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Seanad Éireann debate -
Thursday, 11 Jun 1992

Vol. 133 No. 5

Financial Transactions of Certain Companies and other Bodies Bill, 1992: Second and Subsequent Stages.

Question proposed: "That the Bill be now read a Second Time."

The Financial Transactions of Certain Companies and Other Bodies Bill 1992 which is now before Seanad Eireann has the largely technical purpose of confirming the legal powers of semi-State bodies to engage in swaps and certain other financial transactions in the treasury management area.

I would like to begin this debate by explaining how the legal doubts which this Bill addresses arose. In January 1991, in the UK, the House of Lords found that in the absence of express statutory authority the council of the London borough of Hammersmith and Fulham did not have the legal power to enter into swap transactions. While the legal position of UK local authorities is not directly analogous to that of Irish semi-State bodies, it has prompted banks and their legal advisers to take a very close look at the legal powers of Irish companies, both private sector and public sector.

As those legal powers were generally set down before the emergence of swaps and other similar financial instruments, it is not surprising that express authority covering them is rarely found in the memoranda of association or the governing legislation. While specific statutory provisions exist in the case of the National Treasury Management Agency and the building societies, it had previously been generally assumed that in the case of companies and semi-State bodies the necessary powers could be implied as incidental to the pursuit of the activities that were expressly authorised, especially where the transaction was part of a bona fide hedging strategy, as is the case with the treasury transactions concluded by the semi-State bodies. In this regard it is worth noting that in arriving at its decision the House of Lords overturned an earlier UK Court of Appeal decision that swaps entered into for debt management purposes were valid.

In any event, consideration of the UK House of Lords' decision led banks in this country to the view that the legal powers of Irish companies, both private sector and public sector, needed to be updated by providing specific authority to undertake swaps and other hedging transactions. This view was endorsed by the Attorney General in so far as the commercial semi-State bodies are concerned. In the case of companies in the private sector the necessary changes can be made by the relatively straightforward procedure of amending a company's memorandum of association. However, for the majority of commercial semi-State bodies — those whose borrowing powers are set out in legislation — a statutory provision is needed. The Bill now before the House makes that provision.

As I have just outlined, the Hammersmith case in the UK centred on the "swap". This is probably the best known treasury management or hedging instrument currently available in the market. In its simplest form the swap allows a borrower to convert a floating-rate loan into a fixed-rate loan, or vice versa. The relative flexibility of the swap market enables borrowers to take advantage of changing market conditions so that, for example, a company wishing to fix its interest costs could borrow on a standard floating-rate basis at any time and then use the swap market to fix the interest rate when fixed rates have fallen to a level acceptable to the company. Use of the swap market can also give borrowers access to funds at rates below those otherwise available. Outside of the State owned banks, who deal in these transactions in the normal course of their banking business and are, therefore, provided for separately in this Bill, the commercial semi-State bodies have entered into £1.3 billion of swaps in various ways. About three-quarters of this amount is accounted for by the ESB and Bord Telecom Éireann.

Hedging transactions such as swaps are undertaken principally in order to minimise certain risks. They can also reduce the cost of borrowing and provide a means of insuring against certain losses. These transactions make a positive contribution to the management of commercial semi-State bodies.

Many of us who may not previously have had much acquaintance with swaps or other technical treasury instruments will nonetheless be very much aware of the considerable growth which has taken place over the last decade or so in the financial services area, both in Ireland and abroad. We have benefited from that growth already and hope to continue benefiting from it through the establishment of the International Financial Services Centre in particular. The growth in the financial services industry worldwide reflects the development of new complex and sophisticated financial instruments. These have been developed in response to the requirements of borrowers for new ways to reduce debt service costs and to minimise the risks associated with fluctuating interest and exchange rates and in general to increase flexibility.

Internationally and here in Ireland the industry has been boosted by factors such as deregulation and the development of new technology. The gradual removal of exchange controls here, and their complete elimination before the end of this year, has also encouraged the development of a more global market. The growing complexity of the whole financial services area, with its potential for achieving savings, was one of the underlying reasons for the Government's decision in 1990 to establish the National Treasury Management Agency with the specific purpose of exercising the borrowing and debt management functions of the Minister for Finance.

