I will begin my introduction of the Bill by mentioning that, although the Bill was published last April, a certain urgency has now come into play regarding the time available for completion of its passage through the Oireachtas. This is due to two factors. Sections 5 and 8 are required, and stated in the text, to have effect as from 1 November next and, to avoid the Bill being fatally compromised on grounds of retrospective legislation, it must be enacted by that date. It will be necessary to bring forward in this House an important amendment to section 19, which will inevitably result in its referral back to the Dáil for final confirmation. Given these exceptional circumstances, I must call on the good will of the House to expedite the passage of the Bill in line with the time constraint I have just mentioned.
The market in financial instruments directive, or MiFID, as it is now generally called, is one of the most significant pieces of EU financial services legislation agreed in recent times. It applies to both investment firms and credit institutions when providing investment services. The directive harmonises and modernises the EU-wide legislative framework for investment firms, promoting greater cross-border competition in particular. Thus, MiFID should, over time, lead to lower fees and make it easier and cheaper for customers, including retail customers, to buy and sell shares.
The aim of the MiFID is to create a pan-European market in investment services across the 30 Member States of the European Economic Area. In particular, it will simplify the regulation of firms that provide investment services on a cross-border basis in the EEA by providing them with an effective single passport which will allow them to provide such services across the EEA solely on the basis of authorisation by their home country regulator. The MiFID's predecessor, the 1993 investment services directive, or ISD, was only partly successful in providing a single passport, mainly because the effectiveness of its passport had been undermined by member states imposing their own investor protection requirements at local level. Therefore, investment firms which wanted to operate throughout the EEA would have had to comply with the unique investor protection rules in every member state.
This difficulty has been overcome in MiFID by incorporating harmonised, EU-wide investor protection provisions into the directive. These include standardised rules on the dissemination of quotes and on pre and post-trade transparency, as well as best execution practices. Member States were obliged to transpose MiFID by 1 February last, but it does not become operative for the industry until 1 November. This long lead-in for the industry was allowed by the EU to facilitate staff training and the extensive updating of IT systems required on foot of this new regulatory regime.
Ireland was one of the first member states to transpose the directive earlier this year. We did this by way of a statutory instrument, SI 60 of 2007, which sets down the obligations that must be complied with from 1 November. However, the scale of the maximum penalties proposed for breaches of the new MiFID regulations — fines of up to €10 million and-or ten years imprisonment on foot of conviction on indictment — is such that primary legislation is needed. That was the primary reason for the introduction of this Bill.
As is evident from its title, the Bill is comprised of two parts — the MiFID part and the miscellaneous provisions part. The MiFID elements of the Bill introduce penalties at national level for significant breaches of the new MiFID provisions — minor infringements were taken care of in the MiFID statutory instrument of last February — they empower the Financial Regulator to be able to levy fees on the financial services sector towards the cost of implementing its new MiFID functions, and its recently acquired market abuse functions, in the same way as arises for other regulatory provisions enforced by the Financial Regulator; and they repeal the Stock Exchange Act 1995 from 1 November when the MiFID regime becomes operational, as its provisions are superseded by the MiFID statutory instrument of last February.
The miscellaneous elements of the Bill essentially involve the updating or amendment of a variety of mostly technical provisions in various Acts which fall within the area of responsibility of the Minister for Finance. Section 19, however, inserted on Committee Stage in the Dáil and dealing with non-deposit taking lenders, including sub-prime mortgage lenders and mortgage reversion providers, is a significant new policy initiative.
The miscellaneous provisions cover the following topics. Section 9 will ensure that appropriate sanctions can be provided for a conviction on indictment for specified offences in the reinsurance regulations which were introduced in July 2006 as part of the transposition of the EU reinsurance directive.
Section 10 deals with the Netting of Financial Contracts Act 1995. That Act was introduced to meet the requirements of the EU directive on recognition of contractual netting and to bring certainty, through risk management, to firms engaged in financial trading, especially in the International Financial Services Centre. It ensures that netting and set-off arrangements between parties to financial contracts will be legally enforceable in the event of bankruptcy etc. provided they are properly drafted. Given the rapid pace of change in financial services, this amendment will widen the definition of financial contracts in response to market developments. This reform is needed to ensure Irish-based trading is not at a disadvantage as compared with institutions based in other jurisdictions.
