On behalf of the committee, I welcome the Minister of State at the Department of Finance, Deputy Cullen, and his officials to this meeting for consideration of the Investor Compensation Bill, 1998. Is it agreed that consideration of the Bill will conclude not later than 4 p.m., but that we will review progress at 3.30 p.m.? Agreed.
Investor Compensation Bill, 1998: Committee Stage.
Sections 1 and 2 agreed to.
SECTION 3.
Question proposed: "That section 3 stand part of the Bill."
Section 3 sets out how notices and other documents required or authorised under the Act are to be served. It is similar to section 5 of the Stock Exchange Act, 1995, and section 3 of the Investment Intermediaries Act, 1995.
While section 3(1)(a) provides for personal delivery or leaving the document at the address the person normally resides, subsection (1)(b) and (1)(c) makes arrangements for delivery by ordinary prepaid post. In terms of the documents that will be served, is registered post not more appropriate? Is registered post considered the norm?
It is not precluded, but this section replicates standard practice in the other two Acts and I did not want to confuse the issue by having a difference in this legislation. I do not know if there is any specific reason registered post is not used. It could be part of the process, but I do not wish to preclude other methods of communicating the information.
In the Bill there are a number of situations where various notices will be served. If registered post is used there is proof of delivery that the person received the notice but this does not happen with prepaid post. A procedure which allows for the notice to be left at the address where the person normally resides is loose. Various items are sent by registered post. When Members voted in the Seanad election recently they were specifically instructed that any vote which was not registered would be excluded, and at least one was.
The parliamentary draftsman confirmed there is a presumption of delivery through the ordinary post.
Of course there is a presumption of delivery, nobody would post letters otherwise. The presumption is they would be delivered to the address, not to the person. However in the case of registered post there is a presumption that the person - the addressee - will sign for it. A summons must be personally issued by a garda otherwise it would not be properly served. Whatever the precedents it is time for change. In this instance, the Minister should change the phrase "ordinary prepaid post" to "registered post" on Report Stage.
I will take the Deputy's point on board and return to it on Report Stage.
Question put and agreed to.
SECTION 4.
Question proposed: "That section 4 stand part of the Bill."
This section provides that the expenses incurred by the Minister for Finance in the administration of the Act are to be met from money provided by the Oireachtas. The banks expenses are to be met from the banks' general fund except where otherwise provided for by statute.
On Second Stage, the Minister will recall, a number of Deputies asked if there would be charges on the Exchequer or the Central Bank. The general proposition central to the Bill is that the company administering the compensation fund would, in effect, levy the participating financial companies to put the fund together so it would be self-financing in so far as the compensation is concerned. Why will the Minister not extend the self-financing nature of it to include administrative expenses also? Why should the Houses of the Oireachtas and the Central Bank take up expenses when the central issue is that it would be self-funding and that the investment companies, who put investors' funds at risk, should pick up the tab rather than the taxpayer?
Where this section refers to the expenses of the Minister for Finance, they would be negligible, it covers the officials in the Department who will be dealing with the legislation. It will be central to what the Department of Finance will do as opposed to picking up the type of expenses to which the Deputy referred in regard to administering the whole scheme. It is not intended that the Department of Finance or the bank will have a role in that regard but the officials who might have to deal with aspects of the legislation where they would arise.
With respect, the officials in the Department of Finance get paid an annual salary, regardless of the work they are doing. Surely we are not legislating a specific provision to ensure civil servants get paid depending on which day of the week they are dealing with aspects of the law?
I am informed this is done in all legislation, I can assure the Deputy the investment companies pick up all their expenses.
What about the provision that the Central Bank will be liable for expenses incurred by the bank to be paid out of their general fund? I would have thought the work the bank was doing was core to the companies.
There is a similar provision in the Intermediaries Investment Act for the Central Bank to pick up its expenses. I believe it is being considered at present. Where there is a legitimate charge, under that Act the bank can charge companies it has dealings with. The same provision is being made here with the investment company.
Where does it state in the Act that an administrative expense can be transferred to a participating company?
It is a regulation under the Intermediaries Investment Act.
Where would the administrative expenses of the Central Bank end and the administrative responsibilities of a company commence on costs as defined in the interpretation section,
The bank must set up the investment company.
What is the position on the day to day running of the investment company?
Where the Central Bank sets up the investment company there will obviously be some expenses involved. I am not suggesting they would be very substantial.
I did not ask the Minister of State for an example but where he sees the responsibility of administrative expenses of the Central Bank ending and the baton being passed to the company in respect of this Bill?
I see it being very limited. When the company is set up it will be responsible for its administrative expenses. The Deputy asked me to give an example of where the bank might incur expenses, administrative or otherwise, and I replied that one of the areas is in setting up the investment company. There will obviously be expenses but they will not be of great consequence.
The bank is being authorised to appoint the chairman and vice-chairman. Will their expenses be paid by the company or the bank?
By the company.
Question put and agreed to.
Section 5 agreed to.
SECTION 6.
Question proposed: "That section 6 stand part of the Bill."
As we proceed through committee I wish to give notice that I might return to this section on Report Stage to require the Minister to seek a positive resolution of the Houses of the Oireachtas rather than an annulling provision. If anything being done by regulation or order is of such magnitude or consequence it should be done positively rather than passively or negatively.
Question put and agreed to.
Section 7 agreed to.
SECTION 8.
Question proposed: "That section 8 stand part of the Bill."
This section makes the Central Bank of Ireland the supervisory authority for investor compensation under this Bill and the competent authority in the State for the purposes of the investor compensation directive.
Subsection (1) makes the bank the supervisory authority for investor compensation and the competent authority on the investor compensation directive. Subsection (2) requires the supervisory authority to act under this Act in order to promote the protection of the clients of investment firms, the maintenance of an effective system of compensation for the clients of investment firms and the maintenance of the proper and orderly regulation and supervision of investment firms and financial markets. Subsection (3) requires the Central Bank to carry out its functions under this legislation having regard to the investor compensation directive, the text of which is in the Second Schedule. This Bill implements the investor compensation directive. However, the provisions for compensation set out in this Bill are considerably wider in scope than those required by the investor compensation directive.
Question put and agreed to.
SECTION 9.
Question proposed: "That section 9 stand part of the Bill."
Section 9(2) provides that the Central Bank will be able to appoint an authorised officer to investigate an insurance intermediary where the Bank forms the view that the insurance intermediary is unable to repay money belonging to a client. This is the first step in the compensation process.
I return to an issue discussed earlier. If the bank appoints an authorised officer under this section, is that expense attributable to the Central Bank or the company?
The expense is attributable to the bank if the bank directly intervenes.
Is it then the first step in the investigation?
Yes, but only if the bank is aware of a problem and must intervene to take pro-active action.
Question put and agreed to.
Sections 10 and 11 agreed to.
SECTION 12.
I move amendment No. 1:
In page 14, subsection (1), between lines 17 and 18, to insert the following:
"(a) to develop and implement policies relating to the protection of consumers of financial services generally,".
An amendment similar to this was tabled in the Seanad by my colleague, Senator Costello, and its purpose is to respond to the expressed wishes of consumer protection agencies that there be a general duty on the company to look after consumer interests. We all know this duty does not fall comfortably into the remit of any specific agency in dealing with financial services. The way this company has been set up could be conceived as a rubber stamp for the Central Bank in that the powers of supervision are vested in the bank itself and the company merely rubber stamps its decisions. For example, the administration of the company will be in the hands of the Central Bank and will be based in its headquarters. The amendment seeks to give a duty to the company in its memorandum and articles of association to look after general consumer interests so that there will be a specific duty on somebody in this area of activity to carry out that work.
While I appreciate the concerns which prompted this amendment, the issues it raises go far beyond the compass of the Bill and the purpose of the investor compensation company. The Bill deals with investor compensation and derives from a European directive on that subject, although in terms of its coverage it goes much further than the directive. The purpose of the company to which the amendment refers is to administer the system of compensation; that is all and the Bill has been drafted to that end. As Deputies are aware the task of protecting the interest of consumers, including those of financial services, has been entrusted to the Director of Consumer Affairs under the terms of legislation sponsored by the Minister for Enterprise, Trade and Employment. I am sure no criticism of the director's role is implied in the amendment.
