this decision at arm's length in the same way that anybody outside of the FSPO did. I can only repeat that we are fully supportive of a remedy to address this gap. We are fully supportive of consumers being fully protected. The FSPO legislation was amended to address limitation periods in the past. I do not know what kind of remedies can be brought in respect of this matter, except to say that the Central Bank is fully supportive of any approach that could address this gap. We want to have a policy framework that fully protects consumers from the point of view of the role of the Central Bank. We are also very supportive from the point of view of the entire system of consumer protection in financial services, of which the ombudsman is one of the very significant parts.

Absolutely. Let us all work together to try to resolve this. There is also, however, a responsibility on the Central Bank collectively, not individually. What does Ms Rowland say to Elizabeth and Jerry, who were told by the Central Bank that protections would follow?

Ms Derville Rowland

I can only say that the policy frameworks that are there to support customers fully apply to all lenders in the system. I can see that this new decision from the ombudsman has put at risk an opportunity for customers who have serious, distressing issues to complain of where they have not had a satisfactory response from the regulated entity. That is not an outcome we wish to see any consumer face. We would work to the fullest extent on problem-solving initiatives to support that loophole being closed, such that those customers are in a position to have their complaints heard by the ombudsman. I cannot speak about the office of the ombudsman. It will be for the Legislature to assist in closing that loophole. We would be very supportive of that. I cannot say anything more at this stage.

I will come to one other point. Unfortunately, there were other issues I wanted to discuss-----

We can come back to the Deputy.

-----but this is a key issue. The FSPO made this decision late last year. I am surprised there was not earlier discussion between the two entities on it. It would be right for the Central Bank to say that it got this wrong, unless it is just calling out the FSPO and questioning its decision-making. The FSPO said very clearly this is a key decision that is excluded from the law, and the law prevents the FSPO from dealing with an unregulated entity in the same way it does in terms of the Central Bank. There is a point here, which is that the Central Bank has to say that it did not see this coming and it got it wrong. I ask the representatives to think about that when they get the opportunity. I hear what Ms Rowland said about not seeing the decision, that she will probably see it straightaway after this meeting, and will have an opportunity to think about what-----

Ms Derville Rowland

I will say two things. I take all the concern around this issue and I join with it. I do not think I have a difference of view regarding the outcome to be sought on this point. I will be perfectly clear, however. I or, I believe, my team, have not had a discussion with the ombudsman on this particular decision. It issues many decisions but I want the Deputy to understand we have regular engagement with the ombudsman about key decisions, risks and other issues. We meet with its staff regularly. This particular matter has not come up but I am sure that I speak for all the staff of the Central Bank of Ireland in saying that we have only desire, namely, where an issue like this has been decided, which was not foreseen in advance, and it is stating the truth that it is not a perfect system when events occur subsequent to policy frameworks, things need to be fixed. They should be fixed. We are committed to that.

I will raise another issue that is a second part of this major problem. I will be very brief, with the Chair's indulgence. The second part is, as we discussed, that in 2019 the loan owners, or vultures, became regulated. The definition under the 2018 Act took effect in 2019. The change was introduced by an amendment to the definition of "credit servicing" in the 2018 Act. The new definition was that credit servicing included, "holding the legal title to credit" and "managing or administering ... [such] credit ... including [by] ... determination of the overall strategy for the management and administration of a portfolio of credit agreements; [or] ... maintenance of control over key decisions relating to such portfolio[s]". This amendment was what captured the loan owners because the definition now included holding legal title to credit. However, we all know that the vultures are transferring legal title to credit to the credit servicing firms. The fact is those vultures are transferring legal title to credit servicing firms while still retaining beneficial ownership but, from the point of view of the Central Bank and the FSPO, beneficial ownership is neither here nor there. It is where legal title exists. The vultures do not hold legal title, which is with the credit servicing firms and, therefore, they are still unregulated after 2019. Is the Central Bank aware of this? Does it believe that needs to be closed?

Ms Derville Rowland

I am aware of the legislative scheme to which the Deputy referred. I am aware of looking at it at the time. I recognise the criterion he cited. Any issues that need to be thought about by reference to this ombudsman's decision will have to be thought about in a holistic way. If there are other impacts, that will need to be thought about. Nobody would wish otherwise.

Let us park the ombudsman for one minute. This is about the Central Bank looking at regulating firms. The 2018 Act, which took effect in 2019, includes the loan owners, which the Central Bank now regulates, if they hold legal title and manage and administer the overall strategy. What we are now hearing is that the vulture funds, to ensure they are not regulated by the Central Bank, are transferring legal title to credit servicing firms. Is the Central Bank hearing that? Is that the case?

Ms Derville Rowland

Yes. It seems to be the case, in certain instances, that the legal title has rested with the credit servicer.

Therefore, the loan owner is still not regulated by the Central Bank.

Ms Derville Rowland

The legal title of the loan follows suit with the legislation. That can be that beneficial ownership, if it rests separate to legal title, is not regulated under the requirements because it is defined by legal title and not beneficial ownership. We are in agreement.

We have 2019 legislation that is supposed to regulate the owners of the loans. Those owners are transferring their legal title because they will no longer be captured by that legislation. The Central Bank seem to be aware of it. I only became aware of it recently. What is the Central Bank doing about it? It is regulating these entities, which are finding a way around this. Since they are finding a way around it, nobody can complain if they do anything wrong. That is the problem. People can only complain about a regulated entity.

Ms Derville Rowland

The gap the ombudsman has identified is between-----

That is not the ombudsman. Sorry-----

Ms Derville Rowland

-----2015 and 2019. The 2019 legislation puts it on a different footing.

That legislation is being complied with because the beneficial ownership was not inside the regulatory perimeter.

What does Ms Rowland mean the "legislation is being complied with"? Beneficial ownership does not mean they are regulated. That is not the case. If the vulture funds - let us call them vulture funds - have beneficial ownership it does not mean they are regulated as a result of beneficial ownership-----

Ms Derville Rowland

That is the legislative scheme.

That is the legislative scheme but what captures them under the regulation of the Central Bank is the holding of legal title. This is what was passed and what we expected was going to capture them. We have now found out, which Ms Rowland has confirmed, that they are transferring legal title to the credit servicing firm so they are no longer regulated by the Central Bank.

Ms Derville Rowland

Yes because the scheme is being followed.

However, the problem is they are still making the key decisions.

Ms Derville Rowland

The scheme is being followed and I am happy to follow up-----

We know the law is being followed but there is a major loophole in the law. They have just found a way around this and the Central Bank is aware of it. The loan owners are no longer regulated by the Central Bank.

Ms Derville Rowland

The Deputy is talking about the legislative scheme, which is being followed. He is also talking about a loophole and key decisions being retained. I do not have the information in front of me and I want to give him a full and comprehensive answer to this important point. It deserves to be considered on merit and it is a point of significant detail. Beneficial ownership and legal title are not mere paper exercises. Decision-making rights flow with each and specific matters are excluded under the scheme in the first place. There is quite a lot of detail in this. I completely agree that it is an important point and one to which the Deputy wants answers. I am very happy to come back to the committee in writing about this. This is a conversation about loopholes and workarounds in the absence of the detail and the substance of what the authorisation framework requires. What the legal framework requires, what decision-making rights go with the legal title, and what is left outside is actually the substance of this conversation. I suggest that it would be better to follow up in detail because it is an important matter and important to get the detail right.

I thank the Governor and the deputy governors for coming before the committee. I will start by asking some questions about the rate of inflation and the consequent interest rate rises. It has been the case that the ECB has been increasing interest rates for 18 to 20 months now. Is the Governor surprised that those increases have not had the ultimate desired effect of bringing inflation down to 2%, which is where the Central Bank wants to see it get to, as Ms Rowland stated in her opening statement?

Mr. Gabriel Makhlouf

Monetary policy works with lag. What we are actually seeing is that the decisions we started to take at the end of December 2021 - and we started to put up rates in July 2022 - are now working, are having an effect and are bringing inflation down. As I said, there is still some pass-through to come but at the moment I am pleased to see that our monetary policy is working.

As Mr. Makhlouf said, it is working because the rate of inflation is declining and has gone down from 8% or 9% at the height. It has come down.

Mr. Gabriel Makhlouf

It was high and at one point it was up to 10%.

I believe it is down now to 3.2% in Ireland.

Mr. Vasileios Madouros

For the euro area at the peak it was 10.6% in 2022. It is now 2.8%. In Ireland, the harmonised index of consumer prices, HICP, over the peak was 9.2% and it is now 2.7%.

