I welcome the Minister of State at the Department of Finance, Deputy Simon Harris.
Irish Collective Asset-management Vehicles Bill 2014: Second Stage
Question proposed: "That the Bill be now read a Second Time."
I am delighted to move the Second Stage in Seanad Éireann of the Irish Collective Asset-management Vehicles Bill 2014. At the outset I wish to acknowledge the all-party support that this Bill received in the other House, which has concluded its deliberations on the legislation. I look forward to the debate on the Bill in this House and hopefully the speedy enactment of what is important legislation in the context of future investment and jobs in this country.
The funds industry is a significant provider of high-quality jobs in Ireland, not just in Dublin, but across the country in places like Cork, Limerick and Dundalk, to name but three. The Irish funds industry has surpassed €2 trillion in total assets under administration. It is important that we do not stay still because this is an ever-changing industry. We need to build on that success to bring in more jobs and investment. The purpose of this Bill is to meet the commitment in the IFSC strategy to introduce a new framework for a corporate fund structure which is not a company in order to enhance Ireland's competitiveness as a funds jurisdiction. The new structure will not be subject to many of the requirements imposed on trading companies generally and so will be attractive to fund managers. Many of our competitor countries in Europe already have such vehicles and we must ensure that Ireland keeps pace with them.
Our intention is to provide a framework which will assist the Irish funds industry in reducing costs and increasing competitiveness. The proposed structure has a number of advantages for both fund managers and investors, including the simplification and streamlining of the requirements that Irish funds are currently subject to under company law while maintaining an appropriate level of regulatory oversight. It is similar to those mechanisms already in place in Luxembourg, France and the United Kingdom. It will be known as the Irish collective asset-management vehicle, or ICAV. The ICAV is a legal structure for the holding of investment schemes. The investment schemes are subject to a separate, unchanged body of rules for their prudential regulation. The main advantage is that the ICAV structure has been specifically designed to be distinguishable from a typical trading company. Most Irish funds are authorised as investment companies and, as such, are required to comply with many of the rules applicable to public companies which may not relevant or appropriate in the funds context. However, the ICAV is a bespoke corporate structure that will avoid the need for unnecessary compliance with certain company law requirements. This will result in reduced administrative obligations and associated costs.
Among other advantages, the ICAV differs from company structures in several important ways. First, an ICAV may, with the tacit agreement of the members and the auditor, dispense with annual general meetings, AGMs. This will result in administrative savings without a significant lessening in accountability for the board. AGMs simply are not as relevant in the context of an investment undertaking. Regulated collective investment schemes keep the investors far more up to date with the success or otherwise of the enterprise through daily net asset valuations and they are assured that the investment policies and corporate governance of the scheme are subject to the independent control of third party depositaries who are also closely regulated by the Central Bank. A great many investment schemes already operate as investment limited partnerships, unit trusts or common contractual funds without any requirement for general meetings. Of course, should the directors feel that an AGM is warranted for any reason they are free to call one. Second, ICAVs may make changes in their instruments of incorporation without shareholder consent if the depositary confirms that the interests of shareholders are not prejudiced. This reflects the process that already applies in the case of collective investment schemes constituted as unit trusts. Third, the Company Law Directives will not automatically apply to ICAVs and fourth, the ICAV should also be more practical from a US investor point of view in that it may be treated as a transparent entity for US tax purposes. I must stress that this does not have anything to do with tax avoidance; rather it will allow US investors bring forward their liability and avoid penalties and interest which could accrue in the case. Ireland's early agreement with the US to co-operate with its tax authorities on the implementation of the Foreign Account Tax Compliance Act, FATCA, is relevant here too.
The creation of an ICAV involves two stages, namely, registration and authorisation. The registration stage involves the Central Bank entering into a register of ICAVs the fledgling entity. At this stage an ICAV can do nothing but that which is necessary to apply for authorisation as a collective investment scheme. The latter stage involves approval for the ICAV under the undertakings for collective investment in transferable securities, UCITS, regulations or approval of the ICAV as an alternative investment fund, AIF.