I have no reason to believe that responsibility for any element of consumer protection should be taken from the director and conferred on a body whose sole purpose is to administer a scheme of compensation. There will be a strong consumer representation on the board of the company. The Deputy's concerns may also have been prompted by recent allegations of malpractice in the banking sector and, as Deputies will be aware, the Minister for Finance set up a working group which is examining the area of banks and the consumer with special emphasis on the roles in law and practice of the Central Bank and the Director of Consumer Affairs in order to ensure to the greatest extent possible that there can be no repeat of these practices. The director is a member of this group which is chaired by an officer of the Department of Finance and the Central Bank is also represented. The concerns the Deputy specifically raised would obviously be best addressed through that committee. I, therefore, reject the amendment.
There is a contradiction in the Minister's comments because his Department is going out of its way to ensure there is consumer representation on the company board but, at the same time, it is stated that the board of the company has no role in consumer protection. Why bother representing consumers on something that does not have a role protecting them?
We are involved in the legislation. The industry might not agree with some facets of the Bill but an element of it is on the side of the consumer. The investor compensation company will be an administrative body. However, it will have consumer representatives on it obviously, but this is not the vehicle to take the Deputy's point on board. I recognise it is a fundamental point to the extent where the Minister for Finance has a group, which includes the Director of Consumer Affairs and representatives from the Central Bank, looking at the respective roles not just in law but also in practice. We will reach a stage where the Deputy's point will be examined in the context of legislation but it is not possible to do so in terms of this Bill. I do not wish to pre-empt the group's discussion and judgments.
When is the group's report due? It was set up six to eight weeks ago with a remit to report within three or four weeks.
We await legal advice on some complicated legal issues about confidentiality. Everyone is anxious to sort out this issue. There is no reason the Government would not be as anxious as anybody else to see it resolved. However, the Deputy's point is important in the wider context and it must be resolved.
I support Deputy McDowell's amendment. It seems the Minister has gone to pains to ensure those appointed to the board of the company represent the investors' interest as well as those who have products on the market. A general provision along the lines of the amendment is worthwhile. Section 12 is probably the best place to insert it, but it could also be included in section 8. However, the Central Bank might not like the role in regard to the consumer. It is worth looking at between now and Report Stage.
I recall this being raised by the Deputy during Second Stage. The amendment would change the tenor of the Bill and therefore the role of the compensation company fundamentally from an administrative body to one which will get involved in policy, etc.. That was not intended. I acknowledge Deputy McDowell's point but, while this area must be dealt with, we are not in a position to do so in this Bill.
I have sympathy with the Minister of State's logic. I see why he said this is not the place to insert the important thrust of the amendment and that this is not the role of the company, etc. That is perfectly logical, but the problem is that every time this issue is raised, we pass over it and get on with the next business. This consumer protection dimension is neglected generally, notwithstanding the experience of recent years. It has happened on a fairly regular basis and each time there is a flurry of activity, references are made to the role of the Director of Consumer Affairs and new powers given to the Central Bank. However, there is not a consistent policy to lift the consumer dimension out of the role of the poor relation which it has traditionally occupied.
Commitments and Cabinet decisions with regard to resourcing the Office of the Director of Consumer Affairs have not been implemented and his latest report refers to this. The Central Bank is in a state of flux and it is possible to envisage more of these powers being allocated to it in the future. However, we need to make a decision on the direction of policy on consumer protection. Will we strengthen the Office of the Director of Consumer Affairs? Will we have a different unitary authority or will we require the Central Bank, notwithstanding its resistance, to take on the consumer protection dimension?
Deputy McDowell's amendment raises an important issue but unfortunately, it appears it will not be resolved in this Bill. I understand the Minister of State's point about the objects of a company in this regard.
Amendment put and declared lost.
Question proposed: "That section 12 stand part of the Bill."
Will the Minister comment on section 12(3)?
Subsection (3) provides that the company shall have power to do whatever is necessary to perform the functions assigned to it by the legislation.
I have seen enabling provisions and belt and braces arrangements before, but this takes the prize. The sheriffs brought in to clean up towns in the wild west would not have been given such a mandate. It is a means of providing that, if anything was forgotten when the Bill was drafted, the Central Bank will have power to do whatever appears to be requisite, advantageous or incidental or appears to facilitate, directly or indirectly, the performance by it of its functions. This power is unspecific. Can the bank raid houses and seize documents without a search warrant if it is considered to be in the interests of an investor? It is an extraordinary power. Is there a precedent for it?
The Central Bank cannot do what the Deputy suggests. The investor compensation company is charged with setting out the charges that will be made to the various companies. It is responsible for ensuring the charges are collected and there are actions it can take under the Bill if they are not. The subsection refers to that and is specific to the company. It cannot raid houses.
In light of section 8 the mandate appears to be wider than that - the protection of clients of investment firms, the maintenance of an effective system of compensation and the maintenance of orderly and proper regulation.
Section 8 refers to the Central Bank but section 12(3) refers to the investment compensation company.
Will the powers of the Central Bank be exercised through the company?
The company will have its own powers and the Central Bank has its own powers. Section 8 refers specifically to the Central Bank and section 12(3) refers specifically to the investor compensation company.
In terms of the overall structure it is intended that this should be incorporated under the companies Acts. Presumably a memorandum and articles of association will be lodged with the Companies Office in the usual way.
Yes.
Presumably there will be a good deal more detail in them than is set out in these sections. I am not sure one will get away with such a general statement in the articles of association. I do not think such broad powers would be compatible with the companies Acts. It is usually required that the powers of a company or its principal objectives are specified in some measure.
The subsection Deputy Noonan highlighted invites litigation. If I were an aggrieved investor who wished to make an application for compensation in high moral dudgeon, could I not easily allege that the company did not invoke subsection (3) which appears to give it all-embracing powers? I could argue that all actions were not taken as are enabled under the legislation. By the nature of their condition, aggrieved investors are likely to litigate on that basis.
Although these matters are important they go beyond the scope of the investor compensation company. The company's purpose is to administer the compensation fund - that is all it does. In so doing it has the power to set the charges it will levy, how they are to be structured and to pay compensation. If a liquidator becomes involved in circumstances such as Deputy Rabbitte outlines, the company is not a regulator. Such a case is not an issue that involves the company. Its purpose is to raise the funds and to pay out compensation.
What does "process claims for compensation by clients as expeditiously as possible" mean? The clients make an application for compensation arising from their experience which seems to strike a direct relationship with the company. One could envisage a situation in which a client or group of clients would argue that certain actions were not taken to protect them and initiate litigation against the company on the basis of subsection (3).
The investor compensation company is not the regulator or the authority. The Central Bank is the supervisory authority but the company pays the compensation. If somebody has been defrauded and is entitled to recompense under the legislation they can make an application to the investor compensation company and if there is clear evidence that a fraud has been perpetrated, the company will pay compensation.
I do not accept it is as simple as that. If an aggrieved investor makes an application to the company the first task of the company is to adjudicate on the application and in doing so it will have to gather evidence. The company is being given extraordinary powers to gather the information it believes advantageous, among other powers. Why does it have to be couched so broadly? As I understand it, if we have another incident with an investment company in which investors lose money, they will apply to the company for compensation. While the bank is the supervisory authority it is the company which must adjudicate on the merits of the application, so it is not a question of it being empowered to take contributions from companies and to pay compensation - it has a quasi-judicial adjudicatory role.
It does not.
Who adjudicates?
The administrator appointed by the Central Bank adjudicates; the company does not. It will simply process it and pass it to the administrator who will then adjudicate on the merits or demerits and decide what the client is entitled to. The company pays the money but it does not have a quasi-judicial role as the Deputy suggested.
Then why was it necessary to tag such an extraordinary power onto section 12 if the company is only running a shop under which it pays out money according to the list from the administrator?
This is not an extraordinary power and I do not know why the Deputy calls it such. It provides for the company's rights under the legislation and is tied specifically into the Bill. It does not provide a wider remit - if it did there might be a question mark over it. As I understand it there is nothing unusual in this nor is it an extraordinary provision.
Whatever powers the company has under the Bill it has in any case, so why does the Minister need a separate provision to state that the powers the company has under the Bill are the powers it has under the Bill, and it can exercise them when it is requisite, advantageous or incidental? That reply does not stand up.
It does, I am making it explicit under the legislation.
Perhaps the Minister could give an example where section 12(3) would be invoked. It is an unusual drafting to provide that the company should have the power to do anything which appears to it to be necessary if the claims of aggrieved clients are to be adjudicated by the administrator and the company is only a clearinghouse for the administrative processing of claims and the dispatching of cheques once the administrator initials them. In those circumstances why should the company have the power to do anything it sees fit? If the administrator decided that 300 investors are entitled to compensation and ought to be paid the maximum in each case but another 50 do not have a claim against the fund, what powers would the company need? Is all the investigative work done by the company in terms of establishing who does and does not have a right? Does it relate to its investigative role in providing the administrator with the information on which he or she exercises a quasi-judicial decision?
