I move:
That Seanad Éireann approves the following Order in draft:
Trustee (Authorised Investments) (No. 2) Order, 1977,
a copy of which Order in draft was laid before the House on 4th October, 1977.
Trustee (Authorised Investments) (No. 2) Order, 1977: Motion.
The Trustee (Authorised Investments) Act, 1958, defines the investments in which trustees may invest trust funds unless expressly forbidden by the instrument, if any, creating the trust. Equally, the trust deed may confer wider powers of investment but many trusts and analogous funds are restricted to the investments authorised under the Act. The Minister for Finance may vary the authorised investments by order.
The draft order now before the House for approval would add five building societies, 19 non-associated banks, the Bank of Ireland gilt edged unit trust, and securities of the European Investment Bank to the authorised list.
It has been generally regarded as desirable for some time now that trustee status should be accorded to building societies. The social importance of building societies in Ireland as providers of finance to meet the community's housing needs is beyond doubt. The five societies named in the draft order together account for over 90 per cent of the resources of the building society movement. They are well established and have a proven operational record over a long period. Furthermore, the improved regulatory provisions in regard to societies affected by the Building Societies Act, 1976, provides an additional assurance that high standards of financial management will be observed in this area. Appropriate financial criteria have been settled by the Minister for Finance to be observed by building societies in relation to trustee status. Liquidity and reserve ratios are an important feature of these criteria, which also provide that a society must have total assets of at least £5 million to be considered for trustee status. The five named societies meet the requirements and I am satisfied that they are suitable for addition to the trustee list.
It is also proposed to add deposits with 19 non-associated banks to the trustee list. This is regarded as a necessary updating of the list because, as presently constituted, it remains in the form enacted by the Trustee Act of 1958. Since then the number of licensed banks operating in the State has increased considerably to a total of 42 and a system of licensing and supervision by the Central Bank has been established under the Central Bank Act, 1971.
Inclusion of additional banks in the trustee list is now desirable in order to equalise competition in the banking field. The inclusion of these 19 banks in the trustee list, together with the other additions proposed, will considerably improve the range of investment opportunities open to trustees. I have consulted the Central Bank regarding the choice of banks and the bank on due consideration has recommended that the non-associated banks named in the draft are appropriate for the purposes of trustee investment. I am disposed to accept the recommendations of the Central Bank in this matter and have included the recommended banks in the draft order. The addition of these banks will mean that the trustee list will include a total of 25 licensed banks comprising all the major domestic and foreign banks in the State.
The Bank of Ireland gilt edged unit trust is registered under the Unit Trusts Act, 1972. The trust's investments are confined to Irish Government securities which are themselves trustee investments. The trustee of the scheme is the Bank of Ireland whose own stock is an authorised trustee investment. The scheme has performed well since its inception in 1973. I am satisfied that this unit trust is appropriate for addition to the authorised list.
Senators will also note that the draft order proposes to grant trustee status to securities issued in the State by the European Investment Bank. This is in fulfilment of a commitment entered into on our accession to the European Economic Community. The European Investment Bank which was established under the Treaty of Rome has as its primary responsibility the making of loans towards the financing of projects for developing the less developed regions of the Community, including Ireland. We have received more than £100 million in loans from the Bank since joining the Community in 1973. The bank has not sought to issue securities in the State to date and I do not anticipate that it will do so in the immediate future.
The Minister for Finance is obliged under the Act to consult with the following persons in regard to the terms of any order he proposes to make to vary the list of authorised investments: a judge of the High Court nominated by the Chief Justice, the Governor of the Central Bank, the Public Trustee, the Chairman of the Irish Banks Standing Committee, the President of the Incorporated Law Society of Ireland and the President of the Stock Exchange — Irish. All the statutory requirements in this regard have been complied with.
Heretofore, the range of trustee investments has been relatively restricted. The inclusion of a large number of financial institutions, as proposed in the draft order before the House, will make it necessary to ensure that these institutions will continue to be suitable for trustee status and that additions will be made as appropriate. It is my intention to keep the list under active review and to propose further changes as the need arises.
In conclusion, I wish to confirm that I am satisfied that trustees should be enabled to invest in the additions to the trustee list as proposed in the draft order. I therefore commend the motion for the approval of the House.
I am glad to extend the traditional welcome of the House to Deputy Wyse and to congratulate him and to wish him well on his appointment. The achieving of trustee status by any financial institution is, of course, a sign that it is a cast-iron institution from the point of view of investment. It is an indication that the establishment finds its financial structures and its management impeccable. Trustee status is an accolade among such institutions. When it has that effect it is something that cannot be given lightly, and I am glad to see from the Parliamentary Secretary's speech that the amount of investigation that should be undertaken in advance and the spread of inquiries that have been made will ensure that, especially here where the financial establishments are comparatively small and intimate and everything is known about everyone else, a very full and clear picture of the institutions will emerge before they can obtain this status. I am glad to see that the measure of consultation that has been undertaken ensures that when the status is given it is given only to institutions which merit it.
Likewise, I am glad to note the strict financial criteria that have been applied. Building societies, in a few unfortunate instances, have had a somewhat chequered history—none, I might say, of the five major ones now proposed for trustee status. But the fact that some of their peers had early demise renders this an area in which extra special care should be taken. I share the view of the Parliamentary Secretary that the five major building societies are financially most orthodox, respectable and secure. As I said, the criteria to which they have to measure up are strict and they measure up to them. It is consoling to know that trustee status will continue to mean that the institutions which are available for trustee investment will be of the highest integrity, properly managed and financed.
