The amendment proposes to change section 5A of the principal Act as inserted by section 5 of the Bill which provides for the general functions and powers of the Central Bank. However, responsibility for consumer protection is a delegated function of the bank to the regulatory authority, and the legislation relating to the authority provides a variety of measures that deal with the quality of financial services to consumers and accountability with regard to consumer protection.
First, the regulatory authority is charged with responsibility for taking action to increase awareness among members of the public of available financial services and the cost to consumers, as well as risks and benefits associated with the provision of those services. This includes reference to the quality of financial services to consumers.
In addition, the Bill provides for the appointment of a person to the statutory position of consumer director who will be responsible for monitoring the provision of financial services for consumers of those services, having regard to the public interest and the interests of consumers. The consumer director is required under the Bill to produce an annual report. One of the matters which must be included in the report is the steps taken by the regulatory authority to increase the awareness of consumers of relevant financial services, the cost to consumers, and the risks and benefits involved in using those services. The 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 each House of the Oireachtas.
Both the consumer director and the regulatory authority are required to produce strategic plans each year, which must specify the nature and scope of the activities to be undertaken and the strategies and policies for achieving those objectives. They must also specify the targets and criteria for assessing the performance of the authority and the consumer director.
The chairperson of the regulatory authority, the chief executive of the authority and the consumer director can all be called before the relevant Oireachtas committee. It is appropriate that the authority take responsibility for matters relating to consumer protection and awareness. The existing provisions of the Bill allow the authority to address the matters raised in the amendment and to be held accountable for them.
I regret therefore that I cannot accept this amendment. Essentially, my argument is on the narrow issue of this amendment. The matters comprehended in it are comprehended in the Bill already under the heading of the regulatory authority.
This might be as good a stage as any to deal with the more general argument which I think the Senator is pressing about the wisdom of combining the prudential regulatory function, a traditional function that has always been performed by the Central Bank, with the consumer protection function which it is now proposed to vest in the regulatory authority. In relation to that issue, which has occupied a good deal of the debate, the Central Bank has always been responsible for the prudential regulation of certain financial institutions operating in the State. The Department of Enterprise, Trade and Employment supervised the insurance industry, while the Director of Consumer Affairs had certain responsibilities under the Consumer Credit Act 1995 in relation to financial service providers, including responsibilities relating to charges and advertising.
Due to legal confidentiality requirements there has been a well highlighted difficulty in the full exchange of information between regulators. The McDowell group felt strongly that separating the consumer issues from the prudential regulator had two important disadvantages: first, it left unresolved the legal problem of passing relevant information from the regulatory authority to the Director of Consumer Affairs, 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 in relation to disclosure between regulators, the best method of providing for the maximum flow of information between prudential regulators and those concerned with consumer protection was to combine both functions within one authority. The Government considered this issue at some length and decided that this restriction in the exchange of information was unacceptable and because of this it decided to implement the structure before the House.
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 report of the McDowell group. 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 at two levels, first, the level of the protection of consumers' interests in the context of the solvency of regulated entities and, second, at the level of the individual consumer in his or her banker-creditor relationship, or 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 relation to the prohibition on disclosure of information to the relevant authorities on issues for which it has no statutory function.
The ability to disclose information is very important, as was seen for example in the DIRT inquiry. In the end the expert group took the view that the consumers' interests would be best served by combining the functions of consumer protection and prudential regulation in one body. Various alternatives were examined, first, separate authorities for prudential regulation and consumer protection; second, two competent authorities with one having a consumer protection function; or third, a regulatory authority with a subsidiary responsible for consumer protection. They were all ruled out as it was only within the entity which combined prudential regulation with consumer protection that the disclosure of information between the two 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 had certain advantages. First, it provides a one-stop-shop for consumers, business and the financial services industry by having the regulation of insurance, banking and credit unions under the one roof. Second, Ireland is a relatively small country with a limited pool of expertise in the area 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 places the interests of consumers at the heart of financial services regulation by giving the authorities specific responsibility in this regard.
The Bill provides for very clear structures. The functions of the financial authority, the consumer director and the registrar of credit unions are clearly set out in the legislation. Each of these must produce a strategic plan outlining their policy objectives. These strategic plans then participate in the authority's strategic plan which has to be approved by the Minister. If there were any suggestion of a conflict in policy objectives the Minister would ensure it was resolved. A simple example of this would be if there appeared to be an overlap in the policy objectives of the Army and the Garda in relation to drug seizures. The appropriate Minister or Government would step in and ensure it was resolved.
Likewise in this area if such a major conflict emerged it would have to be addressed. It is important to stress that this Bill effects a fundamental transformation in the character of the Central Bank. To argue that it is dangerous to combine the prudential regulation function with the consumer protection function because as a matter of history the prudential regulation function was the dominant activity of the Central Bank, apart from safeguarding the currency, somewhat misses the point that in this legislation there is a fundamental transformation in the character of the Central Bank.
I was not able to reply to Senator Higgins's previous interventions but I should say that the ministerial review that has been promised is a review by the Minister of the legislation. From his perspective the top priority is now to advance the second item of legislation dealing with the consultative panels from consumers and from the industry. When that legislation is enacted a number of years will have passed and at that stage he envisages conducting a ministerial review. It is important to stress that full accountability to these Houses has been written into this legislation, not just through the laying down of documents and the formulation of strategic review plans but through the designation of a number of crucial officers in the new authority, and in the Central Bank, who can be called before Oireachtas committees to give an account of themselves. The Oireachtas is free at any time to review this legislation and its operation and implementation, and that is fully written into the Bill. That is my reply to the point raised by the Senator in his previous remarks.