The company does not have an investigative role.
If that is the case and the company is purely a clearinghouse, why should we confer powers on the company to do anything it thinks fit to carry out its functions? In that case its role is purely administrative - it signs the cheques, ensures it has money in the accounts to meet them, and dispatches them in the post.
That is an important function, particularly as regards a consumer who would have to deal with the company if something goes wrong, but its real power is to set the charges of what each company will pay and to set up the investor compensation fund. This came up in the Seanad and I was wondering why it was mentioned again since it had not been raised in the committee before. It is clear one cannot use a simple formula as the charging basis for each company because many different circumstances may arise - for instance, a person may set up a new company which does not have a client base - so we must have some flexibility. The real power attributable to the investor compensation company will be to collect money from all the companies required to pay into the compensation fund, which is a fundamental role. Its other power is to pay out money but it is not simply a clearinghouse for that purpose. Its other important role is to set the level of charges on the various companies required to pay under the Bill, and that will vary from company to company.
Are these provisions related to the collection of the charges it sets?
As I understand it that is not the case - I am saying there is more to the company than Deputy Rabbitte suggested.
Why would the company need the catch-all power in this section?
The way it will deal with the companies is not set out in the Bill, so it must have reasonable flexibility in what it may state in writing to the companies. Section 12(3) is designed to protect it in the exercise of its functions under the legislation.
Powers to deal with matters of that kind would normally be enshrined in a regulatory provision of the Bill under which the company would have power to make regulation, on behalf of the Minister, to tidy up the administrative detail. This catch-all provision is very strange and the Minister has yet to give an example of where it might be used.
I do not want to repeat myself ad nauseam but, for instance, an investment company might be unhappy with the level of charge which the investor compensation company set for its contribution to the fund and may wish to initiate proceedings if it feels hard done by. This section protects the investor compensation company in that regard.
I still do not see the reason. The Minister has dredged up that example but it was hardly contemplated when the provision was drafted. He said the company had no investigative role. I understand the importance of the company's function to fix the scale of fees and to collect them, and fixing the rate could be quite complex because the companies are of different sizes and offer different products, not all of which might fall under this regime. I thought he was going to say the company would need the power to intervene if a company was being recalcitrant and decided it would not contribute a fee to the fund because it had never defaulted and that the company could examine the status of the company and whether the evaluation was fair. However, the Minister said it has no investigative role.
The Deputy is correct; they could not do that. In the example the Deputy has just outlined that would be a matter for the supervisory authority which is the Central Bank, not the company itself.
Is it agreed that the purpose of subsection (3) is to protect the company in a circumstance where an aggrieved company believes it is being unduly penalised in terms of the annual fee?
As I understand it, it would be any correspondence the company would have with any of the investment companies which might be later used by any company contributing to the fund. It protects the investment compensation company. In a general sense it protects the company because the company has to set the charges and collect them.
This is lazy drafting. It is a section where something may have been forgotten but in case we have forgotten anything we will stick in this section which can act as a safety net if anything goes wrong subsequently. The Minister has not given an adequate explanation for this. We will be coming back to it on Report Stage.
I do not accept that it is lazy drafting but I am happy to come back to it.
Question put and agreed to.
Sections 13 and 14 agreed to.
SECTION 15.
Question proposed: "That section 15 stand part of the Bill."
This section is straightforward and provides that the company may perform its functions through its office or employees or any duly authorised person.
What kind of person is a "duly authorised person" if they were not an employee or an officer with the company?
A duly authorised person could be a person employed by the company on a contractual basis to carry out functions.
Is it the intention that the company would act almost like a branch of the Central Bank with its own staff or would the company bring in people to carry out its functions?
The bank will provide services but the company will have to pay for them. We are simply trying to minimise the overhead costs as much as possible. How the company will be operated and run is a matter for the company. It is not up to me to decide.
In terms of the status of the employees, apart from being company employees will they be regarded as State servants, civil servants or employees of a commercial body? What will their status be within the public service?
They are not public or civil servants. They are simply employees of that particular company which does not give them the status to which the Deputy referred.
Question put and agreed to.
SECTION 16.
Question proposed: "That section 16 stand part of the Bill".
Section 16 reads: "Section 182 (Removal of Directors) of the Act of 1963 shall not apply to the Company." Why?
Section 182 of the Companies Act, 1963, provides that the company may remove a director before the end of his period of office. This provision will not apply to the investor compensation company because the directors will either be appointed directly by the Minister for Finance, with the consent of the Minister for Enterprise, Trade and Employment, or by bodies prescribed by the Minister for Finance, again with the consent of the Minister for Enterprise, Trade and Employment. It does not apply.
Is there provision for removing a director of a company in any circumstances?
There is a provision for that.
Is moral turpitude or any of these reasons included in the provision?
No.
Take, for example, a company director nominated by an appropriate body involved in financial services who was found in his business capacity to be guilty of a criminal offence, will he stay on as the director of a company?
I agree with the Deputy; he has raised a very important point. I will talk to my officials and come back to it on Report Stage because I think this issue should be covered in the Bill.
I do not have expertise in company law but section 182 of the Companies Act, 1963, is by no means the only section of company legislation that provides for the removal of directors. There are similar provisions in other Acts. Surely there are some means by which, in some circumstances, directors can be removed or debarred by the courts from serving.
I take the point Deputy Noonan has made. I am surprised there is no obvious means under the Bill specifically related to the Act and the company, to take action if it was necessary. There should be a provision in the Bill and I will come back to it on Report Stage.
It is not an academic point.
No, it is not.
There was one case in recent memory where a person held a very important representative position and it subsequently emerged that he was the subject of criminal allegations in terms of the conduct of his own business. He would have been a good candidate for appointment by the Minister at the time through his representative capacity. If he was a member of the board of this company, according to the point raised by Deputy Noonan, he could continue to serve even though he might no longer be in the jurisdiction.
On section 182, which involves the removal of a director under the 1963 Act, should the word "company" be included?
The Act of 1963 means the Companies Act. The other provisions of the Companies Act relating to directors do apply but not this particular section. I still think a point raised by Deputy Noonan is worth looking at.
Question put and agreed to.
SECTION 17.
Amendments Nos. 1a to 1l form a composite proposal. Amendments Nos. 1a and 1l shall be taken together by agreement.
I move amendment No. 1a:
In page 15, lines 17 and 18, to delete "The Minister may, with the consent of the Minister for Enterprise, Trade and Employment" and substitute "The Minister for Enterprise, Trade and Employment may, with the consent of the Minister,".
These sections lay down how company directors will be appointed. The Governor of the Central Bank shall nominate and appoint the chairperson and deputy chairperson of the board; the supervisor does that. The ordinary directors of the board are appointed by the Minister for Finance, with the agreement of the Minister for Enterprise, Trade and Employment. The reverse would be a better arrangement. The Tánaiste, in her capacity as Minister for Enterprise, Trade and Employment would appoint the directors with the agreement of the Minister for Finance.
As already stated by the Minister in reply to Deputy to Deputy McDowell, this legislation will form part of company law. The company will be registered and will comply with all the conditions of company law. Company law is the responsibility of the Department of Enterprise, Trade and Employment and any amendments to company law would be sponsored by that Department. The main motivation here is to protect the consumer as an investor and to ensure there is a compensation scheme in place if investors' funds are lost through misappropriation or whatever by a company. Although the Department of Finance is sponsoring this Bill, it would be more appropriate if the power to appoint directors was vested in the Minister for Enterprise, Trade and Employment rather than the Minister for Finance.
This point was raised by almost every Deputy, led by Deputy Noonan, on Second Stage. It was also raised in the Seanad where it was discussed extensively and I tried to respond specifically to it then. I can see from where the Deputy is coming and why he is making these points.
The Minister for Finance has responsibility for the Stock Exchange Act, 1995, under which the Central Bank regulates Stock Exchange member firms and for the Investment Intermediaries Act, 1995, under which the bank regulates investment business firms. The Tánaiste and Minister for Enterprise, Trade and Employment announced she is drafting legislation to bring insurance intermediaries under the Investment Intermediaries Act also.
