I welcome the Minister for Finance and his officials. This is the first Bill to be considered by the Select Committee. I suggest that we continue consideration of the Bill until it is finished. If the meeting continues beyond I p.m. I suggest that we suspend until 2 p.m. Is that agreed? Agreed.
Central Bank Bill, 1997: Committee Stage.
This is not my first appearance before the Select Committee on Finance and the Public Service but it is my first appearance with a Bill.
SECTION 1.
Amendment No. 1 is a drafting amendment in the name of Deputy McDowell.
I move amendment No. 1:
In page 3, subsection (2), line 16, to delete "as the Central Bank Acts, 1942 to 1997" and substitute "as one Act may be cited together as the Central Bank Acts, 1942 to 1998".
I am happy to accept this amendment.
I thank the Minister on behalf of Deputy McDowell. We view this as a non-contentious Bill. We will not force a vote on any of the amendments and we see no problem with any aspect of the Bill.
Amendment agreed to.
Section 1, as amended, agreed to.
Sections 2 to 4, inclusive, agreed to.
SECTION 5.
Amendments Nos. 2, 5 and 6 are related and may be taken together.
I move amendment No. 2:
In page 5, line 9, after "thereunder." to insert the following:
"In discharging its primary function the Bank shall contribute to the promotion of balanced economic development, sustainable non-inflationary growth which respects the environment, a high level of employment coupled with social equity and protection and the improvement of standards of living and quality of life.".
The Bill will allow the Central Bank to join the European Central Bank, to surrender monetary policy to that bank and to make the Euro legal tender. Deputy Noonan's amendment addresses the same point as the Minister's amendment. The Bill as drafted restricts the objective of the bank to maintain price stability. We wished to recognise this by inserting this amendment.
I thank Deputies Noonan and McDowell for their amendments, the objective of which are the same as amendment No. 5. My legal advice is that it is not possible to refer in Irish law to the provisions of the Amsterdam Treaty on the grounds that it has not been ratified by the people. My amendment is a result of a recent approach to me by Commissioner de Silguy at the ECOFIN Council. The Commissioner is in charge of the directorate responsible for producing the Commission's report on the compatibility of a national bank legislation with the treaty. The amendment will replace section 5(6) of the Bill. The wording of the amendment is a result of consultation with the European Commission and the European Monetary Institute.
Commissioner de Silguy's concerns relate to the current section 5(6) which provides that "the Central bank shall act in the interests of the people as a whole". This text was originally in section 6 of the Central Bank Act, 1942, which provides that the general function of the bank shall be to take whatever steps are necessary to safeguard the currency. This duty is qualified by the provision that the constant and predominant aim shall be the welfare of the people as a whole. The purpose of section 5 of the 1997 Bill is to replace section 6 of the 1942 Act to take account of the fact that monetary policy will be the preserve of the European Central Bank post EMU. Article 105 of the Treaty on European Union provides that the European System of Central Banks, of which the Central Bank of Ireland will be part, shall support the general economic policies in the European community with a view to contributing to the achievement of the objectives of the community as laid down in Article 2. Article 2 of the treaty provides that the community has the task of promoting a harmonious and balanced development of economic growth, sustainable non-inflationary growth, respect for the environment, a high degree of convergence of economic performance, a high level of employment and social protection, raising the standard of living and quality of life and economic and social cohesion and solidarity among member states. The Government believes the sentiments in Article 2 of the treaty are fully consistent with the Central Bank's role whereby, in relation to monetary policy, it must have regard to the welfare of the people. The Government is therefore is willing to accede to the Commissioner de Silguy's request that section 5(6) of the Bill be replaced by the wording of Article 105 of the Treaty. That is what my amendment No. 5 does and it is line with the objectives of the amendments tabled by Deputies Noonan and McDowell.
As the Minister pointed out, the wording of Deputy McDowell's amendment cannot be accepted until the referendum on the Amsterdam Treaty is passed.
Yes, exactly.
That is the legal advice the Minister received. Deputy Noonan, recognising the need for price stability, social equity and protection, had incorporated some of the wording of the treaty in his amendment.
Amendment No. 5 has been approved by the Commissioner.
I apologise for my late arrival. I do not understand why amendment No. 6 cannot be moved.
Amendment No. 5 in the name of the Minister will be moved.
I realise that.
Has the Deputy a question?
Has amendment No. 6 been taken with another amendment?
Amendment No. 6 is being discussed with amendment Nos. 2 and 5.
Might I be allowed to beg the Chairman's indulgence to discuss amendment No. 6? The reasoning behind amendment No. 6, of which the Minister will be aware, is that its wording is also taken from the treaty. The centrality of price stability is an issue very dear to central bankers, not least to our colleagues in the Bundesbank. That is obviously reflected in large measure in the Bill and in the European Central Bank. I appreciate this has been negotiated with the EMI and that a great deal of work has been done on it. However, it is politically very important that we establish the importance of employment as one of the desirable elements of economic policy both for the Central Bank and the Union as a whole. That is why I tabled amendment No. 6. I appreciate the Minister has gone some way towards accepting that objective in his amendment and I thank him for that.
As I stated on Second Stage, it is politically very important that we emphasise - as was done in the Amsterdam Treaty - that employment, which is the one economic factor which impacts on individual citizens, is a central part of our economic policy. The Central Bank of Ireland and the ECB should have due regard to the importance of attaining a high level of employment. I accept the Minister's comments and I do not intend to oppose amendment No. 5.
Amendment No. 6 cannot be moved because legal advice is that it is not possible to refer, in Irish law, to the provisions of the Amsterdam Treaty on the grounds that the treaty has not yet been ratified by the Irish people. Amendment No. 5, in my name, which contains the general purport of the Deputy's amendment, came about as a result of direct contact between me and Commissioner de Silguy and has been approved by the Commission and the EMI.
Amendment, by leave, withdrawn.
Amendment No. 4 is consequential on amendment No. 3 and they may be discussed together by agreement. Is that agreed? Agreed.
I move amendment No. 3:
In page 5, line 16, after "thereunder" to insert "contributing to the prudential supervision of credit institutions and to the stability of financial institutions".