The Central Bank already has exacting rules in place for the authorisation of a collective investment scheme by way of the UCITS regulations. These regulations are based on European rules which govern the establishment, marketing and operation of UCITS schemes. These schemes are primarily suitable for retail investors. Alternatively, an ICAV may be authorised in accordance with the process set out in chapter 2 of Part 2 as an alternative investment fund. Such funds are indirectly the subject of the alternative investment fund managers directive, AIFMD, which, though a managers directive, nevertheless sets the context for the regulation of professional investor funds. While the transposing UCITS regulations contain a discrete authorisation process, it is necessary to provide a similar mechanism for the authorisation of ICAVs that propose to operate as AIFs.
AIFs permit investment managers to market a regulated fund which can invest in a much broader range of assets and use investment strategies which would not be appropriate in a retail investor environment. In many ways the introduction of AIFMD, which brings to fund promoters a universally recognised brand to market and to investors the security of enhanced regulation of their funds, has driven the development of the ICAV. Ireland is the principal domicile worldwide for AIFs and the European marketing passport afforded by AIFMD only makes Ireland more attractive to alternative investment fund managers.
However, as I noted earlier, our competitor jurisdictions in Europe already have vehicles similar to the ICAV, and to maintain our competitiveness, we need to match and exceed their product offerings, hence the ICAV.
Part 4 concerns the appointment, removal and conduct of directors and to a large extent mirrors provisions in companies' legislation. These provisions help ensure the integrity of the ICAV and include a prohibition on the making of directors' loans. Directors will be under both the rules that apply to the directors of companies for which sanctions, including restriction or disqualification, apply as well as the Central Bank's rules on fitness and probity. In addition to various criminal sanctions provided for here and in the fund rules, directors will also be liable to the Central Bank's administrative sanctions regime for breaches of prudential rules.
Much of the rest of the Bill is concerned with the operation and end of life of an ICAV as well as ensuring that the supervisory rules and tools available to the Central Bank as the primary regulator and to the Office of the Director of Corporate Enforcement are up to the job and match those which already apply to funds which are incorporated under the Companies Acts. These parts were largely based on the Companies Act 2014 to ensure that where it is appropriate that the same rules would apply to an ICAV as apply to investment companies under the Companies Acts. This is achieved, for the most part, by the cross-application of the relevant provisions of the new Companies Act. That Act, in its final stages, was passing through the Houses of the Oireachtas simultaneously with this Bill and that gave rise to certain difficulties in drafting elements of this Bill. Until we had a settled text in the Act we could not have absolute certainty when cross-applying the provisions that the policies and even the textual references would hold. That in part explains why the ICAV Bill was the subject of substantial amendment on both Committee and Report Stages in the Dáil. These cross-applications are primarily done by providing the reader with instructions as to how to apply the relevant provisions of company law to the ICAV without directly amending company law. The main cross-applications include receivership and winding up of ICAVs, the restriction and disqualification of directors, and the relevant investigations, compliance and enforcement powers of the Central Bank and the ODCE when applying provisions based in the Companies Acts.
This not a simple Bill. It is technical, particularly the drafting of the cross-applied provisions, but that does not detract from what we hope to achieve. Our job here is to ensure that the proper safeguards are in place to allow very large sums of money to be placed securely in the hands of investment managers to allow them to make those investments grow and provide for retirements, college funds and savings. In return, we reap jobs and investment for Ireland.
It is important, therefore, to remember that we are applying tried and tested models for the operation of the ICAV; that the prudential rules that apply are European in origin and worldwide in reputation; and that the base on which the ICAV structure itself is built is Irish company law and the ICAV model itself has analogues across Europe and the world. With the passage of the Bill, which we are debating on Second Stage this evening, we in Ireland will not just be talking the talk in relation to competitiveness, we will be ensuring that the structures we have in place for investment funds match those of competitors while also ensuring that the safeguards are in place, that what needs to be regulated is regulated but bureaucracy as it applies to traditional companies, which is not relevant to investment funds, is not applied. Significant effort has been made over recent months and years to get the legislation right. I hope that by the passage of the legislation, this country can continue to maintain a reputation as a very competitive jurisdiction in which to place one's investment funds. That can only lead to more jobs and more investment for this country. I commend the ICAV Bill to the House.