I referred earlier to the fact that the commercial semi-State bodies currently have some £1.3 billion of swaps outstanding. This has to be seen against the background of a total debt level of some £5.2 billion for all the commercial semi-State bodies. Some 46 per cent of this debt is accounted for by the ESB, Bord Telecom Éireann and Aer Lingus. Another 39 per cent is accounted for by the three State-owned financial institutions — ACC Bank, the Industrial Credit Corporation and the Housing Finance Agency — and this reflects the large scale of their financing of private sector operations. In summary, these six companies account for 85 per cent of the debt of the commercial semi-State bodies. About two-thirds of the remaining 15 per cent is accounted for by Bord na Móna, CIE and NET.

Some 43 per cent of the debt of commercial semi-State bodies is in foreign currency with 57 per cent in Irish pounds. However, over two-thirds of the foreign currency debt is in EMS currencies and, because of this and the strength of the Irish pound within the EMS, these debts carry little exchange risk. The relatively large foreign currency exposure of the semi-State bodies reflects the fact that not all of the heavy capital investment needs of the early Eighties could be met at a competitive cost in the relatively small domestic capital market at a time when the Exchequer's own borrowing needs were also high.

With this high level of debt it is essential that the commercial semi-State sector has available to it the full range of treasury management instruments which the domestic and international financial markets can offer. Indeed, for the larger companies in particular, the emphasis has shifted markedly over recent years from new borrowing to active debt management. With annual debt costs of the commercial semi-State sector amounting to about £450 million, this approach can only be strongly encouraged. It is a fair measure of the progress of our semi-State bodies in this area that some of the larger companies are successfully offering treasury management consultancy services to other companies both at home and abroad. In the light of all this, Senators will appreciate just how important it is to confirm the powers of semi-State bodies to enter into the kind of transactions which are universally accepted and which underlie their treasury management operations.

Before turning to the specific provisions in the Bill, I must mention that discussions have been held with the main commercial semi-State bodies to ensure that this legislation would meet their requirements and achieve its purpose of removing all legal doubts in this area. The Irish Bankers' Federation were also consulted and are satisfied that these provisions meet their concerns about the legal powers of semi-State bodies in this area.

As Senators can see, the Bill is a short one. Its provisions are broadly based on section 34 of the Building Societies Act, 1989, which allows those bodies to engage in hedging transactions under the supervision of the Central Bank.

Section 1 provides a number of definitions needed for the interpretation of the Bill. Section 2 contains the main provisions of the Bill. It confirms the legal power of bodies whose borrowings are subject to the consent of the Minister for Finance to engage in financial transactions for the purposes of reducing or eliminating the risk of loss arising from fluctuating interest rates, exchange rates, commodity prices or similar factors affecting their business or the business of another company in the same group; reducing borrowing costs or the costs of other transactions carried out in the course of their business; and increasing the return on an investment. This provision confines these bodies to transactions of an essentially hedging nature. Broadly, the Bill covers commercial semi-State bodies and their subsidiaries but does not apply to local authorities as it is not appropriate to the nature of their operations.

The section also provides that after this Bill is enacted the powers confirmed by it can be exercised only in compliance with specifications issued by the Minister for Finance after consultation with the relevant parent Minister. The requirement for ministerial specification as to the type or types of contract that may be entered into is designed to ensure that only instruments which have a primarily hedging function will be allowed. The requirement for prior ministerial specification is also designed to preclude bodies for whom such transactions would not be appropriate. The Minister for Finance is also given discretion to lay down such other conditions as he considers appropriate. I would stress that this provision does not involve a major extension of the existing degree of Department of Finance control in this area. As far as swaps are concerned, the existing requirement for ministerial consent will remain, though this will generally, as at present, be administered on the basis of an annual swaps programme. As far as other contracts are concerned, once a list of types of contract has been approved there will be no further requirement for ministerial consent.

I would also like to emphasise that specifications issued under section 2 (2) will emphasise the prohibition of speculation and require treasury transactions to be operated under board control and supervision. This is important because in the Hammersmith and Fulham case which I mentioned earlier, the heavy losses arose because they engaged in swaps for purely speculative purposes unrelated to their debt.

