Amendments Nos. 1 and 2 are related. Amendment No. 2 is consequential on amendment No. 1. Amendments Nos. 1 and 2 may be discussed together by agreement. Is that agreed? Agreed.
Central Bank (Individual Accountability Framework) Bill 2022: Committee Stage
Sections 1 and 2 agreed to.
NEW SECTIONS
I move amendment No. 1:
In page 8, between lines 14 and 15, to insert the following:
“PART 2
GENERAL DUTIES OF THE BANK
General duty of the Central Bank to make disclosure
3. (1) In conducting any proceedings or investigation in respect of any natural person (including any appeal or application to the High Court) where that person may become liable to any prohibition or penalty under the provisions of the Act of 1942, the Act of 2010 or the Act of 2013, the Central Bank shall be subject to a duty of full disclosure within the meaning of this section.
(2) In this section, “a duty of full disclosure” means a duty to draw to the attention of and make available to any such person all information and documentation to which the Central Bank has reasonable access or has in its possession, power or procurement that might reasonably be of assistance to that person in his or her participation in the course of and for the purposes of such proceedings or investigation including opposition to the imposition of a prohibition or penalty or in relation to the mitigation of any such penalty.”.
I wish to lay out a few facts in justification of this amendment. Under the Bill, the Central Bank is proposing to alter the circumstances in which individuals can, by means of a prohibition order, be prohibited from carrying out activities and be made liable, by way of administrative sanction, for financial penalties of up to €1 million in respect of breaches of duties that are found against that individual by reference to regulations creating duties where the Central Bank itself is greatly involved in framing the way in which controlled functions in banks are carried out.
We must examine the legal background to all of this for a moment. The idea of administrative sanctions of up to €1 million against an individual rather than a licensed entity such as an airline that is subject to regulations is located constitutionally in the space recently considered by the Supreme Court in the Zalewski judgment, where the case was made that the Workplace Relations Commission, WRC, was administering justice in a manner that was reserved to the Constitution and was not covered by the exception for limited powers of a judicial nature being carried out by bodies other than courts.
The Supreme Court handed down a number of very interesting judgments on this issue. I am supportive of the view that the courts cannot do everything. They cannot decide to fine banks for overcharging interest rates or to fine airlines for under-providing wheelchair access. That kind of system cannot work. In an increasingly complex society, the courts cannot discharge those functions effectively. I have no problem with the introduction of administrative sanctions in principle. It is a matter of degree as to what is or is not a limited function.
There must also be a set of safeguards that adequately deal with the powers being given to a non-court regulatory authority to effectively punish people for things they have done in the past. That is my general, philosophical outlook. I have no problem with it as a concept, but the Bill detaches the obligation or entitlement of the Central Bank to impose individual sanctions, prohibitions and fines, payable by way of administrative sanction, from the process of penalising the institution in which individuals worked. For the first time, it makes it possible for a bank not to be punished for a breach of its customer-orientated duties. It enables individuals, who are or were employed by a bank, and carried out a controlled function to be on the wrong end of a prohibition order, the effect of which could end their career and prevent them from working in the regulated financial services sector. It also allows for the imposition of a sum of money - up to €1 million - as a personal administrative sanction on such persons. It applies not merely to people currently employed by a bank, an insurance company or a regulated financial service provider, but I understand it applies to those who were so employed up to six years ago. It may be more than six years ago. It also provides for these procedures to be deployed against people years after they ceased to exercise the relevant function.
I have some experience, from another context, of how all of these powers can be exercised. For example, individuals under investigation, who no longer work in the bank where the malpractice is suspected to have occurred, have to declare to every potential employer that an investigation is ongoing in relation to them. This is the case if individuals are looking to be approved in Ireland or elsewhere for employment in a similar business. If they are under a duty to disclose the fact that an investigation against them is pending, it effectively means they cannot successfully move jobs or apply for a new job. If I were to say to an employer, be it in Luxemburg, France or elsewhere, that I am subject to an investigation, it is not going to touch me with a barge pole because it would want to know what this is all about and why I am under investigation.
Apart from imposing a sanction of €1 million on an individual, apart from being in the position to issue a prohibition order preventing an individual from exercising a controlled function in a financial service provider subject to the control of the Central Bank, there is also a power envisaged in this Bill that will effectively wipe out the employability and entire work experience of a person while an investigation is ongoing and perhaps thereafter. The obligation on individuals subject to a pending investigation to disclose that they are the subject of such an investigation will, in the real world, have a freezing effect on them. It is very easy to say, "Let us take the case of the tracker mortgage and try to work out who, in any individual institution, was in breach of a duty to the customer and follow that person on an individual basis". That may sound attractive to some people. There should be remedies; people should not be able to simply ride off into the sunset having done immense damage to others. I accept that proposition. However, the converse is that we are putting in place a regime that is immensely powerful and potentially immensely onerous on individuals required to participate in the investigatory process with the Central Bank and to frequently provide information about their own activities to the Central Bank in circumstances where they are liable to be penalised or prohibited, as provided for in the legislation.
Let us consider the Zalewski case. Looking at the thrust of the decisions, of which there were several, of the Supreme Court, it is to say that there are cases where limited functions amounting to the administration of justice can be carried out by non-court bodies, but they must be carried out to a judicial standard. One cannot have bog-standard procedures that do not recognise the far-reaching effects that decisions of these bodies can have on individuals. An employee is entitled to unfair dismissal compensation of up to two years' salary, which can be imposed on a personal or a corporate employer. In that context, the Workplace Relations Commission is not free to choose its own procedures or to run an amateurish regime. It must respect the rights of people with whom it is dealing, both employees and employers.
In the context of respecting people's rights, what I am worried about and what the first amendment in my name is designed to tackle is the following. If I were up on a drunk driving charge, I would be entitled to see all the documents on which it is proposed to charge me.
More than that, even the local superintendent, or whoever is prosecuting me, is under a duty to bring to my attention anything in the knowledge of the prosecution that could assist me in defending the case. In rape cases, for example, it is not open to the prosecution just to leave some material unhelpful to their own case in a file somewhere and come to court and produce 90% of the evidence while leaving 10% of the evidence unavailable to the accused person. That duty of full disclosure is part of our criminal law on the basis that the State is the powerful institution and it knows a lot of things. It sometimes knows, to take many cases where this has arisen, the communications the alleged victim has made that could put an entirely different complexion on the case the State prosecutor is making before a jury.
That duty of full disclosure is hugely important. It is a central part. To wipe out somebody's capacity to carry on their career in the future and to put in place a power to fine the person effectively by way of administrative sanction up to €1 million is so far-reaching a set of consequences for an individual that there should be at least the same duty as applies in criminal prosecutions to bring to the attention of the person who is under investigation and is being subject to an inquiry material which would assist that person in defending him or herself.
It is all very well to say that in the great majority of cases people will be employed by a bank, that the bank will show them all of the relevant records and that they will have colleagues in the bank who will say the Central Bank is saying this but you should know that. It is all very well to say of somebody who is employed in a bank that the bank is, so to speak, protecting or at least standing up for its own employees, insofar as their behaviour is capable of being stood over, and that he or she will have access to the records of the bank. Somebody who is gone from that bank will not have access to those records. For example, if I had left KBC three years ago and then I am accused of being in breach of my duty as a controlled function status person towards customers, KBC may not be there in one years' time at all. There will be no material available to me. Knocking on the door of an empty office somewhere in the IFSC is no use to me. I would be in a peculiarly vulnerable position if it were to be said I had misbehaved or I had breached my duty. I could say I had no access to the records now and I was on my own. I can see why one would not want to do it, but this is why the detachment of liability for a prohibition order and administrative sanctions from the sanctioning of the bank, which this Bill provides for, has to be accompanied by safeguards for people whose bank may have gone up in smoke and for people whose bank may have come to an agreement with the Central Bank. There must be safeguards where people in banks who, when faced with a massive penalty of a €100 million fine, for example, decide to blame Joe Soap, their former employee, for their decision when, in fact, it was a lot of people in the organisation, including Joe Soap, who were involved in that aspect of the company's affairs. In such cases, the bank may throw a victim to the Central Bank by saying it was Joe Soap who was responsible for that particular issue, that the bank will accept a deal with the Central Bank to pay a €100 million fine and will not contest or fight the case any further. That puts the individual in an invidious position if he or she - we must not forget about Josephine Soap in all of these circumstances - finds himself or herself in the position where he or she is not being assisted by the bank, is not being assisted by his or her colleagues and he or she is all on his or her own in dealing with an investigation of this kind.
