Seanad Éireann debate -
Wednesday, 2 Apr 2003

Vol. 172 No. 7

Central Bank and Financial Services Authority of Ireland Bill 2002: Committee Stage.

SECTION 1.

Mr. J. Phelan

I move amendment No. 1:

In page 5, between lines 20 and 21, to insert the following new subsection:

"(2) Within two years of the coming into operation of this Act, the Minister shall present to the Oireachtas a review of the operation of the Act which will inter alia, assess–

(a) the impact of the operation of the Act on the Credit Union Movement,

(b) the adequacy of the system for developing a strong pro-consumer financial environment,

and

(c) the quality of the reporting arrangements to provide the Oireachtas with timely information in regard to–

(i) protection of consumer savings,

(ii) transparency of information for the users of financial services,

(iii) competition among the providers of financial services, and

(iv) efficient redress for consumer grievances in relation to the provision of financial services.".

I welcome the Minister of State, Deputy Brian Lenihan, to the House for the debate on this important legislation. My amendment tries to deal with the most contentious element of the Bill, which is the idea of combining the consumer protection element with the existing responsibilities of the Central Bank for the financial services sector. The purpose of the amendment is to enshrine the consumer protection element, which many commentators have said is contradictory to the already aforementioned position of the Central Bank.

This amendment seeks a review, after two years of the operation of the Bill, on how it is working, the impact it is having for consumers and its impact on the credit unions – which have expressed concern about this legislation and the impact it may have on them – and on competition in the banking sector. I urge the Minister to consider the amendment. It tries to allay some of the fears of those people who have reservations about the proposed new authority and the seemingly diverse roles which it authority seeks to fill. I would be interested to hear the Minister's response.

Dr. Mansergh

Regardless of its merits, with which I will deal in a moment, the placing of the amendment in the preliminary section of the Bill is extraordinary. It is an amendment of some substance and this is clearly the wrong place for it. I have not worked out where it should go, but to put a matter of substance like this in the preliminary section is a fairly extraordinary piece of drafting.

Mr. J. Phelan

Would the Senator support it if it were elsewhere?

Dr. Mansergh

To come to the substance of the matter, despite a difficulty a few years ago the Government has good and close relations with the credit union movement and deeply appreciates and values the good work the credit union movement does in practically every town. There are ongoing meetings between the credit union movement and the Department of Finance and, where necessary, the Government. If serious problems were arising, I am sure they would be discussed and dealt with and, therefore, it is redundant to include a two-year review. The relations between the credit union movement and the Government and the Department of Finance are sufficiently close that if serious problems requiring legislative amendment arise, they would be dealt with without need for a formal review.

The new body has a different remit from the existing one. I am sure it will be anxious to report on the various dimensions of its activities, including those listed by Senator Phelan, such as protection of consumer savings, transparency of information, competition and redress for consumer grievances. I am sure that, from time to time, it will be accessible to a joint committee of the Oireachtas. Apart from my difficulty about where Senator Phelan wishes to place this amendment, the substance of it is superfluous and redundant in that all these matters will be taken care of naturally in the course of the proper operation of the Act.

Minister of State at the Department of Justice, Equality and Law Reform (Mr. B. Lenihan)

I would not wish to accuse Senator Phelan of superfluity and redundancy, but I am not disposed to accepting the amendment. He has suggested that a review of the operation of the Bill take place and that the results of this should be presented to the Oireachtas within a two-year period after the commencement of the legislation. The Minister for Finance indicated at an earlier stage that any review of this type should be delayed until we see how the legislation has operated over a number of years. With regard to the spirit of the amendment, I must point out that both the Central Bank and the regulatory authority will be obliged under this legislation to prepare an annual report which, under the legislation, must be laid before each House of the Oireachtas. In addition, the regulatory authority will be obliged to devise its annual strategic plan, which must be laid before the Houses of the Oireachtas and, subsequently, published by the authority.

It is also important to note that under section 33AM of the principal Act it is provided that certain officers of the bank can be required to attend before an appropriate Oireachtas committee. This element of accountability to the Oireachtas is built into the legislation. It will allow the Oireachtas ample opportunity to assess the operations and activities of the Central Bank and the regulatory authority. The Director of Consumer Affairs and the Registrar of Credit Unions are also required to produce strategic plans and annual reports for submission to the regulatory authority. Under those circumstances, I believe there is an effective review and assessment process involving the Houses of the Oireachtas which is facilitated by the proposed provisions of this Bill. For those reasons, I am not disposed to accept this amendment.

I do not want to anticipate the Senator, but he mentioned consumer protection and I see he has a number of amendments down which deal with this. I would prefer to address that issue at this stage. The Minister was careful to ensure that the concerns of the Irish League of Credit Unions were taken into account in devising this legislation. A meeting took place between the Minister and a delegation from the board of the ILCU and this was followed up by a number of meetings between the league representatives and officers of the Department of Finance. The ILCU accepts that the Bill, as it now stands, recognises the distinct voluntary character and social and economic role of credit unions and is content with that. While I understand the vigilance of the Senator in respect of the credit union movement, which, as we heard on Second Stage, is shared by all Members, the fact remains that the league and its objections have been accommodated in the Bill as it stands.