The protection for third parties which is set out in section 2 (4) is directly linked to the restrictions which the Bill places on the operations of the non-financial semi-State bodies, namely, that contracts must be for essentially hedging purposes and that they must comply with ministerial specifications. It would not be reasonable to expect that third parties should be aware of the purpose for which each contract was done or whether a body was in compliance with ministerial specifications. Therefore, section 2 (4) gives third parties dealing with semi-State bodies in good faith protection against a claim that a contract was not valid because it did not comply with the provisions of this Bill. This provision is analogous to section 12 of the Building Societies Act, 1989.

As institutions providing a banking service ACC Bank plc and the Industrial Credit Corporation plc are provided for in section 2 of the Bill separately from other semi-State bodies. Their power to enter into the transactions covered by the Bill for the purposes of their banking business is confirmed. Specifications are not required in the case of these bodies because they are providing a banking service under the supervision of the Minister for Finance. Sections 3 and 4 are standard sections.

Finally, I would stress that the instruments covered by this Bill are not borrowing instruments, though they may be indirectly linked to borrowing instruments. Any borrowing by semi-State bodies requires ministerial consent under existing legislation or, in the case of a small number of companies, under their memoranda and articles of association.

I commend this Bill to the House.

It is not the intention of my party to obstruct this legislation in its quick passage through the House. We accept the technical nature of the legislation; it is merely an administrative device rather than containing any specific philosophy or policy decisions. For that reason, it need not necessarily be the subject of an extraordinarily long debate.

The entire area of financial management, financial institutions, lending policies, lending devices and technical matters in relation to lending in this country needs the careful attention of this House. What is required in the very near future is a major debate in both Houses of the Oireachtas on the role of all our financial institutions, the role of lending within our semi State bodies, the position of our national debt and our national finances. All these aspects must be marshalled together with a view to creating employment.

It is not inappropriate to say on Second Stage in a debate when we have the Minister for Finance in the House, that it is time all our semi-State bodies, financial institutions, lending and borrowing agencies were put on notice that their role and function should be to create employment. They should have no other brief. The thrust of financial strategy and Government policy at this stage should be to direct all our semi-State bodies — which should have no other function anyway — and financial institutions towards job creation per se.

I am not convinced that our financial institutions have job creation on the top of their agenda in their lending strategies. That is something that will have to be taken in hand. The Minister makes the point in his speech that this Bill does not specifically apply to local authorities. I would like the Minister to return to that matter in his Committee Stage reply.

What will be the position of local authorities in the future? What is their position now in terms of borrowing requirements? How can they finance their day to day operations? There are a number of new expenses on local authorities with the potential to be crippling for them. The local authorities at the moment, without increased staff and resources, are expected to implement the building regulations Act. I agree with the thinking behind it and with the spirit of the Act in terms of what it attempts to achieve.

There is a lot to be done in this specific sphere. The implementation of the building regulations Act will place an immeasureable drain on the resources of our local authorities; it will put them in the position of borrowing from day to day expenditure. It will leave them in a difficult position. At the same time the local authorities have to implement the health and safety Act, with which a great deal of expense is associated.

The Abattoirs Act has to be implemented by our local authorities. All of these Acts and regulations place a drain on our local authorities. At a time when this Minister is stating publicly that he has a commitment to local democracy and to strengthening our local authorities, giving them real autonomy, an interesting situation arises. On the one hand, local authorities theoretically will become autonomous bodies, gaining more powers, but, on the other hand, the physical reality on a day to day basis is that the extra regulations and the extra burden on local authorities at a time when their staffs have been constricted by the embargoes over the years, will put them into a difficult situation. At a time when we are on one level attempting to increase the power of our local authorities it is paradoxical that on the other hand we have the imposition of the different duties arising from EC bylaws and the financial constraints imposed in implementing these things may make life very difficult for local authorities. I would like the Minister to give us his views on the financing of local authorities on a day to day basis, their borrowing requirements and whatever technical needs they have at a particular time. That is worthy of consideration.

The development of the financial services area in this country, which is a byproduct of recent developments in the EC is something to be welcomed. It is an area we can usefully develop and concentrate on in the future.

Our two major requirements are to receive adequate clarification of the position of our local authorities and of the plans the Minister has for the expansion of the financial services area. I do not think it will be necessary to further discuss this matter because, as the Minister points out, it is purely a technical device. For that reason, this Bill should be passed by the House.