In a sense, this amendment is a belt and braces job. Clearly, one of the primary functions of the Central Bank is to look after the prudential supervision of financial institutions. The wording I have used in this amendment is also taken from the protocol to the treaty. I felt it was important that there should be an established means of communication between the Minister, the Department and the Central Bank on these issues. Following the Central Bank Governor's presentation to the committee last week, I am somewhat unsure as to where the lines of information, authority and accountability actually run in respect of the supervision and regulation of financial institutions. It is clear that the bank does have an important and expanding role in regard to regulation and supervision but the extent to which the Minister is informed or entitled to be informed and consulted or entitled to be consulted on that regulation is not clear to me.
Following the certain demise of our currency at the end of this year, more and more of the Central Bank's resources will be deployed in the areas of regulation and supervision. While we obviously welcome that, we must ask whether the bank has the resources, manpower, know-how and information to actually carry out that regulatory role. More importantly, the purpose of my amendment was to elicit the extent to which the bank is accountable to the Minister and, following on that, the extent to which the Minister is accountable to the Dáil and the public about the way in which financial institutions are regulated.
I intend to discuss amendment Nos. 3 and 4 together. On a drafting point, I am assuming that Deputy McDowell intends that, rather than amend section 5(5), through amendment No. 4, he actually proposes to amend section 5(4). If this is not the case, I would point out to him that section 5(5) provides for the Minister for Finance's right to be informed of the bank's monetary policy role within the European System of Central Banks and the ECB. Section 5 (4), however, provides for the Minister's right to be consulted on all of the bank's other functions and duties, including the licensing and supervision of financial institutions as provided for under law. I assume the Deputy would prefer that the Minister could be consulted, rather than merely informed, on the execution and performance of these functions and duties which are, after all, conferred on the bank under the Acts of the Oireachtas.
On the substance of the Deputy's amendments, the proposed new section 5(2) relates to the objectives of the bank other than the primary objective of price stability as set out in the proposed new section 5(1). These other objectives include contributing to the stability of the financial system and promoting the efficient and effective operation of payment and settlement systems. The bank has statutory duties in respect of the licensing and supervision of certain financial institutions and payment systems and I am of the opinion that the wording in the proposed section 5(2) is sufficient to cover the objective underlying these duties. Further, I am convinced that the wording in the proposed section 5(4) is adequate to cover the intent behind Deputy McDowell's amendment No. 4 as the Minister would have the right to be consulted on the performance by the bank of all of its non-ECB related statutory functions including those relating to licensing and supervision. The wording of the proposed new section 6 of the 1942 Act, as set out in section 5 of this Bill, has been the subject of extensive examination and consultation with the European Monetary Institute and the European Commission. Deputy McDowell's amendments do not add anything substantial to the text as it currently stands and, in the circumstances, I am not in a position to accept them.
I tabled the amendments partly to tease out what the current position actually is. Is the Minister currently consulted on the supervisory and regulatory role of the Central Bank and is he, in any sense, accountable to the Dáil or elsewhere for the operation of those functions?
I will read the Deputy the explanatory note on section 5 of the Bill but in general the supervision and regulatory powers exercised by the bank are carried out independently of the Minister. The Governor of the Central Bank is specifically precluded from providing any information obtained in the course of his supervisory duties.
Including the Minister?
Yes.
The Minister said the intent of the amendment was covered. He is now telling me the bank is not in a position to tell him anything.
It has always been the case that if the Central Bank, in its supervision of the licensed banks and other institutions, discovers certain information, it is not in a position to inform the Minister.
To what extent does the Governor consult with or inform the Minister?
He would talk about the general supervisory role of the Central Bank but the detail of what it may find out in the course of its supervision is not related to anybody, including the Minister. That is the position in other countries also. Last week when he appeared before the committee the Governor outlined this in some detail.
Is the Minister saying that while the Governor can discuss the matter in general terms, he cannot discuss the detail of an individual case?
No.
Am I right in saying the Minister asked the Central Bank to conduct an investigation in connection with the Ansbacher accounts not too long ago?
Since 1965 the Central Bank has, on behalf of the Minister, exercised exchange control powers. I asked the Governor to conduct an investigation into exchange control breaches. Before the McCracken tribunal reported its findings we intimated to the Central Bank that we would pursue this matter. I wrote to the governor on the day the report was published. While the Central Bank has a supervisory role, the detail of what it may find out about the operations of the licensed banks is not related to anybody, including the Minister.
There was a prudential supervision issue in connection with the Ansbacher accounts in so far as it was alleged that a substantial percentage of the deposits were held by a small number of depositors. I understand the Central Bank considers that this would give cause for concern. Is the Minister saying he is not in a position to ask the Central Bank to look at this and that if it discovers information about which it would be concerned, it would not be in a position to tell anybody, including him, about this?
As far back as October I wrote to the Governor of the Central Bank to ascertain if he was satisfied with the powers of the bank relating to its regulatory and supervisory role. I outlined his reply in response to a parliamentary question and on other occasions. He stated he was so satisfied.
I asked the Minister whether he is in a position to request the Central Bank to look at the Ansbacher deposits from a prudential point of view and whether it would be in a position to tell anybody, including the Minister, if it discovers information about which it would be concerned.
I wrote to the Governor of the Central Bank on 31 October as follows:
As you are aware, a section of the annual report of the proceedings of the Central Bank furnished to me under the provisions of Section 20 of the Central Bank Act, 1989 normally deals with the regulatory functions of the Bank.
In the light of this and the references to supervision included in the report of the Tribunal of Inquiry (Dunnes Payments) I would be grateful if you would examine these references and report your findings to me and also advise me whether:
(i) the Board is satisfied that the supervisory and regulatory powers vested in the Bank by statute are adequate to enable the Bank satisfactorily carry out its regulatory functions;
(ii) the Board is satisfied that adequate regulatory procedures and practices are in place in the Bank to give effect to these statutory powers and;
(iii) the Board is satisfied that these regulatory procedures and practices are being effectively implemented by the Bank.