Is it the Central Bank's objective to see inflation come down to 2%? When it reaches 2%, does Mr. Makhlouf believe that the monetary policy will have achieved its objective?

Mr. Gabriel Makhlouf

It is the ECB's objective to achieve inflation of 2% in the medium term, so certainly, yes.

When does Mr. Makhlouf think that will happen?

Mr. Gabriel Makhlouf

As I mentioned in my opening statement, at this stage the last set of projections indicate that in 2025 and 2026, we will see inflation back to 2%. There is a lot of uncertainty and a lot of risk around those forecasts. Our next set of forecasts will be published in March. At the moment, that is the sort of time horizon we are seeing.

As inflation declines, is it not given consideration that maybe interest rates can decline slightly as well or is the Central Bank waiting for it to reach its objective?

Mr. Gabriel Makhlouf

No. We are waiting to be confident that we are on track. We do not have to wait to see the 2%. The statisticians identified 2% but we need to be confident that the trajectory we are moving on is going to reach 2% in a sustainable way. That is essentially the judgment I would look to make.

Without seeking to hold Mr. Makhlouf to any of his deliberations in the ECB, is it likely that in 2024 members of the public will see a decline in the marginal lending facility of the ECB?

Mr. Gabriel Makhlouf

The Deputy is actually trying to hold me to something. As I have said in my statement, I am open-minded on the path of interest rates. We have made clear that essentially we are data dependent. We will look at the data and look at what is happening to the underlying dynamics of inflation and how it is being transmitted in the system. We will make decisions on that basis. Of course, the decisions we make are then translated by financial intermediaries, in particular the banks, into commercial decisions that are ultimately passed on to consumers or businesses. That of course is a separate issue. With regard to our own decision-making, at the moment monetary policy is restrictive and if we continue on this trajectory, I would expect us to see some change. It does depend on what the data ultimately tells us.

With regard to the timeline we have seen in trying to get on top of inflation, is Mr. Makhlouf surprised at the time it has taken for us to be able to resolve it and get it down to levels he finds appropriate?

Mr. Gabriel Makhlouf

It was a very big shock. It reached very high levels and, as it tends to, monetary policy operates with a lag of approximately 18 months. We were making decisions on raising interest rates from negative levels in July 2022 and 18 months on, I am not surprised at where we are. In fact, I am pleased to have seen the fall from the very high levels we had.

On the second page of Mr. Makhlouf's opening statement, he referred to growth rates predicted for the domestic economy. The statement said that those current forecasts could be affected by a number of factors, including base effects in the post-pandemic normalisation, which mostly relate to the unwinding of the exceptional level of physical investment in the State by multinational enterprises. What is Mr. Makhlouf talking about specifically when he refers to the exceptional level of physical investment by multinationals? Is this the employment they have created or is it physical buildings they are investing in?

Mr. Vasileios Madouros

If we look at the components of modified domestic demand, one of them is modified investment, which will have things that are traditionally part of investment such as construction and buildings. It also has investment in machinery. In 2022, we saw a very big increase in that level of investment.

Was that post pandemic?

Mr. Vasileios Madouros

It was during the latter part of the pandemic, which would probably relate to some investment in machinery or factories by multinational companies but some of this is unwinding.

Does the Central Bank regard that as quite normal? What do the witnesses believe is the cause of that unwinding of the investment by the multinational sector?

Mr. Vasileios Madouros

It was exceptionally high. If we take the broad trend - and this is not saying something about the broad underlying trend - some of this type of investment could be a semiconductor factory, for example. That could be quite a lumpy adjustment and it could show up and really affect those headline numbers.

Are there threats to the continuing success of the multinational sector in Ireland? It is a very important part of our economic success.

What are the concerns of the Central Bank in respect of the continuing growth of the multinational sector in Ireland? Does it have a view on that?

Mr. Vasileios Madouros

I am happy to start. As the Deputy mentioned, broadly, openness and integration with a global economy are a key part of our economic model and the significant growth in living standards we have seen in this country over the past half-century. When I look ahead, there are two factors on my mind in terms of how we maintain that into the future.

The first is, to some extent, outside of our control but it is important that we are aware of it. At a global level, there is an increasing risk of what people are calling geo-economic fragmentation. In recent years, a number of countries have increased barriers to trade or foreign investment because of geopolitical risks. For us, as a small highly globalised economy, that really matters. There could also be potential near-term positive effects because one of the dimensions is what people have called friend-shoring. We are part of the European Union and also have a strong relationship with the United States, with key partners here. That is a risk.

The second dimension is a little broader but relates to maintaining the attractiveness of Ireland. It concerns infrastructure in the country and ensuring it keeps pace with the economic growth we have seen in different dimensions, such as housing, transport and so on. Human capital is also a factor, in terms of the education of the workforce and skills for the future.

I thank Mr. Madouros for the answer. It was mentioned that mortgage switching has played a role in ensuring that customers can access what they consider to be the best option. Mr. Makhlouf said that credit unions are beginning to play a growing role in mortgage switching. Is that happening quite frequently? What level of mortgage switching to credit unions is happening? Is it something that policymakers can seek to encourage?

Mr. Gabriel Makhlouf

It is a pretty small number. I do not want to exaggerate it. It is a positive thing to see start to happen.

The committee has looked at the whole area of trying to ensure that consumers are protected from fraud. A number of social media companies came before us, as well as financial institutions. What type of fraud is the Central Bank identifying as being most prevalent at present for consumers who engage with financial services institutions?

Mr. Gabriel Makhlouf

I will bring in Ms Rowland in a moment. Essentially, taking a step back, what we are seeing in a changing financial system is the nature of fraud changing as well. There has been a move to digitalised banking and service provision and the use of mobile technology to access financial service providers directly. I am sure everybody in the room has received a text message from somebody telling them to do something. We are seeing the impact of new technology, which means fraudsters take opportunities to do different things. We are working, in particular, with colleagues across Europe to establish a collective way of tackling what is clearly a problem for society.

Ms Derville Rowland

We will not have a full line of sight on all of the increases in every type of fraud in Ireland or globally because they manifest in many different ways. If the fraud is deception, there is a lot of social modelling whereby people lure others in. A lot of it involves payment. People are deceived by a fraud, no matter how it comes about, such as counterfeit goods purchased online from a country where people think they are going to get a cheaper product but do not get anything at all. It could be financial scams and promotions which are illegal. There are boiler room scams from jurisdictions that offer a new investment opportunity that is totally false. A website could be put up that is very similar to a legitimate regulated entity. People can receive text messages to their phones to tell them they have an extra charge - I received one yesterday telling me I had an extra charge from An Post - and that they should submit their card details. There are myriad different typologies of crime that are coming through. A lot of money-laundering or predicate offences are crimes. A key component of this is that some of those frauds can penetrate financial systems without the authorisation of the underlying owner. That is an unauthorised payment fraud. There can be authorised fraud, whereby people are deceived and pay.

We see an increase in fraud and we are working on this at a lot of levels, including globally, to try to learn from the US Securities and Exchange Commission, SEC, the UK and others across the globe to try to come at this from a different point of view. If I can use the phrase, we see an uptick but I do not have the data for the whole of the Irish system. For many types of fraud, a key component is the benefits and risks of digitisation and online media.

I welcome the coming into force of the Digital Services Act, which is a direct effect regulation from Europe. A lot of Internet service providers are now regulated. There is legislation supporting the passage of that Act going through the Houses right now, with a target date of 17 February for it to come into force. Coimisiún na Meán is to be the co-ordinating regulator in Ireland. We will engage with it to try to become a preferred entity in regulation so that we can contact providers directly and take content down. There have been increases in myriad types of fraud.

A lot of deception and fraud seems to arise from people being fooled by what they see on social media or a social media company website. They are led to believe that there is an investment that they should get involved in or someone else is promoting a product. It is difficult for the Central Bank to regulate that as it has no responsibility for social media companies.

Ms Derville Rowland

We do not have responsibility as the overarching regulator, but we intend to seek to deploy a connected strategy. We already work very closely with the Garda and have a mandate for unauthorised financial promotions, namely, people who are not regulated in Ireland to sell financial services and fraudsters who are putting up advertisements. Some of that used to be in newspapers or other old-fashioned methods, but there are now more modern methods. We have powers to take those down and require the co-operation of Internet service providers. They are often located in jurisdictions very far away from this island. That is the best we can do.