It is noteworthy that the legislation does provide for legal representation, but it does not provide any means whereby it is to be financed. It assumes a former controlled function employee, who has perhaps even been sacked by a bank or made redundant, is in a financial position to undertake his or her own defence in a lengthy investigation. I am concerned about this. The Central Bank is a very substantial institution. It literally prints money. It is in a position to finance its investigations to the extent it wishes. I note the text of the legislation says it is entitled even to give up an investigation where it considers it would be a waste of resources to proceed any further. What about the individual at the receiving end of that investigation? This person gets nothing, no assistance, and is left bereft. I am not suggesting a complex system of legal aid. Just in case anybody thinks this is a barrister's view of the world, I am not suggesting that all of the costs of everything must be underwritten in full. I do suggest in the second amendment that, where the interests of justice so require, and this is part of the Zalewski framework, if I may use that phrase, the Central Bank, in addition to hiring its own lawyers and retaining its own advocates, which it is entitled to do, should ensure it provides legal assistance to enable such a person to participate fully and fairly and be represented in any such proceedings. Many people have directors' insurance which may or may not cover them in this way or that. For many people, their employer the bank will actually finance them in defending it, but the scenario we are discussing is a situation where the bank is entirely separate, may no longer exist, or could be hostile, and the individual is left by him or herself to fend off a charge of personal culpability. In circumstances where the man or the woman on the receiving end of an investigation is in her his or her 40s, a prohibition order will destroy his or her career completely. I am aware all of these things have to be confirmed, but it is a bit too late to say a person can go to the High Court and pause confirmation when the whole process was one where the person was under-resourced in defending the proceeding in the first place or in getting access to relevant information.
These two amendments are about ensuring the Central Bank's role when deploying these very far-reaching powers against an individual.
The Central Bank must balance its own plenitude of resources in terms of knowledge, information, documentation and the rest, to assist the person at the other end of the procedure for whom such documentation, information, support from former colleagues may no longer be available. They may no longer be known to the person. The files, documents, board decisions and procedural manuals may no longer be available to that person. Whose duty will it be to make that material available to somebody who is going to be subject of personal sanctions and prohibitions? I say that it has to be the Central Bank's. One cannot put a car thief on trial before a jury without making full disclosure before him or her. By the way, if such people do not have the resources to defend themselves, one cannot put them on trial at all. The Department of Public Prosecutions, DPP, has to provide legal aid. However, while the Central Bank cannot imprison people, it has massive powers in respect of ending a person's career and imposing sanctions on them. This arises from a process in which they are left naked as regards assistance.
In crafting amendment No. 2, its second subsection says that, "in complying with its duties under subsection (1), the Central Bank [can] take into account any assistance otherwise available to that person.” The duties under subsection (1) are to make sure the person has access to legal assistance to permit them to participate fully and fairly in the proceedings. If AIB is financing one of its senior managers, the Central Bank should be in a position to say that AIB can pick up the tab. It is not at any disadvantage. I am concerned, however, about somebody who is left completely marooned. That may be somebody for whom there will be relatively little sympathy, because the Central Bank will be saying it is acting in the interest of the customer. It will be the good guy wearing the white hat in all of this, and the other person is the one against whom these charges are brought. Public sympathy will rarely be with the bank official. This is especially the case with a former bank official who has moved on to a different job in the financial services area, who may or may not have resources. Such people may or may not have €50,000 or €100,000 to spend on lawyers to put together their side of the argument. Telling them they can go the High Court at the very end of the process and have their lawyer there, does not speak to what happened beforehand. It does not speak to how they got to the High Court in the first place. That is the point I am making. I notice that, for instance, this Bill in a later section is going to abolish the right of judicial review in respect of the investigation of breaches of duty. If one is going to knock it out at that stage and tell someone he or she cannot go to the court on a preliminary basis but must wait until the whole procedure is more or less over, that underlines even more the need for some protections to be built in at first instance.
This is not a question of me weeping for misbehaving officers of banks who have abused their positions as holders of office with controlled functions and who are being caught up with and made amenable for the damage they have caused. That is not what I am talking about. I am talking about protecting people who may be very vulnerable and against whom life-changing sanctions, in terms of prohibition and administrative sanctions, may be imposed. It is about ensuring the Central Bank complies with what I consider to be basic duties. I think they are implied by the Zalewski case, which is not the easiest case to follow because they are so many judgments. You could ask somebody who knew about the Zalewski case, a law student for example, to say whether it is the case that the Supreme Court has stated it is okay for non-courts to impose sanctions and make life-changing orders, which might otherwise be seen as the administration of justice, in specialised tribunals. However, the corollary to that is there must be fair procedure guaranteed to the person on the receiving end at every point of this alternative process. That is what these two amendments are about.
I will make one other point. I chaired the group, which came up with the report for the reconstitution of the Central Bank and the Financial Services Regulatory Authority. Our report was not implemented in the end because the Central Bank and the Department of Finance preferred a different model. The Central Bank at that stage was insisting to my group that its biggest worry in the world was not so much defending customers from excessive interest charges and the like; its fundamental duty was the solvency of the entire Irish banking system. This was in the late 1990s. It was true, but where was the risk to our banking system? Everything looked hunky dory at that stage. I remember asking one Central Bank witness what happened to internal audit reports in banks. The Central Bank person told me they were confidential to the bank. I asked them if that meant they did not see what an internal audit has discovered about the way in which interest is being charged or mischarged to customers. They told me, "no, that is confidential." They came back about three weeks later with a different witness. This witness was handed a script by the Central Bank to say that in more recent times, it has required banks to give it access to their audit reports. I asked the witness whether this had happened since I raised it, three or four weeks previously. A blushed face answered it had. I go back to the point in 2007 when the Central Bank stated in its annual report that it had stress-tested the major financial institutions in respect of property and they were sound. It then transpired that it had never asked the banks collectively how much had Michael McDowell, the major developer, borrowed from all of them. How much of his assets were cross-pledged to all of them? That never happened at all. I only mention that because when the Central Bank came before an Oireachtas inquiry, it walked away relatively unscathed. It never emerged before that inquiry that it had been warned by senior officials that there was a solvency issue. Those individuals were kept away from the inquiry and a different impression was given to the Oireachtas.
I am asking this question. Would any person in the Central Bank be happy if, years after he or she had left it and was now working in another bank, some body were established, which could haul him or her back to tell that person he or she had breached some notional duty, and was going to be issued a prohibition order against him or her working in another bank? Moreover, would such people be happy were that body to tell them it was going to impose a sanction on them of up to €1 million because of the errors and breaches of duty for which they were responsible? Nobody in the Central Bank would consider that reasonable, without at least giving him or her the right to have full disclosure or some legal assistance.
They might be sitting wherever they live, perhaps in a semi-detached house in Dundrum, and a letter might come through the door stating an inquiry is starting. They might say they do not have the resources to defend themselves, that they do not have access to the relevant papers or any of those things, that they want some assistance and that the Central Bank has plenty of money. I was looking at an infographic it published recently detailing how it finances itself, and it is very well resourced, to put it mildly, although I do not dispute its entitlement to be well resourced given that should be the case. Nevertheless, there has to be some equality of treatment for people who are on the wrong end of its suspicion and who are subject to inquiries and sanctions. It is in that spirit that I moved the amendment.
I thank the Senator for raising those points. There is quite a lot to get through, so I might speak in general terms and then go through some of the specifics, if that is okay. What he raised gets to the essence of what we are and are not trying to achieve with the Bill in respect of cultural change, enabling appropriate look-back and striking all the correct balances. He correctly highlighted the issues that arose in the Supreme Court case. Whatever about a law student looking at it, however, this has been the subject of detailed scrutiny by the Office of the Attorney General, of which the Senator is, of course, a former holder, with a view to applying those principles throughout the Bill. I might go through some of the technical points on that and share a copy of the speaking note I have with him after the debate. This is a very technical Bill, drafted this way and that, and it is important to make sure it all comes together.
In general terms, the point about the look-back and the individual versus the bank or a financial services institute of any kind is important.
I agree.
Yes, for precisely the reason the Senator raised. It may very well be the case that should have happened with Central Bank employees and that facility should be there, and it is about how we can do that appropriately. Of course, the six-year period was chosen based on the Statute of Limitations and so on, but it is really about preventing what has been a practice of strategic resignations, which are not okay. This is where the State is aware there is a difficulty, in particular because of an individual rather than an institution, and if that individual moves to another bank, crucially, he or she is not able to be followed up in any meaningful way. If there is a concern about an individual in the financial services of whatever kind who is using people's money or pension fund, it is very important he or she cannot simply get away from a pattern of fraudulent or poor behaviour of any kind simply because he or she has resigned, with the State and financial institutions left powerless.
The Senator correctly identified the balances around those issues. Whenever we come to legislation of this kind or relating to administrative processes where, in particular, as he identified, we are taking matters away from the courts and moving them to administrative functions, which we must do to an extent for State efficiency, we have to consider things from the point of view of the individual. I do not mean just from the point of view of specific individuals and individual rights holders but also from the point of view of the individual we do not like.