Given the public concern over these issues I would appreciate an early reply.
The Governor replied on 11 November 1997 as follows:
I refer to your letter of 31st October about supervisory issues arising from the Tribunal of Inquiry (Dunnes Payments).
These issues concern a breach by Guinness & Mahon (Ireland) Limited (G&M hereinafter) of the Central Bank's non-statutory Licensing and Supervision Requirements and Standards relating to large liabilities to interbank depositors and to matters relating to the control and management of G&M.
In 1988/90 G&M was in breach of the Bank's requirement that liabilities to any one interbank depositor may not exceed 15 per cent of total borrowings. Prior to 1988 there was no breach as the interbank liability was to an affiliate on which there were no limits in the requirements. (The McCracken report dates the sale of the Guinness Mahon subsidiary which eventually became Ansbacher Cayman Limited as taking place in 1984 and 1985. In fact, the entity was first sold out of the Guinness Mahon Group in 1988). The Bank identified specifically the interbank liability to Ansbacher Cayman Limited in G&M in 1989. The breach of requirements was eliminated stepwise within two years of the matter coming to light.
The 15 per cent Iimit was designed to protect banks from the negative effects of a sudden withdrawal of liquidity by one interbank depositor. However, the Bank would not appear to have had cause to question seriously the liquidity aspects of G&M's operations at the time. Overall holdings of liquid assets by this bank were exceptionally high by any criterion - the average liquidity ratio was around 70 per cent through this period, compared with a 25 per cent norm. The important supervisory issues relating to this bank at the time were matters touching on ownership, future direction, profitability and intra-group relations, rather than on liquidity or solvency.
On the matter relating to the control and management of G&M, there is no record in the Bank that it was informed of the matters in the internal auditor's report carried out by Guinness Mahon & Company Limited on G&M in Dublin in 1989. It emerged in the Tribunal report that these matters related essentially to inadequate internal controls and possible exposure to fraud relating to a large percentage of G&M's deposits. There is no record that the Bank had discovered the system for operating the Ansbacher accounts during its inspections and review meetings. Prior to publication of the Tribunal report, the Central Bank had no knowledge of the existence of the "Ansbacher Deposits" referred to during the Tribunal hearing or of the role played by G&M in the management of those deposits. I should stress that only in the 1990s has it become standard practice both in Ireland and elsewhere for supervisors to seek all material internal audit reports.
Supervision has three main elements; authorisation of new entities; ongoing supervision of existing entities; and policy development. Entities supervised by the Bank are required to submit a regular flow of detailed financial data which represent the basis for assessment of institutions by the Bank. Regular reviews and on-site inspections of entities are also undertaken. The reviews are usually on a half-yearly basis. There is a programme in place for the inspection of supervised entities on a regular basis.
I can confirm that the Board is satisfied with its legal powers which are generally adequate to enable the Bank to discharge, satisfactorily, its statutory functions. The statutory position in Ireland follows mainstream European Law in the area of prudential supervision and all EU Banking and Investment Directives have been transposed into Irish law and have been brought into force. In relation to credit institutions I would mention that the latest review of legislation was undertaken in 1996 and amendments to legislation were introduced in 1997 to take account of that review. In relation to the supervision of investment intermediaries, the Bank is currently in negotiations with the Departments of Finance and Enterprise, Trade and Employment with a view to amending the governing legislation i.e. the Investment Intermediaries Act, 1995. Several of these amendments are necessary to facilitate the transfer earlier this year of supervisory responsibility for retail intermediaries from the Department of Enterprise, Trade and Employment to the Bank. The Bank is anxious to take advantage of this amending legislation to put forward certain changes to the 1995 Act which would enhance its ongoing implementation.
In relation to the supervision of recently transferred investment intermediaries, I would like to take this opportunity to highlight what the Bank perceives as a distinct lack of compliance culture among the retail end of this sector. Significant efforts on the part of the Bank will be required to address this problem.
With regard to supervisory procedures and practices, the Board keeps under review the Bank's supervisory practices and its approach to supervision. It endeavours to ensure that these are in line with international best practice and are subject to continuous modernisation and adaptation to meet the needs of a changing global environment.
I can also confirm that the Board is satisfied that the supervisory procedures and practices are being effectively implemented by the Bank.
The Board is briefed on all matters of supervisory significance, on a monthly basis. It receives a comprehensive report, on a half-yearly basis, on work undertaken over the previous six months and on significant issues outstanding or likely to arise in the future. All significant proposals are subject to approval by the Board on a case by case basis - e.g. authorisation of banks, acquisition of/by banks and refusal to authorise investments intermediaries. Papers on various topics relating to supervision are circulated regularly to the Board and a significant part of Board meetings is usually concerned with supervisory matters.
The Board also decides on the manpower and other resource requirements of the supervisory functions. At present there are up to 100 members of staff engaged in supervision duties. Staff levels are kept under constant review, particularly by reference to the increasing regulatory functions being assigned through the Bank. In this respect staff numbers have increased significantly in recent times.
I would wish to draw your attention again to the strict legal requirements on confidentiality. In this connection I should mention that some of the matters set out above are disclosed on foot of a waiver of the confidentiality requirements of Section 16 of the Central Bank Act, 1989, given by G & M at the request of the Central Bank.
Effective supervision requires the co-operation of the supervised entity. No matter how effective a supervisory regime may be, there can be no assurance that deceit or default will not arise.
If you require any further information or clarification, please get in touch with me and I will be available at any time to discuss with you the issues that are raised here.
Yours sincerely
Maurice O'Connell
I am obliged to the Minister for giving us that comprehensive review.
The Minister has statutory power to consult the bank on its regulatory role, how it carries it out, how efficiently it does its work, etc. I cannot consult on individual cases unless the institute in question issues a waiver to that effect.
That clarifies the position. The letter specifically states that Guinness & Mahon had given a waiver of its rights under section 16 of the 1989 Act. My amendments would substantively change the position in so far as they would give the Minister a right to be consulted in relation to the overall regulatory work of the bank.