Against this background, it is logical that the Minister for Finance, having prepared the Investor Compensation Bill, should have the lead role in the appointment of members of the investor compensation company and the board of the company. However, given that sections 17 and 18 provide that the Minister for Finance must have the agreement of the Minister for Enterprise, Trade and Employment when prescribing members and arranging for the appointment of directors, I cannot see how the Deputy's proposed amendment would make any difference in practice. Therefore, I cannot accept the amendment.
This brings me back to a point made by Deputy McDowell when he proposed amendment No. 1a. We are increasingly concerned, particularly in this committee, about protecting the consumer. This Bill is a significant advance in consumer protection in so far as once it is enacted there will be a company with a fund at its disposal to compensate persons who lose their savings through an investment company which goes wrong. Since it primarily concerns consumer protection, it should be within the ambit of the Department which has general responsibility for consumer protection.
The drafting is unusual in that the Minister will require the "agreement" of the Minister for Enterprise, Trade and Employment. Frankly, that is something of a fudge to meet the point I am raising but it did not move far enough. Usually the Bill would state, "the Minister, in consultation with the Minister for Enterprise, Trade and Employment . . .". It is very unusual to require in law for two Ministers to agree on an appointment; the normal provision is for consultation or that the Minister would appoint persons from a list nominated by another Minister. What will happen if they do not agree? It is a peculiar provision. The Minister should make the Minister for Enterprise, Trade and Employment responsible for the administration of this when it is up and running.
I also think it is very odd. It is notable there is no rush on the part of the Department of Finance to take over the role of regulator. It would make a certain amount of sense for the Department of Finance and the Central Bank to take responsibility for the matters left in the Department of Enterprise, Trade and Employment, having regard to the fact that some have been hived off to the Central Bank and that more may be in the future, and that if we address this question of a unitary regulator they will probably all leave that Department.
This is very expressly a company law function, which is different. Company law resides in the Department of Enterprise, Trade and Employment. Responsibility for consumer protection also resides in that Department, not in the Department of Finance. While the Department of Finance will obviously be extremely concerned about any lapses or inadequacies on the part of the regulatory system and consumer protection, we experienced at first hand from the Secretary of the Department, the Governor of the Central Bank and the chairman of the Revenue Commissioners, that they have no - I will not say "interest" because that might imply disinterest or an uncaring attitude on the part of the authorities concerned - role in consumer protection and did not particularly want to have such a role.
Consumer protection is the primary purpose of this legislation and resides in Kildare Street rather than Merrion Street. Notwithstanding the Bill being sponsored by the Department of Finance, that makes good sense. I do not know to what extent anyone is concerned with company law in Kildare Street or whether they have been consulted on or agreed to this.
This is not about company law. Company law applies to companies generally, and this Bill does not. On the basis of what Deputies Noonan and Rabbitte said, the roles could be reversed yet agreement might still have to be obtained. The Deputies have raised the important point which I tried to put into the Bill, which is that it would not be a consultative process. I wanted it in much stronger terms that there would have to be agreement on this issue because I was very anxious that the board would not become overbalanced or have a token consumer representative. The opposite of that is what underpins the Bill. I expect the board will be divided 50:50 between both sets of interests, which is a very substantial step forward in terms of protecting consumers.
This is a Department of Finance Bill. As I pointed out, the Minister for Finance is responsible for this under various other Acts, which is proper in the context of the drafting and the spirit of this Bill which gives a role to the Minister for Enterprise, Trade and Employment which I or the Minister for Finance did not have to do. It is very explicit and is not a fudge that the agreement of that Minister must be sought; it would be a different matter if the Minister only had to be consulted.
The Deputy is right; that provision is not often used. One can argue about what will happen if they cannot reach agreement, but we are all big boys and girls who can come to an agreement on these matters. It is clear what we want to achieve in the Bill and I do not envisage any Minister for Finance being anti-consumer. I have gone out of my way to ensure the Bill is pro-consumer.
I want the fund to work and I want the investor companies to work with the investor company in ensuring the funds are supported. There are a number of interests to be balanced in the Bill. However, for the first time we are giving consumers a very substantial role and that is why I have provided for the agreement of the Minister for Enterprise, Trade and Employment.
What drafting point was the Minister trying to catch in having section 17 state, "with the consent of the Minister" and section 18 state, "with the agreement of the Minister"?
There is no difference. The Attorney General's office has said both mean the same thing.
Why the variation?
That is just the way it was drafted. I have no problem with changing this to consent or agreement, as the Attorney General has confirmed those mean the same thing. I can do that on Report Stage.
Was this the subject of much discussion?
Not that I am aware of.
That is the explanation for whether it was the subject of much discussion.
The principle is what is important to me. There must be agreement, not consultation.
It is extraordinary that the words should change, though it is not a major point.
Deputy Noonan will be aware there can be drafting anomalies with Bills, and I have dealt with some of them. A similar situation arose this week with a Bill from the Department of Foreign Affairs.
Section 18(3) provides that the Minister, with the agreement of the Minister for Enterprise, Trade and Employment, can prescribe bodies which the Minister believes represent the financial services industry. On the face of it one could make a case for that being the preserve of the Minister for Finance. Subsection (4) has the same provision for the appointment of persons who represent the interests of clients. There is an obvious distinction here that should be reflected in who has the primary function. While I agree that under subsection (3) the Minister for Finance should have the primary function, under subsection (4) the Minister for Enterprise, Trade and Employment should have the primary function. That is a natural division of responsibility and there is no need for agreement if they have different specific functions for different areas. That seems logical.
Will the Minister of State tell us what bodies he envisages under subsection (4)(a)? Do we have client representatives for——
I presume we should discuss section 17 before section 18.
The amendments are in my name and are to be discussed together.
In relation to section 17, which gives the Minister power to nominate members of the company, does this reflect the intention of the Minister to appoint members as a belt and braces provision which seemed a good idea at the time? Is it intended to appoint individuals as members who have no defined function or is this here for the sake of it? What is the function of members to be appointed by the Minister?
There is a wide range of bodies in this area and I would not like to say which should be appointed. There are also expert individuals who may not be assigned to specific bodies. Deputy Rabbitte asked what person or group would be obvious nominees. The Director of Consumer Affairs strikes me as an obvious example, but I do not want to start naming people. The Consumers Association of Ireland could be represented or the body could be represented in its own right. We want to ensure flexibility.
I do not think that is right. The Minister of State seems to be drawing a distinction between members of the company in section 17 and directors of the company in section 18. Are members the participating investment companies which contribute to the fund rather than those who serve on the board, subsequently described as directors? It is not clear.
It is technical. I can give the official distinction.
The Select Committee went into private session at 3.15 p.m. until 3.18 p.m.
Is the takeover panel a direct analogy? It has a specific function although it may not be called upon. I am not sure it is analogous as an explanation for taking this route rather than Deputy McDowell's route. Regarding the Minister for Enterprise, Trade and Employment prescribing bodies that would represent the interests of investment firms, it is hardly true, except in the broadest generic sense, that the Consumers Association of Ireland represents the clients of investment firms. I would have thought that is not its role, that the Director of Consumer Affairs has statutory powers that enable him to involve himself in these matters. If this is being presented as a major step forward in equality for the companies and their clients, can the Minister of State be more specific on the obviously extensive discussions with Kildare Street as to who is likely to emerge? What bodies are likely to be prescribed? They are not readily known to me.
I came across this before.
Yes.
It is more obvious from the industry side. The point can be taken up on the consumer side. As there are no trained people it was decided to prescribe individuals if necessary. I do not want to select the board of the bank. The Director of Consumer Affairs is an obvious choice. One might say he does not represent investor clients in his role but he is perceived by consumers in general as somebody who represents the consumer perspective. While it is not perfect or as easy as the industry side, we will have to find people. I do not know who they will be and I will not select them here. We could speculate at this point for some time but it would not bring us any closer to who will emerge.
I do not want to sound pedantic but it is an important point. In saying his knowledge on the matter is no greater than mine, the Minister does not——
Who will be appointed?
I do not mean who will be appointed. The section states the Minister will prescribe bodies and, in terms of this important dimension of consumer protection, I am trying to establish who those bodies are likely to be. We have had some celebrated cases in the past of a discordant investor being co-opted to the bank of one or other famous financial institution and then becoming ipsis hibernicis hiberniores and so on. We cannot go out to Kildare Street and say to someone that he looks like a chap who would have money in a broker company and who would do a good job on this. If that is the way the section is framed some thought must have been given to the representative bodies the Minister is likely to prescribe.
