We now resume consideration of the Central Bank and Financial Services Authority Bill 2002. We had reached section 27 and will start with amendment No. 59.
Central Bank and Financial Services Authority Bill 2002: Committee Stage (Resumed)
SECTION 27.
I move amendment No. 59:
In page 27, lines 48 and 49, to delete all words from and including "Neither" in line 48 down to and including "is" in line 49 and in page 28, to delete lines 1 and 2 and substitute the following:
"None of the following is liable to pay damages arising out of a failure to comply with this subsection:
(a) the Bank;
(b) a member of the Board;
(c) an employee of the Bank;
(d) a member of the Regulatory Authority;
(e) the Registrar of Credit Unions;
(f) an agent of the Bank or of its constituent parts.”.
Section 27 of the Bill amends the principal Act by inserting two new Parts - Part IIIA and Part IIIB - into the Act. Part IIIA is concerned with the Irish Financial Services Regulatory Authority. Section 33C of Part IIIA deals with the functions and powers of the regulatory authority. Subsection (4) deals with the regulatory authority taking such action as it considers appropriate to increase awareness among members of the public of available financial services and the cost to consumers, risks and benefits associated with the provision of those services. The bank and the members of the regulatory authority are not liable to pay damages in respect of a failure to comply with this provision. This amendment is to ensure that this immunity is sufficiently comprehensive in the identification of those to whom the immunity applies.
Is it correct to say that this only refers to this subsection about increasing awareness and does not indemnify the bank from any failures in its other regulatory functions?
That is correct but there is a general indemnity elsewhere in the Bill.
Is that an established principle?
I cannot think of any other principle involved in public administration unless Deputy Bruton can bring one to my attention.
Negligence on behalf of a regulatory authority could expose the State to damages if a person's interest was seriously impacted by that failure.
At the end of the day, the State would still be picking up the tab.
What if the State is negligent in duties imposed on it by law?
The Deputy is making the case that if the regulatory authority was negligent and some action was proved there, the recourse would still find its way back to the State.
Are we establishing in this Bill that no matter how negligent the regulatory authority might be, it will never have the possibility of being sued?
Unless it acted in bad faith. Even with that, if it was the regulatory authority itself, recourse would still fall back onto the State. It is like splitting hairs. The State will pick up the bill at the end of the day.
Would it?
Who else would pick it up?
Are we seeking to indemnify the State?
No. Section 69 of the 1997 Act has more or less the same wording.
I did not appreciate that a regulatory authority, no matter how negligent, could effectively say that it is just too bad that it did not succeed in preventing this abuse that resulted in the loss of money. I did not know that one could simply indemnify oneself in that situation.
Unless it is shown that the act or omission was in bad faith. That would be normal enough in legislation.
Fair enough.
I feel that in these matters, the State always ends up paying the piper in any event as there is nobody else to do so.
Amendment agreed to.
I move amendment No. 60:
In page 28, lines 25 and 26, to delete "is consistent with the performance by" and substitute "takes account of the obligations of".
This relates to section 27, subsection (8), which states, "In performing its functions and exercising its powers, the Regulatory Authority has a duty to act in a way that is consistent with the performance by the governor and the board of their respective functions in relation to the Bank." This phraseology, to me, means that the regulatory authority is very much under the thumb of the governor of the Central Bank and I suggest, as an alternative wording, that the regulatory authority should "take account" of the performance by the governor and board of the Central Bank of their respective functions. This asserts some independence for the regulatory authority from the Central Bank.
The provision as currently drafted provides that the regulatory authority must act in a way that is consistent with the performance of the governor and the board of the Central Bank of their respective functions. There is an appropriate balance in the way both the bank and the regulatory authority are required to carry out their respective functions. Given that the functions of the governor and the board are statutory functions, the Deputy cannot, I presume, mean to suggest that the regulatory authority would act in a manner that is not consistent with those statutory functions. The term "consistent" is the appropriate one and I am consequently unable to accede to the Deputy on this amendment.
Essentially, the Minister for Finance is relying on the word "respective" to ensure that the regulatory authority remains independent in its own sphere.
Yes.
Amendment, by leave, withdrawn.