Is the Deputy saying he wants the Minister for Finance to be consulted regularly in connection with what the Central Bank has found out about individual cases?
Yes.
To the best of my knowledge, that is not done in any other European country. The Central Bank is independent in the exercise of its functions and does not consult with the Minister of Finance of the day regarding individual cases. I would not be prepared to go down that road.
The Minister received a report from the Central Bank about exchange controls. However, did he not also receive a report which deals with other supervisory-regulatory matters in relation to the Ansbacher accounts and Guinness & Mahon?
I requested the Governor of the Central Bank to look at possible breaches of exchange controls. I have sent the information I received in that regard to the Director of Public Prosecutions.
I have a real difficulty if a particular bank is doing something in which allegations come to public attention. The Minister feels there is something wrong here. As I understand from what he is saying, he is not in a position to ask the bank to investigate this, or if he is, the bank is not in a position to tell him the results of a particular investigation unless they get a waiver from the Central Bank in relation to that.
That is exactly the point. Under the relevant section of the Central Bank Act repeated in 1989, individual matters relating to a supervisory role are confidential between the Governor of the Central Bank and the supervised entity. The Deputy seems to be making the point that he wants this relationship changed. I do not subscribe to that view. I do not know of any other country where this happens. It would be a significant and fundamental change in Central Bank practice and it is something that we would have to give long and hard thought to. The logic of it - this may be the way Irish society is going with the Central Bank and other statutory agencies - is that anything the Central Bank Governor will find out in the bank's supervisory regulatory role he would have to report to the Minister and politician of the day. It would be extended to the Revenue Commissioners. Anything the Revenue Commissioners found in individual cases would be also related the politicians of the day. We would turn the Department and the Minister for Finance into judge, jury and executioner and Members should give long and hard thought to that before we go further down this road. The independence of those institutions has served them well. It has worked effectively and I do not think the majority in the Oireachtas want to give that type of role to politicians despite what people outside and in the media would want us to do. I make it quite clear that I am not prepared to go down that road.
Perhaps the Minister will clarify that if the Central Bank supervisory body comes across irregularities or fraud it is required to report it to the Garda.
The committee had the benefit of hearing the Governor last week. I was not at the committee meeting but from reports in the press that I have read he made that quite clear. I have made it clear in other replies as well in the Oireachtas. Under the 1995 Intermediaries Act, if the Central Bank come across cases of fraud, and tax evasion is regarded as fraud, it is obliged to refer them to the Garda. The Governor also made this clear last week.
I support the Minister. Why have an independent Central Bank if it must report all these matters directly to the Minister for Finance? The Central Bank would be compromised in its role. Why have a Governor——
I do not suggest that it should be accountable to the Minister for Finance. The amendment suggests that the Minister should be entitled to be consulted if he wishes.
The Deputy is stating that the Minister for Finance of the day, on foot of political pressure or pressure from outside interests should ask the Governor of the Central Bank to investigate a bank and report back to the Minister. Is that correct?
I am not suggesting that the Minister should have a statutory power to require the bank to do so, I am simply proposing that the Minister should be entitled to be consulted.
The Minister for Finance is consulted and has statutory power to consult with the bank on its regulatory role, how it carries it out, how efficiently it does its work, etc., but he cannot consult in individual cases unless the institute in question issues a waiver to that effect. The Deputy seems to be somewhat confused on this issue.
I am not confused.
The Deputy seems to be giving the general import that he wants the Minister for Finance of the day of whatever party to know about individual cases. Is that not what he is implying?
Yes it is, I believe the public is entitled to know if there is something fundamentally wrong with a particular bank or a bank to which a public licence has been given and, at very minimum, the Minister as a representative of the public is entitled to be consulted.
Is the Deputy listening to me? I have said clearly that the Minister has statutory power to consult with the bank on its regulatory role, how it carries it out and how efficiently it does its work. The Minister does not have a power, unless waived by the individual entity, to get details about the individual cases. As I have stated earlier in this debate, I do not think that is a road any Minister for Finance would wish to go down.
I have a real problem with creating any public institution which is not accountable to anybody for the way it discharges its responsibilities. What the Minister is saying is that the Central Bank is not responsible or accountable to anybody nor is it obliged to inform anybody or any other public body, Minister etc., about the way in which it discharges its supervisory function in a particular case. I believe we have a right to information in those cases. I am prepared - and this is a very modest suggestion - to settle for the Minister being entitled to be consulted about individual cases. I am not suggesting that this should be made public although that would be my preference - I am merely suggesting that the Minister should be entitled to be consulted.
The Governor of the Central Bank was before a committee of the House last week. The Bill, when passed will ensure that he can come before the Select Committee on Finance and the Public Service. The Bill will provide for him to come before this committee and be questioned. The Governor is accountable; he frequently meets the Minister for Finance of the day and he has appeared before a committee of the House. What could be more accountable than that? The Deputy seems to want to move the goalposts and to want the Governor of the Central Bank to report to the Minister of the day about individuals. That would be a retrograde step. The Minister is consulted as to the supervisory role of the Central Bank. I do not believe we should go any further.
There is an overlap between this discussion and the discussion we had with the Governor last week. I pressed him on Deputy McDowell's point and he clarified the issue, saying there are other regulatory authorities which have a role regarding the activities of banks such as the Revenue Commissioners. The Central Bank feels it would encroach on the Revenue's role if it were to investigate taxation matters. Some matters are for the Revenue Commissioners, who should take a more proactive role rather than waiting for media reports to bring issues to their attention. It would be inappropriate for the Minister to be made aware of individual cases because, once aware, he would have to act in those cases. This is like the Garda Commissioner's position, where it is not for the Minister for Justice, Equality and Law Reform to interfere in individual investigations. It would be wrong to do so.
Did the Minister suggest that the Central Bank suggest to Guinness Mahon that it should waive its rights under section 16 of the 1989 Act?
Those are matters for the Governor of the Central Bank to deal with under of the Central Bank legislation. It is not for the Minister for Finance to go into those matters. Guinness Mahon waived its right to confidentiality, as pointed out in the Governor's letter to me. It was not suggested by me to the Governor.