I welcome the Minister of State, Deputy Harris, to the House. I am speaking on behalf of my colleague, Senator Darragh O'Brien, who is our spokesman on finance. I confess that sometimes I am an expert on lots of things and master of none but I will bow to my superior experts such as Senators Barrett and Michael D'Arcy. I will make a brief contribution on behalf of Senator Darragh O'Brien and my party.
Fianna Fáil supports the Bill. Since the IFSC was established in 1987, Ireland has established itself as a significant player on the international financial stage. The creation of an Irish collective asset management vehicle is a move towards further realising the funds industry potential. In other words, it is another step in the right direction. A dilapidated swathe of the quays that scarred the city has been transformed into a thriving hub of global funds. Every day, approximately 13,000 people are employed directly and indirectly in both the IFSC in Dublin and a number of locations throughout the country. Its success has been a major boost to the entire economy, and following the financial storms of the past six years, it offers fresh opportunities for job creation and growth. The creation of the Irish collective asset management vehicle is a move towards further realising this particular industry’s potential. It is great to see it is being developed further. However, that demands renewed commitment by the Government to a strong regulatory framework and focus on the industry. In a fast-moving sector, financial innovation constantly challenges legislators and regulators to respond in order to keep pace. This Bill is a step towards enabling Irish financial services to catch up with their EU competitors with a new investment vehicle.
The legislation comes after a period of decline in the financial industry, overseen by the Government and perhaps the tail end of the previous Government. We have slipped from tenth place in the global financial index in 2008 to 70th in last month’s survey. The dramatic drop underlines the need for Ireland to diversify its offerings in a competitive marketplace and to restore our regulatory reputation. If the Government is serious about achieving the aims of its five-year strategy for the international financial services industry in this country, it must raise its game. I presume the proposed legislation is designed for that purpose.
The serious drop in our international ranking does not bode well for job creation in the sector. The scale of the industry, with some €2.7 trillion in funds and 13,000 jobs, highlights the importance of underpinning a sustainable industry. The sweep of the five-year strategy has real potential for further expansion but requires serious and consistent commitment by the Government. Taking its eye off the ball, as it has done to date, would be a missed opportunity. There is too much at stake to risk the future of the industry and the broader role it plays in the economy. I am sure many factors have led to the decline, including the financial upheavals, not alone in this country but internationally. It would be very easy to lay the entire blame at the foot of the Government or the previous Government but there are external factors at play which we must be honest and recognise.
In discussing the creation of a new financial vehicle model, it is important that we deal with the regulatory framework. The financial crisis which, unfortunately, continues to linger over the eurozone has illustrated the need for a strong regulatory system to keep market excesses in check. The fast pace of innovation is not just a competitive challenge for Ireland but also a regulatory one. The harshness of the past six years cannot be forgotten or we risk being thrown back into the market turbulence that wreaked havoc globally.
The Central Bank is at the heart of efforts to keep abreast of new fund models. That requires a mixture of legal tools and key personnel equipped to implement them. Solid regulation is vital in building a strong reputation for business to grow and to provide consistent, reliable rules to protect consumers. As the industry grows and expands with greater financial rewards available, the importance of attracting and retaining skilled personnel will become even greater. The provision of adequate resources to keep, oversee and maintain the industry is of paramount importance. The systemic risks of mobile capital to the economy demand greater vigilance than was shown before and during the financial crash. Anything less would be to flirt with future disaster. It is important to remember that a strong financial sector is an integral part of the modern economy. Used well, it targets investment where it is best applied to create new jobs and stimulate economic growth. It empowers people to realise the dream of home ownership and plan their retirement with a sense of security. Enabling new models such as the ICAV outlined in the Bill creates new avenues for investment as well as strengthening Ireland’s global position. Combined with solid regulation it is a step towards sustainable recovery for this country. It is vital that we learn from the past to place financial services on a sound footing for the future. In that light, my part in Fianna Fáil is to support the Bill. I wish the Minister well.
