I am very pleased to bring this Bill before the House. Over the past two decades, the Government has made a strong commitment to making Ireland an attractive and competitive location for a wide range of international financial services activities and institutions. In 1987, the International Financial Services Centre was launched with strong support from the various institutions — political, legislative, fiscal and regulatory — focused on financial services, and from the major Irish financial institutions and professional firms which had a business presence and expertise in the sector.
Initially, IFSC activities concentrated on developing such sectors as banking, corporate treasury and insurance. These sectors have experienced dramatic growth and have now become cornerstone activities of the IFSC. Dublin is now host to half of the world's top 50 banks and is one of the main European locations for insurance, mutual funds and corporate treasury. The list of IFSC institutions reads like a "who's who" of top global financial institutions; JP Morgan Chase, Merrill Lynch, Société Générale, State Street, Sumitomo Bank, ABN Amro, Natwest, Chase Manhattan, AIG, Citibank and others. These are engaged in a broad range of activities, including banking, asset financing and leasing, corporate treasury management, fund management, investment management, custody and administration, futures and options trading, securities trading, and insurance, assurance, reinsurance, captives, and broking. These companies have been attracted to Ireland for a variety of reasons, including an attractive fiscal and regulatory environment, availability of highly skilled educated workers, political stability and effective marketing.
The Government values the important role the financial services industry plays in the Irish economy. It is a very significant employer in today's economy, with a total of over 51,000 working in the sector, of whom over 17,000 are engaged in providing wholesale or international services. Ireland has been exceptionally successful in attracting international financial services companies to locate here, a trend we wish to see continue. A recent IDA-commissioned report by Deloitte management consultants reviewed future options for the international financial services sector in Ireland and concluded that there are still excellent opportunities to develop the sector based on innovation, skills and expertise. In particular, the report identified opportunities in becoming the major European centre for specialist debt-financing products and securitisation; becoming a world class location for managing global and regional banking products; developing and enhancing Ireland's position as a major centre for asset servicing; and building scale in asset management, as well as positioning Ireland as the pan-European location for insurance products.
We must continue to be innovative and develop appropriate skills and expertise. A flexible, responsive and business-focused regulatory system has been the cornerstone of Ireland's development, and continued progress on that front was recommended by the Deloitte report. Our regulatory environment is a key component both of our competitiveness and of our international reputation.
The funds industry has played a crucial role in contributing to the growth of the IFSC. The industry has grown rapidly throughout the 1990s and today there are over 50 international funds administrators and over 20 custodians in Ireland employing 7,600 people directly with at least another 1,500 employed indirectly in legal firms, accountancy firms and listing brokers. These companies are currently servicing 3,771 Irish domiciled funds and sub-funds with net asset values of €445 billion together with another €200 billion under administration in non-domiciled funds. In 1987, the number of legislative vehicles that were available to the industry was rather limited, comprising entities established under the Unit Trusts Act 1972 as well as ordinary public limited companies incorporated under the Companies Acts. These were relatively inflexible vehicles at that time.
In 1989, EC regulations on undertakings for collective investment in transferable securities were signed into law, transposing the relevant EU directive which makes provision for collective investment vehicles capable of being sold throughout the European Union. In the ensuing years, a number of other types of fund vehicles were legislated for and existing law was updated, so that today, the funds industry can offer its products through entities established under the Unit Trusts Act 1990; Part XIII of the Companies Act 1990; the Investment Limited Partnership Act 1994; or the 2003 EU regulations on undertakings for collective investment in transferable securities, or UCITS, which include four amending regulations. With a view to providing the greatest flexibility to the funds industry, while at the same time keeping appropriate controls in place, this Bill makes a number of changes to the existing law. It provides for the introduction of a new type of investment fund vehicle, which is the non-UCITS common contractual fund. It also provides for the introduction of cross investment and segregated liability for investment funds. Apart from the changes to the laws on investment funds, a number of other changes to general company law are proposed, many of which will also directly or indirectly impact on at least some aspects of companies used as investment companies.