We often get more traction if gardaí are involved. We work very well with them. They are very involved, and have developed approaches on the typologies of crime for money-laundering and will work with a public private partnerships approach and anonymised data. We see that as a model that can be used into the future. I am optimistic that there are ways to penetrate this in a practical and effective way with the new Digital Services Act by engaging and aligning with the oversight regulator and how it requires Internet service providers to take action in terms of their obligations under this Act, processes and procedures and risk assessment. As I said, we want to become one of the preferred and trusted counterparts in this so that if we see an issue, we can notify the authorities directly. Given that we will be a trusted partner in this, that partner will act, subject to fair procedures, on our request. That would be far more effective.

We have an idea, on which we need to engage with dialogue with the regulator. We propose that in the case of any entity stating it is regulated or authorised by the Central Bank of Ireland which seeks to use a paid Internet service provider, the provider would not take that business unless it checked with us to see if that in fact was true. That will be an attempt to stop promotions getting into the Internet and reduce the harm customers are exposed to in the first place.

The second part of that is our work in Europe because it is a connected payments system, and we have to be cognisant that in Europe we have to work with the PSD 3 payment services directive to strengthen customer authentication and IBAN checks. It is another help. It is in some jurisdictions. It needs to come in here. I think that is on a timeline. That is another safeguard for people, that the name they are sending the money to matches the name they think it is. They will get warned. It is a multidisciplinary way of thinking about this, and there is a number of ways to try to reduce it. Something we are strong on right now is trying to do consumer campaigns. Some of our staff have been on afternoon TV. We notice we have received high recognition for that kind of work. It is important that consumers are also equipped to protect themselves as well as the system working at a number of different points. I hope that is helpful.

That is very helpful.

I will carry on from that, with it being Valentine's Day and all of the warnings about fraudulent payments and fraud in general. The Bank of England has spent several million pounds on online advertising to raise awareness. As Ms Rowland has said, that is also a key part of it. The last time the bank was before this committee it stated that the Central Bank had launched a public awareness campaign entitled, "How can I protect myself from financial scams?" That information was available on the bank's website. In response to the questions from Deputy Doherty, we were told that the cost of the campaign was approximately €100,000. A month or two later, the bank wrote back to the committee to say it had checked its records and the campaign had actually cost €2,332, including VAT. My understanding is that it was one video the bank paid to promote on YouTube, LinkedIn and Twitter. Does Ms Rowland think it is accurate to describe the paid promotion of one video as an awareness campaign, and have such a differentiation in what has been spent - €2,000 as opposed to €100,000?

Ms Derville Rowland

We have had more than one campaign, which I will come to in a minute.

I know that, and I have further questions about that.

Ms Derville Rowland

I will deal with this first. My colleagues, Colm Kincaid and Patrick Casey, were here at a dedicated session particularly focused on fraud. The team at the time gave the incorrect figure. I was not here. They obviously corrected the record, and I am glad they did. It was cost effective and I am glad of that. However, we are doing a trial approach in the Central Bank where we think it is important that consumer education, awareness and information are part of the solution and not the absolute solution. What the campaign the team was talking about at that time was more focused on authorised push payment fraud. I know that since then we have information on our website. We use channels. We have had another campaign since. We have tried to measure the effectiveness of these campaigns by way of impressions and insights to see, at least at first pass, how much of the general public this reached. That is a good starting point.

How much did they spend?

Ms Derville Rowland

I do not have the figure off the top of my head for this second campaign. It is a modest amount. What has been impressive is that the figures from the team show significant levels of awareness of that campaign in Ireland. The impressions reached maybe 40% of the Irish public. We use radio channels and afternoon television, which you do not have to pay for.

I am trying to reconcile how the Bank of England would spend millions of euro and we would spend €2,000 on something. I know the other campaign was started in November.

Mr. Gabriel Makhlouf

The amount they spend does not necessarily mean it is most effective.

I know, but it is €2,000 compared to millions. I am trying to get a measure of how serious we are about tackling it, about prevention, and about raising public awareness so it does not happen in the first place.

Ms Derville Rowland

I do not know the scope or any of the detail of the Bank of England figure with regard to what it covers or does not cover. I can only speak for ourselves. We are satisfied with the penetration levels of that campaign and it is an approach we are going to continue. Another approach is that we often do a joint campaign with An Garda Síochána, and again a lot of the channels we use are free such as the radio and so on. That gets high penetration in Ireland because Irish people listen to the radio. That does not cost us any money.

It is obviously not enough because there are millions being scammed all of the time. We have to-----

Ms Derville Rowland

The Deputy is right, and we can always do more. That is something we will try to do.

It would be interesting for the committee to be told how much was spent in 2023 and how much spending is planned for 2024. That would be useful information.

Ms Derville Rowland

We would be happy to. We will also come back to talk about the way we measure effectiveness, because the monetary sum on spending through channels, although really important, is not-----

We do understand that.

Ms Derville Rowland

It is important that people hear the message, can understand it, and it actually helps them to protect themselves.

Is Ms Rowland satisfied that enough people are hearing the message?

Ms Derville Rowland

Not at all. I recognise it is a key issue, and we are only one of the institutions in Ireland that has a part to play. However, we are committed to trying to play that part and to continuously improve on that. We recognise that financial literacy, information and other agencies will have a role, but we must all do our best.

I am talking about the Central Bank. We will leave that there and find out how much was spent and the penetration and measurement of the outcome in terms of how many people it prevented from being scammed.

Ms Derville Rowland

I cannot say that, but I can talk about how many people heard it in the first place.

I know how things are measured.

I move on to the pyrite and mica scheme, because we have had discussions on this before. Will Ms Rowland detail the progress that has been made from the bank's engagement with the financial services industry and the representation groups to advance the work they promised to do? Will she let us know what is happening there? We have a situation at the moment where homeowners are still not getting access to extend their mortgages. I find this in particular with people in their 50s and 60s, who are being refused top-up loans by their banks. There is a mortgage on the house. They need a top-up mortgage to bridge the gap to draw down the loan from the scheme. The people I am dealing with in my constituency are not getting the financial support or credit to do that.

Ms Derville Rowland

We were supportive of a scheme being established, as it has been, that recognised this is an extraordinary event for the families facing it. We had a number of meetings over time with groups, representatives and the financial services players in this. We understood the scheme was up and running and that a problem-centred approach was being taken within the confines of the scheme. I understand, from the information I have, there are a number of issues arising in the scheme. I have heard talk about mortgageability, which is to do with documentation and engineer's reports so people can sell their houses once they have been remediated. I had understood those matters would be dealt with within the scheme, but the Deputy might know more about that than me. I am not party to the running of the scheme, which is outside of the financial system. However, we were supportive of the insurers and banks coming together with the scheme to look at the issues arising. I had understood those issues were arising under what I call a bucket or a broad heading of financial conditions such as terms and conditions of mortgages.

I had heard of issues where, for example, a house had been demolished and there was concern that one of the terms in the mortgage condition document stated how the house should obviously be there and not demolished. Approaches have been taken to address the exceptional circumstances of this. Letters of comfort or assurances have been given that those kinds of covenants or conditions would not be enforced under those specific circumstances. I had understood that quite a lot of issues had been addressed. Reassurance and assurance had been given about the myriad issues that had been arising, and they were being addressed within the confines of the scheme. I had understood they were being dealt with and a lot of progress had been made. I do not want there to be issues left over, but if the Deputy is telling me there are matters the scheme has not yet addressed or sought to address we will be supportive, helpful and constructive in any way we can.

If more needs to be done to fill specific gaps we will constructively engage, which we have done already. We had understood that which we said would be a good thing to happen, which is that all these complexities around finance would be addressed in a collective way in the scheme, was happening. I understood that a lot of progress had been made around some of the key issues and since then nobody has raised residual issues not being addressed in the scheme with us.

Is Ms Rowland fully satisfied that homeowners affected by mica and pyrite have access to credit in the way they should? She keeps saying that the Central Bank has a supportive role but is there any role that the Central Bank can play to ensure that these homeowners - whose houses are owned by the banks in the main, which means the banks have a huge interest in this - have access to credit in order to be able to draw down the funding under the scheme that is available, which is not 100%?

Ms Derville Rowland

We do not run the scheme.

I understand that the Central Bank does not run the scheme.

Ms Derville Rowland

It is extraordinary.

I really do understand that but I am trying to find out how we can improve access to credit for people who need it. In many cases, if their lives had gone on as normal, these people would be in their 50s and 60s and have their mortgages paid off but they now find themselves in a situation where they desperately need access to credit. What can the Central Bank do to facilitate that?

Mr. Gabriel Makhlouf

We cannot do anything directly but I know that the specific issue the Deputy mentions is being actively looked at by participants in the scheme, by the relevant Departments, Banking and Payments Federation Ireland and the banks. The issue of bridging finance is being looked at. We are aware of it but are not involved in the scheme itself.