When we deal with such issues, it is important that all sides of the House wear the green jersey. The recent election results and potential upheaval in Greece are of concern to the eurozone and the stability of the Irish economy. I am no expert, but that the euro has weakened considerably versus the dollar in the space of nine or ten months, while good for exports, has risks. Europe is not out of the woods. Ireland will play an important role, but we are a small component of the eurozone and Europe.
I wish the Minister of State and the legislation well. I hope that we will have a stronger financial sector, more jobs and a stronger economy as a result of this vehicle. Senators on all sides of the House want there to be a reduction in unemployment and a return of our well-educated emigrants. We are singing off the same hymn sheet.
I welcome the Minister of State. I am not sure that there are many experts on the subject matter of this legislation in this or the Lower House. I am certainly not one. It is a complicated area and significant legislation is required in a fast-moving world.
It is important that I put the €2.85 trillion in context. We used to talk in millions before moving to billions. Now we are talking in trillions. Some €2.85 trillion is greater than the GDP of France and not much less than Germany's GDP, yet that is the quantity of funds being administered in the IFSC. However, the IFSC is in more places than just the Dublin docklands. As some Members are aware, there has been a rationalisation to other areas in the country. This is a positive development.
The Minister of State referred to a competitive jurisdiction. It is good and important that we be able to compete for our share of expensive employment, that being, the other end of the spectrum from the minimum wage. The people in question are educated, qualified and-or experienced. This raises a point about spending power, something that the country has been lacking of late. However, the pensions industry in this jurisdiction is not competitive. The charges it levies are much higher than in other jurisdictions. If we need to move this legislation so as to get our share of those funds' business, we must ensure that they remain competitive.
I speak as someone who is a part of the small to medium-sized enterprise, SME, setup and has staff. The €2.85 trillion covered by this Bill is staggering. Is there any prospect of this legislation facilitating the State being left on the hook by the actions or inaction of individuals administering these funds or a failure by our regulators to stay on top of their administration nationally or internationally? This is an important point. I must be careful in what I say because I am a member of the banking inquiry, as is Senator Barrett. We cannot say anything that is prejudicial. The State cannot be on the hook for quantities that are greater than France's GDP. On the night in question, the bank guarantee, which did not cover non-Irish banks, was €440 billion whereas the entire sector was valued at approximately €600 billion, yet those are fractions of the industry that we are discussing and that is domiciled in this State.
I support this legislation and welcome Senator O'Donovan's statement that Fianna Fáil will do likewise. Recent opportunities have not been lost, as most political parties have pulled on the green jersey and done the right thing to attract employment prospects, especially in high-end employment. As any first year law student would point out, whenever a case querying legislation ends up in court, the legislation's debate by the Oireachtas is considered by the Judiciary. There can be no prospect of the State being on the hook for any portion of these colossal amounts. Most people do not even know that such amounts are traded in Ireland. The net figure is almost €1.4 trillion. I appreciate that the Minister of State might not have the answer today. The Bill passed all Stages in the Lower House without a vote and I do not anticipate a vote in the Seanad, but I would like an answer. This is my major concern.
According to the Minister of State's speech, the funds are administered in Cork, Limerick and Dundalk. It is important that jobs in this field be distributed around the country instead of only being found in Dublin.
I welcome the Minister of State and assure the House that Senator Michael D'Arcy is a valued member of the banking committee. There should be no false modesty over there. I thank the Minister of State and his Department for the support they have given to the inquiry. I hope that he and the Minister for Finance, Deputy Noonan, will get something useful in return. I also thank the officials who offered a briefing on this legislation, but we were busy trying to keep Aer Lingus as an independent airline.