The Parliamentary Secretary made the point that many private instruments setting up trusts do not limit the executors or trustees to investment in institutions having formal trustee status. That tradition grew up because the number of institutions which had this status until comparatively recently was very small and the investment opportunities of the executors or trustees were thereby extremely limited. Indeed for a long time the executors or trustees were limited to Government stock. Inflation has been playing havoc with Government stock as investment and many trustees were apprehensive of them. If they did not have discretionary powers under the trust they very often had no choice. The practice then grew up of giving wide powers to trustees. Once those powers were given to trustees — they were entitled to go into the stock market — there was obviously the risk that an unfortunate investment might be made bona fides. There was also the practice of incorporating in the trust document an indemnity to the trustee for any loss other than by their own wilful dishonesty.
I do not know if that is a good thing. I think that people who have the control of the trust funds for people who are under an incapacity, should be limited in their powers of investment, that there should be some control over them other than for actual dishonesty. I agree that because of the way there was a restriction on their right to invest by virtue of the narrow range of institutions with trustee status, they had to be given wider powers with a certain risk that that entailed. It was a small one. Possibly as the number of institutions acquiring trustee status increases we may see less discretionary powers in trust instruments and we may feel more reliant on the institutions with trustee status.
This is something I would have no hard and fast view on. It is something that may evolve. The Parliamentary Secretary leads us to consider that list of trustee investments or of institutions suitable for trustee investment will be kept under review and will be widened as more and more qualify. This is a good thing. These institutions will never make fortunes for the trust funds in the sense that speculation on the stock exchange means that if a winner is picked a very large sum can be made. I do not think trust funds are a subject to be invested in in the hope of making a fortune. The objective must be to preserve the trust funds as to their capital and ensure a reasonable income for the objects of the trust. That can be done by investment in a more conservative type institution, that accorded the accolade of the trustee status or trustee investment.
There is the point of the position of Government stock as trustee funds. They are secure in the sense that the Government are secure, but their value on the market is very far from secure because they can be very much affected by interest rates, inflation trends and so on. What may have seemed like a very safe capital investment some years ago can turn out to show a considerable loss. That is quite hostile to the whole idea of trustee investments where the objective must be to preserve the capital for the investors in a trust when eventually they come into possession of their property.
The time has possibly come when a look might be taken at, or some consideration given to whether Government stocks are an ideal investment for trustee money. Government stocks are purchased at par, because the invariable history of the last two decades has been that the par value after a number of years disappears and that results in a substantial loss of capital. When funds in court have to be invested in these types of securities there has been substantial losses in capital as a result. That is not desirable. On the other hand, when there has been a considerable drop in the par value, the purchase of the diminished security can produce a very handsome interest rate, a very handsome yield. So, there may be a little gain on the roundabout for what has been lost on the swings. I suppose these are all investment problems for a trustee and so long as he can keep within the law nothing can be said to him. I welcome the extension of the number of institutions proposed by this order.
Ba mhaith liom fáilte a chur roimh an Rúnaí Parlaiminte. I welcome the development, although it comes rather in bulk, of the inclusion for trustee investment purposes of this considerable number of institutions, the standing building societies and a total of 21 other institutions, including the banks which have been established here recently.
This is a good development. The effect of it will be to strengthen the economy of the country. It is important that the criteria for admission should be strict because, in effect, these institutions are being given a special status which in itself can only be part of a corresponding reciprocal responsibility on their part.
It is interesting to note that the Minister has set out the requirements which justify trustee status under the 1958 Act, which is that they must be approved by some very significant elements in the community — for example, the governor of the Central Bank, the chairman of the Irish Banks Standing Committee, judge of the High Court and so on. It is important that the criteria should be strict before the Minister admits institutions to trustee status. It is the first time that we are giving this right to, as one would describe, stocks other than our own Irish securities. One could say that it is a good thing to broaden the scope for trustee investment within our economy because, one way or another, it helps to ensure the retention of investment here and thereby helps, as I said at the outset, to strengthen our economy. It is in that respect that I welcome and support this draft order.
I also welcome the Parliamentary Secretary and wish him well in his new position. I welcome this Bill. I consider the second last paragraph in the Parliamentary Secretary's statement to be the most important of all. It states that these financial institutions are State guaranteed and there is no danger that people who put money into them will lose it. We all know that a couple of years ago a number of small investors got a very cruel shock when the Irish Trust Bank disappeared overnight. I should like to take this opportunity to thank the Minister for Finance for re-imbursing the people who had money invested in it. They were all small investors, people with redundancy money, people with gratuities and with rebate of taxes. Apparently that bank should never have been allowed to function here at all because the amount of guarantee they gave to the Central Bank was in the region of only £50,000. Quite a number of people would be in great hardship today if they had not been refunded that money.
This order will encourage people to invest in the financial institutions included and the more that is invested in them the better it is for the country. I welcome the motion on behalf of the Labour Party.
I thank the Members for their contributions. Particularly, I thank Senator Cooney and the other Senators who wished me well in my appointment. I have noted a number of Senator Cooney's points, particularly in regard to Government stocks. At the moment they are settling very well and we hope that will continue. I have very few comments: the order is very straightforward.
Question put and agreed to.