The individual we do not like has just as many rights as another we perceive we like for one reason or another. They are rights holders in our society as much as any other person, and their human rights and process rights must be protected as much as those o any other person in any other process. It is very important, therefore, to go through this in some detail.
I might outline the technical aspects and add some colour along the way. On the duty of full disclosure, the Senator is absolutely correct that the individual should have all the information on what is being said to him or her and about him or her. Nevertheless, irrespective of this legislation, the Central Bank, as a public body, is obliged to act in a manner consistent with its obligations under administrative law and with the constitutional rights of individuals to fair procedure, including the right to be heard and to mount a defence, in the context of any investigation or inquiry.
In addition, as provided for in the Bill, there will be new obligations on the bank, partly informed by the Supreme Court in the Zalewski case, to ensure a person who is subject to investigation by the bank, whether under the administrative sanctions procedures or the fitness and probity regime, will have access to all the information on the basis of which an enforcement decision may be based. The Zalewski judgment underlined the need for fair and transparent procedures where non-court bodies are engaged in the exercise of limited functions and powers of a judicial nature, as permitted by Article 37 of the Constitution, and that requires appropriate court oversight.
Further changes have been incorporated into the Bill to ensure the Central Bank's enforcement processes will comply fully and transparently with the standards of fairness. In close co-operation with the Office of the Attorney General, the provisions of the Bill are carefully balanced such that the resulting legislation is robust and will, we believe, withstand any challenges it might face in the courts, although that will be a matter for the courts and not for me in the Seanad today. We have presented it as best we can, following the advice of the Office of the Attorney General and informed by the Supreme Court decisions in Zalewski, but it is always open to the courts to review any matter.
I can give the Senator a number of examples that provide for greater information to be given to the subject of an investigation, as he rightly raised. There are specific provisions with respect to the operation of fitness and probity investigations that allow individuals under investigation access to the information on which the investigation is based. Section 15 will provide that, as soon as practicable after a decision has been made by the head of financial regulation to conduct such an investigation in respect of, for example, fitness and probity, he or she shall serve on the person notice in writing stating the reasons for holding the opinion there is reason to suspect the person's fitness and probity to perform the relevant control function, which should include a copy of such material as he or she considers appropriate on which that opinion has been based, and informing the person of his or her right to respond to the contents of the notice within a stated period. If the investigation is discontinued, the head of financial regulation shall serve on the person notice in writing of the discontinuation, giving one or more reasons.
The Senator raised the question of a discontinuation and the impact on a person's reputation of a case having been taken and then discontinued for one reason or another, and that will have to be provided as a matter of fairness to the individual. He highlighted a question regarding cases where an investigation has been discontinued for reasons of resources. That relates to the discretion of the Central Bank to prioritise its resources in respect of investigations, but the obligation to give reasons for discontinuing an investigation is in light of the Zalewski case. Those reasons must be given specifically to avoid prejudice against the person who was under investigation. Although the Bill refers simply to "reasons of resources", that decision may be prompted not just by financial resources but also by the availability of specialist investigators, and rather than straight-up prioritising one or the other, it is conceivable the bank might wish to divert those resources to an issue perceived as more important or urgent, and the bank should have the discretion to do that. I say this by way of explanation given the provision might seem a little stark in the Bill, but that is the justification for it.
To return to the correct processes, section 25 will substitute section 41 of the 2010 Act to require that the head of financial regulation, after completing a fitness and probity investigation, shall prepare a report on the basis of which the bank or the Governor, as the case may be, will decide whether any prohibition should be imposed on the subject of the investigation. A draft of that report is to be provided to the investigations subject, who may make submissions in respect of it, as is the final report, taking account of any submissions. In addition, section 27 will amend section 43 of the 2010 Act to require that a person on whom the bank or Governor proposes to impose a prohibition shall have access to any material taken into account for the purpose of ensuring the proposed prohibition is consistent with other prohibitions and is also proportionate.
The Senator correctly highlighted that the fines may be up to €1 million, and the obligation on the bank is to behave proportionately in that regard. Indeed, it is often said small fines are of no consequence to people of very large resources, so it is important to enable large fines to be imposed on people who have committed serious offences or against whom it is proportionate to their overall wealth or resources. The penalty should match what has happened and the person's experiences. Not everybody absorbs a smaller fine in the same way and that is appropriate, but the obligation on the bank is to behave in a proportionate way in all regards.
In respect of the administrative sanctions procedure, section 43 will insert new sections 33ANJ and 33ANK into the 1942 Act. Section 33ANJ sets out the process in respect of the contents of a notice of investigation. There is a requirement to provide a notice of investigation to an individual in writing in respect of that investigation and that must be updated and amended if there is any change, such as the investigation being widened.
There are also specific requirements regarding the notice and what it needs to contain, such as the identification of each prescribed contravention under investigation. If the investigation is discontinued, a notice must be issued and there is also a reasonable steps requirement on the relevant officer to keep the subject of investigation apprised of the progress of that investigation.
Section 33ANK requires that the responsible authorised officer, after completing an investigation, shall prepare a report on the basis of which the bank shall decide or not to hold an inquiry. A draft of that report must be provided to the investigation subject, who may make submissions in relation to it. A final report taking account of any submissions is to be provided to the subject and, in addition, if the bank decides to hold an inquiry, section 45 of the Bill substitutes section 33AP of the 1942 Act to require that the bank shall give to the person who is the subject of the proposed inquiry a notice specifying the grounds on which the bank's suspicions in relation to the commission of or participation in a prescribed contravention by the person are based. Section 62 of the Bill inserts a new section, section 33BAA, into the 1942 Act to require that a copy of any documentary evidence submitted to an inquiry must be given to each participant of the inquiry. There is also provision for the separation of functions so that the author of the report cannot make recommendations as to sanctions that may be imposed on the individual. You are trying to separate out all of these things at every stage, that is, provide information to the individual and separate out where there may be biases where somebody who has conducted a report may then impose a sanction. Given all of those requirements, I am satisfied, on the drafting of the Bill, that all information and documentation which the Central Bank has in its possession that might reasonably be of assistance to a person who is the subject of an investigation will be made available to such a person, precisely as the Senator has said happens in other cases where of course there could be much more serious penalties. It is important in the context of fair procedure that you have all of the information related to your investigation. I agree with Senator McDowell about ensuring that those subject to any enforcement action or investigation by the Central Bank are treated fairly and that the bank should provide transparency for individuals in terms of access to material. I do not believe that this amendment is necessary as the Bill already achieves that, as I outlined regarding safeguards that are built into the Bill in different ways. I am not accepting that amendment.
I also wish to address amendment No. 2 regarding legal assistance, the rights of persons and different aspects to continuing the fair process. The need to ensure that the rights of all persons are protected has been fundamental to the development of this Bill with the Attorney General's office. The Central Bank of Ireland, as the Senator noted, is entrusted with significant powers regarding the firms and individuals it regulates. These powers are necessary to ensure that the bank can regulate a sector which, as we know to our cost, if not properly regulated has the potential to have a profoundly harmful impact on individuals, the entire financial system and the entire State. That is the basis of all the legislation that has happened since, as the Senator correctly identified, 1999 and 2007, key moments where it is clear we did not have the appropriate regulation or the cross-securitisation of loans etc., and all of the things we now know not to have been the case, which impacted the stability of the financial system. An important point about this legislation is that it is not just firms that engaged in behaviour that was not appropriate, but individuals also. We are trying at every stage to improve accountability processes within the Central Bank, its standard of regulation more broadly and to change culture in the financial services system from the top. This legislation about executive accountability is a key part of that. We have seen problems emerge not just concerning the financial crisis but, as the Senator correctly highlighted, more recently in the tracker mortgage investigations. The calamitous impact of the financial crisis was one of the matters we considered on Second Stage.
As the bank's powers are by necessity so extensive, it is important to ensure they are discharged within a carefully-crafted legislative framework designed to ensure powers are proportionate and exercised in a manner that does not involve an impermissible restriction on the rights of individuals. There are safeguards to protect the constitutional rights of individuals woven throughout the Bill, given the widening of the cohort of individuals on whom sanctions could potentially be imposed. The Senator was correct to identify that. Those people may not all be of the same financial resources. These safeguards are there to ensure that the powers of the bank are exercised in a manner that is to be proportionate, fair and reasonable. The cohort of those to whom the new powers in the Bill will apply was chosen with reference to the bank's existing powers. It is clear and well defined. Those to whom the new senior executive accountability regime, SEAR, obligations will apply are already pre-approval controlled function holders under the fitness and probity regime. Those to whom common conduct standards will apply are already controlled function holders under the fitness and probity regime. Most, if not all of those who will be brought within the scope of the fitness and probity regime as a result of its extension to certain categories of holding companies are already in the scope of that regime because they perform functions whereby they may exercise significant influence on the conduct of affairs of a regulated financial service provider, RFSP, which is a subsidiary of a holding company.
