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.