The matter of competition issues falls outside this legislation. In fact, the Competition Authority is at present conducting an investigation into bank charges.

Mr. J. Phelan

I understand what the Minister of State and Senator Mansergh are saying. I would love to employ a draftsman, but unfortunately I cannot do so. I gather that the Minister of State might be supportive of the amendment if it was placed elsewhere in the Bill. The regulations operated by the Central Bank with regard to the banking industry are designed to ensure that the structure stays in place – that banks keep operating and that people's money will not be affected by banks' becoming insolvent. However, the other part of the legislation is the complete opposite. It deals with consumer protection and tries to ensure that the consumer is not being ripped off. The two different objectives are miles apart.

While I accept that section 1 might not be the ideal position for the amendment, the thrust of it is quite sensible and, therefore, I am disappointed. I understand that there is an annual report and a strategic plan, but there is a place within the framework of the Bill for some sort of impact statement, particularly for credit unions – for the sake of consumer protection – which is apart from these.

Amendment, by leave, withdrawn.

Section 1 agreed to.

Sections 2 to 4, inclusive, agreed to.

SECTION 5.

Mr. J. Phelan

I move amendment No. 2:

In page 10, paragraph (g), line 18, after “problems” to insert “and the quality and cost of services to the consumer”.

The new section 5A(1)(g) to be inserted into the principal Act deals with the collection and publishing of data by the authority. The amendment again seeks to protect consumers by ensuring that the quality and cost of the service is realistic. It attempts to highlight the importance of this function. What is proposed in this paragraph is not clear and the amendment elaborates upon what is already contained there.

Mr. B. Lenihan

The Senator has returned to his main criticism of the Bill, which relates to the combination of the prudential regulation function and the consumer protection function in one authority. The amendment proposes to change section 5A of the principal Act – the Central Bank Act 1942 – which provides for the general functions and powers of the bank. It is important to note that the responsibility for consumer protection in the Bill is actually delegated from the bank to the regulatory authority.

The legislation relating to the regulatory authority provides a variety of measures to deal with the quality of financial services to consumers and accountability in regard to consumer protection. In a sense, these functions are invested in the regulatory authority under the Bill. The regulatory authority, for example, is charged with responsibility for taking action to increase the awareness among members of the public of available financial services and the cost to consumers, risks and benefits associated with the provision of those services under the new section 33C(4). This includes reference to the quality of financial services to customers, which is in the spirit of the amendment tabled by the Senator.

In addition, the Bill provides for the appointment of a person to the statutory post of Consumer Director, who will be responsible for monitoring the provision of financial services to consumers of those services, having regard to the public interest and to the interest of consumers. This is provided for in the new section 33S(1)(b). The Consumer Director will be required under the Bill to produce an annual report and one of the matters that must be included in this is the steps that have been taken by the regulatory authority to increase the awareness of consumers of relevant financial services of the cost to consumers and the risks and benefits involved in using those service under the new section 33T(3)(b). The regulatory authority is also required to produce an annual report which must be submitted to the Minister for Finance, who must, in turn, have the report laid before the Houses under the new section 33O.

Both the Consumer Director and the regulatory authority are required to produce their strategic plans each year and these must specify the nature and scope of the activities to be undertaken and the strategies and policies for achieving the objectives. The chairperson of the regulatory authority, the chief executive of the regulatory authority and the Consumer Director can all be called before a relevant Oireachtas committee.

It is appropriate that the regulatory authority take responsibility for matters relating to consumer protection and awareness. The existing provisions of the Bill allow the regulatory authority to address the matters raised by the Senator and to be held accountable for these matters. I, therefore, cannot accept the amendment. My argument is that on the narrow issue of the amendment itself, the matters comprehended in it are comprehended in the Bill under the heading of the regulatory authority.

Dr. Mansergh

I was going to make the same point as the Minister of State in much shorter form, but I prudently decided to listen to his explanation first. The authority has different parts and it is important not to confuse their functions. All the concerns contained in Senator Phelan's amendments are perfectly legitimate and well founded, but it is a question not of ends but of means. As the Minister of State said, the consumer interest is well catered for in the way the authority is laid out.

Amendment, by leave, withdrawn.

Mr. J. Phelan

I move amendment No. 3:

In page 10, paragraph (i), line 32, after “law” to insert “until 31 December 2005, by which time a consolidated statement of its functions under all statutes will have been presented to the Oireachtas”.

This amendment states that within two and a half years the functions and responsibilities of the authority would be laid out in a consolidated statement. The proposed paragraph (i) states: “to perform such other functions as are imposed on it by or under this and any other Act or law”. This is a very open statement. While I accept the authority will have many diverse functions and at this stage it may be necessary to have such a provision, my amendment would propose a timeframe for issuing a statement of the functions of the authority.

This amendment should not be complicated for the Minister of State to accept. It could easily be done and would improve this section of the Bill. As it currently stands, it is rather open-ended. Such an amendment would be useful.

Mr. B. Lenihan

Having studied the Bill, before it came to Seanad Éireann and during its passage, I can well understand the spirit that motivated this amendment. I disagree with the Senator in saying this consolidation could easily be done. It would be far from an easy task to consolidate this legislation. However, consolidation is very desirable and was requested by all parties on Second Stage in this House.