I cannot imagine that the bank would decide to waive its right unless it was asked to do so. It was done because of the legitimate public interest in the case. I am glad the bank waived its rights, for had it not done so the information the Minister has given would not have been available. That is where we have a problem.
Was the Central Bank functioning in its own right? The matter was dealt with adequately with no interference from other parties.
In this case, yes, because the bank waived its rights.
One of the terms of reference of the Moriarty Tribunal asks the tribunal to make recommendations if it feels necessary as to the powers of the Revenue Commissioners and the Central Bank. We await that with interest. If the tribunal suggests we revisit this matter, we will do so.
Amendment put and declared lost.
Amendment No. 4 not moved.
I move amendment No. 5:
In page 5, to delete lines 38 to 40 and substitute the following:
"(6) Without prejudice to the objective of maintaining price stability, the Bank shall support the general economic policies in the Community with a view to contributing to the achievement of the objectives of the Community as laid down in Article 2 of the Treaty.'.".
Amendment agreed to.
Amendment No. 6 not moved.
Section 5, as amended, agreed to.
Section 6 agreed to.
SECTION 7.
I move amendment No. 7:
In page 6, paragraph (b), lines 15 and 16, to delete "subsection (2) of".
This is a technical amendment which corrects an oversight in the original drafting of section 7, which amends section 21(2) of the Central Bank Act, 1942. That section provides that the President may, on the advice of the Government, remove the Governor from office for causes stated if the Directors of the Central Bank ask the President to do so by unanimous vote. Article 14.2. of the Statute of the European Central Bank requires that the Governor may only be removed in such cases if he no longer fulfils the conditions required for the performance of his duties or if he has been guilty of serious misconduct. Section 21(2) is being amended to substitute "on stated grounds of serious misconduct" for "cause stated". Section 7(3) provides for the right to appeal to the Court of Justice. In preparing the Bill, the right to appeal was only extended to section 21(2) of the 1942 Act for "serious misconduct". Section 21(1) of that Act provides that the Governor may also be removed if, for reasons of ill health, he becomes permanently incapacitated. This scenario is within the terms of Article 14.2 of the Statute, and the Governor should therefore be allowed a direct appeal to the European Court of Justice. This amendment allows the Governor the right of appeal to that court when he is removed from office because of inability to perform his duties because of ill health. The amendment has been agreed with the European Monetary Institute and the European Commission.
Amendment agreed to.
Section 7, as amended, agreed to.
Sections 8 to 11, inclusive, agreed to.
SECTION 12.
Question proposed: "That section 12 stand part of the Bill."
This relates to the assets of the Central Bank and the charges thereon. I take it that any claim or liability to the European Central Bank shall be part of the charges. What are the other charges on the Central Bank's assets? I would like some more information.
I spoke on this matter on Second Stage. Section 12 amends section 23 of the Central Bank Act, 1989, which deals with the general fund of the Central Bank of Ireland dated from the bank's participation in the European Central Bank. The changes ensured that the bank's accounts will actively reflect the financial consequences of its participation in the European Central Bank. It also provides that the regulations made under section 23 for the determination of the Central Bank of Ireland's surplus income can provide for financial aspects of the bank's membership of the European Central Bank. Section 23 is also amended to ensure that when the Minister for Finance exercises his or her power to make regulations, he or she will have regard to the bank's position as a member of the European Central Bank. The present position, whereby the surplus income of the bank is paid to the Exchequer, remains unchanged.
That is what I am getting at. I do not understand how the surplus is currently determined and whether this additional charge will——
The surplus arises from the Central Bank's activities; it makes adequate profits on the ceiling.
Is this an additional charge which will, presumably, reduce the surplus?
All charges reduce the surplus.
Presumably.
As provided for in the 1989 Act, the surplus income of the Central Bank is paid to the Exchequer. It is calculated on the basis of the provisions of the 1943 surplus income regulations which provide for the surplus incomes to be reckoned as remaining profits for each year after any losses from the preceding year are taken into account and the board has provided for depreciation. The currency reserve in general is subject to a maximum of 20 per cent in total profits after any preceding losses and the superannuation of each reserve is subject to a maximum of 15 per cent of wage costs to the bank. They seem to be charged against the surplus incomes.
Question put and agreed to.
Sections 13 to 15, inclusive, agreed to.
SECTION 16.
Amendment No. 8 is in the name of the Minister, amendment No. 12 is consequential and both may be taken together by agreement.
I move amendment No. 8:
In page 9, line 7, after "denomination" to insert "in the Irish pound or in the euro unit".
This is a technical amendment which makes it explicit that the European Central Bank has powers on all notes denominated in the Irish pound as well as those denominated in the euro unit.
Amendment No. 12 is a further technical amendment defining the term "euro unit" which is being introduced into the Bill by amendment No. 8.
Is there an intention to issue any legal tender of £1 notes?
No.
Amendment agreed to.
I move amendment No. 9:
In page 9, lines 10 and 11, to delete "establishing the European Community done at Rome on the 25th day of March, 1957,".
This is a technical amendment.
If this is primarily a drafting matter I presume the Deputy intends to delete the reference to the date and location into the title of the EC Treaty on the grounds that it is superfluous.
Section 12 of the Bill provides a definition of the term "Treaty" which is to be inserted into the 1989 Act. If this is the case I fully accept the Deputy's point and compliment him on his thorough examination of the Bill. The Deputy's amendment, may, however, not go far enough in that its effect will delete the reference to the Maastricht Treaty in the text of the section. This effect appears to be superfluous although the matter was examined in consultation with the office of the parliamentary draftsman. As a result of that examination it was found the drafting could be improved and an appropriate amendment could be brought forward on Report Stage.
Having examined the Consolidation Act I detect the excellent expertise of the same person's hand - a person I know well - who assisted Deputy Ferris in that regard. His detailed changes were absolutely mind boggling and I detect his expertise in some of Deputy McDowell's amendments. He did greater work in the Consolidation Act where he found commas and full stops which were very necessary and important; 80 per cent of them were definitely right. I assume the same person assisted the Deputy in this regard.