A significant extension of the powers of the Central Bank under this Bill arises from the duty to take steps to meet the conduct standards. Failure to discharge that duty will be a prescribed contravention, as the Senators know, with the result that those performing a controlled function in relation to an RFSP who are not currently persons concerned in the management of an RFSP, therefore more junior persons, will for the first time now come within the scope of the Central Bank's administrative sanctions procedures. All of these people are already within the scope of the fitness and probity regime whereby the Central Bank has the power to prohibit them indefinitely from performing any controlled function, which is already a significant power. That power has been used sparingly. Some nine individuals have been prohibited in the last ten years. Prohibitions imposed to date have been for periods of two years, ten years and an indefinite period. There are currently eight people prohibited and a further two whose prohibitions have expired. There are two prohibitions subject to ongoing High Court confirmation proceedings and there are three investigations ongoing. To put that in context overall, in the retail bank sector alone, there are approximately 13,500 people performing controlled function roles. Those are the numbers against whom sanctions of the kind we are describing have been imposed. It is clearly only for the most serious of cases and it is a crucial power that the State's financial regulatory system must retain.
The extension of the administrative sanctions procedure to that cohort means they could potentially be financially sanctioned or disqualified from performing a controlled function for wrongdoing. The implications of this for an individual are severe, which necessitated the range of safeguards to ensure the powers of the bank are exercised in a manner that is proportionate, fair and reasonable. For that reason, the Bill includes a non-exhaustive list of matters the Central Bank must take into consideration when it is determining the circumstances relevant to a breach of the duty of responsibility in section 53B or a breach of duty to meet conduct standards in section 53C.
Regarding Senator McDowell's amendment and the suggestion that legal assistance should be available to those subject to enforcement action by the bank, it must be acknowledged that thus far, individuals who have been subject to administrative sanctions procedures have to date all been senior executives, persons concerned in the management of a regulated financial services provider. It is true that the introduction of binding conduct standards for all of those performing controlled functions expands that cohort to more relatively junior positions. The intention of the amendment is to ensure everybody has access to legal representation and funds, but I wish to think through how that would operate in practice within the context of the Bill, separate to any other representation. There do not appear to be any national or international comparators for a provision of this nature within such an administrative sanctions regime. If the intent, thinking through the different aspects, of the amendment is that the Central Bank's employees who are legal professionals would be required to provide legal assistance to third parties who are subject to its enforcement processes, that would create professional conflicts which would be impossible to resolve. You could not possibly do that. I do not think that is what the Senator is suggesting but let us go through it. No Central Bank employee could possibly practically or lawfully provide such assistance. If the intent is to provide some nature of quasi-civil legal aid to be funded by the Central Bank, again we run into a conflict issue and the difficulty of how it would operate in practice and the conflicts that are there. Section 33AY of the Central Bank Act 1942, as amended by section 57 of this Bill, and other provisions in Part IIIC enshrine in statute the following principles in respect of the conduct of an administrative sanctions procedure, ASP, inquiry by the Central Bank. Section 33AY(1) provides that the Central Bank must "conduct an inquiry with as little formality and technicality, and with as much expedition, as a proper consideration of the matters before it will allow".
That provision sets the tone, not for a sloppy investigation, but for conduct of ASP inquiries and to make sure the investigation is accessible to anybody, including people who are not legally represented, as has been the case in the past, indeed. As for section 33AY(2), again following on from the requirement that an inquiry must be conducted with as little formality as possible, this section provides that at the inquiry, the bank is not bound by the rules of evidence, with the exception of admission of documents and the proof for the information contained therein. It also provides that the inquiry must abide by the rules of procedural fairness for the benefit of the inquiry subject.
As for section 33AY(4), unlike a court of law, that provision envisages that an inquiry subject may be assisted at an inquiry by persons other than legal practitioners and that is in keeping with the overarching principle that inquiries in general are to be conducted with as little formality as possible. Section 33BAA allows the inquiry to admit documents if proof of the information, as an exception to the hearsay rules, greatly easing the burden on an inquiry participant seeking to rely on documents without having to call witnesses, just to ease procedural matters. The inquiries are not designed to be adversarial. This is to try to deal with these things in an informal way, where possible. As per the relevant case law, ASP inquiries are inquisitorial in nature and unlike many other bodies, are not adversarial. The purpose of an ASP inquiry is to enquire into subject matter and to make findings. Inquiry subjects have a right to be heard throughout the process. Thus far, the Central Bank's experience has been that many investigation and inquiry subjects have not been legally represented in the enforcement process despite perhaps assuming that those concerned may have the legal or the financial resources to do so.
In any case, the financial burden that may be involved for a person subject to enforcement action by the bank who chooses to pay for legal representation has actually been challenged in the courts without success. The High Court noted in Purcell v. Central Bank of Ireland in 2016 that:
It is, however, a matter for the applicant whether he incurs any costs. He could decide he did not wish to be legally represented before this entirely independent inquiry. Moreover, it is open to persons in his position to take out insurance cover against such costs. I know the applicant did this and the extent of the cover has been exhausted. The inquiry, however, cannot be saddled with any level of unfairness or oppression due to the applicant not taking out adequate insurance to cover all the costs he might incur.
Notwithstanding that, it is still important to test that this is not something of concern to people to whom it will actually apply. In consultation, we have discussed this legislation with the various representative bodies throughout the financial services, including Insurance Ireland, Financial Services Ireland and, crucially, the Financial Services Union, which may represent people in more junior positions to whom the additional obligations are being extended and whom we might assume or perceive as not being of the same financial resources to support themselves legally throughout a process. The issues that Senator McDowell raised have not been raised in our consultations by any of those interested parties as part of our engagement. The processes already exist for fitness and probity investigations and there have not been any calls for those processes to be supported with external legal support. Indeed, we are of the view that there are significant benefits to keeping the processes informal and as inquisitorial as possible.
There are specific provisions in the Bill to allow for the training of those subject to conduct standards in order that potential actions in terms of breaches of legislation can be avoided by the bank. While there are penalty provisions, the aim of this legislation is to ensure improved behaviour and we discussed that in detail on Second Stage, to effect cultural change, and crucially, we hope, to reduce the need for investigations and sanctioned processes. As the Central Bank is an independent regulator, it is not appropriate for me to determine where or where it might not use its processes but the law, irrespective of when it chooses to do so, must be proportionate. It is, I would expect, reasonable that the bank would not deploy the administrative sanctions procedures lightly for a trivial misdemeanour. I think that would stretch the credibility of the process and is not consistent with what has happened to date. As we noted on Second Stage, it is also important to say that the enforcement decisions are appealable to the Irish Financial Services Appeals Tribunal, IFSAT, and the IFSAT rules provide that the tribunal may reduce or waive the appeal fee in cases where it would cause serious financial hardship and might be a cause of injustice.
I have a couple of final points in terms of the read-across from other legislation. The scheme is not proposed - the Senator is highlighting an important issue - but if we were to take it further as a kind of quasi-civil legal aid scheme for this process, it would be very difficult for us to confine that to Central Bank processes only. We would have a read-across all agencies of the State that operate quasi-judicial procedures. While the Senator notes the possibility that support schemes could take account of other financial supports, again in practice it would be difficult to manage and could give rise to concerns about costs and it would be possible that these would be borne by the Exchequer. I think the real point is around the process in the first instance, providing full disclosure, making sure that people have absolutely fair procedures and keeping it in a way that we hope reduces the need for legal support by keeping it as informal and as inquisitorial as possible. That has been the experience to date and it has worked reasonably well. We will keep it under discussion throughout the consultation, as the Central Bank goes through its consultation, and we are always available to discuss it with financial representative institutions who will be experiencing this directly.
Senator McDowell raised a number of different points around judicial review and the six year look-back for investigations and if he wishes I can come back to any of those points.
I thank the Minister of State and I will certainly allow Senator McDowell to speak if he so wishes, to respond to the Minister of State.
It is Committee Stage and I am entitled to keep speaking.
I am giving Senator McDowell that possibility.
Fair enough. I am grateful to the Minister of State for her remarks. There are a few issues which arise from them. First, in relation to amendment No. 1, does the Minister of State accept that there is such a duty of disclosure?
Yes, but I believe we have built it in. I apologise; I do not know if I am supposed to be answering the Senator.
Yes, we can do a question-and-answer here. On amendment No. 1, Does the Minister of State accept there is a duty of full disclosure on the bank?
Yes, that has already been built into the Bill throughout each set of processes.
I will come back to that in a moment.