I echo the comments of Senators O'Donovan and Michael D'Arcy. A drop from tenth to 70th requires analysis. We developed a dreadful reputation in financial services. It was the largest banking bust-up relative to GDP anywhere in the world. Some shadowy banks from the IFSC feature in some of the accounts. For example, the Governor of the Central Bank, Professor Honohan, told us that DEPFA Bank had the Germans hopping mad when we needed to do real things in late September 2008. Germany was short €50 billion because of that operation. Another bank that called itself Ormond Quay Funding when it was in Ireland but was SachsenLB cost €15 billion. We want to be sure that there is no question of the Irish taxpayer once again being involved. We have already been badly damaged. The first sign I would erect at the IFSC would read, "Nothing here will be bailed out by the people of Ireland because they can take no more".
In many ways, we need stronger regulation but, according to page 2, AGMs need not be held. There was a great deal of sloppy regulation or non-regulation. People called it "light touch", but it was non-supervision. Let us not let people off the hook of AGMs. The instruments of incorporation can be changed without shareholder consent. All of the evidence that has come to the banking inquiry implies that it was this loose-leafed approach that cost the taxpayer dearly.
Company law directives will not automatically apply to ICAVs. Before Christmas we passed an immense amount of company law, but here we are already saying that it does not apply.
The Minister says this has nothing to do with tax avoidance. I really hope so, because we have an appalling reputation. Next month, the Organisation for Economic Co-operation and Development, OECD, will report on the Apple issue. Our first response in that case was to deny it and we annoyed no less than President Obama and the Governor of California. We have a bad reputation in that regard. The Irish tax rate is 12.5%. There should be no deductions or allowances and so forth.
In the earlier documents we received, dated October 2014, from the Oireachtas Library and Research Service there are references to taxation. If those have been resolved since then, and the Minister said there were extensive amendments in the Dáil, we will not proceed with those again. The Minister said the Central Bank already has exacting rules in place for the authorisation of a collective investment scheme by way of the UCITS regulations. According to the Honohan report, the Central Bank was AWOL, absent without leave, for a crucial period with regard to regulating the financial sector. I believe it had approximately 15 people doing it. That got us into trouble.
I am glad there is a prohibition on the making of directors' loans. That was an unsatisfactory feature previously. Very large amounts of money will be placed securely in the hands of investment managers to allow them to make investments grow and provide for retirements and so forth. The last crisis was a property bubble and I commend the Governor of the Central Bank on attempting to stop it happening again, but the evidence coming to Senator Michael D'Arcy and me is that it is even more necessary for commercial property. It is even more bubbly, if one can use that word. Can we learn from Canada, Australia and Singapore, which did not have bank busts and are compliant with Basel III? Why do banks not have more equity? Financial institutions in general must learn from the past.
I wish to refer to some of the statements in the research paper from the Oireachtas Library and Research Service which might be of concern. It states that the Bill sets up a new type of investment company with reduced, but not non-existent, compliance standards. I hope the reductions will not get us into trouble. The document goes on to state, on page 4, that it has highlighted several areas where the legal, regulatory, tax and operating environment may be improved. I hope that was not leading to fewer controls and more tax avoidance. That is a feature we do not need. It also states on page 7: "The ICAV will not be required to be incorporated as a public limited company ..... and therefore will not be subject to the full rigours of the Companies Acts...". It continues: "..... that the ICAV .... be treated as a partnership or disregarded entity for US federal tax purposes and therefore will facilitate investment by US taxable investors and/or US taxable and tax-exempt investors in a master feeder fund structure." I am worried about that. The next page of the document states that it will "allow US taxable investors to avoid certain adverse tax consequences that would normally apply to 'passive foreign investment companies'" and that it will avoid the need for compliance with certain Irish company law requirements.
There is a complaint on page 18 of the document that the EU directive was "excessively constraining and prevented fund managers from fully exploiting their development possibilities". We had to be excessively constraining. This was the greatest financial disaster to hit a country. The numbers in the Survey on Income and Living Conditions, SILC, report last week show that disposable income per person has dropped by €2,500 since the financial crisis, from €20,000 to €17,500. Page 19 refers to the role of the Central Bank and states that it "may make regulations for the proper and effective regulation of regulated financial service providers". It did not do so in the past and it must do so now, because we cannot go through all of that again. The document states on page 28 that the Central Bank can refuse to register an ICAV and that it is an offence to provide false or misleading information, which epitomised the crisis Senator Michael D'Arcy and I are investigating.
