Section 4 (1) (b) provides that the Central Bank shall authorise a scheme if "the management company under the scheme is a body corporate that is incorporated under the law of the State or any other member state of the European Communities". I know the Minister was requested in the other House to extend this provision to include bodies incorporated outside the EC. I left the Chamber for a few minutes and perhaps the Minister dealt with this point in my absence. If he did, I regret I was not here. The Minister was reluctant in the other House to accept that the provisions of section 3 should apply to bodies incorporated outside the EC. Will he elucidate why that is his view?
Unit Trusts Bill, 1990: Committee and Final Stages.
The question raised by Senator Howard does not seem to arise under section 3 which is simply confined to the keeping of a register of authorised unit trust schemes. His question seems to arise under section 4 and perhaps we can deal with it when we come to that section.
I support my colleague on this point. Senator Howard's point relates to an amendment which was tabled on Committee Stage in the Dáil but which was not accepted by the Minister. We would have liked to have tabled a similar amendment today but we were aware of the futility of doing so in view of the day that was in it and the arithmetic being what it is in this House. The amendment tabled in the Dáil proposed that section 3 (1) should read as follows:
The Bank shall establish and maintain a register of authorised unit trust schemes including such unit trust schemes managed by bodies corporate incorporated under the law of the State or any other member State of the European Communities or of any other State as may be authorised by the Bank in accordance with the provisions of this Act.
The point raised by my colleague, Senator Howard, is that section 3 (1) should be amended to include the wording in that amendment. Perhaps we could have the benefit of the Minister's wisdom as to why he felt unable to accept that amendment in the Dáil. This reasonable amendment proposed extending the register of authorised unit trust schemes to schemes in any other state as may be authorised by the bank authorities in accordance with the provisions of this Bill.
Section 3 deals with the authorisation of unit trust schemes and their registration by the Central Bank. They are founded on the analogous provisions of the 1972 Act, as amended in 1977, to take account of our responsibilities in the Community. They provide a suitable framework within which the bank can enforce their supervisory requirements or conditions as necessary in accordance with their powers under this Bill. I would not be satisfied if these incorporation requirements were extended to allow incorporation in countries outside the European Community.
The requirements for the management company and trustee to be incorporated in Ireland or any other Community country are not likely to be objectionable to those who are seeking authorisation for unit trust schemes to operate in Ireland. It would be very difficult for the Central Bank to supervise schemes registered in Liechtenstein, the Cayman Islands, the Netherlands, Antilles and other favourite places outside the European Community. We have direct access to those schemes which are registered in the Community and can exercise a control over them which we could not exercise over schemes in Liechtenstein, the Cayman Islands and so on.
I do not think any of those who are likely to want to establish unit trusts for sale or investment in this country will feel hard done by in being asked to register either in this country or in some other European Community country as the risks which would be involved otherwise would be too great for the investors. I believe this provision is satisfactory. Questions may well arise in regard to the definition of the European Community. People forget that the Isle of Man and the Channel Islands are not in the European Community. However, I do not think that matter need concern us too much.
I want to raise a query with the Minister in regard to the powers being retained by him under section 4. I understood the Minister to say in his Second Stage reply that the powers being retained by him were of a general nature. Section 4 (1) provides that "Upon application to the Bank in accordance with this section by the management company and trustee under a unit trust scheme, the Bank shall authorise the scheme if, but only if ...". It seems to me that that provision will apply only to applications for a specific scheme. Section 4 (2) provides that "The Minister may direct the Bank to make any authorisation by it under this section subject to the imposition by it of conditions or requirements specified in his direction ...". If I interpret the section correctly, the Minister will be able to give certain directions to the Central Bank in regard to an application made to them. I think the Minister said the powers being retained by him were of a general nature but from my reading of the section he will also have authority to intervene in regard to specific and individual applications. I have a difficulty in reconciling the two positions and perhaps the Minister will clarify this point.
Obviously that is a question which will arise under this section. The difficulty with the section is that it had to be written in very generalised language. It is peppered with words such as "appropriate", "prudent", "probity", "competence" and "sufficient". I understand why the section has to be written in that way. I also understand that at the end of the day someone will make a judgment on that basis but I am not clear how this can be done. Will the Minister be able to invoke the safety net powers being given to him under subsection (2) if he thinks the provisions in subsection (1) are not being complied with properly? I accept that it is not possible to specify this in the Bill but would the Minister give an indication of the requirements or conditions under which it would be appropriate for him to utilise the powers under that subsection so that we would have a pointer as to what his requirements might be?