I would like to join in welcoming the Minister to the House and also join in welcoming the Bill. It is a very simple, straightforward Bill on what may seem a very abstruse matter. Nonetheless it is a very prudent and necessary Bill, because we have had this decision by the House of Lords in the UK in relation to swaps. As we well know, for historical reasons the legal system in this country is very much based on laws enacted between 1800 and 1922, on our own laws from then to the present, but also on case law in both this country and in the UK where it is relevant to legislation pre-1922, or in certain circumstances post-1922.

This Bill therefore is a very prudent one in that it is anticipating the possibility of some legal query at some stage over the powers of our semi-State bodies, which are perhaps somewhat different from the corresponding powers in the UK, but nonetheless must have this very necessary facility to engage in this form of financial transaction. Indeed, it is interesting to realise that it can amount to a very considerable proportion of the financial transactions and borrowings of such bodies — £1.3 billion was the amount mentioned by the Minister and that would relate to a total relevant figure of £5.2 billion.

It is also particularly relevant that we should be looking much more closely at our financial regulations in this country and indeed our whole attitude to our financial institutions. On the one hand, we are moving towards a very new financial situation in the European Community which will have enormous implications for our financial institutions — the Department of Finance, the Central Bank and, inevitably, all other financial institutions. We are also entering a stage in which financial management is advancing very rapidly and changing very rapidly. Such titles as swaps and so on in one form or another have been indulged in and have been very necessary for many years, but it is only in relatively recent times that they have become such a major feature of financial procedures. The third reason for the importance and relevance of these matters to us is, of course, our financial centre, which we are endeavouring to promote and which has been very successful so far, but hopefully will be even more successful in the future. Fourthly, we need to consider also what forms of change we are going to anticipate in such bodies as the Agricultural Credit Corporation and the ICC.

There are a number of reasons this Bill, brief though it is, is possibly more one of prudence at this stage than of actual immediate requirement, since we have not had an actual case over here. However, very sensibly and prudently we are taking these steps. Perhaps it is becoming increasingly important for our semi-State bodies, and for us all, to look at treasury management in general and the sort of instruments that will be used in treasury management. We want to ensure that our semi-State bodies are in a legal position to minimise the risk and that they have the appropriate hedging facilities. The fourth thing that is happening is that exchange controls are going out and, hopefully, will soon be gone. This has enormous implications, particularly for the sort of financial transaction that is referred to in the Bill.

The Bill has, as the Minister points out, two main aspects, one of which is the very necessary one, of minimising risks, particularly for semi-State bodies. Nowadays it is probably essential for that purpose. Secondly, we have the fact that borrowing costs can be reduced by the prudent use of swapping and similar type arrangement. The third possibility the Minister mentioned in his speech, that of increasing the return on an investment, would perhaps be extremely relevant; but I am glad the Minister is emphasising the fact that that is a minor aspect and not necessarily one that will be encouraged, because our semi-State bodies, with the exception perhaps of ICC and ACC, should primarily be using this sort of treasury management for the first two purposes — to reduce or eliminate risk and to reduce borrowing costs and not for financial speculative purposes, and I use "speculative" in the best form of the word.

It is a very sensible, very prudent and necessary Bill. I have referred once or twice to ACC and ICC. They are both very successful in their different ways. They have matured greatly and are likely to develop further. In referring to them in this Bill, the Minister is reminding us that the situation of ACC and ICC is clearly one which needs to be considered and hopefully the success story of these two institutions will be further continued in what is now a very new financial climate.

Last, but not least, while not immediately relevant to the Bill, service industries are probably the areas in where we are most likely to succeed and within that area, the financial services could play a very significant role, including some degree of job creation. The numbers involved might not be great but they could be significant and the jobs themselves of high calibre and worthwhile adding a great deal to the financial and economic situation of this country.

I join in welcoming a very prudent, necessary if somewhat technical Bill.

I join with my colleagues in welcoming the Minister for Finance to the House and I also welcome the introduction of this Bill. I believe it is right for the Minister to introduce it which of itself it is necessary and important. There is also a secondary value so far as the public perception has to be important and I am sure the Minister is aware of our recent difficulties. The impression the public hold may not always be the correct one and I believe that is important.