On this amendment the Minister is correct and I will pass on his complimentary remarks to the individual concerned.
Is the amendment withdrawn?
If the Deputy pushes it I will bring it forward on Report Stage. It can stay as it does no harm.
While I am anxious to emphasise the common ground between the Minister and me this morning I am happy to have the amendment returned on Report Stage.
Amendment, by leave, withdrawn.
Amendment No. 10 is in the name of the Minister, amendment No. 11 is an alternative and both may be taken together by agreement.
I move amendment No. 10:
In page 9, line 12, to delete "notes issued by the European Central Bank" and substitute "other notes denominated in the euro unit for which the European Central Bank has authorised the issue".
I thank Deputy Noonan for his amendment. I think the committee will agree the same point is behind my amendment. As well as dealing with notes issued by the Central Bank of Ireland, section 16 of the Bill provides that notes issued by the European Central Bank will have the status of legal tender here. However, under the Maastricht Treaty, notes denominating euro issued by the national central banks of the other participating member states, which the ECB has authorised, will also be legal tender here.
My amendment makes it clear that all euro notes authorised by the ECB will be legal tender here whether they have been issued by the Central Bank of Ireland, the ECB or the other participating national central banks.
Does the ECB issue notes and coins?
I am informed it has the powers to so do. It is my understanding that this will be contracted out.
The purpose of Deputy Noonan's amendment is that the Central Bank in each country should issue the notes and coins but authorisation must be given by the European Central Bank.
Yes.
The effect of the Minister's amendment is the same.
Yes. This will be a mammoth production operation. I cannot remember how many tons of coins and notes will have to be produced in the latter half of the year but it will be a major logistical operation as they will have to be delivered overnight to banks and given to customers and so on. Plans are already well in train to do this. One of the reasons the three year gap exists from 1 January 1999 to 1 January 2002 is to allow for a production of notes and coins.
Belmullet could be mentioned.
Yes, and one could not think of a better place. It might be even better if it could be moved slightly nearer Ballyconneely.
It is interesting this issue was raised because when the Governor attended last week's meeting it was also discussed. I asked him if there would be any job losses as a result of the euro in regard to the plant in Sandyford, Dublin, where most of the production work has already been undertaken. He took the view that while nothing is certain at this stage it is hoped that the work on the circulation of notes could be done here on an agency and contract basis. It is clear it is the intention that each of the central banks will continue to do the work, subject to a contract. I presume a tender will be required for the work in regard to the European Central Bank.
Deputy Fleming is correct.
On a quick reading it is clear that notes and coins issued by the European Central Bank are legal tender as are notes and coins issued by the bank here, on authority from the European Central Bank. Is it clear that notes and coins issued by central banks in other EU member states are legal tender here?
That is the purpose of my amendment and the import of Deputy Noonan's amendment. Only euro notes issued by other member states will be legal tender here.
Amendment agreed to.
Amendment No. 11 not moved.
I move amendment No. 12:
In page 9, between lines 27 and 28, to insert the following definition:
" "euro unit" has the meaning assigned to it by Council Regulation No. 1103/97 of 17 June, 1997, on certain provisions relating to the introduction of the euro;".
Amendment agreed to.
Section 16, as amended, agreed to.
SECTION 17.
I move amendment No. 13:
In page 9, line 37, to delete "Select Committee of Dáil Éireann" and substitute "Joint Committee of the Oireachtas".
Under the terms of the Central Bank Act, 1997 the Governor of the bank shall, if so requested, attend before a select committee of Dáil Éireann as he has been assigned the role of examining matters related to the bank. The committee in question at the time was the Select Committee on Finance and General Affairs and as that committee no longer exists it has been replaced by a Joint Oireachtas Committee on Finance and Public Service. This amendment, therefore, amends section 17 of the Bill to provide for the Governor's attendance before a committee of the Oireachtas rather than the Dáil.
Amendment agreed to.
Section 17, as amended, agreed to.
Sections 18 and 19 agreed to.
NEW SECTIONS.
I move amendment No. 14:
In page 11, after line 4, to insert the following new section:
"20.-Section 15 of the Act of l989 is hereby amended by the insertion in subsection (5), after paragraph (b), of the following paragraph:
'(bb) A scheme established under paragraph (a) or (b) may include provision for the establishment by the Bank of a fund, administered by trustees appointed by the Bank, from which superannuation benefits payable under that scheme shall be paid and, on the establishment of that fund, the Bank shall transfer to that fund, within 5 days of its establishment, such sum as has accrued to the Superannuation Reserve of the Bank, being a Reserve, established under the Central Bank of Ireland (Surplus Income) Regulations, l943 (S.I. No. 93 of l943), and Article 5(b) of those Regulations shall stand revoked on the day that the transfer takes place and for the avoidance of doubt the Bank may thereafter transfer to that fund such monies as are provided for in the scheme to be so transferred.'.".
The purpose of this amendment is to replace the current pay as you go payment arrangements under the bank's superannuation scheme with a funded system. The reason behind this decision relates to a problem the bank has in regard to its superannuation reserve. In finalising its accounts for l996 the bank identified an accrued liability in the reserve of £68 million. The reserve currently has £26 million, leaving a deficit of £41 million.
A l995 Coyle Hamilton actuarial report, which predicted this problem would arise in l997 or l998, suggested that if a 37.8 per cent of pension remuneration was transferred to the reserve on an annual basis for 18 years any foreseen liability would be covered. However, the bank's superannuation reserve is currently funded to an annual limit of 15 per cent of salaries and wages which the bank may appropriate from profits in the reserve in accordance with the Central Bank of Ireland (Surplus Income) Regulations, l943. These regulations are provided for in section 23 of the l989 Central Bank Act which replaced section 63 of the l927 Currency Act.
While the problem is essentially an accounting one in that, despite the shortfall in the reserve, the bank has more than sufficient funds in its general reserve to cover all superannuation liabilities, nevertheless there are good reasons to allow the bank to move to a funded scheme. The primary argument for funding pensions originates in the need to safeguard the members' benefits by ensuring that, in the event of bankruptcy or other similar catastrophe, the pension fund on its own can meet the obligations in respect of pension rights already incurred. A move away from the current scheme to a funded scheme would also be consistent with policy generally in the commercial State sector.