I draw the Senator's attention to the fact that the McDowell group recommended that consolidation be carried out of all the statute revisions relating to the single regulatory authority. The European Central Bank also raised this issue in its formal opinion on the Bill. The Minister for Finance has stated there will be consolidation. I can appreciate how difficult it has been for Senators to study this Bill when in a sense they are looking at the beginning of the bricks and scaffolding of a measure which will eventually become a house. The Senator is suggesting we should put a deadline on its construction.

Mr. J. Phelan

Perhaps we should have deadlines.

Mr. B. Lenihan

That will be a very complex process for which the Minister for Finance has accepted responsibility. Because the regulatory authority deals with so many parts of the financial sector, some consideration will have to be given to whether consolidation alone is the appropriate way to go or whether there should be some harmonisation of the legislation for different sectors at the same time as consolidation. The Minister is committed to carrying out the exercise. However, he does not believe it is either necessary or desirable to set a timetable for the bank. The regulatory authority will have to look at this on its establishment.

The Minister stated he would do his best to have the matter addressed while he was Minister for Finance but would not accept the timescale proposed and because of the size of the Bill and separate major legislation, the (No. 2) Bill, had to be addressed. Public consultation has taken place on that Bill. This Bill will include consultative panels with consumers and the financial services industry. The consumer panel will review the discharge by the regulatory authority of its functions, including those of the Director of Consumer Affairs and the Registrar of Credit Unions.

In a sense the (No. 2) Bill is a second set of bricks, mortar and scaffolding in this area. When both Bills are ready and the regulatory authority has an opportunity to look at all the various sectors comprehended by this legislation, we will be in a far better position to advance the consolidation exercise. At this stage it is important that the regulatory authority is established. This has been a very difficult legal exercise. While I appreciate the work was very detailed and complex, involving amendment to substantial legislation, the parliamentary counsel has done a very good job in identifying and itemising much of the existing position in the Schedules to the Bill before the House. At this stage it would be premature to insert a deadline on consolidation into the Bill.

Dr. Mansergh

I welcome the Minister of State's commitment to codification and consolidation which is always desirable in voluminous legislation that may cover several Acts. I appreciate his argument. Given the length and complexity of the Bill and all the interests involved, it would not be appropriate to put a particular deadline on it. The Minister has given a commitment, in principle, that this will be done if possible during the lifetime of the Government. One should not make commitments that one is not certain of being able to keep.

Mr. J. Phelan

That is a very good statement.

Dr. Mansergh

Given that further complexities could arise when trying to carry out the task, one should be somewhat cautious of the commitments made.

Mr. J. Phelan

I am glad the Senator has said one should not make commitments one cannot honour. Perhaps he will try to instil this in some of his colleagues in government. I share the view of many that commitments were made that have not been honoured. I understand what the Minister of State has said. If I used the word "easy", it was unintentional. Even in the my short time here, I have seen the Capital Acquisitions Tax Consolidation Bill 2002, a monumental piece of work. I know considerable work went into this Bill and did not mean in any way to denigrate the work carried out by those who drafted it.

I am again disappointed the Minister of State has not accepted my amendment. Many items in this country are allowed to continue without timeframes, not just in the area of finance. It would be appropriate to have a timeframe. I ask the Minister of State to tell me when the (No. 2) Bill will come before the Houses of the Oireachtas. It was promised at the end of last year and we have still not seen it. While I understand consolidation cannot occur until it has been published, I would be fearful that it might not be published as soon as had been promised.

Dr. Mansergh

Senator John Phelan raised a more general question about honouring commitments. I presume he is referring to commitments – fairly limited in character – made at the time of the last general election.

An Cathaoirleach

Perhaps I should also have ruled Senator John Phelan out of order but that is not relevant to the section we are discussing.

Dr. Mansergh

I would like to say one more thing in reply. Whether commitments have been honoured is best judged over a five year period. It is far to soon to judge.

Mr. B. Lenihan

As I pointed out to the Senator, the Minister for Finance has indicated he intends to deal with this matter during his tenure of office as Minister for Finance, from which I take it that he assumes that will be a five year period, given the complexity of this measure. He wisely decided to consult about the measures in the No. 2 Bill before settling on a final draft with the parliamentary counsel. The public consultation has just been completed and the results will be presented during the drafting process. It is hoped the legislation will be published in the autumn.

Amendment put and declared lost.

Section 5 agreed to.

Sections 6 to 12, inclusive, agreed to.

SECTION 13.

Mr. J. Phelan

I move amendment No. 4:

In page 19, paragraph (f), line 10, after “Minister” to insert the following:

"who shall be chosen to include persons with experience in the delivery of financial services, in the requirements for adequate consumer protection and in the needs of business for a competitive environment".

Senators will be aware that I have raised the issue of the suitability of appointees to State boards and authorities on various Bills which have come before the House. This amendment seeks to insert a requirement that people who are appointed to the authority have the relevant background and qualifications in financial services and other areas to carry out their role as members of the authority.

While the Central Bank has been an excellent authority, upon which I do not wish to cast aspersions, other State boards, which I will not name, have been filled with people under-qualified for the positions they hold. I doubt the Minister would seek to make appointments of party hacks to the board of the new authority purely because they happen to be members of a political party, but it is necessary to spell this out in the section. It does not tie the Minister's hands.