In passing I wish to thank the Minister for the reply he gave on Second Stage. It is very refreshing to find a Minister coming into the House to tackle the issues raised. It is even more refreshing to find a Minister coming into the House to acknowledge that there is a problem, not sweep it under the carpet and give a bland answer such as "yes, there is a problem and I will have a look at it" to queries raised. We are quite used to Ministers coming into the House to deny that problems exist.
The only question that needs to be asked about section 4, in view of the fact that the purpose of the Bill is to transfer the supervisory role to the Central Bank, is why this power is being left with the Department of Industry and Commerce who have always held it? This may be only a residual power but it is a power nevertheless. Having asked the Minister why it is necessary for them to retain that power I would like to ask him to indicate what their experience has been in the past in supervising unit trusts. Is this procedure necessary? By what procedure are they supervised or is it the case that they are supervised once every year or six years or have the Department just sat waiting for unit trusts to come up and hit them in the face with something?
I do not know what the term "supervision of unit trusts" actually means. I know what it ought to mean but I do not know what in practice it will mean or what the Central Bank are going to do about supervision. Perhaps the Minister, who tackled this issue very well on Second Stage, might put pressure on the Central Bank — I presume he is capable of doing this — to allocate, if not employ, more staff and resources to the supervision of the bodies they are in charge of. One of the points the Minister did not respond to on Second Stage is why is it in all the time the Central Bank have been supervising exchange control there have been no breaches of exchange control. That is an extraordinary record and only implies that there have been no breaches. I do not believe that and it appears that the policing and supervisory role of the Central Bank is seriously inadequate.
I will take the last point first. The principal reason I did not deal with it on Second Stage is that in no sense, either now or at any time in the past, has the enforcement of exchange control regulations been a matter for me. I have no official knowledge of it and my Department tell me they know nothing about it. The Senator complained that there have been no prosecutions. I take his word for that as I could not say from my knowledge whether there have or have not. It would be correct to say — the Senator may well agree with me — that there has been a lot of enforcement in the sense that people are penalised for breaches of the regulations, if and when they are discovered. They may not be taken to court as I think there is a provision under the Act whereby penalties can be imposed in the way the Revenue Commissioners do. If, as the Deputy suggests, there has been little or no enforcement I would be surprised because many people go to great trouble to comply with the regulations and would not do so if the Central Bank were not constantly inquiring from them as to what the position is.
I am not here to answer for the Central Bank. I have no responsibility for them and have only very peripheral knowledge of what they do in this regard. In so far as it would be a matter for any Minister, it would be a matter for the Minister for Finance obviously. There is a substantial section within the bank which deals only with exchange control. The need to be concerned about exchange control is one that is diminishing very rapidly because, as the House is aware, the Government, and the Central Bank, have decided, as a result of developments in Europe, that exchange control should gradually be run down. That process has been in train for the past two or three years.
It has two more years to run.
By the end of 1992 it will have disappeared altogether. Therefore, it is less important now than it might have been in the past. The Senator's question is because he alleged the bank were not assiduous in enforcing this in the past, will they be equally lacking in determination to enforce certain other powers that are now being given to them? My answer to that is that I hope not. It is very important that powers of this kind be thoroughly enforced in a determined fashion because if they are not people stand to lose. Under the exchange control regulations it was the State who stood to lose rather than individual investors.
I am not to be taken as accepting that the Central Bank were other than vigilant in enforcing those regulations. I am aware of no evidence that they were not. The only evidence adduced by the Senator today is that they did not bring prosecutions. One can enforce many laws without bringing people into court. Happily, many people here, like in any other democracy — democracy by consent — are quite happy to obey the law because it is the law and are not obeying it simply because if they do not do so they will be hauled into court.
In relation to subsection (2), I have been asked the question "why?" and my reply is "why not"? That subsection empowers the Minister to direct the bank to make an authorisation under the section, subject to the imposition by it of conditions or requirements specified in the direction — being conditions or requirements which relate to such matters, which the Minister is satisfied, after consultation with the Minister for Finance and the Central Bank, do not constrain the prudential supervision by the bank of a scheme. The bank are required to make authorisations subject to every condition or requirement so specified and such conditions or requirements would then form part of the bank's overall conditions for a scheme.