Is there nothing at all that the Central Bank can do?

Mr. Gabriel Makhlouf

To the extent that there are things that we can do, we will engage with all of those entities I just mentioned. We are ready to be constructive in this but right now, it is a matter for the scheme and the scheme promoters, who are actually responsible for it.

This has gone on for years and years and people will be really disappointed that the Central Bank cannot play any more than a supporting role in this. Obviously what homeowners wanted was a bespoke scheme that would get them out of this situation. This is not a normal situation. We have a situation where people desperately need credit and need to be able to get on-----

Mr. Gabriel Makhlouf

My understanding is that all of the participants in the scheme are very conscious of the issue the Deputy has raised and are actively looking to address it.

The scheme is live as it is, so I will continue to pursue this with the individual banks.

Can our guests give us a ballpark figure of how much the big three retail banks have on deposit with the ECB?

Mr. Vasileios Madouros

Yes. In aggregate, the deposits of the banking system overall are around €90 billion.

What is the current rate from the ECB? Is it 4%?

Mr. Vasileios Madouros

Yes, the deposit facility rate is 4%.

Obviously competitiveness is a big issue for us here. We do not have adequate competition in the banking market. How does the Central Bank deal with that lack of competition in the context of greater regulatory oversight and action? What steps has the Central Bank taken to ensure that the banks pass on interest rate increases to savers in a timely manner? Obviously the banks are making huge amounts of money with €90 billion at 4%. What is the Central Bank doing to make sure-----

Mr. Gabriel Makhlouf

Let me start and then I will pass onto Mr. Madouros. First, with the withdrawal of Ulster Bank and KBC from the market there is less competition. Obviously we had even more banks in the market if one goes back a decade but we would not go as far as saying there is no competition.

I did not say that either. I said there is less competition.

Mr. Gabriel Makhlouf

I just want to be clear on this. One of the interesting things, as I said at the beginning of our discussion, is that the financial system is changing. One of the interesting features that we are seeing, of course, is that increasingly people are not looking for a single service provider for all of their financial services. They seem to be happy, for example, to have a digital service offering from one provider, to have a mortgage with another provider and to have their salary paid into a third provider. We are seeing the nature of financial services change, which means the nature of competition is changing. One of the challenges we all have is to understand exactly what is happening to competition here. The old way of thinking about competition is changing and certainly in recent discussions I had with the chair of the Competition and Consumer Protection Commission, this precise issue arose. It is my view that at some point the CCPC will have to look at how competition in financial services, and specifically in retail banking, is going and we are ready to help support that work. What we are seeing at the moment is quite a different picture, certainly when it comes to interest rates. I am on record as saying, including at this committee previously, that my preference would be to see a rapid pass through of ECB decisions into the market. In Ireland we saw a slower pass through of increases to mortgage payers but also to depositors.

Is Mr. Makhlouf satisfied that the balance is right between that slow pass through and the pass back in terms of the deals the banks are giving?

Mr. Gabriel Makhlouf

Those are commercial decisions. My preference would be for things to be faster but they are commercial decisions. As we were discussing earlier, our interest rates started to go up in July 2022. We have seen the pass through happening but it was not happening at the beginning. I will ask Mr. Madouros to come in on this.

Mr. Vasileios Madouros

In terms of where we have got to with interest rates-----

I just want to see how the Central Bank introduces fairness in the context of 4% being made on €90 billion and how that is passed on. I want to know that there is a fairness in the system and that consumer rights are being upheld. It is about fairness.

Mr. Vasileios Madouros

I will start with what has happened to date and then I will-----

I have limited time.

Mr. Vasileios Madouros

I will be quick. The bottom line is that the last time we were here, we had seen the earlier parts of pass through from what happened to the ECB interest rates to interest rates for depositors and for mortgage holders. As the Governor said, the pass through had been quite slow and quite lagging vis-à-vis the rest of the euro area. We never expected to see a one-to-one situation, with what happened to the ECB rates being fully passed through but when we compared ourselves to the rest of the euro area, we were quite a bit behind. There was quite a big gap. That situation has changed now. For term deposits that households can put on deposit, for example, the gap between the rest of the euro area has reduced. There is still a gap but it has reduced relative to where we were six to ten months ago. The one area where we are still quite a significant outlier is in the proportion of term deposits with banks, which is still very high in comparison to the overnight deposits. Overnight deposits have some of the lowest interest rates. A much smaller proportion here, compared to the rest of Europe, is in term deposits that earn the higher interest rates. We have also seen a much smaller increase than we have seen in the rest of Europe, which could be because of a combination of factors in the system that add some friction. I will pass on to Ms Rowland now, who will answer from the consumer perspective.

Ms Derville Rowland

Recognising that we want to see consumers getting better prices for themselves and taking all of this into account, we went out and did on-site inspections of the main lenders. We looked at their approach to the product design and offering to their customers, the communication to their customers and the options made available. We found that they were not doing enough in terms of transparency, disclosure, access to information and the opportunity to get a better priced return on a product. We have written to the banks detailing a set of actions that we expect of them.

We challenged them around those products with higher returns for customers, which may be limited with regard to how much they can put in on a monthly basis or overall. We are expecting all of the lenders to write to their customers to inform them in very clear terms of the options available to them for better-priced products right across the product suite and to make it easier to take their savings to another lender where there is a better option. We are also going to do a consumer awareness campaign. This is in line with the fraud campaigns, because we think it is important to get information out to people so they can take that on board. We are taking that two-pronged approach where we are talking to the banks and expecting them to communicate with their customers. We also have actions that they have to address to our satisfaction. We will also communicate to lenders. The Competition and Consumer Protection Commission, CCPC, has a role in this. It has very good information on its website about options for customers.

There are also options in Ireland which are not about just going to the banks that are authorised here. There are other options where money could be put on deposit with lenders that are not authorised by the Central Bank of Ireland but which are authorised in the European system. Those are just some of the options we are taking. The pricing decisions are for the lenders to take. We want to make sure that the system is as consumer centric as it can be, that the best product offerings are clear and available and that people are facilitated to take their money to other products when it is in their interest to do so.

I thank Ms Rowland. That is what I wanted to know. There is also the matter of keeping the banks under control because obviously profit maximisation is their aim and we see the projections for the banks while we see many vulnerable customers as well, which Ms Rowland referred to in her statement. I want to ask her about the mortgages that have been transferred from the vulture funds back to the banks. How many have been transferred back at this point? I am talking about this in line with what the Minister for Finance said. He said he would like to see mortgages held by vulture funds returned to the traditional banks. Have there been any changes there and how many have been?

Ms Derville Rowland

The Deputy will be aware that a key part of this was to make sure there was no discrimination for customers who are in the non-bank sector if they wanted to seek a mortgage in the banking sector. We found there was not. We were aware that people were not clear about what they had to achieve in order to be eligible to switch their mortgage. Those are things like a good credit history, being able to repay their loan for two years, and meeting loan to income and loan to value. It has been really beneficial that those criteria are clear. We see this beginning to move. Mr. Madorous will have general observations about the system. We think the same amount of switching is happening in the credit institution banking system as in the non-banking system. It is early days. A small number, about 900 to date, have switched, but that is good because that means people who are paying higher amounts in the non-bank sector are able to get a better-priced mortgage for themselves in another sector. It is early days. We think there is more switching opportunity in the system. We will continue to encourage that because it will obviously be a better outcome for people to know the pathway is there and available. It may not be available to everybody but we think there is more that definitely can be done. That is a beginning.

There is certainly more. When we look at the context of all this, 78,000 had their mortgages transferred. Could Ms Rowland confirm that approximately 22,000 of those were mortgage holders who were not in arrears and should not have been transferred in the first place?

Ms Derville Rowland

There are two different statements there. The system permits the transfer of mortgages from the banking sector to the non-banking sector. I know the Deputy does not agree with that but it does permit it and that is the policy framework within which we operate. Performing loans were certainly transferred. I cannot refer to the figure the Deputy has. I do not have it to hand. I will not quibble with it if the Deputy has it in front of her. I would certainly say that performing loans were sold. Many mortgages over time have been redeemed and changed, so I cannot speak to that group of people, but we think there is more opportunity for customers in the non-bank sector to switch to other products that are better priced for themselves.

There certainly is. My contention is about the criteria for that. That is what I am trying to analyse and look at. We have 900 but the criteria are so strict with regard to the number of things that people have to meet for transferring. I want to see if that is working for people or if we need to look again at the criteria and the expectation we have of people. Obviously, it is a separate issue but it speaks to the overall number of people who are impacted by that if we have 22,000 people who should not have been sold off in the first instance and they have been sold to vulture funds.

