First, I thank the Chairman and members for giving me the opportunity to present this submission. My name is Alan Jackman and I know nothing about banking except what I have learned through my experience. I spent 20 years in the telecommunications industry and while I understand my motivation in this regard has also been circulated to each member, essentially it is that one should get a fair go, regardless of one's background or status in society. The legislation that is the subject of my petition is the Central Bank Act 1942, in particular Part IIIC, and the administrative sanction procedure derived from that legislation. However, I contend the real issue at the centre of my petition is in fact the public administration of justice and equality before the law.
Financial regulation in Ireland, including the pursuit of wrongdoing - even wrongdoing that is of a potentially criminal nature - takes place under the provisions contained in the Central Bank Act 1942. These provisions include the strict professional secrecy provisions. The reason for such secrecy at the heart of the regulatory framework appears to be based on the following thinking, namely, the Financial Regulator and the regulatory framework are in place to protect the banking system, not to protect the State or to vindicate the rights of the citizens, in the belief that protecting the banks and the banking system is in the interests of the economy and that a stable economy is in the public interest.
The administrative sanction procedure essentially sets out how a separate legal system for regulated financial service providers works. The procedure sets out how the Financial Regulator will deal with a financial institution if it suspects that the institution has committed a prescribed contravention. A prescribed contravention will have been committed by an institution if it breaks the law or does not comply with a statutory instrument or code. I contend that the provisions contained in the Act and the administrative sanction procedure essentially constitute a separate legal system for banks and banking professionals, administered in secret by central banking professionals who themselves are sworn to secrecy. Is the administrative sanction procedure constitutional? The arrangements set down in legislation appear to be contrary to the Constitution, in that they are not in accordance with the principle of the public administration of justice. All citizens are equal before the law and it fails to protect citizens and vindicate their rights.
There is also a conflict of interest at the heart of the regulatory framework because I contend that the Financial Regulator as currently constituted is fundamentally compromised in supervising and regulating the banking system. The people it pursues for wrongdoing are the same people whose co-operation it needs to make the system work. In 2012, the British Government recognised this conflict of interest at the heart of its regulatory framework and split its regulatory authority in two. As for EU directives, while I cannot make this point with real certainty, I have been informed that these provisions within the Act have been enacted to comply with European Union directives that have been continually updated. I contend that every nation state reserves the right to make its own laws and it may make sense to enact such provisions to deal with the prudential elements, that is, issues to do with capital ratios and all the technical matters. I understand why such matters must be subject to secrecy because one does not want to have runs on banks or people to lose complete faith and confidence in the system. However, it is an entirely different matter to enact these provisions and have them cover elements of financial regulation that relate to the conduct of financial institutions and their employees. Another issue is the vindicating of citizen's rights, with which I will deal at a later stage as I go through my submission.
I will now provide a more detailed explanation of the legislation underpinning the administrative sanction procedure. As part of the administrative sanction procedure, the Financial Regulator can dispense with inquiries and go straight to a sanction. In other words, it may have serious issues before it but might decide to not bother to look into them as the bank will settle or it will go straight to a sanction and that will be it. It can summon, make findings, caution, reprimand, disqualify and sanction. It can make settlement at any stage of the inquiry process and can grant immunity from criminal prosecution by levying a fine. As for appeals, the financial institution can appeal the decision of the Financial Regulator to the High Court. This effectively is why I am suggesting this is a legal system. I noticed something while reading the 2013 version of the outline on the administrative sanction procedure, which stated:
The Central Bank may decide to pursue prescribed contraventions through the Administrative Sanctions Procedure instead of bringing a summary prosecution. However, the Central Bank will consider the circumstances of each case on its merits and may decide to pursue matters which constitute both a prescribed contravention and a criminal offence via the criminal courts. In deciding whether to pursue criminal proceedings, the Central Bank will exercise its discretion, having regard to the Director of Public Prosecution’s “Guidelines for Prosecutors”.
This raises a question that I cannot answer, namely, is the Central Bank doing the job of the Director of Public Prosecutions? If that is the case, it is a serious matter but that is what is written in the Central Bank's outline document in which it describes how this procedure actually works.