I am being frank with the Deputy. There is only one obvious choice, the Consumer Affairs Association, and, as far as the consumers are concerned, the Director of Consumer Affairs.
Very little thought has been put into this.
I do not accept that.
There is a mechanism whereby Ministers, by agreement, will prescribe bodies which represent the interests of clients of investment firms and, in turn, such bodies will appoint directors. I am not aware of any such bodies which represent the interests of clients in investment firms. One could say the Consumer Affairs Association represents consumers in general, but members of the Fine Gael Party, Members of this House and anybody with a general interest in consumers also represents them. When the Bill was being drafted why was the power not vested in the Minister to select five or six worthy individuals to do the job? Why go through the brokerage of non-existent bodies to appoint directors? The best option would be to give the power to a Minister and at least competent people would be appointed.
The answer is straightforward. This company will do very little and will be a rubber stamp for the bank. Under the Bill all the power is being given to the bank; it will have the supervisory role. Although the company will have the legal power the bank will be required to consult the company before it sets the charges. I presume the administration will be provided from within the bank. All we are doing is prescribing who will sign the cheques. The dimension of who appoints whom to represent consumers is too soft because the fact they are representing consumers does not matter. Will they have access to the information which the bank, in its supervisory role, has collected about individual firms? I suspect they will not. Will they receive a report stating that a firm has been investigated, the facts of the matter have been outlined and recommend that the money be paid out or will they be presented with a cheque and asked to sign it. I suspect the latter will be the case, but, perhaps, I am wrong.
The Deputy is correct. The specific and important role without repeating myself ad nauseam, is to set the charges and the funds.
They have to consult with the bank.
They will notify the bank but that is their specific role. They will set out the structuring of the funds.
I suspect they will not have the resources to collect the information and set the charges without going through the bank and using its good offices. The reality is the bank will also do that. There will be a formal decision noted at a meeting of the company but the bank will do all the research work and make a recommendation.
I do not accept that. That is vested in the investment company. A board of directors will be appointed and they will use whatever sources they have to make their assessments. Perhaps the Central Bank will be one of them. They should consult and notify the Central Bank, as the supervisory authority, as to the charges and structuring. I do not see anything wrong with that. That is the power of the investment company. It is up to the directors who will serve on that company to utilise and maximise their role and powers under the Act. That is why we are here. While this discussion is interesting and the issues are important - Members from all sides of the House are aware of them - this is not the vehicle to deal with many of them. I am on the consumer side and I take it there is frustration about the matter. I wish there were six or seven obvious bodies of consumers we could label. There may be and I have no doubt there will be other bodies on the consumer side, be they people who invest in intermediaries or elsewhere.
Under the Bill the Minister cannot appoint individuals who he thinks or hopes might be representative. The intention is that those appointed will represent consumer interests and fulfil their role on the board of the investment compensation bank to which they will be appointed. It is much easier on the industry side because there are obvious bodies in place but we are breaking new ground here. Perhaps it comes back to the legitimate point made earlier by Deputies, whereby under various Acts in recent years consumers' interests were not uppermost in people's minds. This is a start in that direction in that for the first time in financial legislation we are trying to change that. We must see how this works in terms of its practical operation down the road.
The Minister is a bit like the good musician, he is going up and down the scale. When challenging him previously about the extraordinary powers vested in the company in the catch all provision in section 12(3) he said not to worry because the people in the company will only be putting the money together and paying it out and there is not much to it.
I did not say that the Deputy should not quote me incorrectly.
I am not quoting the Minister but pressing him. If I am pressing him incorrectly he can come back on it. As I understand it he categorically stated there will be no investigative role. Deputy McDowell said that as these directors will be doing nothing there is no need to worry about them. When questioned from a different angle the Minister said they have a real function and can use all their powers. The two sides do not add. To return to the point under discussion, it would be prudent for the Minister to move an amendment on Report Stage to suggest that in the opinion of both Ministers, if there were not sufficient bodies to represent the interest of investors, the power to appoint directors would devolve to the company. I know the departmental official is pointing out subsection (6) under which they can be appointed from the one body, vis-à-vis the Consumer Affairs Association, but there should be a provision that individuals may be appointed by the Minister or Ministers if in their opinion there is an insufficient number of bodies representing investors at a particular time.
Those who have been in Government know that by this time, if any thought was given to the phraseology before it was included, the Minister should have a note outlining what the prescribed bodies are likely to be. I am confused as to whether or not there were discussions with officials in Kildare Street. Perhaps the vagueness results from too much discussion. If the Minister for Enterprise, Trade and Employment prescribes an individual under subsection (4)(b), that individual must become a director of the company. In such circumstances she will not be prescribing too many individuals. She might prescribe Willie Fagan, but not too many more as the subsection states, "in the case of individuals so prescribed, the Company shall appoint each such individual to be a director of the Company". Under subsection (4)(a) it is difficult to say which body can be so prescribed. I presume it is open to the Minister to prescribe the Consumers Association of Ireland which, if it exercises its imagination, could nominate an excellent director. However, saying this is a major step forward for equality of representation for consumers is not a very convincing answer to the case being made by the Minister.
I specifically named a body. It is not my fault that there is only one obvious body, namely, the Consumers Association of Ireland.
The Minister is missing the point. Having such difficulty finding bodies is not the fault of the Minister. However, if this is the case, why go for this wording? Why not say, "the Minister responsible for consumer protection shall appoint six members to represent the consumer interest on the board"? Alternatively the section could state that "an equality of members on the board shall be appointed by the Minister with responsibility for consumer affairs".
This precise issue is catered for in section 18(4).
With respect, it is not. I know the Minister is getting advice that it is catered for, but section 18(4) says the Minister may prescribe bodies or individuals who represent the interests of clients of investment firms. This suggests persons with a particular existing role in protecting the interests of clients in investment firms. It seems a frightfully leadránach way of doing things if it is simply intended that the Minister should appoint the directors.
The Deputy is imposing that interpretation which I have not given. That is not what is meant by the section. Who will directors of the investment compensation company represent if not clients of investment firms? The directors do not necessarily have to be involved in that business, but they will be asked to represent clients of investment firms under the Bill.
I do not think there is any problem in terms of nominating people to represent the financial services industry. However, there is a problem with the mechanism being used to appoint persons to protect consumer interests. There are no bodies apart from one which comes to mind under the relevant provision. This leads to a problem unless all representatives are appointed by that body. It is correct that under section 18(4) the Minister may appoint individuals, but they will be required to have some prior experience of protection of clients of investor firms. This is an extraordinary, convoluted manner of achieving the desired end. The Minister could simply have included a provision, common to legislation since the founding of the State, allowing him appoint directors of the company. The Minister for Finance could be responsible for the financial services representatives and the Minister for Enterprise, Trade and Employment, who has responsibility for consumer interests, for appointing others. Provision should also be made for the appointment of directors by the Consumers Association of Ireland if that is what is desired.
I named the Consumers Association of Ireland on three occasions and the Director of Consumer Affairs. I am not in a position to name further bodies or individuals as I do not know who the Minister for Enterprise, Trade and Employment may wish to appoint. She may appoint individuals, but I am providing for future possible consumer representative organisations which may fit neatly into the provisions of the Bill. I do not accept the premise of the Deputies' argument that the board is some type of rubber stamping organisation. Establishing a board which provides for consumers to tell investment companies what they must pay into a compensation fund is a major step forward. It provides strong authority to individuals who are members of the board of the company. This is the fundamental issue at the heart of the Bill and the reason it is important the consumer interest is represented. Members will be fully au fait with the deciding process concerning funds.
A number of different compensation funds will be established. This will be a complicated and detailed process and I am delighted consumer interests will be represented, even if representation is in the form of only one association. I wish the Minister for Enterprise, Trade and Employment well in finding people to represent the interests of the consumer. The Bill provides for huge power which has never previously been given to consumers or their representatives. It might not embrace everything we have discussed but it is a big step in the right direction.
I mentioned the free flow of information between the company and the bank. We are familiar with the restrictions placed on the bank in terms of the flow of information it gets from exercising its supervisory role of the banking sector. I wish the Minister to reassure us that there is no such prohibition on the bank sharing information with the company and its directors, including the consumer representatives, so that if it comes across information in exercising its supervisory role the consumer representatives will have access to it.
There is a question regarding the role of the Central Bank in terms of representation of consumer interests, and where the line is drawn in practice and in law. A group is currently examining this matter and I am not prejudging the outcome. The conclusions reached will be given effect to.