There is currently much happening at EU level in the financial services area. The 42 action points identified in the financial services action plan have essentially been completed at EU level. In this Bill, the companies legislation is being amended in anticipation of the transposition of two EU directives — the directive on market abuse and the directive dealing with prospectuses. The market abuse directive covers both insider dealing and market manipulation. The same framework applies to both categories of market abuse. This will simplify administration and reduce the number of different rules and standards across the European Union. It covers all financial instruments admitted to trading on at least one regulated market in the European Union. It is proposed to transpose the directive by way of regulations made under the European Communities Act 1972, as amended, and in so doing to repeal Part V of the Companies Act 1990. However, it is considered desirable to retain certain elements of Part V, particularly those provisions dealing with civil and indictable criminal liability, and to introduce other enabling provisions, which need to be done by way of primary law. This is being done in Part 4 of this Bill. Part 4 will not be commenced, however, until such time as the transposing regulations are also signed into law.
The EU prospectuses legislation will make it easier to raise capital in Europe and increase transparency and market integrity. By harmonising the necessary disclosure requirements, the new legal framework as a whole creates an effective single passport for both EU and non-EU issuers. In other words, it means that once a prospectus is authorised in one member state, it can be used in all the others, cutting red tape and costs for issuers.
As with the market abuse directive, the prospectus directive is being transposed by regulations made under the European Communities Act 1972, as amended, but certain complementary changes are being made in Part 5 of the present Bill to amend and where necessary to update national prospectus law provisions which do not arise directly from the EU directive and which accordingly must be made in primary law. In this regard, indictable criminal and civil sanctions are being retained and where necessary modified to reflect the new regime that is being introduced.
Moreover, certain requirements are being repealed, such as the four day rule contained in section 56 of the Companies Act 1963. Furthermore, in circumstances where an offer of securities to the public is outside the scope of requiring the preparation and publication of a prospectus under the EU directive, or where an offer is made in such a way as to avail of an exemption under Article 3.2 of the directive, there will be no requirement in national law to prepare a prospectus. This had been the case up to now. However, where the total value of the securities offered amounts to less than €2,500,000, then the offerer will be required to publish certain warnings in the offering document.
These changes reflect the EU requirements and will remove unnecessary bureaucracy where the size of the offer of securities is very small.
As with the provisions in the previous part, Part 5 will not be commenced until such time as the transposing regulations are signed into law. In Part 6, miscellaneous amendments are being made to the Companies Acts to remove anomalies and other changes that need to be made. Certain pieces of consumer protection legislation are being amended in Part 7, in order to increase the maximum fines that can be imposed on conviction.
I wish to turn to the provisions of the Bill and explain what each of these is designed to achieve. This is not intended as an exhaustive account of the contents of each section. The explanatory memorandum published with the Bill gives more detailed information on the provisions. Part 1 of the Bill contains some preliminary technical matters including the commencement of the legislation, interpretation, the making of orders and regulations and how parts of the Bill will relate to the existing Companies Acts. The purpose of Part 2 of the Bill is to provide for the introduction of a new type of investment fund vehicle, known as the non-UCITS common contractual fund. Section 8 deals with authorisation by the central bank and the financial services authority of the non-UCITS CCFs. The powers of the central bank in this Bill will be delegated to IFSRA, which is the financial regulator.
Section 9 deals with public information and reporting on the authorisation of CCFs. Section 10 gives the Central Bank the powers necessary to impose such conditions it considers appropriate and prudent for the orderly and proper regulation of the business of CCFs. These conditions may be imposed for the purpose of authorisation or operation of the CCF and may be imposed generally or in specific cases. Section 11 deals with refusal of such authorisation.
Section 12 deals with any alteration in the deed of constitution of a CCF, or change in the name of a CCF. Section 13 deals with the replacement of a management company or custodian. Section 14 requires a management company to redeem units in the CCF at the request of the unit holder at the going rate and creates an offence where a management company fails to redeem units as requested by the unit holder. Section 15 prohibits management companies and their subsidiaries from making certain profits for themselves under the CCF.
Section 16 deals with the assets of a CCF. It provides that the assets of a CCF will belong exclusively to the CCF and shall be held by the custodian. Where a CCF is established as an umbrella fund, the assets of each sub-fund shall belong exclusively to that sub-fund effectively ring-fencing them from the other sub-funds in the umbrella. This ensures that each sub-fund will have segregated liability. This means the assets of one sub-fund cannot be used to discharge liabilities incurred by another sub-fund within the umbrella. This is an important provision from the point of view of investor protection, as different sub-funds may operate different investment strategies involving varying degrees of risk.