The next issue probably is the reason I am appearing before the Joint Committee on Public Service Oversight and Petitions today and is whether a person can make a complaint to the regulator. The answer is no, he or she cannot. A person cannot make a complaint against a financial institution or an individual within the financial sector to the Financial Regulator, even where the complaint involves criminality and where the person is the injured party. If a person approaches the Financial Regulator with instances of wrongdoing in a bank, even where it involves potential criminality or wrongdoing that is being perpetrated against him or her, the person will be informed that the Financial Regulator cannot investigate individual complaints. I have submitted documents to this joint committee showing that this is indeed the case. In addition, in a reply to parliamentary questions tabled on my behalf, the Minister for Finance, Deputy Noonan, stated: "There is no impediment on any person from making any complaint to the Central Bank about a bank or an employee of a bank." I can only go on what I have been informed by the Central Bank twice or thrice, which is that this is not the case and one cannot make a complaint.
I will now elaborate on various sections within the actual Act itself. Section 33AK contains the actual secrecy provisions and it covers absolutely everything. If a person puts information before the Financial Regulator, the person cannot be informed whether the matter has been subsequently investigated or of the outcome of any ensuing investigation. As for section 33AZ, according to the Central Bank's own outline of the administrative sanctions procedure the Financial Regulator can hold the final part of its sanction inquiry in public. Although the Financial Regulator states it would like to do this, I am not aware of any sanction inquiries ever being held in public. However, in accordance with section 33AZ of the Act, it cannot do so where the regulator suspects the law has been broken and a banking professional's reputation may be damaged or the wrongdoing relates to matters of a confidential nature. In these cases, the hearing must be held in private and subject to the strict professional secrecy provisions. There may be a situation in which the Financial Regulator may wish to do something in private and does not wish to prejudice a court case at a later stage. Nevertheless, this still involves having a legal system that is subject to secrecy.
Last year there was a case in Dublin which engaged a member of the public who had pornographic images on their PC. RTE went to court. In the interests of the public administration of justice, the person was presumed innocent pending trial, but they were actually named. We have had cases in which people in other professions who had defective vehicles such as a bus or been driving carelessly did not get the benefit of secrecy because of their profession.
Section 33AT of the Central Bank Act states:
No criminal prosecution may be brought if the prescribed contravention in question has already been subject to an inquiry under the administrative sanction procedure which led to an imposition of a monetary penalty.
This seems to suggest that if a bank is fined as a result of a contravention, no criminal prosecution can follow after that date. It is meant, understandably, to ensure a bank is not punished twice.
While section 33AP is easy to explain, its implications are more difficult. The Central Bank must inform a financial institution that it suspects it of engaging in wrongdoing and order it to stop via an examination letter which will specify the grounds on which the suspicions are based. If a whistleblower comes forward with information of wrongdoing in a financial institution, the suspicions will be detailed in the examination letter. The whistleblower will not be protected by having the complaint publicly recorded and acknowledged like in a trial because it all happens in secret.
The Central Bank is actually publishing settlements, not just sanctions, at this stage, as a result of a decision made by Mr. Elderfield when he was in charge. In a sense, this gives protection because once everyone knows about a whistleblower from an early stage, it is actually more difficult to pick on him or her. It also raises an issue around secrecy. I spoke about conflicts of interest. There could be a situation where one does not want a bank to suffer a serious loss, but, at the same time, an investigator knows the law is being broken. Pressure could be put on the investigator to forget the issue because it is all covered by secrecy. It affects not only whistleblowers but also investigators.
Sections 33AR and 33AV allow the Financial Regulator, with the consent of the financial institution, to dispense with an inquiry and impose on the financial service provider a sanction or enter into an agreement in writing. Could this result in the covering up of other wrongdoing? The Financial Regulator, like the courts system, is not directly accountable for its decisions taken in pursuit of wrongdoing to the Government, the Oireachtas or the public. The courts system, however, unlike the regulator, makes itself accountable by holding its hearings in public and acquires its credibility by not only publicly administering justice but by publishing judgments made by its judges.
Sections 33AK and 33AZ ensure that not only will investigations undertaken by the regulator and the outcomes remain secret, except if they result in a sanction, but, in addition, that the sanctions inquiry hearing will also take place in secret for the reasons set out in section 33AZ. How can the public be assured that the impact of the 2010 Central Bank Reform Act and the various consumer protection codes is not diminished by these provisions? The Financial Regulator’s overriding objective is to protect the financial system, not the State or the citizen. The recent legislative changes have been very much diminished because hearings take place in secret and the public cannot lodge formal complaints. This means that we still must have blind faith in the regulator.
In 2011 the Master of the High Court, Mr. Edmund Honohan, was reported by RTE as having said:
It was a criminal offence to demand repayment so frequently as to cause alarm, distress or humiliation; to tell a debtor they are guilty of a criminal offence; to pretend to be officially authorised by law to enforce payment and that unjustified enrichment of creditors was also prohibited under law.