Section 11 amends section 52 of the Investment Intermediaries Act 1995 to confirm certain limitations of receiver-liquidator access to client money following the winding-up of an authorised investment business firm, as recommended in the report of the Morrogh review group.
Section 12 provides for a simplification for the State ownership structure of Icarom plc, which is the rump remaining after the direct insurance business of the Insurance Corporation of Ireland, ICI, was sold off in 1990. The main role of Icarom plc is to run off ICI's pre-1985 liabilities, mainly in respect of its United States risks. The amendment involves removing Icarom's holding company, Sealúchaís Árachaís Teoranta, or SAT, from the structure. This reform has been recommended by the administrator on legal grounds in the interests of making it easier for Icarom to deal with litigation in the US courts.
Section 13 introduces a variety of minor amendments to the Central Bank Act 1942. It will allow the Financial Regulator an extra month to finalise the submission of its annual budget, from end of September to end of October of the preceding year. It will permit a reduction in the number of compulsory annual retirements from the board of the regulatory authority to take account of any voluntary retirements in that year. Another provision in this section will allow the Financial Regulator, subject to any EU confidentiality constraints, to disclose confidential information to the National Consumer Agency for the performance of the agency's functions. The section also permits the Financial Regulator to charge fees, with the approval of the Minister for Finance, in respect of various functions under Irish investment services law. Finally, there is an amendment to clarify the independence of the Financial Services Ombudsman from the Financial Regulator.
Sections 14 and 15 concern the National Treasury Management Agency and will allow the NTMA to provide foreign exchange services to Departments and State bodies. The savings to the Department of Foreign Affairs alone could be worth up to €700,000 per year. The NTMA will also be allowed to provide deposit-taking and lending facilities through its central treasury services to a wide range of State bodies. Another reform will permit the NTMA to engage in "transactions of a normal banking nature" concerning the Post Office Savings Bank fund and the central treasury service. For example, this will allow the NTMA to offer fixed-rate loans to State bodies because it will enable the use of interest rate swaps to hedge against the risk of interest rate rises.
Section 16 amends the legislation dealing with ministerial pensions in two ways. First, it provides for the backdating of payment of a Minister's pension to the date the person became eligible to receive the pension, rather than the date of application. On leaving ministerial office, severance is payable for two years. The ministerial pension is then payable if applied for. However, if a person, through oversight, fails to apply for the pension for more than six months after the ending of the severance payment period, payment of the pension cannot be back-dated for more than six months prior to the date of application. This amendment would allow payment to be back-dated to the date of entitlement and reflects a similar provision which applies to civil service pensions.
Second, whereas the current ministerial pensions scheme allows for a pension to be payable after two years' service as a Minister, the old pre-1993 scheme requires three years' service. This amendment would provide for payment of a ministerial pension to a member of the old pre-1993 scheme who has more than two years' service as a Minister. This has been the position for members of the new scheme since 2001.
Section 17 of the Bill as published proposed an amendment to the Credit Union Act 1997 to clarify the interpretation to be given to five-year and ten-year loans respectively. For instance, at present, a five-year loan continues to be counted as such even when the repayment period still outstanding falls below five years. The clarification in the Bill as published makes clear that such loans are no longer to be counted as five-year or ten-year loans when the repayment term falls below these limits.
Quite apart from this interpretation issue, on Committee Stage in the Dáil I introduced a further amendment to section 35, which increases the amount credit unions can lend over five years from 20% of their loan book to 40%, and over ten years from 10% of their loan book to 15%, subject to the approval of the Registrar of Credit Unions. It should be noted that this amendment stems from a recommendation of the review group on longer-term lending limits. Earlier this year, it was implemented by regulation SI 193 of 2007 at the request of the credit union movement. The Attorney General's office, however, advised that the first opportunity should be availed of to incorporate this change into primary legislation, hence this latter provision. As a result of the above amendment, section 21 provides for the revocation of SI 193 of 2007.
Section 18 repeals sections 9 and 10 of the Insurance Act 1936 and makes consequential amendments to the European Communities (Non-Life Insurance) Regulations 1976 and the European Communities (Life Assurance) Regulations 1984. Section 9 of the 1936 Insurance Act makes it an offence for a person to effect an insurance contract with a company not in possession of an insurance licence. Section 10 of the Act deems certain foreign companies and persons to be carrying on insurance business in Ireland in specified circumstances.