Ms Derville Rowland

There are a couple of things. The switching criteria are the credit standards set by the lenders. These are very conventional credit standards, including loan to income, loan to value, ability to repay, and a good credit history. These were set by the industry. I am sure the Governor would like to speak to this but these represent the credit decisions-----

I have them all here in front of me.

Ms Derville Rowland

-----that are very usual. There is nothing especially different in that scenario to prudent lending standards.

I believe people were wronged in the first instance when we were told that mortgages in arrears were to be sold to vulture funds. I want to put an issue of a complaint to Ms Rowland, if she does not mind. It is about the deeds again. We have discussed this before. I have dealt with one particular person who is citing that the bank is refusing to give them bank the original deeds. They are saying that within the rules where a mortgage is redeemed, the title documents must be returned to the mortgagee. Are people entitled to get their original documents back from the bank? If there is €50,000 outstanding on a loan, then a person pays that money down and asks for the original deeds back or the original documentation, marked as paid in full, is a person entitled to that?

Ms Derville Rowland

I am not an expert conveyancer. That is my understanding, if the title is clean and free, there is no longer a mortgage outstanding and all the legal due diligence has been done to remove the mortgage from the title. I am not a conveyancing expert but that is my understanding. Others will have been through the experience of living through conveyancing tracks and holding their deeds once they are clear and free from any charge on the title. One anticipates that the deeds would be returned to the person because they are the deeds to the person's house if there is no recourse lending.

The contract is obviously between the bank, which comes under the Central Bank, and the person who takes out the mortgage. I just cannot see why it would not give the person back the-----

Ms Derville Rowland

If the Deputy gives me the details of that case-----

Okay, I thank Ms Rowland.

Ms Derville Rowland

-----we would be happy to look at that because it sounds odd to me. Unless there is a legal query, dispute or issue arising between them-----

There is nothing whatsoever.

Ms Derville Rowland

I cannot understand it. We are very happy to try to look at it if the Deputy gives us the details of the case. Every time anyone communicates information to us, we put it into the supervisory teams that work with the institutions and we look at absolutely everything.

I thank Ms Rowland.

Who is the superior authority? The Financial Services and Pensions Ombudsman, FSPO, made changes relating to unregulated financial entities to which this particular situation relates. The change is not legislative, is it?

Mr. Gabriel Makhlouf

I am not sure exactly what the Deputy is talking about.

Mr. Gabriel Makhlouf

I am not sure exactly what the Deputy is talking about.

Can I expand further?

Mr. Gabriel Makhlouf

I will make one point, which is that the FSPO works under a legislative mandate that is "owned", if I can use that word, by the Department of Finance. The Central Bank works under a legislative mandate that is partly owned by the Department of Finance but largely owned by the European system.

If the Deputy is asking about who is responsible for the legislation, the Central Bank deals with regulations. The FSPO works within its mandate and comes to judgments about its legal powers, but ultimately it is all determined by the legislative framework that different Departments-----

That is not what I am talking about. I am talking about the people who were affected when unregulated mortgages became regulated. That is not retrospective. If not, why not?

Ms Derville Rowland

It is not a case of unregulated mortgages becoming regulated. If the Deputy is talking about the issue we talked about with Deputy Doherty, and his concern, I cannot answer any of that because they have come to their own decision about their own mandate and any-----

Who came to that decision?

Ms Derville Rowland

The financial services ombudsman made that decision. That ombudsman interprets its own mandate and it came to its own view. If there is an issue to fix, that will have to be done as between the financial services ombudsman, the Department of Finance and the Legislature. They will determine retrospectivity or any other dimension to this in ways we are not able to comment on at this juncture.

A certain number of what we call vulture funds have two elements to their armoury at this stage. One is they could be the beneficial owners of a considerable loan, while they could also have in their back pocket the power to use one or the other, or both, in order to, for instance, go to court to push the borrower into receivership, which has happened on a fairly regular basis. They could sell the property on the Internet without having to go into a public auction at all. One of the questions we have to ask in those situations is whether it is proposed that the property be sold on the open market. Those funds will say no, in which case they have very strong control over the borrower's indebtedness to them. The loan was not indebted to vulture funds in the first place but to the bank. The bank sold the loan on to the vulture funds and the mortgage holder is now stuck in the middle in a very precarious position.

In the past few weeks, there have been a number of instances where the funds have shown a deliberate degree of aggression in pushing people into receivership and, as a result, to dispose of their property, whether those people liked it or not. This was presumably on the basis that we are now in a rising market and now is the time to do it. I presume the Central Bank is aware of this. If it is not, will it in any way ensure that the vulture funds do not have the most powerful influence over the borrower or that it is fairly and legally constituted?

Ms Derville Rowland

There are a lot of concerns in the scenario the Deputy detailed. We play our role vigilantly and with a high degree of care in challenging an oversight on our part in the system with respect to borrowers who are, or could be, in distress. We engage very closely with the regulated entities on any information we get that is evidenced by substantiation. Only in circumstances where no sustainable alternative repayment arrangement is in place can looking at forfeiture of the underlying property even be considered. As we know, Ireland has been slow, in its system in general terms, to forfeit properties when mortgages are not paid. In any challenge or debated situation, where it is not through agreement, there has to be recourse to court or other options. That is outside the remit of the Central Bank of Ireland, but where the system presents us with information, we either deal with it ourselves because it is relevant to our work, or we are certainly not shy in passing it to those agencies which have to deal with that part of the system.

I can only assure the Deputy that we take our role very seriously. We pass on information that falls outside of our remit because we are one part of the system in Ireland that is designed to support people to stay in their homes. It is only after the code of conduct on mortgage arrears has been fully exhausted and people have been designated, for example, as being in long-term mortgage arrears, where no resolution is realisable or possible, that they end up in a forfeiture proceeding. In those cases, it may be that the Insolvency Service of Ireland or the court is part of that. We pass information to them because they have a role to play. I cannot tell from the detail the Deputy gave which exact part of the system applies. I have read some of this information in the press. Information is also given to us, as the regulator, in detail. We either deal with it ourselves or pass it on to those parts of the system to deal with it.

It appears that the financial ombudsman is a very powerful entity. Am I right in assuming that?

Ms Derville Rowland

He is a very important part of the system to help consumers have redress of rights.

Is he the most important part of the system-----

Mr. Gabriel Makhlouf

No, he is part of the system-----

-----in terms of authority?

Mr. Gabriel Makhlouf

There are different parts of the system-----

I know. Moving parts.

Mr. Gabriel Makhlouf

There are different parts of the system. The ombudsman works within a statutory mandate in the same way we and the CCPC work within a statutory mandate. I agree the ombudsman is an important part of the system.

I have had the same experience as Deputy Doherty. All of us have had the same experience whereby what we call the customer, who is the borrower, originally borrowed from one of the pillar banks but had their loan transferred or sold off, sometimes in a bundle, to a vulture fund. Incidentally, this was against that person's wishes and, in most cases, he or she objected. In most cases where I have dealt with that kind of situation in the past, it related to insurance companies, which sold on somebody's cover to another insurance company to the objection of the person paying the bill. The customer again loses out.

I am a little concerned that the vulture funds have quickly slipped ahead of us, both public representatives and customers, to the detriment of the rights of customers. The information the Central Bank gave to the House and the committee was that those funds were, rightly so, coming under the regulation of the Central Bank. That was said in good faith and I accept that. However, the vulture funds have found a way to get around that. That is what worries me. I have dealt with individual cases, as has everybody in the room, whereby customers ask, "Why should this have happened?" They did not ask to be treated in this fashion. They were dealing with their original lender and their loans were transferred elsewhere. I have sat around a table with several of these people, who say that all has changed now. It is an ongoing situation. It has not gone away but is in full swing at present. The usual excuse is that the loan is no longer sustainable and the borrower is unable to service it, despite the fact that the customer might have made several efforts to negotiate with the bank to no avail. All the bank ever said was that the loan was not sustainable and it was not going to do that. It is very worrying from the point of view of who calls the shots.

Who is the boss? Who is the leading authority? As public representatives, we are concerned. We know the witnesses are concerned. I have no doubt that somebody stole a march on some of the borrowers, not with the approval of but regardless of the role that the Central Bank has to play. I would like to see a follow up on that and some further clarification. These are not isolated incidents. They are going through the system inexorably at the moment, regardless of what we think or say.