I move amendment No. 61:
In page 28, line 41, after "Governor" to insert "but may report its concerns on such a matter by presenting a report to the Minister".
This amendment is, again, to provide the regulatory authority with some recourse to the Minister in reporting issues of serious concern. The existing provision effectively provides that the regulatory authority can only work through the governor of the Central Bank. In order to try to provide some independence for the regulatory authority, it is worth ensuring that there is direct recourse to the Minister in matters of significant concern.
The Bill requires that where any matter arises in connection with the performance of its functions relating to the stability of the State's financial system, the regulatory authority may act on it only after consultation with the governor of the Central Bank. The amendment proposed by Deputy Bruton allows the regulatory authority to report on its concerns by presenting a report to the Minister. I already have ample powers under this Bill to seek reports of the regulatory authority. Provided that a report made here would be consistent with the framework for reports laid down in section 33O. on page 37 of the Bill, which is phrased in such a way as to address European law issues, and provided that it did not interfere with the independence of the CBSSAI, I would be prepared to consider the Deputy's amendment. Perhaps we could return to this at Report Stage.
Amendment, by leave, withdrawn.
I move amendment No. 62:
In page 29, line 28, after "Bank" to insert "provided these guidelines are in writing and published in Iris Oifigiúil”.
This is intended to try to copperfasten the relationship between the Central Bank and the authority. It provides that while guidelines can be issued, they should be provided in writing and published in Iris Oifigiúil so that there is at least a consistent public transparency in the way the Central Bank might seek to issue policy or other directions to the authority.
The regulatory authority may be issued with guidelines by the governor or the board as to policies or principles that the authority is required to implement in performing functions and exercising powers of the Central Bank. The Deputy proposes that any such guidelines be issued in writing and be published in Iris Oifigiúil. I have no difficulty in accepting the Deputy’s amendment, which will ensure transparency, but I would like to have the text examined by the parliamentary draughtsperson and return to the provision on Report Stage.
Amendment, by leave, withdrawn.
I move amendment No. 63:
In page 29, line 44, after "designate" to insert "the Director of Consumer Affairs and".
This part of the Bill concerns the Minister's appointment of the regulatory authority itself. It provides that the Minister may designate the holder of a specific office as a member of the regulatory authority. My amendment seeks to provide that one of those persons be the Director of Consumer Affairs, while not constraining the Minister from appointing other people who have a specified office to the regulatory authority. It is important that the Director of Consumer Affairs, who will have significant common interests with the regulatory authority in protecting the consumer, should have the opportunity to be present on the authority.
As the Deputy is aware, the consumer functions of IFSRA will become the responsibility of the statutory consumer director within the authority, and the consumer director will be a full member of the authority. While I could, as the Bill stands, appoint the holder of any particular office as a member of the authority, I see no reason at present to recommend that the Director of Consumer Affairs be so designated, given the consumer director's presence as a member. Consequently, I will not accept the Deputy's amendment.
The Deputy must remember that the functional areas now in the charge of the Director of Consumer Affairs relating to credit institutions will be transferred, as will the relevant staff, to the new authority, IFSRA. The people in the office of the Director of Consumer Affairs who deal with these areas at present will be transferring, subject to their rights not to go and so on, to the new authority. Therefore, the Director of Consumer Affairs will no longer deal with those particular issues. Under the Bill, a consumer director has a statutory right to be on the board of IFSRA, and that person was appointed in the last week. Consumer protection relating to financial transactions is now encompassed within the new authority. Neither the current Director of Consumer Affairs nor her staff will any longer deal with these matters. It would be contradictory, therefore, to have the Director of Consumer Affairs on the board of IFSRA given that a consumer director will already be in place specifically dealing with these particular issues.