The power this subsection gives to the Minister is entirely residual and non-prudential and for this reason it will be rarely exercised in practice. The Minister's role, as envisaged in this subsection, is therefore purely precautionary but as a matter of principle it is important that the Minister for Industry and Commerce has this power.
The Minister has responsibility for the provisions of Part XIII of the Companies (No. 2) Bill, 1987 dealing with a particular form of investment company, variable capital companies or SICA Vs. The Minister is also the sponsoring Minister in respect of UCITS authorised under the European Communities Undertakings for Collective Investment and Transferable Securities Regulations, 1989. These are analogous instruments. It is proper, therefore, that the Minister should maintain some form of accountability and responsibility for unit trusts schemes to which this Bill relates. If he has a legislative connection with SICA Vs and UCITS it would be very strange if he did not have a similar residual, even though somewhat tenuous, connection with unit trusts which are in the same broad stable or family as SICA Vs and UCITS.
I agree there is a need for accountability. My question relates to how this is to be achieved. The Minister interprets the phrase "prudential supervision" and he might decide to allow the bank to have an element of prudential supervision, according to his definition of that phrase, but it can only be interpreted in a given set of circumstances. Perhaps the Minister would elaborate on the types of conditions and requirements he might impose.
Section 1 contains a list of requirements by the Central Bank before giving approval. Does the Minister envisage additional requirements or will he impose requirements because in his view those listed in section 1 have not been met? Could this arise in a case where the Minister might decide that the bank did not give adequate recognition to the requirements listed in the Bill? On the other hand, might the Minister decide to impose some completely new requirements? Is the Minister trying to guard against new developments in this area or is he trying to guard against a lack of vigilance by the Central Bank under the terms of the subsection?
Senator O'Toole is wrong in saying that the Minister can determine the areas in which he can intervene or give a direction. He can only intervene or give a direction in non-prudential matters and he must be satisfied that a matter is non-prudential after consultation with the Minister for Finance and the Central Bank. Therefore, both of those would in practice have to be satisfied also that the matter was non-prudential and they would have to give their agreement. I would envisage broader policy matters or matters which go outside the scope of the Central Bank. It is not possible to define now every instance in which this might happen. We are dealing with a developing situation, not a static one. Things which cannot be foreseen may arise in the future and it is valid that the Minister should have a residual power, provided it is not concerned with the supervision of the scheme from a prudential point of view.
The Minister could give a direction if he deemed it desirable in the interests of consumer information and protection, for example, that a scheme's prospectus contain information of a particular nature which may not be of direct relevance to the Central Bank's responsibilities under the scheme. I could see that situation arising. It might relate, for example, to certain particulars being given of the management company or the trustee or of its directors. This is immaterial from the point of view of the Central Bank as long as they know who they are, but the Minister might consider it desirable that the public should know too. Another example is that it might relate to the manner in which the projected rate of return to a potential investor is given. It might simply be a statement that the value of units may fall as well as rise, or it might relate to defining the degree of independence between the management company and the trustee to satisfy the requirements of section 4 (1) (d). It may relate to particulars contained in the reporting requirements of a scheme, for example in the annual report. The Minister is responsible for setting the legislative requirements in respect of a company's accounts and its annual report and he may deem it desirable that unit trust schemes follow a similar line in regard to the presentation of information.
These are some examples that occur to me as of now. Perhaps more important are instances which may occur in the future which one could not now foresee and for which some residual power should properly be retained.
This section forbids advertising by unauthorised unit trust schemes. There is an exemption in cases of magazines and foreign newspapers having a small circulation in Ireland. What is considered a small circulation? I might mention a special interest magazine such as Business and Finance, which would have a very good circulation within the constituency at which it is aimed, but in the overall scheme of print media circulation it would be rather small. What is meant by “small circulation”?
This provision re-enacts a similar provision in the 1972 Act. It has been in existence for the past 18 years and it seems to have worked satisfactorily during that period.
Who determines what is a small circulation?