The proposed amendment is in the form of an enabling provision, the purpose of which is to amend section 15 of the l989 Act, that is, that provision be provided through the bank's superannuation scheme by providing that, a scheme established under section 15, may include provision for the establishment of the fund. In the event of the establishment of a fund, the restrictions imposed by the l943 regulations will be listed by the revocation of these regulations. Any funds which were accrued in the bank's superannuation reserve in accordance with the l943 regulations will be transferred to the fund and further money will be transferred to the fund in accordance with the scheme as approved by the Minister for Finance.
Section 15 of the l989 Act already provides that every scheme made by the bank under the section shall be laid before each House of the Oireachtas and each House has 21 days to pass a resolution annulling such scheme. The provision will continue notwithstanding the amendment of section 15 by this amendment.
Amendment agreed to.
I move amendment No. 15:
In page 11, after line 4, to insert the following new section:
"20.-Section 16(2)(a) of the Act of 1989 is hereby amended by the insertion, after 'proceedings', of the following:
'or by a tribunal to which the Tribunals of Inquiry (Evidence) Acts, 1921 to 1997, have been applied pursuant to a resolution passed by both Houses of the Oireachtas'.".
Section 16 of the l989 Act covers the prohibition on disclosure of confidential information which governs most of the bank's activities. The amendment specifically permits the bank to disclose information which is required by a court in connection with criminal proceedings. I understand this reflects the provisions of the second banking directive of l989. In this amendment I seek to extend the capacity of the bank to disclose information from courts to include also tribunals of inquiry set up by the Houses of the Oireachtas. I understand it currently does not extend to tribunals of inquiry. If the Oireachtas sets up a tribunal, part of which will inevitably impinge on and use information available to the Central Bank, it is important that the Central Bank should be permitted by law to provide that information to a tribunal of inquiry. That is the purpose of the amendment.
In anticipation of the Minister's response I have read, in so far as I can as a lay person, and assessed the banking directive. It is a wonderful document and I am advised that it would be possible for the amendment to be made in that context.
We had a brief debate on this and related matters in an earlier section but I will deal with this amendment now. The Central Bank is subject to strict confidentiality requirements. These are set out in section 16 of the l989 Central Bank Act and in subsequent amendments. Section 16 introduces provisions relating to the disclosure of information by the bank staff similar to those already existing for public servants in relation to the question of corruption.
The section provides that the Governor, a director, officer or servant of the bank may not disclose information relating to the business of any person or body, whether corporate or incorporate, which came to their knowledge by virtue of their office of employment or the bank's activities in respect of the protection of the integrity of the currency or the control of credit, unless its disclosure is to enable the bank to carry out its functions under the Central Bank Acts. As the bank did not conduct exchange control activities under these Acts, this confidentiality regime does not apply to these activities.
Provision is made for the disclosure of information as required by a court in connection with criminal proceedings. In addition the bank, under section 49 (2) of the Investment Intermediaries Act, l995, may disclose to the Garda, where it has reasonable cause to believe a criminal offence has been committed, any information to enable the further investigation of the alleged offence. Furthermore, under the provisions of the Criminal Justice Act, l994, the bank is obliged to report to the Garda a suspicion that any of its supervisors has committed or is committing the offence of money laundering or certain related offences. Such activities would include tax evasion in relation to the proceeds of criminal activity.
Penalties for contravention of the provision of section 16 are on summary conviction, a fine not exceeding £1,000 and/or a term of imprisonment not exceeding 12 months or, a conviction on indictment, a fine not exceeding £25,000 and/or a term of imprisonment not exceeding five years. These seeking provisions are vital in the maintenance of the financial sector's confidence in the bank and, in turn, the public's confidence in the operation of the financial sector.
Irish law on confidentiality in financial supervision implements European Union law which requires a high standard of professional secrecy. Article 12 of the first Council directive on the co-ordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions requires the State to ensure that the Central Bank maintains strict confidentiality. The Office of the Attorney General has been consulted on this issue and has advised that a directive, while allowing certain exemptions, does not permit the proceedings of a tribunal to come within the exceptions prescribed. Although European law, as an exception, permits the giving of information by the Central Bank of Ireland in connection with legal proceedings, rules of law emanating from the directive and Ireland's obligations under the Treaty would prevent adoption of a provision which would widen the existing categories of exceptions vis-à-vis the Central Bank of Ireland. Therefore, any legislation purporting to extend the present categories of exceptions to the bank’s confidentiality regime would prima facie be ultra vires the directive and EU Treaty.
Confidentiality is a co-element of effective financial regulation and as such is deeply embedded in the body not only of EU law but of international law generally. In the circumstances, I am not in a position to accept the Deputy's amendment.
The Minister and I could spend the rest of the morning debating this matter but I do not intend to do that because we have had a discussion already. I am trying to be constructive. Article 12, paragraph 7, specifies that, in addition, notwithstanding the provisions referred to in paragraphs 1 to 4, the member states may, by virtue of provisions laid down by law, authorise the disclosure of certain information to other departments or their central government administrations responsible for legislation on the supervision of credit institutions, financial institutions, investment services and insurance companies, and to inspectors acting on behalf of those departments.
If the Minister found it possible to incorporate the contents of that paragraph rather than the specific amendment I tabled, I am happy to withdraw the amendment. We could argue for the rest of the morning about whether tribunals of inquiry come within the European directive but we will not get anywhere.
I am informed that the particular article the Deputy raised relates to insurance matters. We already spoke at length about this matter on an earlier section. I said earlier, with reference to the Moriarty tribunal, that that includes, under the terms of reference, a subparagraph to make broad recommendations, whenever the tribunal considers it necessary or expedient, for enhancing the role and performance of the Central Bank as regulator of the banks and of the financial services sector generally. Any action recommended by the tribunal on this issue will be considered.
Is the Deputy withdrawing the amendment?