The average person would not know what the word "swap" means. He would have to go back a generation or two and he would think about "swap" on a local basis. Nevertheless, this is swap in the big league. The words "swap" and "paper transactions" in financial circles are new terms to many people. I am very pleased the Minister is coming to grips with making those major financial terms understood by the average person. He is doing a great service to the country.

The Minister for Finance has to take a lot of responsibility and blame when things go wrong with the big players in industry. Many of our major companies are still evolving — Bord na Móna and some co-operatives, who are investing abroad, and perhaps borrowing money abroad. It is not a State secret that Bord na Móna have acquired two companies in France. That is to be welcomed because it indicates the development, maturity and advances the companies and the country are making.

I hope this legislation will be implemented because the perception is that the big players make their own laws and decisions and can find a way round every financial difficulty. The average business man who is finding it difficult to get finance, goes cap in hand to his bank manager looking for an extra few thousand pounds to extend his business or develop his farm. For him, a swap or paper transaction is outside his capacity.

The recently established Financial Services Centre has brought a new awareness of how important financial trading is to the country. It has helped the business community to look at the broad spectrum of trading.

Most of us who are in touch with those involved in trade know it is not unusual in my part of the country for a fisherman to buy a boat in another country for £10 million and the structure for that purchase is made up of different categories of borrowing abroad. Today these are very important aspects of finance and the youth and business people cannot afford to say they are for somebody else but not for me. The public have to be educated to realise that the big players do not make their own laws and their own regulations. The Minister is doing a first class job when he makes rules and regulates the finances so that they are understood by the average person.

I welcome the fact that many State and private companies acquire business abroad. It is not unusual for co-operatives to talk about acquiring a business in the United States. Some of our co-ops started small some years ago and are now trading on the Stock Exchange.

I believe the legislation introduced today is of paramount importance. I hope the Minister will continue to monitor the big players, whether it is banks, or the semi-State or private companies, so that the small business people in rural Ireland will understand that all businesses, large and small are subject to the same rules and regulations.

The Minister for Finance has an important role to play. He has shown he is energetic and not afraid to tackle any major difficulty or problem. We know of his involvement in the settlement of labour affairs. I now welcome his approach to the financial controls that are so necessary. I hope he will continue to work in this area because it has a very important side value, that is, to build confidence in the nation. I welcome this opportunity to say a few words on this important Bill.

I thank the Senators for their contributions to the debate. We can deal with some of the points of detail mentioned on Committee Stage. I would like to answer some of the questions raised. Before doing so I would like to say a few words about the instrument which gave rise to the legal doubt which this Bill addresses.

The swap developed during the 1980s as a tool to enable companies to vary the terms of the loans and, therefore, to manage their liabilities more effectively. Swaps originally developed where each party to the swap could access a particular market on comparatively better terms than the other party. The comparative advantage would then be shared between the parties and any intermediaries arranging the transaction to lower their funding costs. The parties entered the markets where they had the advantage and agreed to exchange or swap cash flows.

This result gave the parties better terms in their preferred markets than if they had entered directly into the market. Many of the developments in the financial instruments which occurred in the eighties were designed to facilitate better management and liabilities of assets. While the European monetary system helped greatly to reduce the volatility of exchange and interest rates significantly, differences remain between the individual financial markets of member states.

In addition, the EMS currencies are still exposed to exchange rate risks against the major currencies in the rest of the world, such as the United States dollar and the Japanese yen. Consequently, it is likely that the trend established during the last decade through the eighties will continue with new hedging instruments being developed on a regular basis to meet the ever-changing needs of the marketplace. In this country we hope to benefit from these developments through the Financial Services Centre and I thank Senators for their support in what we are doing generally in that regard.

The Senators are aware that the financial services industry is one where Ireland has made considerable advances during that period of the eighties. The concept of the International Financial Services Centre was first proposed in 1986 to take advantage of the worldwide growth in financial services. The Custom House Dock site was chosen as the location for the centre.