Section 17 deals with the liability of custodians of a CCF. It provides for the responsibility of the custodian to the investors and the management company and makes the custodian liable for any loss arising from failure in performing duties. Investors may enforce this liability directly or through the management company.
Section 18 applies certain provisions of the UCITS regulations to non-UCITS CCFs subject to appropriate and necessary modifications including terminology. Section 19 makes officers of a body corporate guilty of an offence where they have facilitated a body corporate in committing an offence under this part of the Act.
Section 20 makes it an offence for a person to contravene any provision in this part of the Act even though the Act may not have specifically created an offence of such contravention. For example, failure to comply with conditions imposed by the bank under section 10 will be an offence, given the duty of compliance imposed by section 10(6). Section 21 deals with penalties.
Part 3 provides for amendments to Part XIII of the 1990 Companies Act, which deals with investment companies. The purpose of this part of the Bill is to provide for the introduction of cross investment and segregated liability for investment funds.
Section 24 amends section 255 of the 1990 Act to provide that an umbrella fund may acquire and hold funds in any of its sub-funds for the purpose of transferring the funds to another one of its sub-funds. Essentially this allows for cross investment in investment companies.
Section 25 amends the 1990 Act through the insertion of five sections into Part XIII of that Act to provide for segregated liability for investment funds. It provides a mechanism by which any existing umbrella funds wishing to avail of the benefits of segregated liability must obtain approval by way of special resolution of the members. Where segregated liability applies, any liabilities of a sub-fund will be discharged solely from the assets of that sub-fund. Segregated liability will not apply to umbrella funds which had commenced trading before the commencement of this Act, unless the members of the umbrella resolve that it should, by special resolution. This section specifies detailed requirements regarding special resolutions to have segregated liability apply to the umbrella funds and the requirements to be complied with by umbrella funds.
Section 26 amends section 257(4) of the 1990 Companies Act which relates to powers of the financial regulator over investment companies. The purpose of this amendment is to extend the regulator's powers to management companies of investment funds.
Section 27 amends section 260 of the 1990 Act to disapply certain provisions of the Companies (Amendment) Act 1983 to investment companies. This arises from the provisions for cross investment for investment companies.
The purpose of Part 4 is to enact provisions which need to be enacted in primary law to ensure the smooth and effective transposition of the EU market abuse directive which covers insider dealing and market manipulation. As I said earlier, it is proposed to transpose the directive by way of regulations made under the European Communities Act 1972. These regulations are at an advanced stage of preparation. However, certain elements of Part V relating to indictable criminal offences and civil sanctions are being retained and this needs to be done by way of primary law. Section 28 provides for definitions used in this part.
Section 29 outlines penalties on conviction, on indictment, of certain offences relating to market abuse. It provides for a maximum fine of €10,000,000 and/or a maximum ten years in prison for conviction on indictment. Summary offences will be dealt with in the transposing regulations and provision will also be made for administrative sanctions, as required by the directive.
Section 30 provides for civil liability for breaches of Irish market abuse law. It provides that a person contravening those provisions will be liable to pay compensation to any party involved in the transaction who was not in possession of the relevant information for loss suffered as a result. This section also deals with breaches concerning market manipulation and provides that a person contravening those provisions will be liable to compensate parties dealing in shares as a result of the breach. The guilty person must also account to the company issuing the shares for any profit made from the transaction.
Section 31 gives the competent authority designate the power to make supplementary rules to allow it to fulfil its role as a competent authority.
Section 32 provides for an amendment to the Central Bank Act of 1942 to include the EU market abuse directive, and related directives, in the list of directives which the Central Bank has the responsibility to enforce. This deals with confidentiality of information obtained by the competent authority and effectively prohibits its disclosure.
Section 33 allows the Minister to provide, by order, that one or more provisions of Irish market abuse law may apply to any market specified in the order. This is to anticipate the establishment of any new market.