This is an important body and its roles will be many and diverse. I do not cast any aspersions on the Minister for Finance – I am sure he views the positions of directors of the authority as being of the utmost importance – but, while it is unimaginable at the moment, there is no guarantee that future Ministers will take a similar view. The purpose of the amendment is to spell out the requirements of people who could become members of the board of the authority.

Dr. Mansergh

The Senator does no justice to the current Minister for Finance or any future Minister from whatever party. The notion that any Minister for Finance would appoint the chairman of the Ballygobackwards cumann to the board of this authority is absurd—

Mr. J. Phelan

It is not beyond the bounds of possibility.

Dr. Mansergh

—unless that person was also a great financial expert. There is nothing wrong in a democracy with being a member of a political party—

Mr. J. Phelan

That is not what the amendment says.

Dr. Mansergh

—and that should not necessarily diminish a person.

There are few more important State bodies than this one which is absolutely vital for confidence. The stability of the banking system and investment confidence are so vital that any Minister for Finance would always have great care and concern that the people appointed to the board would have the confidence, particularly of those who have direct dealings with, or are under the governance of, the Central Bank and Financial Services Authority.

Mr. J. Phelan

The Senator accepts the amendment.

Dr. Mansergh

The amendment is entirely superfluous and is based on a demeaning assumption not only of the present Minister, but anyone who might be appointed Minister for Finance in the future.

Mr. B. Lenihan

This amendment seeks to provide that persons appointed to the board of the bank by the Minister for Finance should include persons with experience in the delivery of financial services, in the requirements for adequate consumer protection and the needs of business in a competitive environment. In making appointments, the main aim of the Minister for Finance is to select persons with the necessary qualities and attributes of each office, who are independent of the Government in the exercise of their functions. Needless to say, any such appointments can only be made after the most careful consideration. In this respect it is unnecessary to tie the hands of future Ministers for Finance by setting specific criteria for the appointment of certain directors of the board of the bank.

I am sure the Senator is aware that certain persons are designated as members of the board by virtue of their office and there are five such persons specified in the Bill already. In those circumstances, it seems reasonable to leave the Minister for Finance with some discretion in relation to the balance of the appointments. The Senator raised a valid question about trust in politics and politicians but, under our constitutional system, legislation gives Ministers powers which they have to exercise and be accountable for to the Oireachtas, as well as being responsible at the bar of public opinion. Therefore, any Minister for Finance has to be careful in the exercise of this more than any other appointment.

I was not impressed by Senator Mansergh's designation of the Ballygobackwards cumann. I was taken with Senator Phelan's observations about political parties and I am sure he will agree that it is important that people participate in political parties and that membership should not necessarily disqualify a person from being a governor of the Central Bank.

Mr. J. Phelan

That is not in the amendment.

Mr. B. Lenihan

I accept that it is not in the amendment and I have addressed the matter. Five of the positions are already designated and the Minister must have some discretion in drawing on the pool of expertise in financial matters, in drawing a balance between particular spheres of financial experience as well as a balance of gender, which the Government seeks in all its public appointments.

Mr. J. Phelan

To take up Senator Mansergh's point, we have seen people, who were not fit to be chairmen of the Ballygobackwards cumann, appointed to semi-State bodies and are so regarded by many people. Nothing in the text of the amendment ties the Minister's hands because it is the most loose form of words that could possible be applied to an amendment of this form.

I was taken by what the Senator and the Minister had to say because they both agreed with the amendment without accepting it. Such a loose form of words could not affect the Minister's ability to appoint people with suitable qualifications.

I share the views expressed by the Minister of State and Senator Mansergh about membership of a political party. I am proud to be a member of a political party. Membership of a political party should not be a barrier to people becoming members of State boards or authorities and it is not my intention that it should be. That is not mentioned in the amendment. The amendment merely provides that the appointees should have qualifications.

We have seen in recent years the appointment of people to State boards in circumstances where other people with more suitable qualifications to take on the responsibilities of the job could have been found. The purpose of the amendment is to deal with that and I am disappointed the Minister of State could not accept it. The amendment would not have been strictly binding on the Minister for Finance.

Dr. Mansergh

I should clarify that I was caricaturing the Senator's fears. I was not implying, and I have not encountered, any Ballygobackwards cumann in the Fianna Fáil Party. Senator Phelan would have to be more specific. I am not aware of any instance where anyone other than highly qualified people have been appointed to a body such as the board of the Central Bank. I do not accept that the fears expressed have any substance.

There is a general issue about appointments to State bodies, but that argument does not apply to the authority we are discussing. It would be suicidal in terms of financial confidence for any Government to appoint people who were blatantly not well qualified. I have no fears that it would happen under this or any other Government.

Mr. B. Lenihan

Senator Mansergh was put forward by a large number of cumainn, rather than taken backwards, in the recent past. Senator Phelan mentioned the looseness of the proposed amendment. That is not desirable in legislation. Senators are aware of the constitutional provisions affecting qualification for membership of Seanad Éireann and the amount of legislation that had to be provided, whether by way of judicial referee or final determination, to ensure that a person put forward for a particular vocational panel should be qualified for Seanad membership. When a provision such as this is inserted in legislation, one increases the danger that an appointment can be invalidated through non-compliance with the provision in some unexpected way. From the point of view of legal certainty, there is an argument for a simple, bald provision providing for an appointment. That makes it difficult to legally question its validity.