Insurance industry representatives have brought to our attention concerns they have regarding these two provisions and how they are having a negative impact on the operation of international companies in Ireland. Basically, these provisions have no relevance in the current business environment and need to be repealed.
Section 19 aims to provide for a system of regulation of non-deposit taking lenders engaged in retail lending, together with providers of home reversion schemes. They will be brought within the Financial Regulator's authorisation and ongoing supervision regime by way of an amendment to the Central Bank Act 1997. This in turn will bring their lending activities within the scope of the Financial Regulator's consumer protection code and, hence, provide greater protection to their customers as regards their business with those firms.
It was originally intended to address the regulation of this sector later this year in the context of the third money laundering directive and the draft directive on credit agreements for consumers, both of which would require some form of regulation or monitoring of all credit providers. However, there has been growing concern about the activities of some firms in this sector and especially those in the sub-prime market. It was decided therefore to avail of the opportunity presented by this Bill to advance the timetable for the introduction of regulation of this sector. However, the technical drafting of this provision has presented major legal challenges and it will be necessary to bring forward an amendment on Committee Stage in the Seanad to address these difficulties.
Section 20 is a technical amendment in line with a recommendation of the Oireachtas Joint Committee on Finance and the Public Service which will allow disclosure, under the terms of the Freedom of Information Act and subject to the usual exemptions that apply to that Act, of confidential information obtained by a person while performing duties as a member of the board or a member of staff of Ordnance Survey Ireland, OSI.
Concerning section 21, as I mentioned earlier regarding section 17, it will be necessary to revoke SI 193 of 2007 when section 17, which, inter alia, confirms the statutory instrument’s provisions in primary legislation, becomes operative.
As regards sections 22 and 23, the Investor Compensation Act 1998 was based on an EU directive aimed at giving investors, especially retail investors, a certain degree of protection in the event of the failure of an investment firm. The 1998 Act used the Investment Intermediaries Act 1995 and the Stock Exchange Act 1995 as the basis for many of its definitions, especially with regard to the definition of investment business firms.
The statutory instrument underpinning the new MiFID regime in Ireland, SI 60 of 2007, will ensure the provisions of the 1995 Investment Intermediaries Act will not apply in the case of MiFID activities. Therefore, consequential amendments to the 1998 Investor Compensation Act are needed to ensure firms engaged in MiFID activities continue to be covered by the compensation regime. There are also some minor amendments included at the request of the Investor Compensation Company Limited to take account of its experience over the years concerning the investor compensation scheme. In drafting this set of amendments, there were so many amending paragraphs that, having gone through the alphabet from A to Z in section 22, it was necessary to have a section 23 with further paragraphs running from A to Y.
In section 24, the National Pensions Reserve Fund Act provides, under section 18(2), for the payment of 1% of gross national product, GNP, annually from the Central Fund to the National Pensions Reserve Fund. It is proposed to amend the definition of GNP in that Act for the sake of clarity, to confirm that the statutory annual payment into the National Pensions Reserve Fund is 1% of the figure for GNP published in the budget book. This is a technical amendment for the avoidance of doubt. It will have no effect on the amount of the annual contribution to the National Pensions Reserve Fund which will continue to be 1% of GNP as estimated at the time of the budget.
The purpose of section 25 is to provide for the transfer of oversight and funding of Ordnance Survey Ireland from the Minister for Finance to the Minister for Communications, Energy and Natural Resources. This transfer was one of the key recommendations emanating from a value for money and policy review of the grant-in-aid to OSI last autumn. The Department of Communications, Energy and Natural Resources already oversees the geological survey and, arising from its core functions, has the structures and expertise required to monitor the activities of commercial State-sponsored bodies. All parties, including OSI, are amenable to the transfer.
I hope this overview of the measures contained in the Bill is helpful to Senators. I must bring forward an amendment to Section 19 on Committee Stage. Significant urgency now attaches to the processing of the Bill and in these exceptional circumstances, I ask that the House facilitate me in processing it in line with the time constraint which I have mentioned. It must pass all Stages in both Houses by the end of October.