The purpose of Part 5 is to amend the 1963 Companies Act dealing with offers of securities to the public. This is in anticipation of the transposition of the EU directive dealing with prospectuses, which it is proposed to transpose by way of regulations under the European Communities Act 1972, as amended. As mentioned at the outset, the provisions in Part 5 will make a number of changes to the Companies Act 1963 modifications and repeals that do not arise directly from the EU directive and which, accordingly, must be made in primary law. Section 34 provides for definitions used in this part.
Section 35 deals with the construction of certain terms in the 1963 Act in cases where provisions have been amended or inserted by this part. Section 36 provides for necessary repeals and revocations which are being made in anticipation of the transposition of the prospectus directive.
Section 37 deals with civil liability for misstatements in the prospectus and provides that certain persons will be liable to pay compensation to persons who acquired securities on faith of that prospectus for loss or damage sustained because of untrue statements or omissions in the prospectus. Section 38 provides for exceptions and exemptions applying to section 37. For instance, liability shall not attach to the summary of a prospectus issued. In addition, directors will not be liable if they had not given their consent or had withdrawn their consent to the issue of the prospectus.
Section 39 provides for a restriction of liability in cases where certain non-equity securities are involved. Section 40 provides for indemnification of certain persons in cases where a director has withdrawn his or her consent, has not consented to become a director or has not consented to the issue of a prospectus, and to an expert who has withdrawn his or her consent or has not given his or her consent to the issue of a prospectus.
Section 41 provides that an expert must give his or her consent to the inclusion of statements made by him or her in a prospectus. Section 42 provides for penalties on conviction on indictment for offences under Irish prospectus law. Section 43 provides for criminal liability for untrue statements and material omissions in a prospectus.
Section 44 sets out requirements for offering documents prepared for local offers and specifies statements, essentially warnings, which must be included in those documents. Local offers are transactions not regulated by the directive where the total consideration for the offer is less than €2.5 million.
Section 45 provides that a document prepared in accordance with EU prospectus law or an offering document does not constitute an investment advertisement within the meaning of the Investment Intermediaries Act 1995. Section 46 gives the competent authority the power to make supplementary rules and issue guidelines to allow them to fulfil its role as competent authority. Section 47 is a restatement of section 44(2) of the 1963 Act amended to encompass EU prospectus requirements. Section 48 amends section 53 of the 1963 Act and removes the reference to Third Schedule which is repealed in section 36. Section 49 amends section 55 of the 1963 Act and is consequent on the repeal of section 54 under section 36. Section 50 amends section 57 of the 1963 Act and simply substitutes words in order to reflect the new terminology being used in the directive.
Part 6 provides for various amendments to company law legislation. Section 51 amends section 60 of the 1963 Act. A number of these amendments implement recommendations of the Company Law Review Group. Sections 52 and 53 provide for electronic filing agents. This was recommended by the Company Law Review Group. It allows companies to appoint electronic filing agents to file documents with the Companies Registration Office, the CRO, in electronic form. Sections 54 and 55 provide for the reservation of a company name with the Companies Registration Office. A name may be reserved for 28 days and an applicant may seek an extension of this period for another 28 days only.
Section 56 amends section 128 of the 1963 Act to clarify a reference in that provision. Section 57 amends section 195 of the 1963 Act and provides that a director of a company may notify the Companies Registration Office of a change in name or address and that one notification can be used to change those details in respect of all companies to which he or she is a director.
Section 58 amends section 301(1) of the 1963 Act by extending the period within which liquidators may comply with notices issued by the CRO to encourage more widespread use of this provision and to avoid time consuming and expensive High Court applications. Section 59 amends section 371(1) of the 1963 Act and is a similar provision to that of section 58 but relates to "company" and "officer" as opposed to "liquidator".
Section 60 amends section 12B of the Companies (Amendment) Act 1982. It allows the CRO in the event of striking off a company for failure to make annual returns to advertise its intention to do so in the CRO Gazette in cases where it has no registered office address for the company. This will apply where a company fails to make an annual return for 20 consecutive years and will only relate to companies incorporated prior to 1982 as since then companies must provide a registered office from the date of their incorporation.
Section 61 amends section 19(2) of the 1990 Act. This extends the ODCE's powers in requiring production of documents to include where circumstances suggest that the affairs of a body are or have been conducted in a way that is unfairly prejudicial to some or all of its creditors.