I have addressed the wider argument and do not wish to repeat it. However, it is important to note that there are five clear determined appointments. The Senator should not be under the impression that, in relation to the balance of the appointments, the Minister is at large. The Minister must make the appointments under the scheme of the legislation, which deals with financial regulation, and they must command the confidence of the sectors involved. He will be accountable for that to the Houses of the Oireachtas.

Amendment put and declared lost.

Section 13 agreed to.

Sections 14 to 25, inclusive, agreed to.

SECTION 26.

Mr. J. Phelan

I move amendment No. 5:

In page 31, line 29, after "designate" to insert "the Director of Consumer Affairs and".

The amendment seeks to place the position of the Director of Consumer Affairs at the heart of the new authority. This relates to the debate we had earlier about the two separate roles of the authority. It will act as a regulator for the banking industry in general and will also have the role of protecting the consumer. The amendment would enshrine the position of the Director of Consumer Affairs at the heart of that.

Mr. B. Lenihan

The proposed amendment changes the provisions relating to the membership of the regulatory authority so as to provide that the Minister for Finance may designate the Director of Consumer Affairs as an official member of that authority. However, the Bill allows for this possibility. The proposed new section 33E(2) of the principal Act, as inserted by section 26 of the Bill, provides that the Minister may, instead of appointing a person to be a member of the regulatory authority, designate the holder of a specified office as an official member of that authority. That power, although stated in more abstract language, is already conferred on the Minister in the Bill.

The Director of Consumer Affairs is the holder of a specified office within the meaning of the Bill and the current wording of subsection (2) leaves it open to the Minister to appoint the director as an official member of the regulatory authority. The proposed amendment is superfluous. Its purpose is already comprehended by the legislation and there is no difficulty about designating the Director of Consumer Affairs as a member of the regulatory authority. It is permitted under the legislation. On that technical ground, I oppose the amendment.

This might be the appropriate time to address the wider question raised by the Senator about the combination of the two functions of prudential regulation and consumer protection. That has been the main focus of the criticism of the Bill from the political interest represented by the Senator. The Central Bank is responsible for the prudential supervision of financial institutions operating in the State, such as banks and building societies, while the Department of Enterprise, Trade and Employment supervises the insurance industry. The Director of Consumer Affairs has certain responsibilities under the Consumer Credit Act 1995 in relation to financial service providers, including responsibilities in respect of charges and advertising.

Due to legal confidentiality requirements, there has been a well highlighted difficulty in the full exchange of information between these regulators. The McDowell group felt strongly that separating the consumer issue from the prudential regulator had two disadvantages. First, it left unresolved the legal problem of the exchange of relevant information and, second, the advantages of a one-stop-shop would be lost in that there would be two official bodies dealing with different aspects of financial services regulation. The McDowell group concluded that, given the requirement imposed by the relevant EU law, the best mechanism for providing for the maximum flow of information between prudential regulators and those concerned with consumer protection was to combine the two functions in one authority. The Government considered that this restriction on the exchange of information was unacceptable. As a result of this and other considerations, the Government decided to propose the structure that is before the House today.

The question of how best to deal with the issues arising from combining the functions of prudential regulation and consumer protection were dealt with comprehensively in the McDowell group report. A number of options were examined to see how best each of them would work. The group examined the issue of protecting the interests of clients of financial institutions on two levels: first, the level of the protection of the consumer interest in the context of solvency of regulated entities; and, second, the level of the individual consumer and his or her relationship with a particular financial institution. The relationship between these levels was looked at, particularly from the point of view of the obligations imposed under EU law in regard to the prohibition on disclosure of information to the relevant authorities on issues for which they have no statutory function. We know from the DIRT inquiry, for example, how important it is that we can elicit and disclose certain information.

In the end, the expert group took the view that consumers' interests would be best served by combining the functions of consumer protection and prudential regulation in one body. The alternatives examined included separate authorities for prudential regulation and consumer protection and two competent authorities, one having a consumer protection function, and a regulatory authority with a subsidiary responsible for consumer protection. When one considers those options, I am sure the Senator will appreciate the difficulties they would have given rise to. They were all ruled out as it is only within the entity which combines the prudential regulation function with the consumer protection function that the disclosure of information between both could be done within the provisions of EU law.

Apart from the issue of the exchange of information, the Government was of the view that integration of prudential supervision and consumer protection did provide certain advantages. First, it provides a one-stop-shop for consumers, businesses and the financial services industry by having the regulation of insurance, banking and credit unions under one roof. Second, Ireland is a relatively small country in international financial terms, with a limited pool of expertise in the case of financial regulation. The building of a critical mass of skills relating to financial regulation in a single location is of major importance to the country. Third, it does place the interests of consumers at the heart of financial services regulation by giving the authority specific responsibilities in this regard. The Government is satisfied that the structure will work well but only time will tell.

The Bill provides for very clear functions of accountability which the proposed authority and the director of consumer affairs in that authority will have to the Houses of the Oireachtas. There is a clear delineation of the functions between the authority, the Director of Consumer Affairs and the registrar of credit unions, all of whom must produce plans and policy objectives which will be integrated into an overall strategic plan to be approved by the Minister. That is how the Government has addressed this issue and I thank the Senator for allowing me the opportunity of putting that on the record.