The Minister's argument would be convincing only if the consumer director that he is appointing was independent in the operation of his or her functions. It is very clear in the Bill, however, that the Minister is making the consumer director dependent on the Central Bank, and the regulatory authority can only issue reports through the medium of the Central Bank and is subject to guidelines and directions from the bank. The consumer director appointed by the Minister is very much under the thumb of the bank. This is not an abstract issue. It is well known, for example, that the Central Bank opposes the controls within the Consumer Credit Act 1995 relating to bank charges——
The Deputy might be overstepping the mark there. The Central Bank does not have any objection to the Director of Consumer Affairs. The difficulties lie between the commercial banks and the Director of Consumer Affairs. The Deputy is wrong to single out the Central Bank. The Central Bank has been neutral on this issue. Disputes between individual banks and the Director of Consumer Affairs have been well documented in the newspapers, but this has not involved the Central Bank.
I would be very suspicious of the bona fides of the Central Bank in relation to this issue and sceptical as to whether it would want to protect consumers in the manner laid out in the Consumer Credit Act 1995. I would not be surprised to the see the Central Bank wanting to water down that legislation over time. It is important that the bank's deliberations be informed by an independent voice on behalf of consumers, and the Director of Consumer Affairs has statutory independence in a way that the consumer director appointed by the Minister will not.
At present the Director of Consumer Affairs has those statutory responsibilities so far as there are delays in these institutions. Those powers and functions are being transferred now to the IFSRA. Therefore, the Director of Consumer Affairs will no longer deal with those particular issues.
The Director of Consumer Affairs has all the general powers under the Sale of Goods and Supply of Services Act, which deals with misleading advertising. There are several Acts and provisions that give the Director of Consumer Affairs, who is a persuasive voice on behalf of consumers, significant standing and independence. It would be desirable to have such an independent voice on the board of the authority rather than the consumer director who is an employee of the bank, under direction from the bank, and could not be construed as an independent voice within the authority.
I do not agree.
In relation to my amendments Nos. 40 and 41 which cover similar territory and which the Minister rejected, why is the Minister afraid of having consumer interests clearly and definitively represented on this board? One of the amendments proposed the direct appointment of a person who would represent consumer interests while the other proposed that the consumer director would be on the board. The Minister rejected also an amendment by my colleague, Deputy Ó Caoláin, which proposed that he appoint women members to the board. Why is the Minister afraid to have consumer interests represented? I have the list of the first appointees to the board, a chair and seven members. There are company chairmen, managing directors of a life assurance company, people from the National Treasury Management Agency and a former chairperson of the Revenue Commissioners. Why was the Minister so reluctant to appoint a representative of consumer interests to the board? He made great play of the fact that in this Bill the Central Bank, which won the argument after the McDowell report was prepared, should have control over this authority. He presented the development of the Bill as enlarging the ambit of the Central Bank from its traditional prudential role to also include the broader principles set out in the Bill, including the consumer interest in banking supervision and financial services regulation. Yet he refused adamantly to allow consumer interests to be represented. As worthy as the eight people are whom he has appointed to the board, they are all from the banking, business and insurance sector or from the public services. There is nobody on the list who represents consumer interests and who will care specifically about the regulation which exists as the financial services industry affects individual consumers, be they small business people who often get a rough deal from the financial institutions or individual consumers and families. I do not know why the Minister was so intransigent in refusing to accept my amendments yesterday and Deputy Bruton's amendment today.
We had this discussion at the earlier part of the debate yesterday. The purpose of this particular body and its various structures, which have been debated over a considerable period in many forums and been the subject to many reports, is to give a sharper consumer focus in this area. That is one of the cornerstones of the structure being put in place. As part of the structure, IFSRA has the consumer director as a statutorily appointed person to the board. That person won the competition and is being appointed by the board of IFSRA and is there to represent the interests of consumers.
I point out to Deputy Bruton the powers and functions currently vested in the office of Director of Consumer Affairs are being transferred to IFSRA. The staff will be moved if they wish to go and the consumer director will be responsible for them. The consumer director can come before various committees of the House and is in a statutory position to represent the interests of consumers. I do not go along with the argument that this person is hamstrung in any way, due to the reporting arrangements. The person has adequate powers and will be able to be queried at some length by Oireachtas committee members. She will be able to produce reports which I am sure will be in the public domain frequently. TheNo. 2 Bill will provide for the setting up of a consumer panel. All members of the board are consumers. Nobody is on the board to represent anyone's interest except as a member of the board. They are not on the board as a result of having been previously or currently associated with any particular group. It is clear from the composition and the rules for setting up the board that the board is not set up on that basis. Naturally people have come from other employments or organisations. One would never be in a position to appoint a board if people did not come from previous employments.