The success of the whole industry is now evident, as Senator McGowan has just said. The 200 or so companies approved by the Minister for Finance to operate in the centre have committed themselves to the creation of close on 3,000 jobs over the next three years. In excess of one third of these new jobs have already been created in the Custom House Docks area. In addition, there has been extra employment in associated activities outside the centre in the accountancy field, the legal and tax profession and in the general services area as well. Moreover, the International Financial Services sector provides a significant and growing source of corporation tax to the Exchequer. Last year we got £47 million from the centre. These companies are primarily involved in insurance funds, treasury management and banking and the centre has attracted leading international companies in treasury, management, banking and insurance sectors from North America, Japan and Europe.

There is a strong emphasis on a high standard of financial regulation and supervision in the centre. This ranges from the initial certification of projects by the Minister of Finance to the ongoing supervision by the Central Bank. The Government's ongoing legislative programme is designed to enhance the type of product available to companies in the centre.

The Finance Act, 1991 contained provisions which made certain life assurance and other investment products more easily available in the centre, Ireland has been among the leaders in implementing recent EC directives concerning collective investment undertakings. Against this background it is important that there be no doubt about the legal powers of semi-State bodies operating in the financial markets. This Bill, as I said at the outset, is designed to remove any such doubts.

While it is essentially a technical Bill, it is of considerable importance to the bodies concerned. As Senators are aware the transactions involved are now part of the everyday treasury management operations of major companies everywhere. It is essential, therefore, that those doubts which are mentioned, which follow from the Hammersmith and Fulham decision in the United Kingdom should be resolved in a definitive manner and that the semi-State bodies should not find themselves operating at a disadvantage relative to other companies when it comes to availing of the opportunities offered by the financial services sector. With the total indebtedness of the order of £5 billion the need to minimise debt service costs in the semi-State sector hardly needs to be emphasised. This Bill will facilitate such an approach while ensuring that semi-State bodies do not become involved in operations which do not arise from their own debt management or other business activities.

The objectives and policies for hedging must be clearly established at the outset, This legislation limits the hedging operations of the non-bank commercial semi-State bodies to the management of their own debt or assets or to hedging risks arising from their business. The objective of hedging is not to make a profit but to reduce the costs of borrowing rates. The requirement that a State body must secure a specification issued by the Minister for Finance before it can avail of the powers confirmed by this Bill will further guard against transactions which are not of the strictly hedging nature and will be used to ensure that the powers confirmed by this Bill are subject to a broad level of supervision. Hedging instruments are designed, specifically, to reduce or eliminate exposure to price movements and interest and exchange rate changes and they will achieve this when they are used properly.

I will deal with some of the points raised. Senator O'Reilly asked a number of questions. He asked me about the funding of local authorities. The Senator is aware that the activities of local authorities are a matter for another Minister so I will not get into that one this morning. Senator O'Reilly asked about the position of local authorities and why they are not covered by the Bill. There are two reasons for this. The Minister for Finance does not have the statutory function of consenting to the borrowings of these bodies and, secondly, the legislation is primarily designed to facilitate the commercial and debt management operations of commercial semi-State bodies whose resources, both in terms of personnel and expertise, allow them to engage in the type of transactions covered by the Bill. The local authorities and health boards are not engaged in the type of commercial operations which would make this Bill appropriate to them. It is not intended to allow any of the bodies covered by the legislation to engage in transactions which are inappropriate to the nature of their operations. It is a matter for administrative decision on a case-by-case basis and the expertise of the body in question and the current market opportunities would be relevant factors in reaching such decisions.

Senator O'Reilly said that the lending needs of the economy need to be debated in the House. As the Senator is aware, the House will have a further and fuller debate on banking following the debate on this Bill so my comments at this stage will be brief. The Government's strategy has been to equip the financial sector with the necessary legislation to allow them to compete, as successfully as possible, in the internal market. The Central Bank Act, the Building Societies Act, the Trustee Savings Bank Act, the ACC Act, Unit Trusts Act and the Insurance Act all passed in recent years are the signposts for this strategy. These Acts and other commercial legislation, such as the Competition Act, 1990 form an extensive body of law about regulation in the financial sector in the interest of investors, depositors and policyholders and enable the financial institutions to break down the barriers in competing in each others' sphere. No financial institution can now regard its traditional patch as safe from competition. This is the essential lesson of the Internal Market, that we have acquainted our firms with this fact of life in good times so that the culture shock of 1992 and the end of this year will be far less.