Mr. J. Phelan

I appreciate the Minister's reply dealing with what is the substantive argument concerning the Bill. While it is true that the McDowell report recommended a one-stop-shop facility both for consumer protection and the authority's regulatory role, there was an apparent contradiction in that, of the European countries examined by McDowell, virtually none had the one-stop-shop system. Both roles were separated in most cases. Opposition spokespersons frequently look to Ministers to enshrine and enact recommendations contained in various reports on specific areas of concern. However, I found the McDowell report's recommendation for a one-stop-shop approach actually contradicted the norm in other European countries. I would like to hear the Minister of State's thoughts on that contradiction because it probably goes to the nub of the problem concerning this legislation.

Mr. B. Lenihan

That has been the kernel of the objection to the Bill as raised by Fine Gael. It is important to stress, however, that this is a new Bill and is not simply a case of "New presbyter is but old priest writ large". The Bill is detailed and essentially transforms the Central Bank into a new bank which combines a regulatory authority. Because of the fundamental change in character of the bank that is envisaged by the legislation, this is a case of a leopard changing its spots. The Government took a view on combining the functions so that the issue of prudential regulation, which is the bank's traditional function, is restated in the Bill but will now be combined with consumer protection in the regulatory authority.

The choice of an appropriate supervisory structure is a difficult one. The Senator is well aware of the huge changes that have taken place in the financial industry in recent decades, where the traditional lines of demarcation have become blurred in the provision of financial services. Financial institutions of all types now tend to offer products and services, directly or through affiliates, that compete not only against those offered by similar types of institution, but also against those offered by other categories of service provider. We see this happening in the various markets that exist in the financial services sector, including credit, loans and current accounts. There is no consensus as to the existence of a single best approach in this particular area.

The Government had to make a judgment call which was that, by combining both functions in a small jurisdiction like Ireland, the one-stop-shop would have all the information available to it. There is an attraction and cogency to that argument. It is hoped that we can establish the authority, with all due respects to the House, by 1 May this year. Assuming we can do that, the legislation will have provided an opportunity to establish an authority that can put consumer protection at the heart of good banking practice. By combining the functions one can create that opportunity.

Ms O'Rourke

I understand the cogency of the Minister of State's argument because I was in Cabinet when this debate raged on and off with varying degrees of ferocity. To all our minds it is somewhat alien that one should bestow upon the Central Bank the role of consumer protector, as envisaged in this section.

Mr. J. Phelan

Yes.

Ms O'Rourke

I understand Senator John Paul Phelan's concern because somehow we see the Central Bank as an overarching and very proper body. However, the idea that it would hold consumers' concerns fast to its heart is slightly improbable, to say the least, and I recall being a participant at various times in that debate around the Cabinet table. Hopefully, the Central Bank will adapt to having this role bestowed upon it and will grow into the consumer protection component of the role.

We think of the Director of Consumer Affairs, Ms Foley, as being a person who deals with consumer issues arising from everyday life, including what one pays for various things and whether one's rights are being protected. As the role will be enshrined in legislation, however, I have no doubt that the Central Bank will adapt to it but there is no doubt that it will take time. It represents a change of focus and emphasis for the Central Bank because as well as dealing with the probity of our national finances, which it does with great acumen, it will now have to adapt to the consumer role also.

I gave this matter a great deal of thought at the time and on balance I think the legislation will be good for the Central Bank which will adapt to its new role. It will work out in the end because the bank's authority will combine all these activities which, in essence, will be a good thing.

Amendment, by leave, withdrawn.

Mr. J. Phelan

I move amendment No. 6:

In page 35, line 46, after "instruments" to insert "provided that the Chief Executive has published a report demonstrating that these levies are necessary for recovery of its cost and indicating the performance indicators which are being monitored to ensure efficient and cost-effective operation".

The subsection to which this amendment refers deals with levies and the possibility of the authority and its chief executive, with its agreement, making regulations for the prescription of levies on those regulated by it. The purpose of the amendment is to ensure the authority would make public its justification for increases in such levies. I tabled the amendment to seek clarification on the matter. "Transparency" is a much used and abused word. The purpose of the amendment is to shed some light on the criteria the authority should use in making a decision to impose such levies on regulated bodies under its remit. I would be interested to hear the Minister of State's response.

Mr. B. Lenihan

The McDowell group recommended that funding for the operation of the Financial Services Regulatory Authority should come from the industry. That was a core recommendation of the group. Levies to fund the regulatory authority will be prescribed by the chief executive with the agreement of the other members of the authority and by way of regulation. This will only be done after a detailed consultation process. Any regulations made by the chief executive must, in turn, be approved by the Minister for Finance who must lay them before each House of the Oireachtas. In addition, the budget of the regulatory authority which the levies will finance will be laid before the Houses of the Oireachtas having been approved by the Minister.

The estimate of annual income and expenditure must specify the amounts expected to be collected and recovered during the financial year concerned from the imposition of the levies under section 33J; any other sources from which the funds are expected to be obtained during the year to finance the regulatory authority's activities and the amounts expected to be raised from these sources; and the activities that the authority proposes to undertake during the year. There is a great deal of specificity written into the Bill.