Section 62 amends section 21(3) of the 1990 Act. This will allow the ODCE to share confidential information with the Irish Auditing and Accounting Supervisory Authority, IAASA, for the purposes relevant to the IAASA's statutory functions. Section 63 amends section 166 of the 1990 Act. The purpose of this amendment is to give the court discretion regarding whether or not directors should file certain notices regarding directorships and disqualifications in civil and criminal proceedings. Section 64 amends section 242 of the 1990 Act. Currently, that section makes it an offence to produce, lodge or deliver a document containing false information to the CRO. This amendment extends the offence to a person who completes or signs such a document. This too was recommended by the CLRG.
Section 65 makes several amendments to the Companies Acts to replace the requirement to publish certain notices in Iris Oifigiúil with a requirement to publish them in the CRO Gazette. The establishment of the CRO Gazette was provided for in 2004 and facilitates Ireland’s application of the first company law directive. Essentially it is a national centrally-based electronic gazette which will be held and maintained by the CRO on its website. Section 66 is designed to address a number of incorrect references in Schedule 2 of the Companies (Auditing and Accounting) Act 2003. That Act amended the 1963 Act, so this section deletes the incorrect references in the 2003 Act and makes the correct amendments to the 1963 Act.
Part 7 deals with miscellaneous amendments, most of which are amendments to consumer legislation to increase the level of fines on conviction to bring them up to date. Section 67 provides for amendments to the UCITS regulations. The purpose of these amendments, which are contained in the Schedule to this Act, is to provide for cross-investment and segregated liability for UCITS investment companies. Section 68 amends section 26 of the Prices Act 1958 to increase the maximum penalties on conviction under the that Act. Section 69 amends section 23 of the Restrictive Practices Act 1972 to increase the maximum penalties on conviction under the Restrictive Practices Acts. Section 70 amends section 17 of the Consumer Information Act 1978 to increase the maximum penalties on conviction under that Act.
Section 71 amends section 6 of the Sale of Goods and Supply of Services Act 1980 to increase the maximum penalties on conviction under that Act. Section 72 amends section 13 of the Consumer Credit Act 1995 to increase the maximum penalties on conviction under that Act. Section 73 amends the Package Holidays and Travel Trade Act 1995 in two respects, first, to increase the maximum penalties on conviction and, second, to increase the timeframe within which a prosecution may be taken from 12 months to two years. Section 74 amends section 31 of the National Standards Authority of Ireland Act 1996 to increase the maximum penalties on conviction under that Act.
Recent success gives no assurance for the future. The financial services sector is one of the most innovative and rapidly-evolving services sectors. The funds industry is operating in a highly-competitive environment. As a Government we are committed to supporting the industry by responding in an appropriate way to the new challenges which are presented by this ever-changing global marketplace.
I think it appropriate, before I close, to make reference to the directors' compliance statement provision in the Companies (Auditing and Accounting) Act 2003. As Senators will be aware, the Act broadly gives expression to the recommendations of the review group on auditing established in the wake of the PAC DIRT inquiry. The directors' compliance statement provision is based on a specific recommendation of the review group on auditing. The requirement for such a provision arose from serious non-compliance with law and in circumstances where directors claimed to have no knowledge of malpractice and illegalities in their companies. The provision has been the focus of representations to Government over the past period by certain of the parties for whom it has implications, who expressed the view that it had the potential to impact on a number of fronts including costs and competition.
I have listened to, and am reflecting on, what they have said. A course of action which I am considering is to refer the provision to the Company Law Review Group for further consideration. I expect to make an announcement clarifying the situation in the not too distant future. I confirm again that I will give ample notice of my intention to commence the directors' compliance statement provision.
I emphasised in the course of debates on that Act in both Houses that my objective was to achieve a balance between the requirements of corporate governance and the commercial objectives of companies which must be solvent, create profits and generate employment. The aim has not changed. However, I must remind Senators again of the background to this measure, no less than the Act itself, which is the failure of persons charged with responsibilities under company law and other bodies of legislation to discharge the functions required of them. There can be no going back to a situation where incorporation and limited liability can be used as a cover to allow boards of directors to disclaim all responsibility when their companies cheat the Revenue, creditors, investors, employees or on other legal responsibilities that are material to a company's business. I commend this Bill to the House.
