The Markets in Financial Instruments Directive II, known as MiFID II, is the cornerstone of European Union financial markets legislation, covering the regulation of investment services providers. It is changing how markets operate for the better, ensuring safer and more transparent markets across the EU. MiFID II represents a major piece of financial markets reform and is ambitious in its scope. It seeks to make financial markets more efficient, resilient and transparent in a number of ways, namely: by the introduction of rules to keep pace with technical developments such as algorithmic trading - I got that term right, having had serious a row with its pronunciation during the debate on the Bill in the Dáil - which has the potential to cause systemic risks; by involving transparency and oversight of financial markets and, for the first time, establishing the principle of transparency for non-equity instruments such as bonds and derivatives; by introducing measures to deal with excessive volatility; by improving conditions for competition in the trading and clearing of financial instruments; and by building and strengthening investor protection rules.
The directive was transposed into Irish law by way of statutory instrument in August of 2017 and entered into application on 3 January. However, it is necessary to provide for criminal sanctions and penalties in respect of infringements outlined in MiFID II via primary legislation, hence the need for this Bill. It provides that a person guilty of an offence under certain provisions of the MiFID II regulations, such as operating without authorisation, is liable on conviction on indictment to a maximum penalty of €10 million and-or imprisonment for ten years. This is a continuation of the criminal sanctions regime that existed in Irish law under our MiFID I regime.
While the main part of this Bill is the introduction of criminal sanctions under MiFID II, the Bill also contains amendments to definitions in the Credit Reporting Act 2013 and the Financial Services and Pensions Ombudsman Act 2017. The Credit Reporting Act provides that the Central Bank of Ireland shall establish, maintain and operate a database of specified personal and credit information known as the central credit register. The purpose of the register is to ensure that credit providers will have access to the most accurate and up to date information regarding a borrower's total debt exposure when considering an application for credit, or when an existing loan is in arrears or being restructured. It has been advised by the Office of the Attorney General that the definition of "credit" included in the Act, which was intended to exclude trade credit from the scope of the central credit register, would also unintentionally exclude hire purchase and similar credit agreements. The amendment to the Act included in this Bill remedies the issue.
The Bill also makes an amendment to the definition of "long-term contract" in the Financial Services and Pensions Ombudsman Act 2017, which refers to the European Communities Life Assurance Framework Regulations 1994. The policy intent was to capture life assurance contracts of all durations, including open-ended products. It subsequently emerged that the European Union (Insurance and Reinsurance) Regulations 2015 implementing the Solvency II directive superseded the 1994 regulations for many insurance undertakings. This Bill amends the definition to ensure that products to which the 2015 regulations apply are also included in the definition. The purpose of this amendment is to grant access, on a statutory footing, to the Financial Services and Pensions Ombudsman for consumers wishing to make a complaint about these products.
Subsequent to the publication of the Bill, a further issue emerged regarding paragraph (a) of the definition. Where a product was understood by the consumer to be expected to last for more than five years and one month but did not have a fixed term, the Financial Services and Pensions Ombudsman decided that such a product would not be a long-term financial service because it did not have a fixed term as required by definition. There was no policy intent to exclude these products so it was agreed on Committee Stage that a further amendment would be made to the definition to include longer-term services whose term was not actually fixed. This arose particularly in the context of whole-of-life policies and the revised definition will allow the Ombudsman to investigate complaints about them where he considers that it is appropriate for him to do so. Specifically, he has the discretion under section 51(2)(iii) to investigate cases within "such longer period as the Ombudsman may allow where it appears to him or her that there are reasonable grounds for requiring a longer period and that it would be just and equitable, in all the circumstances, to so extend the period". The revised definition in the Bill will mean that whole-of-life policies come within the definition of "long-term financial service" and, therefore, the Ombudsman will have the necessary power to investigate these cases.
I will now provide a short outline of the Bill. Sections 1 and 2 contain the Short Title of the Act and a provision dealing with expenses incurred in the administration of the Act. Sections 3 and 4 repeal the criminal sanctions and penalties contained in the Markets in Financial Instruments and Miscellaneous Provisions Act 2007 and provide for further definitions. Section 5 provides for the definitions and details of fines and penalties that I have already outlined in relation to infringements of MiFID II. Section 6 allows the Central Bank to charge fees in relation to its functions under MiFID 2. Section 7 contains an amendment to Schedule 2 to the Central Bank Act of 1942. Section 8 amends the Credit Reporting Act 2013, as I have already outlined.
Section 9 contains an amendment to the Financial Services and Pensions Ombudsman Act 2017.
I thank Senators for the opportunity to address the House on the Bill. I look forward to debating the measures it contains and I commend it to the House.