If the Minister of State is saying that it is intended there will be a duty of full disclosure, I do not see why the amendment is not being accepted unless it is regarded as redundant because of what is already in the Bill.
Essentially.
The Minister of State indicated that documentation would be supplied to a person who is subject to an investigation. I do not see where that is in the Bill. I ask the Minister of State to point out precisely where it is. For instance, section 15 mentions a notice after a decision has been made by the head of financial regulation to conduct an investigation, and that the notice has a statement of the reasons for the holding of the opinion and a copy of such material on which that opinion is based. That is not all material. I do not see a general obligation to make available to a person all material. Saying "These are the reasons I am having an enquiry" does not mean that "I am now making available to you all material". I do not see where there is any provision in this Bill which states that in the case of the person in respect of whom an investigation is commenced, there is a duty to give him or her everything which is relevant to the case or which could be relevant to his or defence. I do not see that in the text of the legislation.
I thank the Senator and of course it is not in the legislation as he has drafted it, which specifies a general duty that applies to all things, rather it is built into the operation of each section. I think I took the Senator-----
Could the Minister of State tell me where?
Yes. I may refer to page numbers in the Bill but section 43 of the Bill inserts new sections, section 33ANJ and section 33ANK into the 1942 Act and this is just by way of example, in addition to section 15, in respect of the contents, for example, of the notice for investigation, the notice about the investigation and any changes to that. There are specific requirements about what it needs to contain and the identification of the contravention. I am paraphrasing because I have read some of that into the record and am happy to provide it to the Senator. Section 33ANK provides for requiring the report, the nature of the report and submissions back from the report. Senator McDowell is right, in that it is not drafted in the way that he has around an overall disclosure. In fact, it is built into the provisions in a much more granular way throughout the Bill at every stage.
There cannot be any argument in relation to that. The Central Bank will be developing, as the Senator knows, the regulations and the process that will apply thereafter. That would provide even further detail about the nature of documents. All of the documents relating to the decision, the process, any changes to the process and opportunities to see drafts are built into the Bill. That level of granularity is important in the Bill. There will be further granularity in the regulations. It is just drafted differently. It is a different approach.
Section 43, for instance, states: "A draft report and final report under this section shall include any material that in the opinion of the responsible authorised officer is relevant to the consideration of the report by the Bank under section 33AO(1) or (2) or 33AR(2) or (4)." If it is being suggested that the report has to have appended to it all the relevant material that might be of assistance to the subject of the proposal to investigate, that is not very clear. In a criminal prosecution, one gets all the statements, the draft statements, the documents and the records. Is it seriously being suggested that the draft report has to have appended to it every document that might be of assistance to the person under investigation? If we take as an example the tracker mortgage issue, how much material would be attached to a draft report? Is everything that goes both ways obliged to be appended to the report?
The Minister of State made reference to section 62. It is interesting that section allows documentary evidence of a hearsay kind to be used in line with the general change of rules on hearsay evidence that was done a couple of years ago. That shows a very formal approach to rules of admissability and it seems to apply both to the person under investigation and to the bank. I accept that subsection (10) allows for informality, in any event.
We are talking about the culture of the banks here. I want the culture of the Central Bank to be one in which it is absolutely axiomatic that all relevant information which could assist the person who is on the receiving end of this is given to that person. Otherwise, there is a very significant chance of injustice. In other words, if a fellow employee says that it is not like that at all and that what appears to be the case is not in fact the true explanation or if a board member says that is not what caused the bank to do X or Y, all of that information has to be given to the person who is on the receiving end. It cannot be selective. That is why the first of the amendments I tabled was designed to bring about a change in culture in the Central Bank, which is what the Minister of State is saying she wants bankers to do. I want everything to be made available to the person who is on the receiving end. The Minister of State mentioned, and I accept what she said, that an awful lot of senior pre-approved controlled function holders have insurance. Some of them may have and we are widening the category. I wonder who is going to insure all the other people who are now being swept into this potential category. If a person is halfway up the ladder, who is going to pay for their insurance? Is it the bank? What happens if the bank ceases to function or if a person is sacked? Who is going to pay for the representation of a sacked person?
I know the purpose of this is to have inquiries conducted in an informal way. However, by any standard, if there is going to be an inquiry and a subsequent appeal from the inquiry to an appeal body, at that point most people would require legal assistance. Most middle management accused of misbehaviour would need legal assistance. If we look at this from the point of view of the State, State employees will be assisted. How many State employees are told they are on their own and must defend themselves for doing business in a Department? Very few are unless they were thieving from the Department or something like that. Very few are left in the position where they are subject to legal action and have to finance their defence themselves. That is why I put that forward.
The Minister of State also said that to date the prohibition has been done very infrequently, bearing in mind the number of people who are carrying out controlled functions. I accept that. One of the problems with this new regime is that if a person thinks they are innocent, they will be confronted with a deal. It is part of the process where the Central Bank will say that if a person pleads guilty, a penalty can be negotiated and the matter will go no further. That is built into the process. This is practical and I have no problem with that regime applying. It is a sensible regime to have in place. A person can admit it and not insist on a full-blown inquiry and appeal. The person can say they got it wrong and whatever will be done to them will be done.
To somebody whose whole livelihood and employability is at stake, this is a serious matter. If somebody is employed in a financial institution and a prohibition order is made, that is more or less the end of the person's career. The Minister of State referred to people getting a two year prohibition. Who is going to touch somebody who has had a prohibition? It is like hiring as a chauffeur someone who had a five year disqualification for dangerous driving. Very few people will do so. There is a strong case for having some form of legal assistance.
The second of the amendments is cast in a way not to set up a formal system of legal aid. I fully accept that one could not possibly have a legal aid programme and legal advice for all controlled function people at all stages of their career. The amendment was not designed to do that. It was solely to enable them to fully and fairly participate in the proceedings to which subsection (3) applies, which is to participate in the course of such proceedings or investigation where a prohibition or a penalty is in question. The Minister of State said we can look at it again but I wonder whether it can ever be looked at again.
If we pass the Bill, will it ever be looked at again? Is it the view of the Central Bank and the Office of the Attorney General that nothing can be done to give legal assistance to a person facing such sanctions? If the law states that it is ultra vires for the Central Bank or the chairman of the appeal board to direct that legal assistance be made, then it will not happen and a serious injustice will be done.
I thank the Senator. I am not sure that I said it could be looked at again. I said if the need arises and there are difficulties, it could be looked at again. As in all matters of legislation, we have to go back and fix our mistakes. That sort of speaks to one of the points I wish to make on this issue. We need to think about this more broadly. People are going to make mistakes throughout their careers. They are going to make mistakes of process. A lot of it is about whether those are mistakes of fact or intentional mistakes, and we have to treat those things very differently. I am going to make mistakes in my position as Minister of State. Everybody here will make various mistakes. People working in the financial services industry are going to make mistakes because they are human. If there is a regime that allows for an informal investigation to name and account for a mistake and move on from it, that is much better than having a regime that does not enable that quick resolution of process, identification of mistakes and the capacity to learn from those mistakes.
We need to have a culture of acknowledging and owning one's mistakes and the mistakes that can happen within an institution, and enabling the institution to put the cultural and process changes in place to ensure those mistakes do not happen again. It would nearly be a pity were that to get to the point where it ends a person's career. We have to build into every process the fact that errors will be made. It is about how one accounts for those mistakes and the implications they have both for the individual and the institution. It is a very different thing when it comes to intentional or fraudulent mistakes or mistakes of such sheer incompetence that they threaten financial processes more broadly. We must have a proportionate regime to deal with those also.
Although the various issues the Senator has raised are not contradictory in any way, the fact he is raising these different competing issues speaks to the balance we are trying to achieve here. First, we are trying to achieve a change in culture and processes that means mistakes can be quickly identified and accounted for properly and officially. Second, we wish to ensure that where investigations must happen, they take place in the least litigious or adversarial way possible. We know we are likely to get the best outcomes through a fact-finding inquisitorial model rather than through an adversarial one. People's reputations, both throughout the process and thereafter, are more likely to be enhanced and we are more likely to effect broader cultural change through an inquisitorial model rather than an adversarial model, which can tie people up for a considerable time. Adding in legal representation as an entitlement, precursor or assumption tends to make things more adversarial than they would otherwise be. We are trying to design processes that do not encompass that.
On the point in respect of providing information, it is built through the Bill that all reasonable information must be provided. The authorised officer decides what is relevant to the decision. It is important to acknowledge and discuss that subjectivity in the Bill. If the Senator and I were authorised officers, we might have very different views about what is relevant. Where the Central Bank guidance and regulations come into that is extremely important. There are people in the Central Bank and elsewhere in the financial services industry watching these proceedings and listening to this dialogue. It is important that we have this discussion and identify the intention of the Oireachtas in this regard. We are allowing a certain measure of subjectivity but, in the context of the consultation process between the bank and the people whom it will be regulating in this way, there is an obligation on the bank to be explicit in respect of what it expects. It is obliged to be transparent in order that participants can have full knowledge in advance of what they would need to do were they involved in an investigation. There is a measure of necessary subjectivity in the Bill to enable that balance and to keep it in the more informal and inquisitorial nature I described. It is an important point.