Page 34 of the briefing document refers to stronger control of auditors. Senator Michael D'Arcy and I would certainly agree with that. It must be strengthened. I do not know what they were doing. Either they were involved, like rugby referees who comment on every move in a match, or they just turned up six months later, signed the books and did not know anything. I suspect it is former. We will have to find out why auditing standards in Ireland were so bad.
We can have the problem of financial institutions that are too big to fail, in which case the country bears the burden. I hope anything the Minister said this evening does not give them any credibility or greater credence. I look forward to the next Stage. I thank the Minister of State and the Minister, Deputy Noonan, for their co-operation with the inquiry. We must get this right this time because we certainly did not get it right on the previous occasion.
This legislation is the most complex legislation brought to the House since I became a Member. It is vitally important. It is also vital, as Senator Barrett said, that we get this right and that the safeguards put in place are sufficiently robust to withstand any type of abuse, scrutiny or rigour that might test them in the future.
Some time ago we used to say that with a billion euro here and a billion euro there, we are soon talking about serious money. However, the €2.8 trillion in this case is a remarkable and astonishing figure. I am not even sure if I can write it down and I am not sure that any other Member could write it accurately at the first attempt.
I can.
Senator Michael D'Arcy can. His farming and economic background allow him to do that.
If one omits the economies of Germany, Italy and France, the sum of €2.8 trillion is equal to the value of all the other economies in the EU. The Irish fund industry is managing a frightening amount of money. When dealing with such a sum it is vital that fund managers operating in this country are given the flexibility that is required to compete in the globalised financial market. Decisions that are made at this time in America will have an impact in Tokyo 12 hours hence and 12 hours later will have an impact on the Dublin Stock Exchange. That is the level of flexibility required to be a real operator or player on the international markets. This legislation provides that flexibility.
It is about reducing costs, which is vital. We regularly complain in this country about the level of red tape faced by all industries and companies. Reform of some of the outmoded practices that have traditionally bound companies to operate in a particular way is probably well overdue. However, I am desperately conscious of what Senator Barrett said about the risk involved here. If it were five or ten years ago and it was claimed that registration authorisation by the Central Bank would solve the problem, we might not be too reassured. However, the new structures that have been put in place and the new regulatory powers given to the Central Bank and the other regulators by this Government go a long way towards addressing a number of those fears.
I referred to the complexity of the Bill. It will be teased out in greater detail on Committee Stage, when there will be far more scrutiny. I look forward to doing that. I do not have any more to say at this point but I look forward to going through the Bill in detail with the Minister and my colleagues on that Stage.
I will be brief. Much of the content has been covered this evening and during the passage of the Bill through the Dáil. My party will support this legislation.
In the course of the debate in this House and in the Dáil we heard a great deal of praise for a certain industry, with which many people might not be familiar. It is an industry that has a great deal of influence.
In the first instance, I am not aware of any other Bill which has come about as a result of the efforts of a single industry and which has not been mentioned in any real way in the programme for Government and which may be seen to have leapfrogged many other pressing issues. I would muse, "Why this Bill and why now?" Many of the answers lie with the IFSC Clearing House Group. This hugely influential body put the issue on the agenda in this House. In fairness, many community groups would love to hold such influence. However, as the Minister of State stated and as other Senators alluded to this evening, the industry is a major player in Ireland, employing over 10,000 people. We have heard figures in the trillions in terms of how much is being managed by it, making it a significant economic player and one which warrants significant attention.
In some ways, there are facets to the Bill which could be seen as a lightening of regulation. Senator Barrett mentioned some concerns he has in terms of the legislation. To be fair to the Minister of State, I know he has listened to my colleague in the other House, Deputy Pearse Doherty, and addressed some of his concerns. The sustainability of an approach which allows American companies to invest on a "check the box" basis has been questioned. The idea that Ireland could compete with Luxembourg is very risky given it is a micro-state built on finance and this is not particularly suitable for the Irish economy.