The Minister is missing the point I am making. Under section 16 of the Central Bank Act, 1989, the bank is prohibited from disclosing information it comes across in the exercise of its supervisory role. Does prohibition on disclosure extend to the directors of the investors' compensation company?
The Deputy is correct, that was the position. I was unhappy with it and have tabled an amendment to go some way towards overcoming that specific provision in relation to the investment company which I felt was too strong.
With the agreement of Deputy Noonan, I suggest one decision should suffice in the context of amendments Nos. 1a to 1l.
We all agreed the principle involved on Second Stage. We are trying to improve the Bill and have a real debate on Committee Stage. There are many loose threads and the Bill is not a good piece of work. However, we agree with its central objective. I will return to the issue on Report Stage but agree to withdraw the amendments to allow the debate proceed.
Amendment, by leave, withdrawn.
Amendments Nos. 1b to 1l, inclusive, not moved.
Section 17 agreed to.
SECTION 18.
Question proposed: "That section 18 stand part of the Bill."
On section 18(5), the Minister goes to great rounds to put the two Ministers on an equal footing and they will proceed by agreement on appointing directors. However, the Minister vests exclusive power on the Governor of the Central Bank to appoint a chairperson and deputy chairperson. What was the thinking behind that? Why did the legislation not state, "the governor in consultation with the Minister"? Was there a legal reason or does it relate to the independence of the bank? Is it not normal to consult the Minister on this matter?
The Deputy rightly pointed to the equality of the approach which I am trying to achieve between the Minister for Finance and the Minister for Enterprise, Trade and Employment in representing investors on one side and consumers on the other. It was felt the governor of the Central Bank should have an independent role in appointing the chairperson and vice-chairperson and that it should be removed from the other two individuals who will appoint the board. It was felt there should be no question of one side or the other being in a position to nominate a strong individual from one group. That was the right way to proceed in that we are underpinning the independence of the chairperson and deputy chairperson.
That is a strong reason to which some weight should be given. This is a democracy and the concept of accountability has moved further up the political scale each year since I became a Member in 1981, and God knows in recent years it has become the primary consideration. We have little accountability over the Central Bank for good and sufficient reasons, that is, so the bank is independent in the exercise of its function. By giving an additional power to the Central Bank, which is not covered by primary Central Bank legislation, issues of accountability arise. A way in which there could be some accountability over the actions of the governor in this respect would be to amend the legislation to state "the governor of the bank in consultation with the Minister". It ties into the democratic process an office holder, who in carrying out his primary functions from the day of his appointment, is totally independent of it.
The present office holder, Maurice O'Connell, was very courteous to this committee by fully briefing it on certain matters, which he was not compelled to do. He appeared before the committee because he is that type of person. It is important to tie the office holder into the democratic process.
I take the Deputy's point which is not invalid and, as a practising politician, I subscribe to it. The best way to create a balance between the argument made by Deputy Noonan and that which I put forward, taking into account that the fact the bank is the supervisory authority, is outlined in the Bill. I accept the point Deputy Noonan made about accountability. I hope when we see the committee's conclusions transparency and accountability will be more evident in a raft of areas in which the Central Bank is involved. The governor is required under the Cental Bank Act to appear before this committee.
He is required to appear before the committee only in respect of administrative matters. He does not have to discuss his real business.
I did not set down those rules.
I am not disagreeing but it is not a full answer to say the governor must appear before the committee to discuss the business of the Central Bank; he does not. He may discuss administration in the bank, the number of employees he has, his administrative budget and so on. The compulsory powers of this committee to require the governor to attend and answer questions is so limited as to be of little consequence to the manner in which the country is run. I am glad we have a governor who agreed to come in and discuss other matters in an open way because he did not have to.
We have a greater difficulty here in that we are clearly moving towards a situation where the supervision of the financial sector generally will be concentrated in one body, presumably the Cental Bank. This is just another step along that road. We have not stood back and taken a general view on how we want the bank with those enhanced powers to be accountable and whether we want that to work through the governor exclusively or through the constituent parts. In five years time when the bank is responsible for supervising the entire sector, probably ranging from credit unions to the post office to insurance companies, do we want to rely on the Central Bank governor as the sole accountable person or do we want the individual constituent parts to be, in some way, responsible? I get no sense from the Minister, for which he can perhaps be forgiven because I do not have an available answer, that a great deal of thought has been given to this issue and I suggest it is time we start to consider it.
It is an issue which is under discussion. It was raised by the Deputy and others on Second Stage in the Dáil and the Seanad. I responded by saying it was an issue, that we are heading down that road and that we need to reach a point where one specific body is responsible. Who is to know whether that body will ultimately be the Central Bank? My answer to the argument the Deputy put forward is yes, but I cannot deal with it in the context of this Bill.
Question put and agreed to.
SECTION 19.
Question proposed: "That section 19 stand part of the Bill."
We are coming to the core of the Bill - establishment of the funds. It is unclear how the funds will be put together in terms of guidelines on the contribution which will be imposed by the company or the financial service provider. Will the Minister outline his thinking in this regard? Will the contribution relate to the capital value of the investment company, will it be a percentage of turnover, will there be a levy on the number of clients or will it relate to the number of people working in the company?
On section 19(5) and (6), the point made very strongly by Deputy McDowell is certainly reinforced. The supervisory authority, the Cental Bank, may, when approving of a fund under subsection (2) or subsequently, impose conditions or requirements on the company. Section 19(6) states that conditions or requirements imposed under subsection (5) may relate, inter alia, to the fund or funds maintained by the company or to such other matters as the supervisory authority may consider appropriate. As I understand it, whatever funds the Central Bank decides will be made up on whatever basis it decides. The committee does not know what that will be because it is not stated in the primary legislation. We will pass this legislation in due course and the bank will announce it.
I do not think the Deputy believes that. It is certainly not the intention. I do not believe the Deputy wishes me to prescribe in legislation what he suggests in terms of how and who a company might levy and the basis on which that levy may be imposed. The Deputy referred to a number of areas which will come under consideration by the investment company which will be based on the value of the company, its turnover and the number of clients. New companies will be set up which will have no base on which to start in terms of clients but which will come under the aegis of this Bill. It is absolutely right to vest this responsibility and decision-making process in the board, otherwise what would be the point of setting it up. It would not have been correct for me to prescribe that in legislation, because the circumstances will vary from company to company. There may be a number of different funds for which different categories of company will be responsible.
This is a Republic governed by law and not by lawyers, bankers, central bankers, politicians, Ministers or anybody else. The law should be clear and transparent. If we enact legislation which will impose significant charges on investment companies, banks or financial houses, we would need to know the basis on which they are being imposed. It is not good enough to pass a section which empowers the Central Bank in this way.
If the power is vested in the Minister there would be a regulatory provision to allow him make orders or regulations to deal with the specifics. This would give rise to secondary rather than primary legislation, which the Houses of the Oireachtas could examine further and annul or affirm. However, in this instance the legislation empowers the Central Bank to establish the fund on any basis it likes.
The Minister of State is not in a position to read a briefing note which would give an indication of the basis on which charges will be levied. That is not good enough. I would like to know if I am missing something here, if something will emerge subsequently or if there is something on the record of the Seanad debates which indicates how the fund will be put together. At present I have no idea how the fund will be put together. I do not know the basis of it, or whether it will be onerous on companies.
On Second Stage the Minister of State said he would not wait for a financial house to crash before the fund is put together. It will be put together in anticipation of the prospect that compensation will be required in due course because, inevitably, things go wrong. However, he has not indicated the kind of levies that will be put on companies. The empowering provisions are included in subsections (5) and (6).
If I was to adhere to the Deputy's suggestion there would not be much point in establishing the investment company or the board of directors because it might be better in such circumstances for the officials of the Department of Finance and the Minister to put it in place. This is a very complex area because the basis of each company's position will be different, although categories may be similar. It is not my position nor that of my Department to prescribe this. The investment company is being established for that purpose. When it has the relevant information it will decide on the size of the fund, make a best guess on how the market is likely to go and whether there will be a crisis at some future time. It will not know, but it must make reasonable assessments.
The Deputy is correct in that I want this company to be established immediately and not when a crisis arises. However, we want it to be fair, reasonable and equitable so that all involved will subscribe. There was wide consultation with the industry and consumers on this legislation. The Director of Consumer Affairs was involved.
Did the Minister of State consult the Central Bank?
Yes.
Did it give any indication as to how it proposes to put the fund together or to establish the guidelines to allow the company put the fund or funds together?