Mr. Gabriel Makhlouf

One thing we will do, from the discussion we had with Deputy Doherty at the beginning of this meeting and what we have been reading about in the newspapers today, is we will write to the committee and set out for clarity's sake the framework as it exists today, so that everybody is on the same page and understands how everything should be working. We will do that. Hopefully Deputies Durkan and Doherty will find that helpful.

Perhaps the witnesses would also acquaint the vulture funds as well.

Mr. Gabriel Makhlouf

We will put everything in this note. That will give us a comprehensive picture.

I have a couple of other questions. At the beginning of the meeting, the availability of cash was discussed. We welcome the intervention on the part of the Central Bank in relation to the availability of cash. I do not think it is sufficiently available yet. There are glitches. The number of cash machines you approach nowadays only to be told the machine is temporarily out of order is inconvenient. If a person is looking for cash for something, or is in need of cash urgently, it may be necessary to travel around three, four or five machines in the rain and face the elements in order to get cash. I mean a reasonable amount of cash that will not break the bank. I do not think that it is operating properly. I hope that might be taken into account. While doing that, we had a cash machine in this building, which was taken away by the provider during the Covid-19 lockdown on the basis that there was very little football. It was not making a profit. The guys who come up with these notions and excuses must think we are all fools, and that the Central Bank and the Chairman must be fools. They have no regard for consumers' rights or individual rights. We are entitled to a reasonable excuse. We are also entitled to the machine being put back in its place for the convenience of the very large number of people who operate in this establishment. It is the national Parliament. You access a cash machine virtually anywhere. It might not be working but you can access one in any shop, supermarket or anywhere we like throughout the country. It is a distinct discourtesy to the House of Parliament to do that. I ask that every effort be made to encourage the lending institution, or whatever institution is providing much of this cash, to restore to the Houses of the Oireachtas the machine that was already in operation.

On customers' access to their own money, that is something I have had a number of complaints about. There are several restrictions restricting the customer from getting his or her money out of his or her bank. In other words, there is a slow down. Allegedly that is to protect the customer. I would like to know a bit more about that. I think it is to annoy the customer, because that is exactly what it does. The customer decides to go to a bank, some change is taking place, he or she puts in their PIN number and the notice comes up "Wrong PIN number". Every man, woman and even child knows they have put in the same PIN number every time. It is not the wrong PIN number, but the security system obviously is doing a double check, which knocks it out. Two tries or two strikes and you are out. They then get cut off and get no money. It may be urgent as far as they are concerned. I was asked to bring that to the witnesses' attention. Hopefully, we will receive a satisfactory response as well as to a lot of the other issues.

We are two hours into this meeting and I am obliged to ask whether people would like a break for a few minutes. If they want to continue, Senator Byrne will ask a few questions. I have just two questions.

Apologies, I had another committee meeting earlier and that is why I was not physically here but I read the opening statement. I have two questions. We now have the bank levy and the new proposals about access to cash and all focus mainly on the three retail banks. Is the CBI concerned about possible unintended consequences for consumers by the State hiking up fixed costs for retail banks? That is my first question.

The committee has previously discussed issues of fraud. Have the witnesses met with Meta or Google about their role in protecting consumers and maintaining confidence in the financial system? Some 60% of reports show that it is being suggested to people that they purchase online from ads on social media, yet so many of them are fraudulent sites.

Mr. Gabriel Makhlouf

Mr. Madouros will take the first question and Ms Rowland can talk about the online issue.

He is a great man for passing the ball.

Mr. Vasileios Madouros

I might take the one on cash specifically. I think the Senator made a broader point but I will touch on what she said in the context of that. As a starting point, as the Governor mentioned, we really welcome this legislation and we think it is a really important public policy intervention because while we have seen a decline in the use of cash, it is clear that it is still needed and wanted by people in society.

Absolutely, yes.

Mr. Vasileios Madouros

It is important. The point about cost is important in the context of this discussion, because the provision of the cash infrastructure entails some costs. What we do not want to happen is that the provision of that infrastructure changes faster than society's preferences. That would not serve society well. However, when we think about not where we are now, but where we might be going into the future, it is important that we think about the balance of these costs and benefits from a societal perspective. To make that a bit more explicit, the legislation has this draft provision of changing the access to cash criteria in the future. That is important because if society's demands for cash were to continue falling, with people just not using it, then, if that infrastructure remained the same, there would not be benefits for people because they would not be using it, but there would be costs. Those costs ultimately would be borne by society as well. This question of the balance and the proportionality, not in terms of where we are now, but thinking about it in the future, is important. That is why it is really important that the draft heads of Bill have this provision to review them under certain conditions.

Ms Derville Rowland

The digital services Act is an EU regulation that requires the Internet service providers to be regulated for certain harms. Principally, some of it is around child safety, which is very important. It is also about harmful and illegal content. In this jurisdiction the designated oversight regulator is Coimisiún na Meán. The European regulation is done and in force. However, the Houses of the Oireachtas are taking the domestic element of that, which I think is passing through the Houses right now.

I refer to what this means when we think about an effective strategy for engagement around all the different ways frauds are being presented to consumers. The Senator is absolutely right that most of these are now done in an online way because this is how we are more and more vulnerable as we are interacting in this way. We are intent on engaging with the regulator first. This is because we want to align our approach with that of the regulator so the engagement will be at its most effective when it occurs. We are very purposeful and clear about the outcomes we wish to see.

The first outcome we would like is to get designated under that new legal framework and for the Central Bank to be regarded as a trusted flagger. If we were then to have information about frauds, scams and harmful online content, under this new legislation, we would be able to make contact with any of the Internet service providers. I refer to us being recognised in a pre-cleared way as a trusted provider so that on our recommendation such content can be taken down. That would be subject to fair procedure, but we think this would be a very helpful intervention from us. It is one, however, on which we need to have a dialogue with the regulator.

The other idea we have in mind also concerns getting alignment with the regulator so that when we bring forward a proposal with the relevant entities we will be working with the framework in a connected way. This is concerned with requiring or asking the Internet service providers not to take paid-for advertisements for financial promotions for any entity suggesting it is regulated by the Central Bank of Ireland without checking with us if this is true. We again think this might be an effective early remedy to stop bad harm occurring in the system. This type of activity, though, is international, so many of these attempts may be coming from jurisdictions far away. They might pretend to be regulated somewhere else or not to be regulated at all. We also want to talk, therefore, about the kinds of policies and procedures that these Internet providers will be expected to have when they are thinking about frauds and scams in financial promotions or other promotions and how this will work so that we can have an effective approach.

These are some of the elements we think we need to have a dialogue with the regulator about first. The intent, however, is for us to be effective and then to move to have engagement with the entities. I hope this is helpful for the Senator.

Yes. Does the Central Bank intend to have that meeting in the near future? I ask because-----

Ms Derville Rowland

Yes.

-----we are reading more and more about the number of people, and especially older people, who are being hoodwinked out of their money, for want of a better description.

Ms Derville Rowland

I agree with the Senator.

The sooner the meeting can happen, the better. To meet with the likes of Meta, Google, Facebook or whatever the company might be is very important here.

Ms Derville Rowland

I agree. Some elements of this legislation, however, are only passing through the Houses now. I refer to making sure we have an aligned approach. I will mention that protections are already in place for vulnerable customers in legislative frameworks. The policy framework in Europe is certainly focused on thinking about any special protection for vulnerable customers who might have authorised a payment that then turns out to be a deception. I refer to regulated entities that do not discharge their own obligations in their systems of control and supporting people to get their money back, etc. They have a role to play in this area too.

That is great. I thank Ms Rowland very much.

I thank the Senator. I just want to go back to an issue I raised before with the Governor. It concerned Anglo Irish Bank, latterly the Irish Bank Resolution Corporation, IBRC. What is the position now regarding this entity?

Mr. Gabriel Makhlouf

The Chair means in terms of the Central Bank's role.

Mr. Gabriel Makhlouf

This is an enforcement-related query. I do not think there is anything else.

Ms Derville Rowland

I do not believe that Anglo Irish Bank exists as a legal entity.

It does not exist.

Ms Derville Rowland

It has been resolved and does not exist now as an institution. If I am wrong about this, we will revert to the committee. The actual answer is that it was put into the IBRC.

Mr. Vasileios Madouros

One link we had until mid-last year was that there was a special portfolio we had acquired as part of the liquidation process. That was gradually being sold down, and it was fully sold off in September of last year. It was a big milestone.

What role would the Central Bank have had regarding the IBRC? Was there any role for the Central Bank there?

Mr. Gabriel Makhlouf

No.