I do not intend to labour these points. Many of them have already been dealt with in the other House. I have expressed my concerns and I know the Minister of State has addressed many of them with my colleague, Deputy Pearse Doherty. I look forward to the rest of the debate in this House.
I thank Senators from all sides of the House for their thoughtful contributions to the debate. I look forward to re-engaging with Senators on Committee and Report Stages. I wish to acknowledge, as I did at the outset, the cross-party support which has been received for this Bill in both the other House and, it seems, this House. I am very grateful for this.
I echo Senator O'Donovan's comments. This is an Ireland Inc. issue. No one party, Government or series of Governments can claim credit for the international financial services, IFS, strategy. It is a strategy which has been correctly pursued by many. I also think it is sometimes unfair for IFS to be muddied with some of the domestic banking issues. This is perhaps a debate for another day. However, the Government in the 1980s which thought of the idea of developing Ireland as a hub for IFS and, as alluded to by Senator O'Donovan, creating the IFSC to regenerate an area and create employment at Dublin's docklands, certainly succeeded in this ambition and much more.
In 1987, there were three companies operating in international financial services in Ireland employing 55 people. By the end of 2014, there were over 200 companies and 35,000 people employed in international financial services. A crucial point, on which Senator Michael D'Arcy touched with regard to regional development, is that over 10,000 of the 35,000 jobs were outside Dublin. The question we now have as a Government, a country and an Oireachtas is where we go next with international financial services.
When the Taoiseach appointed me as Minister of State with responsibility for international banking and the IFSC in July, I set about doing a number of things to co-ordinate Ireland Inc.'s effort in terms of marketing and branding the country as a location for IFS. It is not all about tax. It is about our skilled workforce, the ease at which people can do business and the fact that we are the only English-speaking country in the eurozone. I am currently devising a new strategy for the international financial services sector which will go to Cabinet at the end of February, be launched at the start of March and be promoted as part of the St. Patrick's Day trade missions.
For the first time, we now have the IDA, Enterprise Ireland, the Department of the Taoiseach, the Department of Finance and the Department of Foreign Affairs and Trade sitting around the table on a fortnightly basis, chaired by me and presumably my successors in future Governments, saying where we are going with IFS. This is really important.
I wish to respond to a number of issues raised during the debate. The regulation of funds was mentioned by Senator O'Donovan. This Bill concerns the creation, establishment, operation and possible end-of-life rules for the vehicles which house the funds. The Central Bank will continue to regulate these funds under the UCITS rules or the rules applying to alternative investments funds, AIF, under the AIF rule book or the AIF managers EU regulations.
There was a broader point in the debate with which we need to be careful. We are not creating new risk. The risk already exists. There is already the level of funds, about which Senator D'Arcy and Senator Gilroy spoke, in this country being domiciled through this country and which is of great benefit to this country. The issue is how we regulate them. I would contend, very strongly, that it is important in a regulatory system to have credible regulation. Credible, robust regulation needs to ensure appropriate regulation is being thrown at a fund.
There is no point pretending an investment fund is the same as a traditional company when it simply is not. Our competitors do not do this. I know Senator Reilly had to leave, but we are not just speaking about Luxembourg. We are speaking about our neighbours in the UK, France and many other European countries. This is not about lessening regulation. This is about how we treat an investment fund. Should we treat it as a company when it clearly is not the same as a traditional company? I am sure we will tease this out on Committee and Report Stages.
A lot of what this Bill is about and a lot of what has taken up my officials' time has been cross-applying the Companies Act and ensuring that every single part of the Companies Act which is relevant to an investment fund is applied and that which is not relevant is not applied, ensuring that where the Companies Registration Office has not got a role that the Central bank has a role and checking, when it comes to sanctions, that the Office of the Director of Corporate Enforcement or the Central Bank has a role. We have put a lot of time and effort into ensuring this Bill is as robust as possible, including having a very productive debate in the other House.