I still find it extraordinary that in the make-up of this board we have denizens of the highest levels of Irish commercial life. I have no objection to some of their representatives being on the board but it is extraordinary that there are no representatives of small firms, trade unions, voluntary organisations or consumer organisations which struggle to provide a service to consumers to ensure they get a fair deal. There is one woman on the board. I accept all these people are consumers - I assume they eat bread, drink tea and so on. It is a particularly fatuous comment that because they do these activities they somehow carry the flag for consumers. Consumer interests in a modern economy are a well-defined interest group. I am concerned about groups such as small and medium-sized businesses and individual consumers who are absent in terms of representation from the make-up of the board. The Minister said yesterday that those appointed, following an open competition, came from the prudential side of the bank. The experience they bring to their appointment is one garnered in the Central Bank in terms of prudential banking and the safeguarding of the banking system, the currency and so on. Where is the expertise and the experience in relation to championing the cause of consumers and small and medium-sized businesses who often find it difficult to get a fair deal from the big commercial banks? The same attitude was adopted in regard to the credit unions where the small people have to sit in on a structure meant for big business, big commercial banking companies and big insurance companies.
I do not agree.
IFSRA made a detailed submission to the Minister in respect of this legislation and it has considerable influence on the development of the amendments. I would like to know if the Director of Consumer Affairs was given a similar opportunity and whether her views have been submitted——
Yes.
Perhaps the joint committee could see the views of the Director of Consumer Affairs in case there are other issues that may be of interest.
Yes.
Amendment put and declared lost.
I move amendment No. 64:
In page 30, line 21, after "Authority" to insert "and after the first appointment of the Chief Executive, the appointment shall be made after the holding of a public open competition".
This amendment concerns the appointment of the chief executive of the regulatory authority.
My understanding is that there is an interim board and I expect that the acting chief executive may take on the mantle of the chief executive for a certain period but we should make provision that the appointment would take place after the holding of a public competition. I do not know whether the existing appointment was by way of competition.
It was most exhaustive. At present, the draft legislation provides that it is the other members of the regulatory authority who appoint a person as the chief executive of that authority. As the Deputy is aware, the exception to this is the first appointment made to that position. The present holder of the position of chief executive designate was appointed after a comprehensive open recruitment process, and the appointment was approved by me. I have no objection in principle to the amendment being proposed. However, the provision would have to be redrafted and could be introduced on Report Stage.
Amendment, by leave, withdrawn.
I move amendment No. 65:
In page 31, line 28, to delete "Governor" and substitute "Chairperson".
Section 33F is concerned with the appointment of the chief executive of the regulatory authority, with subsection (9) relating to the circumstances in which a person ceases to hold office as chief executive.
Section 33F(9)(c), as inserted by section 27 of the Bill, states that a person may resign from the office of chief executive of the regulatory authority by giving written notice to the governor. As the governor is not a member of the authority, and as the chief executive is appointed by the other members of the regulatory authority, it is more appropriate that the notice be given to the chairperson of the authority. This amendment makes that change.
Amendment agreed to.
I move amendment No. 66:
In page 32, between lines 27 and 28, to insert the following:
"(3) If a person is to be appointed under this section for a period of more than 6 months, the appointment does not take effect until the Minister approves it.".
This amendment inserts a new subsection into the text of section 33G at subsection (3). The new subsection provides that where a person is appointed as an acting chief executive for a period of more than six months, the Minister is required to approve the appointment. This change is being made in order to be consistent with the other provisions within Part IIIA that deal with acting officers - page 40 of the Bill refers. A similar provision is contained in section 33R that provides for the appointment of an acting consumer director and also in section 33Y - page 47 of the Bill refers - that provides for the appointment of an acting registrar of credit unions.