The Central Bank will now determine it. Apparently I must have determined it up to now, although I was not aware of it. It was thought to be necessary in 1972 and it is equally necessary now in order that papers that would have a very small circulation here but would carry an enormous amount of information and advertisements on unit trusts should not be banned from this country simply because the unit trusts are not authorised for sale in Ireland under our law. Advertisements of that kind in the United States often contain provisions to the effect that such offers are not valid in a state in which it is not legal to make the offer. We need a general presumption to that effect, otherwise every time the Financial Times came in here those who advertised in it would be liable to some form of prosecution. That would be unreal because in general the readers of that journal are capable of making up their own minds and are not likely to be misled by advertisements contained in it, nor is it likely to carry the kind of advertisement that might mislead innocent small investors. That paper would not print them.
A financial journal printed and published in Ireland would obviously have to comply, even if its circulation was small and amounted to only 1,000 copies per month, but it would be easy for it to do so because it would only be producing the one edition. One could not expect the Financial Times or The Economist to produce a special edition for such a tiny market as ours.
We have had the same absence of difficulty over the years in regard to cigarette advertising. Our laws in this regard are much more stringent than those in certain other countries, but there are provisions which allow journals with a small circulation to carry advertisements which would infringe Irish law if printed in Ireland. It has not caused too much difficulty, which is also the case with the provision we are discussing.
Turning to what the Minister said earlier about the quality of the support in his Department — and since one of the provisions of this Bill is to transfer responsibility from his Department to the Central Bank — is this just a clause inserted or does the Minister envisage certain expenses reverting to this Department arising from the implementation of the provisions of this Bill?
It is sad if one of the reasons the Minister felt the need for this Bill was that he simply did not have available to him, not so much the level of expertise — because he made it clear he does have the requisite expertise — but the amount of expertise in terms of personnel available to him. Does it not really make a joke of public service cutbacks when a Minister cannot undertake the work he or she wants to do? We are here transferring authority or supervisory powers from one part of the State to another, from the Minister's Department to the only nationalised bank we have. As the Minister said himself, we are not even entitled to recoup from the Central Bank its profits but rather must be content with this vague term of surplus on an annual basis, which is certainly a significant amount of money.
What expenses does the Minister envisage arising from the implementation of the provisions of this Bill? In addition, would the Minister not agree that it is somewhat ridiculous that he is being constrained from doing the work he would like to undertake because of public service cutbacks, perhaps also unable to offer a sufficiently attractive salary to people he would like to retain in his Department.
In case it might be inferred from what Senator O'Toole said that I was reflecting in any way on the quality of the expertise——
No, I want to make that absolutely clear — I was not.
——I was not. But I was, if you like, lamenting the lack of quantity, certainly not the quality, in my Department. Of course, it is regrettable, all other things being equal, that I or any other Minister, does not have available to me as many people as one would wish in order to do all of the things one would like to do. But we must also recognise the reality that we live in a country which has a public debt of £25,000 million, which pays out more than £2,000 million a year in interest alone on its borrowings; which has a debt/GNP ratio well in excess of 100 per cent, which unfortunately renders us almost unique in the Western world, or at least within the OECD member countries. We must take account of that. If one of the consequences of trying to come to grips with that huge underlying problem is that all Departments have fewer staff than ideally a Minister or the Department would like, then unfortunately we have got to live with that fact.
With regard to what expenses I envisage incurring under section 19, all I can say is that this section is invariably inserted in Bills of this kind in respect of which administrative costs might arise. Senator O'Toole asked me to speculate on what expenses will arise under the provisions of the Bill. All I can honestly think of, in the short time at my disposal, is the possibility of hiring a removal van to take a lot of files from Kildare Street down to Dame Street and shunt them in there——
And breathe a sigh of relief.
——and breathe a sigh of relief. What the cost of that will be I do not know at present, but I am sure we will get competitive tenders for that big job.
I think it is appropriate at this point to compliment the Minister on the excellent quality of service he is getting from those diligent public servants who work with him.
I should like to thank the Minister for the quality and extent of his response to the various points we raised here today. It was a pleasure to have done business with him here this morning. We can all feel satisfied that there is a satisfactory morning's work behind us.
I should like to wish the House and the Minister a very happy Christmas.
May I too compliment the Minister, as I said on the Companies Bill, when my public criticism of the Minister yesterday morning was that he went out of his way to explain in great detail and kept us here so long on the Companies Bill, as he has done this morning. Obviously he has an absolutely full knowledge of his brief. I thank him for the information he furnished to Members. I also thank those Members who contributed to this debate.