I do not have a note on that but I have researched the matter. I have asked about the fund and how the amount to be contributed by companies would be established. I was told that had not been decided but that obvious criteria would be used, such as the number of company clients, the capitalisation value of the company, perhaps the number of employees and the turnover of the company. If a new company were to be established, different factors would be considered.
If they are obvious why are they not being enshrined in the section, which is normal practice?
If I do that other factors could arise.
It is the job of the Minister of State to provide for these factors. He is proposing the establishment of a compensation company, the directors of which will be appointed by bodies which do not exist yet but which may exist in the future, and the establishment of a fund on a basis which he cannot explain.
I can explain it; the Deputy is adopting a very flippant approach.
That is what the Minister of State is proposing. It is ridiculous.
It is not ridiculous. I have explained the position on three or four occasions and over the past couple of hours I have been at pains to explain the basis of the Bill. The Deputy wants me to do the job of the company and others and not to bother with them, in which case the Department of Finance and the Minister would run everything. There is a fine line to be drawn in framing legislation and allowing the company to establish a fund in an equitable and fair manner.
The Deputy appears not to trust the people involved. He does not believe it will be equitable, or that freedom of assessment should be made available to an investment company. That is a poor view to take of a company, whose board will make these decisions. He is suggesting I should appoint consumers and that I should prescribe what they can or cannot do before they take up their appointments. I am trying to give them freedom to make assessments and to involve them in a real process.
The Minister of State should not have made personal charges against me, especially about my opinion of persons who still do not exist in their corporate identity. He is very testy today, as if he resents Committee Stage.
No.
We will not wave this through. We will have a proper Committee Stage debate.
The Deputy knows me well enough to know that is not my attitude to Committee Stage debates.
It is my job to be contrary if I wish in this debate.
We agreed to reassess our timing at this point. It appears we have a wide area to cover yet. I suggest a sos of 15 minutes.
Given the way the debate is proceeding I do not see any possibility of Committee Stage concluding today.
I will ascertain if it is necessary to complete Committee Stage today.
I agree with the thrust of Deputy Noonan's views. It would not diminish the discretion given to the company if it is provided that in deciding the level of charges various prescribed factors, inter alia, will be taken into consideration. This would provide a broad map to the company to assess the basis on which charges are levied. It is envisaged in subsection (7) that there will be classes or categories of firms and that funds will be established to deal with them. What does the Minister of State have in mind in making that prescription?
Companies will differ in the marketplace in terms of their size, turnover and the number of clients they have. In assessing this I presumed that if the investor company sees that a formula for a group of companies fits certain criteria they may decide to use it. They do not have to establish a large number of individual compensation funds but the minimum number possible. A broad formula which would encapsulate a number of companies would form one fund.
I do not understand why there should be more than one fund. It makes sense to have one fund to pay compensation irrespective of the size or type of the company which goes bust or has defrauded clients of their money. Why limit it in that manner? If you intend to do it by company size, why say that only the charges paid by medium-sized companies are available for compensating clients of those companies?
We have left open the possible number of funds. There are arguments for one large scheme in terms of mass but it may work out better to have two funds when one is restricted, may deal only with specific product producers and may not handle cash, a provision in the Bill about which I spoke at length on Second Stage.
I do not regard this as a major measure although it would be unfair to use words like window dressing. This is a desperately needed measure, apart from the European impetus, to maintain confidence in our financial institutions following the experiences we have had over recent years.
In the context of the caps being imposed on compensation payments, it cannot be represented as a major step forward for consumers. We are concerned about the lapses which have occurred in the financial services industry in recent times and now we have an Investor Compensation Bill. That sounds good but after the collapse of Taylor Investments, before and subsequent to my installing an authorised officer, very few of the investors would have been over the moon about qualifying for 20,000 ECUs compensation. The points raised by Deputy Noonan about the meanings of subsections (5) and (6) must be seen in that overall context.
Even if it is a minimal measure it is reasonable to expect that we ought to know how this is to be done. There is a guideline about the European directive but the people who have to think this through should do so before it is reflected in legislation. This is a learning exercise for all of us. The financial services industry may be monitoring us but the clients of investment companies do not know what is happening. It is important, therefore, that if we cannot be precise there ought to be an indication of the Minister's thinking on how this will be done.
I experienced this with the attitudes of otherwise progressive directorates in the Commission in the run up to and during the Irish presidency of Europe. The consumer directorate is considered the poor relation and an entirely different attitude is displayed by a number of directorates and commissioners when it comes to dealing with financial products. This is a modest measure and therefore seeking clarity on how that measure is to be implemented is reasonable.
I may have been wrong to present the Bill as the be all and end all and if I conveyed that, it was unintentional. I was trying to reflect the movement from a position where there is no protection for investors to one where there is at least some protection. The Bill implements the EU directive and that is important. It implements the 20,000 ECUs compensation which can go some way for some people. It would be wrong to say that the Bill does nothing. To try to set these areas down in legislation in advance is complex and would be the wrong way to move forward. I saw logic to that when I was discussing it myself.
This is an insurance policy for the individual consumer. The companies will not bear all the costs for the compensation fund. The individual consumer will have to bear some of the costs but this is a step towards putting in place some measure of comfort for the small investor that, in the event of being defrauded out of their money, there is some recompense in place, albeit £15,500. Arguments will arise later about that sum being substantially larger but that is the essence of the Bill. I cannot recall legislation where a Government Department established a compensation fund akin to this and prescribed in its actions how it would accumulate funds. It could tie us in knots if we were to try that with this Bill. We have to look at what this Bill sets out to achieve and how it is to achieve that. It is modest but it is an important step from having no form of protection in place.
That is a fair way to present the Bill but Deputy McDowell pointed out the normal procedure under this section is that in setting up the fund and imposing charges on participant companies, the company would have regard inter alia to the following. The Minister made a strong point which favours the point we made. He said that whatever way the fund is constructed and whatever charge is imposed on the finance houses, they will pass it on to the consumer.
I said that on Second Stage.
Yes. That reinforces my view that people should have a clear view of what is involved. If it will result in extra charges for the consumer as an investment premium for each investor to protect the interests of everyone against the eventuality of a company going bust, it would be useful to know if we are talking about pennies or pounds. It would be useful to know if this company would accumulate £1 million in its first 12 months. Does the Minister think it will have a fund of £10 million after five years if there is no draw down? The Minister is putting us in a strange position. The company will put together a fund, the basis of which is unknown under the law, apart from the Minister's explanations, but guided strongly under sections 5 and 6 by the Central Bank. We do not know the amounts which may be levied on any individual investment company or if a levy system will be used. If the cost is to be passed to the customer, as the Minister says it will, we do not know what kind of imposition it will be. The Minister is giving us no help by providing a general shape or indication as to whether it will be a large or a small amount of money. This is not normal practice - if something is not in the text of the Bill, usually Ministers at least paint a picture to the satisfaction of Opposition Deputies. We are viewing this very much through a dark glass.
If that is how the Deputy feels I regret it. If the positions were reversed I do not think there would be more elucidation for the reasons I have outlined, which I will repeat succinctly. The firms will have to pay for compensation and the commitment to that is open-ended. No default means the firm will only have to fund a reserve which will be enough to meet reasonably foreseeable obligations. Even the firms will not know what they are, they will be guessing. If there are defaults, investment firms will have to foot the bill and what the defaults might be is "unknowable" also, so the firms might have to review the position to see if there is enough. Funding will have to be fair but the formula or formulae will have to be worked out to take account of all these "unknowable" circumstances. I do not have a crystal ball and if I do not know what may happen or what formula may be necessary I cannot prescribe them in law. I am appointing a board of directors and an investment company to work out those details and to ensure the system is fair. They can take into account the whole market and spend their time working out the possibilities.
An important point to which the Deputy alluded is that one reason I kept the compensation in line with the directive, at a level which he feels is low, was that if I set it too high I was afraid the charges to be levied would be so prohibitive as to make this unworkable from the beginning. We set the level at 20,000 ecus to give it a chance to work. It will not be substantial at the beginning.
The Minister chose 20,000 ECUs because that is what is provided in the directive, and when he widened the scope of its application he decided to keep it at that level.
Yes, for the reason I outlined.
However, when I moved an amendment to change the limit to 40,000 ECUs he did not give me any information on which I could base a judgment on whether my amendment is reasonable. I do not know what he is going to do with the fund so I have no idea what effect it will have on the consumer, or whether in attempting better to protect the consumer I am imposing a charge on all investors. Can the Minister see the difficulty?