I do not believe, however, that we need to provide legal representation in the manner suggested by the Senator. We are trying to avoid that. Our experience is that the provision of such representation has not been necessary. Indeed, the Supreme Court has stated that we do not have to go there.
I was struck by section 67, which provides that leave for judicial review cannot be granted in respect of "a finding made by the Bank under section 33AQ(1) or (2) [or] a decision of the Bank imposing a sanction under section 33AQ". I presume that is because there is an appeal.
That is correct.
As there is an appeal, one cannot judicially review, therefore, the process that led to the appeal. The problem with that arises in the context of a possible unfairness in the process, such as the absence of compliance with a duty to disclose all documents or, alternatively, the fact that the person simply could not afford to be involved in a lengthy investigation. To say that judicial review is out means the appellate body is supposed to remedy everything - errors in process and the whole lot. Is it the intention that the appeals body will have full jurisdiction to set aside any decision where it considers that it was improperly run, or does it have to hear the whole thing again? Is it a rehearing? I would like to know more on that aspect.
The limitation on judicial review is precisely because, as the Senator stated, there is an appeal process to the Irish financial services appeals tribunal, which is an appropriately comprised judge-led body with appropriate processes that is specifically there for that purpose. That is the limitation. Obviously, any other decision relating to the bank can be reviewed through judicial review. Specifically in respect of this issue, however, as an appeal process has been built into the model, there is the limitation on judicial review.
If I am wrongly found guilty of a contravention and then appeal it to that body and have my lawyers there, can the tribunal at that stage award me my costs or is that all on my own account?
Forgive me; I will have to ask my officials to check that for the Senator.
Fair enough. A person might have waded through blood, legally speaking, and then been exonerated. If that person is not then entitled to the costs of his or her vindication, there is something very unfair about it.
Amendment put:
The Committee divided: Tá, 4; Níl, 26.
Tá
- Boyhan, Victor.
- Clonan, Tom.
- Keogan, Sharon.
- McDowell, Michael.
Níl
- Ahearn, Garret.
- Black, Frances.
- Blaney, Niall.
- Boylan, Lynn.
- Byrne, Maria.
- Casey, Pat.
- Chambers, Lisa.
- Crowe, Ollie.
- Davitt, Aidan.
- Dolan, Aisling.
- Flynn, Eileen.
- Gallagher, Robbie.
- Garvey, Róisín.
- Gavan, Paul.
- Hoey, Annie.
- Horkan, Gerry.
- Kyne, Seán.
- Lombard, Tim.
- Martin, Vincent P.
- McGreehan, Erin.
- Murphy, Eugene.
- O'Loughlin, Fiona.
- O'Reilly, Joe.
- O'Reilly, Pauline.
- Seery Kearney, Mary.
- Wall, Mark.
Tellers: Tá, Senators Michael McDowell and Victor Boyhan; Níl, Senators Robbie Gallagher and Joe O'Reilly.
Pursuant to Standing Order 57A:Senator Rebecca Moynihan has notified the Cathaoirleach that she is on maternity leave from 6th February to 18th August, 2023, and accordingly has not voted in this divisionSenator Emer Currie has notified the Cathaoirleach that she has entered into a voting pairing arrangement with Senator Moynihan from 6th February to 2nd March, 2023; and accordingly has not voted in this division.
Amendment declared lost.
Amendment No. 2 not moved.
Sections 3 and 4 agreed to.
SECTION 5
I move amendment No. 3:
In page 10, line 14, after “customers” to insert “, society”.
I welcome the Minister of State. I am moving this amendment on behalf of my colleagues from the Civil Engagement Group. I note that some other amendments relating to this section were unfortunately ruled out of order. Senator Higgins would say that the ruling in this regard is unfortunate because the amendments were about how collective goals we have signed up to might be reflected in regulation. These amendments relate to a concern Senator Higgins has about some of the overall framings for the new accountability framework.
Throughout the Bill, there are lots of references to compliance with financial legislation and protecting market integrity. While this is welcome, we need to reflect that this legislation is coming from a time in our recent history when reckless actions not only harmed the integrity of the market but devastated our society and the welfare of the people of this country for years following the banking crisis. We also know that the financial sector is playing a key role in the climate crisis. There needs to be accountability for that. The recent Banking on Climate Chaos report states that 60 prominent international banks hold fossil fuel assets worth in the region of $1.35 trillion. Of that overall amount, $239 billion is held by EU banks. These are credits the banks have paid out in respect of existing fossil fuel activities. I invite the Minister of State to read the report. A number of case studies are available which show the real-life human rights and environmental impact of fossil fuel financing. For example, Citi is the top bank providing financing to and underwriting the activities of companies active in the oil and gas industry in the Amazon region, with an estimated total of $42 billion in open or recently matured deals. We need to be serious about climate action in the context of all aspects of our society. When individuals are making financial decisions that threaten the collective well-being of all of us, there needs to be accountability.
Amendment No. 3 is relatively simple. It proposes that when making regulations, the Central Bank should ensure that financial service providers act not only in the best interests of the customer but also those of society. This is a minor change, but one which would reflect the fact that the needs of society should be reflected in the regulations. All of us here know what can happen to a country when the collective public interest is forgotten about when it comes to financial services. None of us wants to see a repeat of the harms in the recession we are still reckoning with today.
I thank the Senator Gavan for moving the amendment on behalf of Senators Black and Higgins. I understand the Senator's concern, which I share, that the Bill should have a positive effect and that this should be spread as widely as possible throughout the country. The point of the Bill is to further enhance the regulatory and cultural changes that were made in the financial services industry following the very serious situation that led to the financial crash. This was reflected in the dialogue Senator McDowell and I had around trying to impose a much broader administrative sanctions regime on people who work in financial institutions, with the intent of making everybody aware of their obligations to not just customers but, more broadly, the protection of the financial services system which is there to serve and provide finance to society, SMEs and corporations in order to enable them to grow, develop, move into markets outside of Ireland and employ people.
We sometimes forget what the role of a financial services industry is, and people have the notion of it being somehow separate or something that is not of relevance to them. If we think about it, financial services are about the provision of banking and insurance. How the financial decisions and investment decisions behind all of those things are made is of deep relevance to us all, not just in terms of sustainability and the security of our investments but also, as the Senator correctly identified, sustainable finance. The House will, of course, be aware that the Ireland for finance strategy has at its core sustainable finance as a key objective. I will come back to that. It is the broader point of the legislation.
Regarding the specific amendment, the word "society" is not a legislative word and is not one we can include in the Bill without difficulty. The purpose of what the amendment is trying to achieve is very important.
I might go back to the sustainable finance piece. The Senator correctly identified lending by institutions to certain types of organisations. We consider these as brown- and green-type organisations. There are lenders, for example, which lend very considerably to brown but also to green. The real question is around how that changes and moves in a practical and realistic way, week by week and month by month, and how we discuss and consider that. Thinking about how we move from brown to light brown or light green is a good thing, as opposed to continuing with activities that have significantly negative climate implications.
We are going to have to have an honest conversation about that and name it as a process with financial institutions. Otherwise, we divorce ourselves from it. Standing outside and constantly criticising will not work. We need to be transparent, clear and monitor progression.
The Senator will be aware of the considerable disclosure requirements on organisations regarding their funding and investing. I spoke to one financial services organisation in London on Monday last as part of my role to advance Ireland as a location for financial services and try to advance the jobs we can gain from that, as well as the capital investment and assets being held here. One organisation told me that its usual report runs to 400 pages but that its disclosure requirements involve the production of an additional 800 pages. There are considerable disclosure requirements. It may or may not be the case that the Senator and I are going to go through those and monitor them. It also may or not be the case that what is envisaged would provide the sort of transparency that is necessary in an accessible way. It may be a case of money for lawyers doing the same thing. That is not quite clear. The point is that the obligations are there already. We can do better and go further. Obviously, the EU is taking the lead on this politically and is achieving agreement on the taxonomy that is appropriate and identifying the source of things that should or should not be invested in and how that transitions over time.
Let us not forget that our information is improving all the time. Something that we deem appropriate to invest in April may, as we acquire better information about the nature of that or new technologies that are better emerge, no longer be appropriate in June. We have to acknowledge that this is the process that we all have to go through in an honest and transparent way, with the best information. The transition to a climate-friendly, improved world requires that honesty.