That was not a bank, it was just handling the-----

Ms Derville Rowland

Yes. I am working from memory, but I think it would be better to write to the committee. Anglo Irish Bank was resolved. Assets were transferred. There were various resolutions and criminal prosecutions. We would, however, be happy to follow up in writing with matters of detail.

I suppose what I am asking is-----

Mr. Gabriel Makhlouf

When did we last-----

-----when the IBRC took over the assets or whatever was left of Anglo and worked it out, did the Central Bank then regulate it?

Mr. Gabriel Makhlouf

I am sorry. The Cathaoirleach is referring to after-----

I am referring to the Irish Banking Resolution Corporation. Was that an entity regulated by the Central Bank?

Ms Derville Rowland

I am working from memory. I cannot recall the detail. It would be better to provide a comprehensive answer in writing.

Ms Rowland cannot say whether the Central Bank was the regulator.

Ms Derville Rowland

I cannot remember the legal technicalities around it. I remember some dimensions of the criminal context. I worked on parts of this process, just not on all of it. I just cannot recall the detail off the top of my head.

Okay. Well, I know a complaint was made to the Central Bank about a transaction that took place going way back to the time of Anglo Irish Bank. This concerned a loan that was transferred to private accounts instead of to the entity. This is where the loan actually ended up. The farmers involved in this matter made a complaint to the Central Bank but little or nothing came of it. I was looking at the papers during the last few weeks. The family involved in this case do not mind their names being mentioned but am not going to do so. I just want to cover the issue they had. Millions of euro are involved here. I raised this issue before, again in a general way.

I do know, though, that the family made specific complaints to the Central Bank about what had happened to them. Reading that paperwork now, it would seem to me that there was certainly a role for the Central Bank to play in the context of uncovering what actually happened and if there was wrongdoing. This matter still remains unresolved because the fact that Anglo Irish Bank folded up and IBRC is in limbo or wherever it is now means this issue cannot be got at in the context of those who approved the loan and paid the money, how this was sanctioned and so on. In dealing with the IBRC, the people who were part of the loan makeup were just told there was nothing to see there. As they are the people central to this issue, they can say, with authority, where the money was paid to, so they made the complaint to the Central Bank.

Mr. Gabriel Makhlouf

When did they do that?

It was a complaint that was ongoing. It just dates back over the last few years. It does not date back to Anglo Irish Bank and the early days.

Mr. Gabriel Makhlouf

Right. Okay.

I was struck by the fact that the Central Bank seemed as if it had not gone into great detail regarding this matter. I would like to see this issue being investigated, or, at least, the Central Bank providing the information in this regard. I know the witnesses cannot do this here because I just landed them with the question. It concerns me greatly, though, that this happened and there was not a sufficient response from the Central Bank in terms of its regulation of what was certainly a bank, in terms of Anglo Irish Bank, and then of the IBRC, of which there must have been some oversight on the Central Bank's side of things. The central figures involved here are now elderly and they have been fighting this ever since it emerged. I refer to what went wrong here. Like all these cases, though, it takes time, energy and a lot of effort to get information from a bank if it does wish to provide it. I think there was wrongdoing there. I am going to ask the witnesses about it again.

Mr. Gabriel Makhlouf

Sure. If the Chair can let us have the detail that he has, it will help to accelerate us to discover exactly what went on.

I will do that. I will pass it to the witnesses after the meeting, just to be clear about it.

Ms Derville Rowland

My reticence to answer the question was because I wanted to give a completely accurate answer. I believe national legislation was passed, which nationalised Anglo into IBRC by operation of law and it became owned by the State - the Minister for Finance. I think also at the end it was Irish Nationwide Building Society and part of Anglo.

There were a lot of different-----

Ms Derville Rowland

There were different moving parts and then things were transferred into other parts of the banking system. I believe we had a regulatory oversight role in the normal way of that event, but because there was a lot of operation of law, I just wanted to give a correct and fully accurate answer. In the end, there were promissory notes, and there were a lot of complications in that, but I believe that we had oversight.

If it was fraud or dodgy business, that needs to be exposed. If the central figures in it provide the witnesses with the information, I think that there should be a comprehensive-----

Mr. Gabriel Makhlouf

If the Chair shows it to us, we will take it forward.

Yes. I also discussed with the witnesses previously about the accountancy profession, how the banks account for losses, and the advice given. There is a difference of opinion between the IFRS 9 and how banks account for losses. In other words, they do not have to account for losses completely in their accounts and the information and advice that they are getting is contrary to the European advice. There is a directive on how to do it, and then big companies come along and I presume they advise the bank on how to dodge the bullet. I have mentioned this before. There are articles in The Irish Times about it, and other such matters. It is important because the outcome of the understanding of that issue can decide whether a bank is in trouble or not. If the proper figures are put out there, it can also explain to us as a finance committee just how much a bank has in bad debt, and what it is doing with it. It is as if we do not get a full disclosure on bank debt from the bank because it would then result in perhaps negative commentary on the bank itself and its standing depending on how much it is carrying in bad debt.

I did send the witnesses the articles and there was a response but I really think, given the number of complaints that I have received in relation to that aspect of banking and the interpretation of the law and accounting regulations and so on, I am unhappy given what we know about the banks.

That leads me to my question in relation to Ed Honohan's appearance before the committee. The witnesses will be happy to hear that I am not going to go through it all, but I would like to have a full session and to go through all of these matters. Mr. Honohan tabled 20 questions to us relative to the Central Bank. I am going to give the witnesses those questions to take away. They might have a look at the ones that come within their remit, and give us an answer on what they believe is the case, relative to each. It was a very long meeting that day and he was serious and passionate about his position and these questions emerged. I want to get answers and then we can pursue the questions again at another stage.

I will go back to what Deputy Doherty was talking about, from today's Irish Independent. He has covered everything and I am not going to go through it again, except to say that I agree with all of the questions he has posed. I see the loopholes and how things can be manipulated by the banks, the vulture funds, and so on. I do not want to lose sight of Elizabeth McAuley because, in her story, she raises all of the issues that were dealt with by Deputy Doherty, but she subsequently voluntarily sold her home in 2019 after coming under pressure to do so. That pressure can come in all sorts of forms, but I want to tell the witnesses that the banks continue to apply the pressure. They continue to do all sorts of things with customers that I find reprehensible. I just cannot believe that they continue to do it after all they have been through. This lady, Ms McAuley, is a case in hand, who was made homeless for a couple of months. She was in severe mental anxiety and had depression. She was 58 years of age. That alone would drive me to investigate all of what has been said to the nth degree and to defend Ms McAuley because I believe that what she describes in this article in her words should not be happening today after all of what we have been through here.

I am just adding to Deputy Doherty's comments. Mr. Makhlouf said he would reply to this article. There may be a need for us to talk directly to him at that stage about what has been raised here, or there may be no role for him. We do not know what the outcome will be. Certainly for me, as Chair of the committee, and working with the members, in particular Deputy Doherty, I am very anxious to get to the bottom of what happened to Ms McAuley and how she was treated. We will come back to it.

I want to ask a question about when a bank is found to have done something very wrong, like with the tracker mortgages. We have read reports in the newspaper about fines. We might get a general understanding of a bank being fined for some sort of wrongdoing. Where they have been wrong in their actions with customers and they get those customers to sign a confidentiality clause, is that something that will then restrict the Central Bank from penalising that bank for its wrongdoing? I give the example of Belfry, which is still unresolved. I can give another example of the EBS, which is also still unresolved. In spite of all of what the banks tell us, there are still customers that come to me, even today, to tell me about the fact that the EBS situation is not completely resolved, and Belfry is in that category as well. Has the Central Bank investigated both Belfry investments and the EBS? Do they remain under scrutiny and will there be fines?

Mr. Gabriel Makhlouf

The investigation of Belfry has progressed. People could be still unhappy, but it has progressed. I do not think I have anything new to say to the Chair about the EBS issue. To answer his very specific question about whether non-disclosure agreements get in the way of our enforcement action, the answer is "No". I do not know if Ms Rowland wants to add anything.

Ms Derville Rowland

The Belfry issues arose before the regulatory frameworks as they are today came in. We engaged with the lender to bring an approach that we thought was up to date with the way that we expect banks to behave towards their customers. It adopted an approach that we challenged it on. We were working on a basis where there was no regulation to compel it to do so, but we thought it was the correct approach. I have nothing to add with respect to Belfry as well. It is in line with what the Governor says. A lot of progress was made.