Not just yet. Our difficulty is that the bank is not in a position to disclose any information to the tribunal of inquiry to facilitate its work. While I cannot anticipate what information the bank might have, and I do not want to, I believe that causes us difficulty. The bank is in a position to give information to a court of law dealing with criminal prosecutions and it is reasonable that it should be able to disclose information to a tribunal of inquiry set up by the Oireachtas.
The legal advice available to me concerning the possibility of extending the list of exemptions to the bank's confidentiality regime is set out in section 16 of the 1989 Act. In short, that advice is that to attempt to extend a list of exemptions would be ultra vires of the EU banking directives as they are currently worded. Those directives are in line with best international practice in the field of financial supervision. Amendments to those directives are, in the first instance, proposed by the European Commission in its capacity as preserver of the Treaty and promoter of EU law. If the Moriarty tribunal outlines a certain course, I am prepared to examine the question of approaching the Commission with a view to discussing the feasibility of its proposing an amendment to the banking directives to take account of the concerns raised by Deputy McDowell.
In the meantime is the bank in a position to disclose information to the Moriarty tribunal?
No.
I do not necessarily agree with that, but I accept it.
To go back to paragraph 7 of Article 12, from my reading of it I do not believe it is restrictive. The relevant part states that member states may, by virtue of provisions laid down by law, authorise the disclosure of certain information to other Departments of central Government. It states that such disclosures may only be made where necessary for reasons of prudential control, which is the issue we are addressing here.
Legal advice is that to create further exemptions to the confidentiality rule would be ultra vires.
That is not what I am proposing. I am proposing the incorporation of the wording in paragraph 7 of Article 12. That would amount to an extension of current practice.
I am advised otherwise and I cannot accept the amendment.
Amendment put.
The Select Committee divided: Tá, 4; Níl, 8.
Tá
- Kenny, Enda.
- McDowell, Derek.
- Rabbitte, Pat.
- Stanton, David.
Níl
- Ahern, Michael.
- Browne, John (Carlow-Kilkenny).
- Dennehy, John.
- Fleming, Seán.
- Foley, Denis.
- Lawlor, Liam.
- McCreevy, Charlie.
- O’Keeffe, Batt.
I move amendment No. 16:
In page 11 after line 4, to insert the following new section:
20.-(1) The Freedom of Information Act, 1997, shall apply to the Bank as if it stood prescribed pursuant to regulations made by the Minister for Finance for the purposes of paragraph 1(5) of the First Schedule to that Act.
(2) This section shall come into operation on the day that is one year from the date of passing of this Act.".
This amendment relates to the Freedom of Information Act, 1997. The First Schedule of the Act sets out the Departments of State and other bodies to which it immediately applies and those to which it will apply later this year. There is also a general provision which allows the Minister for Finance to bring other bodies within the scope of the Act. I intend that freedom of information should refer only to matters which are not otherwise prohibited by section 16 of the 1989 Act and other regulations and statutes.
It is my intention whenever possible to seek to bring the freedom of information provisions to bear on other bodies included in paragraph 1(5) of the First Schedule of the Freedom of Information Act because we should seek to bring the Act into full application as soon as possible. The amendment proposes that a year from the passing of this Bill the Central Bank should come within the scope of the Freedom of Information Act.
On 21 April the Freedom of Information Act, 1997 will apply to the public bodies listed in the First Schedule to the Act. These bodies comprise Departments and, for the most part, public bodies which are wholly or primarily staffed by civil servants and whose functions are closely aligned with their parent Departments. As the Deputy is aware, paragraph 1(5) of the First Schedule to the Act provides for any body established by or under any enactment to be brought into the scope of the Act pursuant to regulations made by the Minister for Finance with the consent of the appropriate Minister. It was always intended to use this mechanism to widen application of the Act in an incremental fashion across the wider public service.
If at a future date it were decided to apply the terms of the Act to the Central Bank this mechanism would be there to be availed of. I have no plans to apply this provision to the bank at present. In any event, even if I did, the provisions of section 32(1)(a) of the Act would apply vis-à-vis section 16 of the Central Bank Act, 1989. Section 32 provides that requests for information shall be refused if the disclosure of the information is forbidden by law, except for a list of enactments, which does not include the Central Bank Acts, in the Third Schedule to the Act.
While on the subject of confidentiality, the Deputy is undoubtedly aware of the confidentiality provisions of section 26 of the Act. Section 26 provides that information can be protected when it has been given to a body in confidence on the understanding that it would be treated as confidential, including cases where this information must be given by law. This, as the Deputy will appreciate, has particular relevance for the Central Bank. I have already spoken at some length on an earlier amendment about the vital importance of confidentiality in the effective supervision and regulation of financial services. I do not propose to accept this amendment.
I accept what the Minister said with regard to the restrictions on the information that the bank may disclose. It may well be that the only information that might become available would be of an administrative nature or related to the decision making process in the bank in matters where they are allowed to disclose information. I accept it would be of relatively restricted application for the bank. I also understand the legislative prohibitions on disclosure. However, given the relatively limited scope of the amendment and application of the Act to the bank, I do not understand why the Minister cannot accept the amendment.
I do not object to the principle of extending the Freedom of Information Act to the Central Bank. Over time it will be extended to a wide range of bodies under the remit of Ministers and I have no objection to considering the Central Bank in this regard. I am not prepared to do so at present.
Why?
I have no objection in principle to extending the freedom of information provisions to all bodies but I frame my reply in line with the Deputy's earlier amendments regarding supervision and disclosure. The Deputy has pointed out that he expects they would only apply to administrative and other such matters. I will consider that matter over the next year during which more bodies will be included. I am not prepared to include the bank at present. There is no need to include a provision in this Bill when mechanisms are available under the Freedom of Information Act.
I accept that. The amendment is not intended to be a Trojan horse to facilitate earlier amendments, rather it is a matter I intend to pursue with regard to other public bodies over which Ministers have a responsibility. It would be a matter for the Minister to make regulations for the Central Bank. I urge the Minister to consider it.
Amendment put and declared lost.
Title agreed to.