The McDowell group emphasised the importance of adopting an approach which achieved a fair and equitable outcome. The approach, as set out above, is considered the best to achieve that aim. It is preferable to that suggested by the Senator. The issuing of a statement, as the Senator proposes, would not achieve a desirable level of active consultation. This procedure, in addition to other accountability provisions elsewhere in the Bill, will ensure the chief executive of the regulatory authority is accountable to the Minister and the Houses of the Oireachtas in relation to the justification for the levies.

The regulatory authority must lay its annual estimates before the Houses of the Oireachtas following approval by the Minister. Their accountability will be supported by the fact that the authority must also submit its annual strategic plan and report to the Minister who, in turn, will lay them before the Houses of the Oireachtas. The Minister will also require the authority to ensure its annual report includes appropriate indicators of performance.

I am satisfied that this approach is a more effective one than that proposed by the Senator which would require the chief executive to only produce a statement. Therefore, with regret, I cannot accept the amendment.

Amendment, by leave, withdrawn.

Mr. J. Phelan

I move amendment No. 7:

In page 42, line 6, after "Minister" to insert "having consulted with the Minister of Cabinet who holds responsibility for consumer affairs".

This is not a complicated amendment. It merely seeks to ensure that when the regulatory authority appoints the Consumer Director, the Minister with responsibility for consumer affairs would be consulted in the appointment process. It is appropriate that the Minister with responsibility for consumer affairs as well as the Minister for Finance would be consulted on the appointment of the person to fill this position. We have had a discussion on consumer protection and consumer affairs and how they relate to the authority in general. It would be appropriate that the Minister with responsibility for this area would be consulted on this appointment. It is necessary to spell this out in the Bill because provision is already made for consulting the Minister for Finance in this regard while in other parts of the Bill provision is made for consulting the Minister for Enterprise, Trade and Employment. In this section which deals with the appointment of the Consumer Director it is appropriate that provision should be made for the Minister with responsibility for this area to be consulted on this appointment and have a specific role in that regard.

Ms O'Rourke

I wish to make a few common-sense remarks. I appreciate the practicality of the Senator's proposal. On the surface, it appears practical that the Minister for Finance should consult the Minister with responsibility for consumer affairs on this appointment – in this case, the Minister for Enterprise, Trade and Employment. I am aware that the Minister for Finance has many discussions with her on many matters, as is proper in the conduct of Government business. Therefore, the proposal made by the Senator seems correct. However, this is a financial measure coming from the Office of the Minister for Finance who manages his business very well and is not used to having to consult colleagues all the time about measures in his Department. The Senator's proposal appears to be practical and make common sense but in effect—

Mr. J. Phelan

Charlie would not have that.

Ms O'Rourke

We will not make this too personal. We can have a giggle about it but apart from the many matters on which he has to consult all the time, this is a financial measure for which responsibility rests with him as Minister for Finance, not with the Minister with responsibility for consumer affairs. Given that when dealing with an earlier amendment we ruled the Director of Consumer Affairs out of the deliberative process, it follows that the Minister with responsibility for consumer affairs would not be involved in the process.

Mr. J. Phelan

I accept what the Leader of the House has said. However, there is a circular argument to this issue. There are two roles within the regulatory authority. The role that the Consumer Director has to play and the functions of the authority in the area of consumer protection come within the responsibility of the Minister for Finance. I am not disagreeing with what the Leader said but surely there should be some level of consultation with the Minister responsible for consumer affairs on the appointment of the person concerned. I understand this comes within the responsibility of the Minister for Finance and that perhaps he does not like to consult but he might not have much longer to worry about consultation in his role as Minister. Be that as it may, it is appropriate that consultation with the Minister with responsibility for consumer affairs on this appointment should be provided for in the Bill.

Mr. B. Lenihan

The Bill provides that the consumer Director is appointed by the other members of the regulatory authority. However, the Minister for Finance must give his or her approval before the appointment takes effect. The approval of the Minister is to ensure proper procedures have been followed by the authority. For example, the recent appointment of the person to fill the consumer director post was made after an open and extensive recruitment process. It does not seem necessary or appropriate that the Minister for Finance should have to consult any other Minister about the appointment because the function of the Minister for Finance in this regard is to ensure proper procedure has been followed.

Once this legislation is enacted, the regulatory authority in the bank will report to the Minister for Finance and, as such, he or she will be the Minister with responsibility for consumer affairs in so far as they relate to financial services. In this respect, the Senator's amendment is unnecessary and I will not accept it. However, I must commend him on his sense of humour in tabling the amendment because how often in the Oireachtas do we enact legislation which provides that a particular step cannot be taken without the consent of the Minister for Finance?

Ms O'Rourke

About which we all give out.