I can because mine is the same. This is "unknowable" and I do not have a crystal ball anymore than the Deputy does. That is why I am trying to put together in the investment company a group of people who can make a judgment. They will be guessing to a degree because they do not know what may happen in future. Nothing might happen, everything could go well and the fund may grow to become substantial, so that if a big problem comes along we could deal with it.
The Minister is speaking as if he is at White Paper stage rather than presenting a Bill. There are so many things he does not know that I do not think he was ready to legislate.
On this point, if I was here for the next 100 years I would not be able to predict the future.
How will the company know any better? The Minister says he has no crystal ball - where will the company find one, especially when it has been set up without particular guidelines, the Minister is requiring the Central Bank to provide them subsequent to the legislation, and he cannot give a strong indication of what they might be? He also has no idea of the size of the fund - will it be hundreds of thousands or millions of pounds?
I hope it will be sufficient to meet what the market demands but I cannot be sure——
What is the estimate of that? What prediction has been made of what the market will demand? Surely some thought has gone into what the size of the fund will be, compared to past practice, so that individuals can be compensated to the tune of £15,500 per person.
That is the point - the reason the Bill was drafted in the first place is that there is some experience of companies going bust in these circumstances and money going missing. Can we use the experience of the past five to ten years to work out how much money would have been necessary?
I cannot because I am not convinced that looking to the past will provide me with a prediction of the future, but the company can if it wants to.
The Minister said he wanted to address this immediately, which would mean finishing Committee Stage tonight, which does not look likely.
We should finish at some stage tonight.
Be that on your head, chairman, you are not intimidating me.
Report Stage is scheduled for next Tuesday so we have to finish this evening.
I do not think that is sacrosanct but we can discuss it separately. If the Bill were enacted in time to be made law before the autumn there may be another failure in the second half of this year. Will the company borrow to provide against that or will it immediately levy companies? How will it provide for an immediate crisis?
If that is to happen, which it could, it would take time to establish how many clients were involved, the funding concerned, where the money had gone, etc. If the investor compensation company was in place - which it would be, presuming this legislation is passed - it would have to look at the matter in that context and make an assessment, but it would not know the position at the beginning because it would take time for it to unravel to let us find out what is due, what is owed and what has been defaulted or defrauded. We are talking specifically about a company being fraudulent in its operations as opposed to anything else and these things have to be established.
Are we talking about the compensation company exercising a right to borrow or to levy the money from member companies?
The compensation company has a right to borrow with the approval of the supervisory authority. In the circumstances outlined by the Deputy, where the funds might not be in place, I imagine that is something it will consider.
Question put and agreed to.
For the information of Members, Report Stage is scheduled for next Tuesday and I have been requested to ensure Committee Stage is completed this evening.
I do not know what the Minister may say about that and I have no wish to hold up the Bill but it should receive proper scrutiny. If there is an imperative on finishing Committee Stage it is the Minister's imperative, no such imperative was mentioned at the Whips' meeting last night. We are sitting until midnight next week and we are allowing only 30 minutes for the Report Stages of various Bills, so there will be no tears from any of the Whips, including the Government Chief Whip, if this Bill is not taken. There may be an imperative from the Minister's point of view and I do not presume to know about that.
Are Deputies agreed on a sos of 15 minutes?
The only imperative is to implement the date of the directive, but that is not possible as the Dáil is rising.
We are in unexpected difficulties. The basis of setting up committees was that they would have time to properly scrutinise Bills. On every section we have discussed, Report Stage amendments have been jumping off the text. However, we will have only 30 minutes to get it through the House on Thursday. If that is the legislative process then they did better in Romania with Ceaucescu because they did not have the appearance of democracy. I am unhappy that we have to get this Bill through this afternoon. I know it is Thursday and people want to leave but what will happen if the three of us go? Will the Bill still be put through?
Having looked at the proposed Order of Business for next week it is clear that there is plenty of flexibility in the sense that things can be moved around. There are bits and pieces of Bills being taken and it does not seem imperative that this Bill be taken on Tuesday rather than Thursday or Friday.
If Deputies agree to a sos for 15 minutes we will make inquiries.
Sitting suspended at 4.25 p.m. and resumed at 4.50 p.m.
Committee Stage of the Bill must be concluded by 1 p.m. on Tuesday next at the latest.
Under what Act or order or under whose compulsion must this be done? I thought the committee was independent in the exercise of its functions.
I have been informed that it was agreed by the Whips that Report Stage would be taken on Tuesday.
Agreement of the Whips is merely a gentleman's agreement between the individuals concerned. It is not binding on the House until the House agrees to it, something it has not yet done.
I can operate only on the information given to me by the Government Whip.
My understanding is that Report Stage is scheduled for relatively late on Tuesday, at around 6 p.m.
I understand business is already agreed for Tuesday. With committee rooms being occupied and other business being dealt with, the facility does not exist to continue beyond 1 p.m. on Tuesday.
Is it the absence of a room in which to conduct business that is the problem?
It seems so.
Would three and a half to four hours be sufficient on Tuesday morning? I am willing to make myself available if that is the wish of the committee. I am in its hands and will assist in any way I can. Another three or four hours might suffice. I will make myself available for whatever time Members wish to start on Tuesday morning.
I am speaking only for my group and Deputy McDowell might have a different view when I say that we will try to be as accommodating as possible, provided we do not operate on the basis of compulsion. It is one thing if we are making decisions to accommodate everyone including the Minister. However, if someone states that the committee must do something by a certain hour on a certain day, I would have a different view. These committees are only barely on their feet and one which rolls over as soon as the Whip says so or because of a gentleman's agreement is not worth its salt. The Order of Business of the House will not be established until next Tuesday morning and the ordering of Report Stage of the Bill for then does not have any legal basis until the Order of Business is agreed. I do not understand why Report Stage cannot be delayed. A great deal of business is being dealt with next week and we are sitting until midnight. Only half an hour to an hour is being allotted to Report Stage at any rate.
I live in Dublin so it is easier for me to be flexible. Those afflicted with residency outside the capital would understandably take a different view. It may well be that two and a half hours would be sufficient to complete Committee Stage, but there is a principle involved in guillotining Committee Stage proceedings and it is an important one from our point of view. Unless there is a pressing reason, the proceedings of a committee should not be guillotined by an order of the House. The only occasion on which I remember it occurring was with the Finance Bill, which was understandable because a statutory deadline must be met.
I agree with Deputy Noonan that we should not operate under compulsion. My colleagues and I have said we are willing to continue sitting for as long as possible tonight and to finish on Tuesday morning.
I must leave at 5 o'clock. However, I am only one member and, if the committee wishes to continue with its work, I cannot stop it. It would be interesting to see how many would turn up if we were to call a vote.
I do not wish to interfere with the working of the committee but I would not like to proceed if Deputies on the Front Bench were not available and that is reasonable. I am willing to accommodate the committee. I understand the point made.
I am prepared to adjourn at 5 p.m. and to be here at 10.30 on Tuesday morning. I do not want a guillotine motion saying we must finish at 1 p.m. but I will do everything I can to facilitate the conclusion of Committee Stage by that time. I cannot guarantee that will happen but I am not agreeing to a guillotine motion to that effect.
That is reasonable. I propose we adjourn at 5.30 p.m., resume at 10.30 on Tuesday morning and discuss the timing of Report Stage with the Whips in the meantime.
A half hour at this stage means a lot in my timeframe; I would rather have the half hour on Tuesday morning. I have an important function which I am trying to reach; I know that is my problem, not the committee's. Deputy Noonan's suggestion that we adjourn at 5 p.m. would help me.
I propose that.
We should take a number of independent, stand-alone decisions. We should take a decision to adjourn at 5 p.m. which will help everyone, and to meet again at 10.30 a.m. on Tuesday. I would not be here earlier than 10.30 a.m. as I must travel 125 miles and, were I to arrive any earlier, traffic would slow me down. Could we make a third decision that the Chairman would consult with the Government Whip to see if a more reasonable timeframe for Report Stage could be obtained for some time later next week? If that cannot be done, we will have to take Report Stage when it is scheduled in the House.
I will propose we adjourn at 5 p.m. and reconvene at 10.30 a.m. on Tuesday. We will also discuss the timing of Report Stage with the Chief Whip. Is that agreed? Agreed.
The Select Committee adjourned at 5 p.m. until 10.30 a.m. on Tuesday, 30 June 1998.