I have no problem with the amendment but I have a separate question on section 7 of 33F, page 31. The chief executive is allowed to engage in other remunerative employment with the consent of the other members of the regulatory authority. Is that a normal provision in the public service and is there a code of conduct which governs such other employment? If that is the case can we get a copy of that code of conduct? I would like to know the type of remunerative employment that is covered. I am aware the person can be a member of other boards in the European banking system but could it be outside employment in the private sector and, if so, could we see the guidelines?
It would be normal to have this matter with the consent of the other members of the particular authority. I am not aware if there are codes of conduct in this regard. If there are, we will make them available to the Deputy.
This is a developing area of substantial importance throughout the public service and it might be a useful opportunity, given that this is a brand new board, to set out the relationship senior executives of such authorities have given the crossover that is now frequently occurring between the public and private sector. In the United States, for example, this type of activity is clearly regulated and there are clear ground rules under which it is conducted. As this is a new body, I ask the Minister to give some consideration to that aspect and come back to us on it by Report Stage. I do not want to suggest something myself. I would like to hear the Minister's view on it.
I will do that.
Amendment agreed to.
I move amendment No. 67:
In page 33, line 22, after "members" to insert ", other than the Chief Executive or the Consumer Director,".
The amendment being proposed is to exclude the chief executive of the regulatory authority and the consumer director from among those members of the regulatory authority who can be appointed as chairperson.
One of the main features of good corporate governance is not to have the functions of chief executive and chairperson of any board vested in the one person. In addition, both the holders of the positions of chief executive and chairperson, under the provisions proposed in the Bill, are each designated to be directors of the board of the bank. In the case of the consumer director, it would not be appropriate to have a situation where the consumer director, as chairperson, could be in a position to effect a situation which could result in, say, a direction from the chief executive to the consumer director being overruled.
In addition, the good corporate governance argument could also be applied in the case of the consumer director who could be regarded as a type of executive director. For those reasons, therefore, it is appropriate to exclude them from becoming chairperson.
Amendment agreed to.
I move amendment No. 68:
In page 33, line 50, after "instruments" to insert "provided that the Chief Executive has published a report demonstrating that these levies are necessary for recovery of its cost and indicating the performance indicators which are being monitored to ensure efficient and cost-effective operation".
This amendment concerns the power of the regulatory authority to prescribe levies that are to be paid by persons subject to regulation. No one would object to that principle but we should insert a provision as outlined in this amendment. The principle should be that if anyone is being asked to pay for the costs of regulation, it should be demonstrably clear that the system is being run efficiently and that the costs recovered through those levies should only be those required for the purpose involved. There should not be an element of hidden taxation within these levies.
The McDowell group recommended that funding for the operation of IFSRA should come from the industry itself. Levies to fund the authority will be prescribed by the chief executive, with agreement of the other members of the authority, by way of regulations. Any regulations made by the chief executive must, in turn, be approved by me as Minister for Finance. The chief executive is accountable to the Houses of the Oireachtas through the provisions of section 33AM, which require him to attend before the appropriate joint committee charged with examining matters relating to the bank and provide any information sought by the joint committee. There are sufficient accountability provisions in the draft legislation already, along with my proposed amendment to require the preparation of an annual report, to ensure that the chief executive of the authority will have to explain that levies are necessary and will be used efficiently and effectively. Therefore, I must reject the Deputy's amendment.
If the ESB was looking for the right to impose levies on the users of electricity would the Minister not ask it to demonstrate that it was necessary to impose these costs? We would be up in arms because we would say this monopoly ought to be subjected to some tests of efficiency and effectiveness in the charges it is imposing. The Minister is setting up a monopoly regulator but he will not provide that it will have to demonstrate that the levies it is imposing are required for the purposes intended and are consistent with the efficient operation of its office. I do not understand the Minster's reluctance to give this minimum protection to the people who will pay the levies. In this instance they may be financial institutions but the same principles should apply whether they are rich financial institutions or anyone else. They should not be subjected to hidden and unaccountable levies.
That is a fair point but there will be a consultation process with IFSRA. Furthermore, an industry consultative panel will be set up under Bill No. 2 which will have, among its functions, the right to give views in relation to levies.
The Minister will not give them the leverage they need to make the levy effective.