Mr. B. Lenihan

The reason that is a necessary accompaniment to much legislation is the essential control which the Minister for Finance must maintain over expenditure and numbers in establishments in every branch of the State. By tradition the Department of Finance, as senior Department, frequently imposes a statutory obligation on a Minister to consult with it prior to a matter pertaining to establishment being raised by the relevant line Department. It is not desirable, as a matter of general principle which is separate from the Department of Finance's unique position, to put this type of matter into legislation. Ministers should consult each other all the time. While the proviso to protect the interests of the Department of Finance which is often inserted is understandable because it relates to a fundamental constitutional point regarding that Department's priority over other Departments, in general it is not desirable. The Minister with responsibility for consumer affairs, who is a Minister of State with delegated responsibility, is free at any time to consult the Minister for Finance about the appointment of a director of consumer affairs under the legislation. If that Minister is doing his or her job correctly he or she might decide to consult the Minister for Finance about it. There is no bar to Ministers consulting each other, irrespective of whether that is dealt with in legislation.

Amendment put and declared lost.

Mr. J. Phelan

I move amendment No. 8:

In page 45, to delete all words from and including "in the name of" in line 22, down to and including "Authority" in line 26 and substitute "after consultation with the other members of the Regulatory Authority".

This amendment seeks to change the subsection dealing with codes and requirements under statutory instrument which the consumer director may have to enforce. It seeks to remove the middle section which states, "only in the name of the Regulatory Authority", as that would clarify the paragraph, which is difficult to read.

In broader terms the amendment seeks to give more authority to the director. This Bill deals with finance and is in the remit of the Minister for Finance but again we come back to consumer protection. It is necessary to give the consumer director the authority to perform his or her functions without undue inhibition. That is the purpose of this amendment.

Mr. B. Lenihan

This is an interesting amendment. It is important to note the consumer director has substantial power under the section as drafted as he or she may issue codes or impose requirements. The consumer director is in the position of the Commission in the European Union; he or she has the power of initiative under this subsection.

Mr. J. Phelan

There is a "but" here.

Mr. B. Lenihan

As the Senator points out, though the Consumer Director has the power of initiative, he or she does not have the final power of decision. The actual code or requirement must be issued in the name of the regulatory authority and with the approval of the other members of that authority.

Codes or requirements will be issued to protect the consumer. It is important that there be complete agreement from the regulatory authority in whose name they are to be issued because if an institution is in breach of a code of conduct or requirement, it is the regulatory authority which will have to deal with that. Although the consumer director is a member of the authority, it is fitting that codes or requirements issued by the Consumer Director be in the name of the authority. The provision should remain as drafted and I am not able to accept the amendment.

The McDowell report recommended that the regulatory authority should have the power to impose penalties and the question of providing this power to the regulatory authority is being considered in the context of the (No. 2) Bill. As the imposition of penalties will be linked to these codes of practice, it is only right that the codes of practice should be issued in the name of the regulatory authority, not in the name of the Consumer Director. The power to impose penalties will be vested in the regulatory authority as recommended by the McDowell report.

Amendment, by leave, withdrawn.

Mr. J. Phelan

I move amendment No. 9:

In page 46, between lines 30 and 31, to insert the following new paragraph:

"(e) comparisons against best practice in other comparable countries in relation to the cost of financial services and the range and quality of services offered.”.

This subsection deals with the annual report of the authority, which the Minister referred to earlier. Such a report is an important document for any authority. The amendment seeks to impose a requirement that the annual report contain a comparison with similar sectors in other countries. I have spoken about the McDowell report, which included a comparison with other European countries and we discussed how the report appeared to contradict itself in that way. It would be appropriate in the early years of an authority to have a comparison built into the annual report to judge how it is faring in relation to similar authorities in other countries.

This is a sensible suggestion and I urge the Minister of State to accept it. It could be important in the consumer protection area. The commercial banks recently published a document on banking charges which selectively excluded certain European countries where bank charges are quite low but included countries where bank charges are quite high. The comparison showed us at the lower end of the scale, but it is easy to select statistics to suit one's purpose. It would be useful if the authority included a comparison between consumer protection in our financial services sector and those of other countries.

Mr. B. Lenihan

The provisions in the Bill set out certain items that have to be contained in the Consumer Director's annual report. The chief executive will be required to specify if any other matters should be included. The chief executive is the person in the body being established by the legislation who has the power of initiative in this respect. I have no doubt he or she will take into account the kind of issue referred to by the Senator. In those circumstances it is not appropriate to be so prescriptive in legislation about what else should be contained in the report. International comparisons might well be a feature of the report but it is a matter for the consumer director to decide what comparisons or methods might be used to fulfil his or her obligations under the section. For those reasons I am unable to accept the amendment.

Amendment, by leave, withdrawn.

Section 26 agreed to.

Sections 27 to 36, inclusive, agreed to.

Schedules 1 to 3, inclusive, agreed to.

Title agreed to.

Bill reported without amendment.

Report Stage ordered for Tuesday, 8 April 2003.

Mr. J. Phelan

I thank the Minister of State. He is a little like his aunt in that he is difficult to dislike. It is good to have a Minister who can clearly articulate an argument without needing to constantly refer to notes passed to him by officials. I appreciate that he has devoted his time to this important legislation. Although he was not, unfortunately, able to accept amendments, he duly considered them. I thank him for attending the debate.

Mr. B. Lenihan

I thank the Senator for his kind remarks.

Ms Feeney

I thank the Minister of State for attending and Senator John Phelan for his nice remarks. I am sure he will receive a high preference next time.

Sitting suspended at 3.25 p.m. and resumed at 4 p.m.