It is in that way, as Minister of State with responsibility for financial services with a strong personal interest in sustainable finance and with sustainable finance at the heart of the Ireland for Finance strategy, the recent discourse around the Coillte investment in the reforestation was of concern to me. If one takes away the individual circumstances of the scheme and the dialogue around it and steps back a little, investment in climate projects is precisely what we want to happen. Investment in housing is what we want to happen. However, we cannot have a conversation that says that reforestation, the roll-out of renewables or whatever is what we want and is a key strategic objective for the State, and is essential from a climate perspective, but we do not want this person or that to do it and we do not want that to happen in that way.
We will have to recognise that we need financial services investment to build out the climate transition infrastructure that we need. How do we get it? How do we do it quickly? How do we make it attractive? What is the best return from the State's perspective in marrying that with State activity or not? What is the most efficient way of doing that in terms of private investment versus State investment? How we think about all of those things is, as the Senator will be aware, exceptionally complex. However, this is all happening in the Department of Finance. This is all happening within the Ireland for Finance strategy. I can assure the Senator that it is at the heart of my concerns in all aspects of my job.
Amendment put and declared lost.
Amendment No. 4 in the names of Senators Higgins and Black is out of order due to irrelevant subject matter. Amendment No. 5 in the name of Senators Higgins and Black is ruled out of order on the basis of relevance to the Bill. Amendment No. 6 in the names of Senators Higgins and Black is ruled out of order as it is not relevant to the matter of the Bill.
Amendments Nos. 4 to 6, inclusive, not moved.
Amendment No. 7 in the names of Senators Higgins and Black.
I move amendment No. 7:
In page 11, between lines 17 and 18, to insert the following:
"(6A) In making regulations under this section, the Bank shall demonstrate due regard to section 42 of the Irish Human Rights and Equality Commission Act 2014.".
I will withdraw the amendment with the right to resubmit on Report Stage.
Amendment, by leave, withdrawn.
Amendment No. 8 in the names of Senators Higgins and Black.
I move amendment No. 8:
In page 11, line 24, after "Minister" to insert "and the Joint Oireachtas Committee on Finance, Public Expenditure and Reform and Taoiseach".
Like the previous one, I will withdraw the amendment with the right to resubmit on Report Stage.
Amendment, by leave, withdrawn.
Amendment No. 9 in the names of Senators Higgins and Black.
I move amendment No. 9:
In page 11, between lines 28 and 29, to insert the following:
"(10) The Minister shall, within the 2 years following the commencement of this section, lay a report before both Houses of the Oireachtas outlining how regulations made under this section comply with due diligence obligations under European Union law, including in respect of the proposed Corporate Sustainability Due Diligence Directive.”.
Amendment No. 9 seeks to insert a new subsection requiring that the Minister shall, within the two years following the commencement of this section, lay a report before both Houses of the Oireachtas outlining how regulations made under this section comply with due diligence obligations under European Union law, including in respect of the proposed corporate sustainability due diligence directive.
The directive, which is progressing through European institutions as we speak, will be an important step in tackling human rights abuses and environmental harms along value chains. I would briefly note that some of the examples used by the Irish Coalition for Business and Human Rights look to corporate activity in occupied Palestinian territories.
The accountability framework needs to be informed by the directive because finance can play a key role in international human rights abuses and environmental harm. There needs to be accountability and this new framework needs to hold people accountable when their financial decision-making facilitates human rights abuses and climate breakdown.
We had amendments ruled out of order which would have stipulated that the directive should be a key consideration in the drafting of the regulations by the Central Bank. There needs to be a mechanism by which the framework looks to holding individuals to account beyond the framework of harm to the market and looking at how irresponsible financial activity can harm people and the planet.
I cannot accept an amendment that deals with something that has not happened yet. The basic principle of legislation is certainty and transparency and this is not yet in law. The directive is not in force. The Council position was only agreed in December 2022 and has yet to go to the European Parliament.
Once agreed, the directive will become law. If it refers to financial services businesses, there will be a requirement on those businesses to comply with the directive but I simply cannot refer to a directive that is not agreed in legislation before this House.
Amendment put and declared lost.
Section 5 agreed to.
SECTION 6
Amendment No. 10 in the name of Senators Higgins and Black. Amendments Nos. 10, 13 to 16, inclusive, and 18 are related. Amendments Nos. 14 to 16, inclusive, are physical alternatives to amendment No. 13. Amendments Nos. 10, 13 to 16, inclusive, and 18 may be discussed together by agreement.
I move amendment No. 10:
In page 12, line 29, after "legislation" to insert "or other relevant legislation".
The amendments in this grouping seek to address the previously discussed issue of the framing of the accountability framework.
Amendment No. 14 seeks to amend within the proposed section 53E on common conduct standards that individuals are required to act in good faith and co-operate when it comes to requirements under financial services legislation and seeks to replace this language with relevant obligations or legislation. Amendments Nos. 15, 16 and 18 seek to make similar changes in other parts of the section.
Our reason for proposing these amendments is that we have a concern that the accountability framework is looking simply to the financial services sectors and obligations under financial services legislation whereas it should be the case that any relevant legislation or obligations, be they specific to financial services or having a wider focus, should be part of the framework for how individuals should act when it comes to engaging with the accountability framework.
Some context and background is appropriate to where these amendments are being placed.
Section 6 is an important part of the Bill that provides for duties and standards to support the introduction of the accountability element of the Bill but, most importantly, it provides for the balances that are required to ensure the robustness of the provisions from a constitutional perspective as we have discussed in some detail already.
Section 53B imposes a legal duty on those individuals who are performing pre-approval control functions in firms that are subject to the senior executive accountability regime who have inherent or allocated responsibility for the aspects of the affairs of a regulated firm under regulations to be made by the bank under the power provided for in section 3 of the Bill. Those persons will have a duty of responsibility to ensure that they take any steps reasonable in the circumstances to secure that the business of the areas of the firm for which they have responsibility is conducted to avoid contravention or a continuation of a contravention by the firm of its obligations under financial services.
The common conduct standards is an important part of that. It indicates the behaviours expected of those working in the financial services sector and sets out an illustrative, but non-exhaustive, list of the behaviours in the Bill for clarity. They are clearly there.
The additional conduct standards are aimed at those in senior roles for those people who may exercise a significant influence on a firm's affairs. The aims of the provisions of section 6 are to establish a set of standards with which individuals in financial services organisations must comply. The purpose of this is to give the Central Bank additional powers to ensure that regulated financial service providers operate in an appropriate way. The changes in law here are intended to introduce standards, breaches of which have significant consequences. Therefore, any changes need to refer directly to the breaches of financial services law and not anything else. Based on those drafting concerns, I cannot accept the amendments.
I will withdraw amendment No. 10 with the right to resubmit on Report Stage.
Amendment, by leave, withdrawn.
Prior to going to the next amendment, I welcome to the Gallery Deputy James O'Connor with a number of people who are visiting from the USA. I welcome Patrick, John and William Mulquin from Washington D.C. I also welcome Deputy Flaherty, who his here with guests as well. I welcome them as well. I hope that they have a good visit in Ireland and that they can learn from Deputy O'Connor many aspects of Irish political life.
Amendment No. 11 in the name of Senators Higgins and Black. Amendments Nos. 11 and 12 are related and may be discussed together by agreement.
I move amendment No. 11:
In page 13, line 31, after "the" where it firstly occurs to insert "rights and".
Amendment No. 11 seeks to ensure that the common conduct standards in this Bill take account of the rights as well as the legitimate interests of the regulated financial service provider, its staff, customers and other persons with which it engages. I refer again to a report on banking, recently published by the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach on which Senator Higgins sits, which pointed out how financial services customers were treated in the course of the recession and how there needs to be a culture shift towards accountability. Consumer rights need to be protected and within the accountability framework, there needs to be standards on how the rights of customers are protected.
Amendment No. 12 seeks to ensure the common conduct standards in the Bill also have regard to legitimate interests and rights, that is if amendment No. 11 is accepted, of people who are impacted by the activities of a financial service provider. I again refer to the CSDD and the impact of finance on human rights, social well-being and the environment. The amendment seeks to ensure that proper regard is given to those affected by the activities of financial service providers in the common conducts standards. We know that finance reaches far beyond what one might call a "market" and has far-reaching effects on society and human well-being. This simple amendment would be a positive step towards recognising the rights of those affected by financial decision making in our standards.
I welcome Deputy O’Flaherty and his guests to the Public Gallery. I hope they have a good visit and thank them for being here.
I will deal with each amendment in turn. Amendment No. 11 seeks to insert "rights and" after "the". The insertion of the text proposed in the amendment is already encompassed in the current wording. From a drafting perspective, it does not add anything to that which is already in the existing wording, and I do not accept the amendment.