The Financial Services Ombudsman only offers binding arbitration as a means to resolve civil disputes between financial institutions and customers. It is not an appropriate body to deal with the types of issue referred to by the Master of the High Court. When I raised this matter with the Department of Finance in a parliamentary question, it stated:
The Central Bank may not, however, in every instance be the most appropriate authority to whom the complaint should be made. This will depend on the subject matter of the complaint.
I do not believe these matters should be referred to An Garda Síochána in the first instance. I also do not believe bank employees should be subject to Garda investigation. At the same time, however, I do believe members of the public are entitled to protection and have their rights vindicated. It is the regulatory authority that should do this. In such matters, including psychological violence as outlined by the Master of the High Court, a person should be permitted to lodge a formal complaint with the regulatory authority. In an ironic twist, the Central Bank has people in the banks ensuring this does not happen.
I have submitted the sequence of events that led to me making my petition to the committee. Without going into it too much, I engaged with the Department of Finance for two and a half years. In that time it did not really address the matters I had raised. I was asked if I had mortgage arrears, which I did not, and whether I could go to the Ombudsman. I was dealing with capable officials who understood the legislation and its implications. I have passed on to the petitions committee the correspondence in which the officials stated they would not bring my concerns to the Minister’s attention.
In 2009 I got into a dispute with a bank. I copied various e-mails between me and the institution and sent them to an official in the Central Bank. In a subsequent telephone conversation the official told me that he was wondering if I would ever ring him. He told me he understood my e-mails which impressed me because they were convoluted, detailed and tedious. He wanted to investigate the matter and informed me that he required a one line e-mail instructing him to do so. It may reflect badly on me, but I did not do so for the reasons I have outlined. He told me that owing to the strict professional secrecy provisions in the Central Bank Act, he would not be able to tell me if he had investigated the matter or its outcome, except in the unlikely event that a sanction was imposed. If that were to be the case, it would be published in the national newspapers.
It would not publish it on its website. They are the two related issues.
I would like the committee to bring the matter to the attention of the Ministers for Justice and Equality and Finance. I would like it to endeavour to have it debated in Dáil Éireann because the single supervisory mechanism is coming up for discussion. All banks in Europe will be supervised, but from what I have read in the newspapers, enforcement will remain within the remit of the actual Financial Regulator. I would also like to bring this matter to the attention of other committees such as the Joint Committee on Justice, Defence and Equality, where it may also be relevant.
What legislative changes would I like to see? I am not the person to answer that question, but the reason I ask it is it might be my only opportunity to do so, apart from the fact that I have thought about it for some time. I do not want people to think I have any real idea about it. It is a very complex issue. Conduct should be separated from the prudential which is very complex. Economic matters come into it; it is not just about banking. Risk is also a factor. When people have to make decisions from which they do not get any benefit and are only acting for their institution, psychological factors come into play. It is not straightforward. When it comes to conduct, we already have a tried and trusted method - the courts system.
I would like to see legislative changes to remove the conflict of interest at the heart of the regulatory framework. As I stated previously about the position in the United Kingdom, I would like to see legislative change to confine the administrative sanction procedure and the strict professional secrecy provisions to matters relating to prudential regulation alone. I understand there must be secrecy and that there must be a separate regulation, but what I am objecting to is the fact that matters relating to the public administration of justice have been co-opted into the area of financial regulation. I would like to see a legislative change that would result in the establishment of a regulatory conduct authority incorporating a specialist unit of An Garda Síochána that would work directly with the Director of Public Prosecutions in deciding if an alleged contravention merited a criminal prosecution. I would like to see a legislative change to allow individuals to lodge a formal complaint with the financial conduct authority where they were the injured party. I have very little knowledge of this area, but the making of complaints could be confined. It has nothing to do with civil disputes. If that is the case, one goes to the Financial Services Ombudsman. If it has to do with psychological violence, that is a different matter. I would like to see a legislative change that resulted in complaints and hearings being subject to a process that adhered to the public administration of justice.
As I pointed out, my concerns about secrecy do not relate to the supervision of financial institutions, commercial agreements, prudential matters or anything to do with systemic risk. Honesty is one of the cornerstones of the banking industry because there are no sanctions if one deals in untruths with the Financial Services Ombudsman. Honesty is paramount because it is binding arbitration. Although the banks are obliged to be honest, if they are dishonest in that process, they have all of the records and everything else-----