Senator Reilly asked from where did this come. It very clearly came from the IFSC strategy. I feel very strongly when people say they have problems with Bills coming from certain aspects of industry. If I was the Minister for agriculture and had met with a load of farmers and farmers said this is what needs to done to help revitalise agriculture, I am quite sure Members on all sides of the House and I myself would say it is right and proper that the Minister for agriculture would listen to the farming community. I similarly think it is right and proper for me, as Minister of State for the IFSC, to listen to the IFS community, while remembering, as the Minister for agriculture must with regards farming regulations and safety, the responsibility the Government, these Houses and I have with regard to regulations. I will not stand for and will not answer snide comments about business interacting with Government. Some 35,000 people are employed in the international financial services sector. It is pretty important that any Government of any hue would talk to those people.
On the issue regarding Senator D'Arcy's point, echoed by a number of Senators including Senators Barrett and Gilroy, on whether this country would be on the hook - I think this was the phrase used by Senator D'Arcy - I am pleased to clarify that the answer is absolutely not. This is different to traditional banking in the sense that investors are aware that the value of the investments they make can go up and down. It is obviously not the same as a bank deposit in that sense. I will come back to the Senator with a detailed note on it because it is an important question. It is important to note that these are investment funds and there is a warning that the investments are at risk. This is different to banking and financial stability matters. The State is not on the hook for loss of investment. The State has obligations under the investments services directive under EU law. It is important to note this difference also.
I am checking if I have answered everyone's questions on this matter. If I have not, I ask that the Senators would come back to me. We will have other opportunities to tease this out at a later stage.
On Senator's Barrett point on regulation, we have very new regulatory structures in place. We have seen significant reforms within the Central Bank. We have seen the regulator being subsumed, for want of a better word, into a unified structure within the Central Bank. We have seen significant efforts at European level to beef up regulation, rightly and properly. I, in my role as Minister of State for the IFSC, consider it extremely important to have a business-responsive Central Bank which will engage, consult and provide information, but equally that the State would provide the Central Bank with all the resources and support it needs to implement robust regulation. This is important.
Senator Barrett referenced the issue of tax. I wish to reiterate this point on the US. The ICAV is a more practical form of investment from a US investor's point of view because it can be treated as what is known as a transparent entity for US tax purposes. This does not have anything to do with tax avoidance, but rather it allows the US investor bring forward his or her liability and avoid penalties and interest which could accrue.
It is making it easier for investors in the United States to pay their tax liability. I wish to clarify that it is not lessening the tax liability but, rather, it is not allowing penalties to accrue.
On the question of Ireland's reputation and international tax, the Minister, Deputy Noonan, took a decision in the budget, in light of - as the Senator quite rightly says - our reputation and the three Rs relating to foreign direct investment, two of which are reputation and regime. The base erosion and profit shifting, BEPS, process raised a number of issues. The Minister decided that, rather than waiting for a process to bring us to an endpoint, we should get out ahead of the issue, to clearly and definitively end the double Irish arrangement while at the same time proudly defending Ireland's corporation tax rate. It is important to note that a number of countries that might raise issues with regard to Ireland's corporation tax rate actually have a lower effective rate. At least the Irish rate is very transparent, and we will be vigorously defending some of the cases to which the Senator alluded. We are also co-operating on the OECD BEPS process and we are participating in an advance implementation group in many areas.
This country favours an international tax system that links substance with tax because, unlike some other countries, we have a lot of substance. The investors I meet who want to come to this country are coming here because of our skilled workforce and our access to the eurozone. I agree that they also come because of our corporation tax offering, but that is only one small piece of a much broader and larger package that we have to offer.
On the occasion of my first appearance in this House dealing with Second Stage of a Bill, and as a Minister of State with responsibility for the IFSC, I thank Senators on all sides for their constructive contributions. I look forward to the continued passage of this Bill through the Oireachtas. In doing so I am confident in the belief that this legislation will be another important offering in the toolkit of Ireland Inc. in attracting more jobs and investment into Ireland.
Question put and agreed to.
Committee Stage ordered for Tuesday, 10 February 2015.
When is it proposed to sit again?
At 10.30 a.m. tomorrow.
The Seanad adjourned at 7.50 p.m. until 10.30 a.m. on Wednesday, 4 February 2015.