I am not saying it was perfect and there was litigation. But a broader approach was applied, rather than everyone having to go to the court. That has helped a lot of the customers in Belfry. If the Chairperson has residual concerns in this regard, it may be that not everyone is happy in Belfry, but a significant amount of redress has been afforded to customers. There was no set of powers or requirements for it to happen by way of rules and requirements but we brought our consumer lens to that approach and a lot of outcomes have been delivered for most of the people in Belfry. It may not be a perfect answer but we believe it delivers a significant benefit to the customers.

Not everyone will be happy. I am wondering, however, whether the Central Bank will stick with it until all of the Belfry questions have been dealt with.

Ms Derville Rowland

I am happy for the Chairperson to send question to us on this matter. We believe the Belfry matter has been dealt with in the main.

Okay, I will send questions to the Central Bank then.

Do banks get fined for that kind of-----

Ms Derville Rowland

No. This is dating back in time and there were no rules and requirements in place like there are today. This is why we encouraged them in a directional way to take an approach, but there were no rules and requirements.

What about EBS as an example? That is nearly finished. Again, will the Central Bank oversee it until the end and will there be fines?

Mr. Gabriel Makhlouf

I believe the answer is the same one as Ms Rowland gave the Chairperson. I will need to refresh myself to see if there have been any new developments since we last discussed that case with the committee but I do not believe anything has changed.

Okay.

I wish to ask Mr. Makhlouf about his interview with the Irish Examiner.

Mr. Gabriel Makhlouf

Yes.

The headline was carried as "Central Bank head Makhlouf rejects claim that Irish banking market is 'dysfunctional'".

Mr. Gabriel Makhlouf

I do not write the headlines.

I know that. It was the easiest way for me to refer to the article. I could refer to other things.

The likes of Belfry and EBS have been dragging on from when they started way back up until now and other issues have been raised around the tracker mortgage issue and what happens when banks sell on at an early stage. I refer, for example, to banks selling to vulture funds when mortgage-to-rent solutions are almost in place. Difficult cases are sold now from one vulture find to another, only to repeat the whole financial service statement again and to go through all the motions of getting a contact detail and so on. Does that not tell Mr. Makhlouf that the banks are dysfunctional?

Mr. Gabriel Makhlouf

No, it tells me there is room for improvement.

To say the least.

Mr. Gabriel Makhlouf

In a system that has more than 700,000 mortgages, most of them actually work, if I can use that term. The ones that do not work absolutely deserve our attention and we wish to make sure that consumer interests are protected. However, it would be harsh to say the system is dysfunctional. Certainly, if one takes a historical perspective and looks at what was happening in 2007, 2008, 2009, 2010, 2011 and so on compared to now, while it may be hard to do, we must be a bit fair to the banks and say they have made some improvements. I think "dysfunctional" is too harsh. The need for progress and modernisation and the need to improve the customer focus and to ensure that policies and practices promoted by the Irish Banking Culture Board are actually seen through, all of that is good stuff. As I stated at the beginning of today's committee meeting, the system is changing. We notice that banks are trying to respond to this change. Sometimes, they may not be doing that as well as we as consumers would like, never mind as regulators. A lot of the incidents that have been raised and that we are talking about today, such as Anglo Irish Bank, etc. are from ten years ago. My own view is that in ten years' time, the financial and banking system will look different to what it does today. It is different to what it was ten years ago and it will be different in ten years' time.

These are not just words that are made up and put out there randomly. I say this to Mr. Makhlouf out of experience of the tracker mortgages, EBS and Belfry. They may be historical issues but they are not actually, as EBS is still not resolved. It shows the intent of a big bank not to recognise its failings. That is what it tells me. The constant measurement banks take seems to be whatever they can do to keep the thing going until such a time as they will all give up, be dead or have moved on in life. For example, on the mortgage-to-rent solution, a family with serious medical issues - their house can be described as a small hospital - had their house sold out of the blue. They did not even wait to work through to the end and they were almost at the end. Vulture funds sell on the loan to another vulture find and there is no process shared with the next buyer to relieve the load of the person concerned.

We have a copy of a letter that was sent to Ms Rowland. It is about Start Mortgages and a customer who was deemed to be on a tracker mortgage. It pursued him and broke the man. It never acknowledged that the bank that was selling on the loan, namely, Ulster Bank, had actually deemed this to be a tracker mortgage issue. These are the things that are happening. While it may not be driven by the boards of banks, because of the size of all of these operations now, a member of the public finds it extremely difficult. For the elderly it is difficult to deal with these people.

Mr. Gabriel Makhlouf

We do need to ensure that everybody is protected.

For me, that is dysfunctional. I will tell Mr. Makhlouf what else is dysfunctional-----

Mr. Gabriel Makhlouf

I do not disagree with that point.

The complaints procedures in banks are dysfunctional. A lady in her later years found out that her signature was on a guarantee in the bank. It is her signature and her late husband's signature but it is obvious that she was never in the bank, she never signed the document in a bank and she does not know the people who are on it with her from the bank. Therefore, she made a complaint and got no answer. I then submitted the complaint and it was referred to the complaints department of the bank. Maybe every two months or quarter, I get a letter saying that it is desperately making every effort to deal with the query, that it is sorry for the delay and if I wish to go further with it, I can contact the Financial Services and Pensions Ombudsman. I must have a dozen of those letters arising from one single complaint. The elderly woman is pushing on, finding it difficult to deal with the big issue in her life and wishing to get back the approximately €70,000 the bank took from her account. That is all the bank will say. The last time I spoke to the bank in question, it told me that it would be solved within two weeks. That must have been months ago. I tell the Governor that because of this level of dysfunctionality in the process of the bank, whereby they cannot deal with something like this quickly, means for me that it is just not acceptable.

Mr. Gabriel Makhlouf

No, it is completely unacceptable.

I will send Mr. Makhlouf the letters. It is outrageous, and she is not the only one. The bank could say that, no, this woman is actually wrong and that it got that sorted and she did sign it. It is not even doing that. Bank officials are not even meeting the woman. The complaint goes to a centre somewhere where somebody deals with it.

Finally, I want to say this to Mr. Makhlouf because we do not meet that often, but when we do, I like to let him know what is going on from our perspective. The vulture funds have really taken a turn for the worse in my opinion. It is extremely difficult even for me to deal with them, and I have my secretary, who is a forensic accountant, who helps to deal with them and attends meetings with me and so on. Other members will tell me the same thing. The vulture funds are incredibly difficult to deal with, even in terms of finding out who is dealing with a person's account.

I could go on and on, but I want to give Mr. Makhlouf the headline issues that come from my dealings with the public. I would love to be able to say the Central Bank of Ireland will play a really central role in sorting out some of those dysfunctional aspects, if you like, of the banking world in the interest of the people.

Mr. Gabriel Makhlouf

And we will.

That is all I would say to Mr. Makhlouf.

Mr. Gabriel Makhlouf

The Cathaoirleach can tell his constituents that we will. Where we can do it on our own, we will, and where we have to do it with other players in the system, we will work with them. We are very clear that our job at the end of the day is to look after the welfare of the people as a whole. That is our focus.

I will share with Mr. Makholuf the story of a young man who was on social welfare. He wanted to go onto the long-term social welfare payment because he is quite ill. Social welfare sent him 30 pages of stuff about his Revolut account, but because of the fact that he had maybe dodged paying a bill from the service provider for the telephone, he was not able to access his Revolut account to get an explanation as to why he had €50 in it. This is a true story. Revolut and the fintech companies have to be a bit more flexible in the context of how they deal with customers like that. Not everyone is IT savvy. Not everyone can access stuff immediately. The companies delivering services through technology and online banking like that need to respect the fact people join their ranks and become customers of those banks. They need to have a greater focus on their customers. That non-explanation for the €50 deprived that man of his social welfare payment. Now, it is a social welfare issue as well, but these are things that maybe we do not see in the big scheme of things. However, as they are worked out and as I do my clinics in my constituency, I hear all this from people. I am obligated to say it to Mr. Makhlouf and ask that in his work, he would maybe consider the complaints he has received.

Mr. Gabriel Makhlouf

Sure.

It is not a criticism of the bank, it is-----

Mr. Gabriel Makhlouf

No, it is-----

-----the way everything is emerging. Mr. Makhlouf said things are going to change, and they certainly are. They are changing rapidly. I think of the elderly and even those in equity release.

Mr. Gabriel Makhlouf

Yes.

I just wonder about it all. I am very thankful that the witnesses came in. The members have given their updates on their own issues. It is good to share these things with the witnesses and for them to tell us what the bank is doing. If there are no further comments anyone would like to make, I will adjourn the meeting until next Wednesday.

The joint committee adjourned at 4.14 p.m. until 1.30 p.m. on Wednesday, 21 February 2024.
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