Financial deregulation must be balanced by a concern for investors. In the Central Bank and building societies legislation we have introduced a small savers' deposit protection scheme and the EC is moving to put in place a similar scheme in all member states. My Department are working on legislation to regulate the activities of investment intermediaries, some of whose failures in the recent past have caused public concern. There is also the legislation on the Stock Exchange to address the modern day supervision needs of such exchanges and to put us in a position to implement and take advantage of EC directives in the field of investment and security firms.

With regard to the shape of financial markets after 1992, it is difficult to map out the grand scheme of things but there are a few essential landmarks we can pick out. It will be a market of free movement of capital and services, of greater competition and consumer choice, of financial products and of firms who will be required to pay great attention to the quality and diversity of their products but it will also be a market in which small players can, and will, survive by focusing on particular products, market segments and local needs. In the end, as always, it is up to the financial firms to plan for and grasp these opportunities. The recent changes in banking practices and the development by other credit institutions of new products and services for clients is an indicator of our capacity to face reality and to compete. I find this encouraging but all firms will have to keep up with the standard of competition to succeed in that regard.

Senator Conroy made reference to the changing financial climate. The financial services sector has developed rapidly in the past few years and it has now assumed a very important role in the Irish economy. The Government have endorsed the aims of the internal market which will provide opportunities for expansion of Irish businesses into European markets with consequential spin offs in employment and export earnings.

There is an exciting potential for Irish financial services to expand into Europe. The Government have overhauled the legislation in this area to liberalise and free the institutions and markets thus ensuring that this country is able to take part fully in the challenges that lie ahead. The Building Societies Act, 1989, that I spoke about earlier, and the Trustee Savings Bank Act of the same year have given these institutions greater scope to compete in the marketplace under the supervision of the Central Bank.

Irish interest rates are determined by market forces and exchange controls will be entirely eliminated before the end of this year. The regulations necessary to implement the various EC directives which will make the Internal Market a reality are in preparation in consultation with the Central Bank. It is expected that these regulations will be adopted during the coming year.

Concrete and very tangible proof of the Government's commitment to the potential of this sector is the International Services Centre. The drive towards completing the Single Market and beyond that to the building of economic and monetary union is progressing apace in the context of free capital movement, and the full provision of financial services across borders financial institutions here will have to face increased competition from abroad. That is where we will have to use to the best of our ability the new opportunities in the financial services market.

Senator Conroy also made reference to the ACC and ICC. The ACC Bank Act of 1992 allowed ACC to widen its range of services with the aim of attracting new customers from the non-farming sector; prior to the 1992 Act lending had been restricted to the agriculture sector. For the first time in 18 years, ACC will this year pay a dividend of about £382,000 to its sole shareholder, the Minister for Finance. There are no plans at present to privatise ACC, so that is good news from one of our State banks. It is small but it is certainly changing a trend that had gone the other way for a long time.

The Minister for Finance has appointed Stokes Kennedy Crowley Corporate Finance to examine the option of a sale of the State shareholding in ICC having previously been advised by Stokes Kennedy Crowley that they could find no compelling reason for the State to retain a shareholding in the company. There is no suitable proposal for the purchase of the State shareholding in ICC and none has emerged. A Bill to allow inter alia for an increase in ICC's borrowing powers will shortly be introduced in the Dáil.

The changes I have introduced were referred to by Senator McGowan but this year I brought in the ACC Act to introduce the ACC Bank and allow it far more freedom from regulation. The ICC Bank Bill will be introduced in this Dáil session. We have agreed to the amalgamation of the two Trustee Savings Banks and there is considerable progress in that regard.

Senator McGowan referred to the value of these modern financial instruments to the ordinary trader and in the example he gave of purchasing a boat abroad it is easy to see how the purchaser might want to use these instruments to reduce the risks associated with these payments.

I think I have dealt comprehensively with the questions that arose during the debate. I thank Senators for their contributions and hope we will be able to pass the remaining Stages today. This Bill is important and overdue as far as the semi-State bodies are concerned.

Question put and agreed to.
Agreed to take remaining Stages today.
Bill put through Committee, reported without amendment, received for final consideration and passed.
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