Amendment No. 12, which seeks to insert "or who are impacted by its activities" after “engages”, creates a drafting problem. It would impact on the conduct standards provision. Individuals under that provision, and often those who are junior, could be subject to sanction for not acting with honesty and integrity with regard to external and, crucially, unquantified impacts. It is impossible to properly judge, within the legislative form here, whether the actions would have such an impact and, more properly, in regard to the guidance for the Central Bank. It is not a legislative formula that works. In addition, it would extend the bank's mandate to a wider subset of activities other than financial services regulation, which is beyond the scope of the Bill. The activities of regulated financial service providers, which may impact on persons other than staff, customers and other persons with whom they engage, potentially encompasses a vast range of matters outside the scope of the bank's regulation. The broader societal piece, which this legislation is trying to incrementally add to and support, is outside the scope of the Bill.
Amendment put and declared lost.
I move amendment No. 12:
In page 13, line 33, after “engages” to insert “or who are impacted by its activities”.
Amendment, by leave, withdrawn.
I move amendment No. 13:
In page 14, to delete lines 34 to 42, and in page 15, to delete lines 1 to 8.
Amendment, by leave, withdrawn.
I move amendment No. 14:
In page 14, lines 39 and 40, to delete “financial services” and substitute “relevant obligations or”.
Amendment, by leave, withdrawn.
I move amendment No. 15:
In page 14, line 42, to delete “financial services” and substitute “relevant obligations or”.
Amendment, by leave, withdrawn.
I move amendment No. 16:
In page 15, line 2, to delete “financial services” and substitute “relevant obligations or”.
Amendment, by leave, withdrawn.
Amendments Nos. 17, 19 and 20 are related and may be discussed together by agreement.
I move amendment No. 17:
In page 15, after line 39, to insert the following:
“(2A) Nothing referred to in a subparagraph of any paragraph of subsection (1), as included in that paragraph, shall operate to limit a person’s right against self-incrimination under Article 38.1 of the Constitution or Article 6 of the European Convention on Human Rights.”
Amendment, by leave, withdrawn.
I move amendment No. 18:
In page 16, line 26, to delete “obligations under financial services” and substitute “relevant obligations or”.
Amendment, by leave, withdrawn.
I move amendment No. 19:
In page 17, between lines 12 and 13, to insert the following:
“(2A) Nothing in any guidelines prepared by the Bank under this section shall operate to limit a person’s right against self-incrimination under Article 38.1 of the Constitution or Article 6 of the European Convention on Human Rights.”.
Amendment, by leave, withdrawn.
I move amendment No. 20:
In page 18, line 20, after “person” to insert the following:
“, or infringe that person’s right against self-incrimination under Article 38.1 of the Constitution or Article 6 of the European Convention on Human Rights”
Amendment, by leave, withdrawn.
Section 6 agreed to.
Sections 7 to 10, inclusive, agreed to.
SECTION 11
I move amendment No. 21:
In page 22, between lines 20 and 21, to insert the following:
“(2C) The Minister shall, within the 2 years following the commencement of this section, lay a report before both Houses of the Oireachtas detailing—
(a) the level of effective implementation of the designation of persons who perform a controlled function,
(b) the effectiveness of the identification and designation of persons who perform a controlled function,
(c) the potential to expand the range of functions under this designation, and
(d) the extent to which there may be persons not currently designated as persons who perform a controlled function but who exert significant influence in relation to decisions on the performance of a controlled function and how this may be reflected in any future revision of this enactment.”.”.
Amendment No. 21 would require the Minister, within two years following the commencement of this section, to lay a report before both Houses of the Oireachtas detailing the following: the level of effective implementation of the designation of persons who perform a controlled function; the effectiveness of the identification and designation of persons who perform a controlled function; the potential to expand the range of functions under this designation; and the extent to which there may be persons not currently designated as persons who perform a controlled function but who exert significant influence in relation to decisions on the performance of a controlled function and how this may be reflected in any future revision of this enactment. That is possibly the longest sentence I have said in the Seanad Chamber.
The amendment seeks to address a concern we have, that is, there may be persons who might not be designated as persons who perform a controlled function but who may have significant influence on financial processes. My colleague, Senator Higgins, previously raised a similar issue about limited liability during the debate on the Investment Limited Partnerships (Amendment) Act 2020. I am seeking clarification around accountability where people fall outside a designation but do have significant influence.
The point of the legislation is to extend a more significant regime to those who already have fitness and probity responsibilities and, as I have said, to the conduct standards to a much larger group of people, more junior in financial institutions, who will now come under a different regulatory regime. That is very important.
Section 32L of the Central Bank Act 1942 provides that the Central Bank shall prepare a statement regarding the Central Bank's performance in regulating financial services, which is provided to the Minister for Finance and laid before the Houses of the Oireachtas. As with other elements of the individual accountability regime, the bank as the regulator is the most appropriate body with relevant expertise to determine and implement the system and to make changes where necessary. The reporting function on the overall structure and operation, already provided for in legislation, is an important tool in democratic accountability and the assessment of the various matters the Senator correctly highlighted. However, it is already provided for in legislation in a different way and, on this basis, I do not accept the amendment.
Sections 12 to 47, inclusive, agreed to.
Amendment, by leave, withdrawn.
Section 11 agreed to.
SECTION 48
I move amendment No. 22:
In page 52, between lines 16 and 17, to insert the following:
"(ia) whether it has had a widespread impact on society and the welfare of the State generally,".
Amendment No. 22 seeks to stipulate that when imposing a sanction on an individual, there should be a consideration of whether the prescribed contravention has had a widespread impact on society and the welfare of the State generally. This goes back to the historical background of the legislation and the effects of the banking crisis on our society, which are still felt today. I urge the Minister of State to accept this amendment. If there is to be true accountability, there must be a recognition of how actions in this sector impact on society and our collective well-being as a nation. This is a key opportunity to reflect the spirit of the Bill in a practical way.
As we have discussed, the purpose of the Bill is to provide a better regulatory structure in light of the difficulties we have faced. It adds to the suite of legislation and regulatory changes that have been made precisely for the reason the Senator outlined, which is to benefit society more broadly. We have seen the impact of the breakdown of regulation. As the Senator is aware, we have significantly extended the number of people who will have obligations under the legislation. It is self-evident that preventing problems with financial services is much better than dealing with them when they arise.
I refer again to the requirements of drafting legislation. I realise it is an annoying sort of response for Ministers to give all the time but it really is important that legislation should be tightly written. Words like "society" do not form part of the Bill, although its purpose is to achieve the objective the Senator outlined. We are speaking as one, albeit in different legislative language. However, for reasons of drafting discipline, I cannot accept the amendment.
Amendment put and declared lost.
Section 48 agreed to.
Sections 49 to 93, inclusive, agreed to.
SECTION 94
Amendments Nos. 23 and 24 are related and may be discussed together by agreement.
Government amendment No. 23:
In page 74, to delete lines 20 to 23 and substitute the following:
"(3) In relation to an inquiry, notice of which was given by the Bank before the commencement of section 53, the Act of 1942, as amended by sections 53 and 55 and Chapter 3 of Part 4, applies in relation to the following:
(a) an inquiry decision made before the commencement of section 53 if the decision has not, before that commencement, been notified by the Bank to the regulated financial service provider or person concerned;
(b) an inquiry decision made after the commencement of section 53.".
As I signalled on Second Stage, these are transitional provisions. They determine the extent to which an inquiry that is already under way at the time the relevant provisions of the Bill are commenced shall be affected by the provisions. It is important that the changes necessitated by the Zalewski judgment in regard to the appeal and court confirmation of inquiry decisions take effect at the earliest practicable opportunity.
Amendment No. 23 is necessary to provide clarity that section 94 will operate as intended and that the new provisions will apply to an inquiry decision that has not been notified to the inquiry subject regardless of whether the decision is made before or after the commencement of section 53.
Amendment No. 24 is a consequential amendment to delete subsection (5). The effect of that subsection is achieved by subsection (2) in conjunction with the new subsection (3), as substituted by amendment No. 23.
Amendment agreed to.
Government amendment No. 24:
In page 74, to delete lines 29 to 32.
Amendment agreed to.
Section 94, as amended, agreed to.
Sections 95 to 98, inclusive, agreed to.
Title agreed to.
Bill reported with amendments.
When is it proposed to take Report Stage?
Next Tuesday.
Is that agreed? Agreed.
Report Stage ordered for Tuesday, 21 February 2023.
When is it proposed to sit again?
Next Tuesday at 2.30 p.m.
Cuireadh an Seanad ar athló ar 1.58 p.m. go dtí 2.30 p.m., Dé Máirt, 21 Feabhra 2023.
The Seanad adjourned at 1.58 p.m. until 2.30 p.m. on Tuesday, 21 February 2023.