Before the levies are approved they have to be put by the chief executive to the board of IFSRA which will consider them. They must then be sent to the Minister for Finance for final approval and we will subject them to a great deal of scrutiny. They will then be imposed. Following that, the chief executive will be brought before a committee of the House where he will have to explain his actions. There is adequate political accountability.
The Minister will have to admit that there have been occasions where Ministers have sought to use levies such as these to collect revenue. That may appear strange but Ministers might decide that this was a cute way of adding a few bob to the Exchequer or reducing Exchequer costs. We know this body will cost €20 million to run. There could be a temptation to use these levies to generate surpluses or to run other costs that should properly fall on the Exchequer by funding them through these levies. There should be this sort of protection in the section dealing with levies because it will give the users councils the leverage they need to be effective as bodies representing both users and the consumer panel in respect of other provisions to which, unfortunately, the Minister is not too willing to agree. The Minister should accept the principle of this amendment.
As the Deputy is well aware from his vast experience, Ministers for Finance would never think of raising money like that, least of all myself.
The Minister would never raid the Central Bank or the social welfare fund.
Even if someone were to succumb to such temptation, it would not be possible for me to appropriate the surplus funds of the regulatory authority because those funds will stay there. It is my firm intention, and I am sure future holders of this office will be of the same view, that the regulatory authority will pay for itself, in as much as it can, by changes, etc.
There is no problem with that provided the Minister inserts the protection provided in this amendment.
If there were was a surplus, it cannot——
No, it would be applied to other purposes, which would rightly fall to the Exchequer to——
No. Under this Bill, that procedure would not apply. The surplus that would be created would not be like the Central Bank's surplus profits, which can and do come to the Exchequer. The surplus of this authority, if there was to be one, will stay with it.
There will be occasions when the authority would represent itself at various foreign conferences. Those costs do not properly fall on the sector that is regulated. Those are extra costs which would rightfully fall to the Exchequer, if the Exchequer wanted itself represented. It is only fair to ensure that there is efficiency, that the costs that the regulatory authority incurs are genuine and that they should fall on those who are levied, which would result in some accountability being given back to the people who pay the piper. That is not to interfere with the regulatory authority's right to raise levies and to fund itself in the way the Minister intends.
I do not agree with the Deputy.
This comes down to a simple question of accountability. Whereas the Minister is saying that the authority will be accountable through the Minister's office, such documentation will not be available to ordinary people who want to check it or to the institutions involved in this area. If the chief executive has to prepare a report, it will be in the public domain and he or she should be made to account in that way. This is required purely for accountability purposes, and surely the Minister will not step back from that.
The Bill provides that the chief executive of IFSRA can be brought before a joint committee and I am sure he or she will be interrogated at length.
He or she should be required to publish the justification in this regard first.
I am sure he or she would bring it with him or her.
He or she will say that the Minister approved this, and that will be the end of it.
I am touched by the Deputies' concern about the financial sector being penalised by the regulatory authority.
What is good for the goose is good for the gander. Accountability should apply evenly: one does not decide to whom one will be accountable.
If some institutions considered they were being unduly harshly treated in respect of levies, I am sure the furore they could create would lead to the chief executive of the authority revising his view, but in any event I am sure people are so anxious to go to the courts that they would be inclined to do so.
This would avoid going to the courts.
Would the consumer director not protect them from excessive levies?
Would a banking institution be defined as a consumer? I do not think so.
Will the consumer director not be all powerful in this regard? Surely there is a watchdog body to guard against such excessive levies.
In his report on this matter, Mr. McDowell asked how can funding be achieved in a fair and equitable manner. The group agreed that a principle to underpin any charging regime would be needed to ensure the competitiveness of the financial industry is not undermined by the charges imposed. This applies to the competitiveness position of the financial services entities relative to each other and to the competitiveness of the financial industry internationally. Given the wide and varied nature of the bodies to be regulated, it will be acknowledged that a number of different approaches could be adopted by the regulator.
For those groups the first scale view expressed was that if a system were to be developed which would be simple and generally accepted within the industry, it would mean developing a formula for allocating regulatory costs on an annual basis between the regulated entities. Clearly, this will have to be proportionate. This matter was considered by the McDowell group and I am sure the chief executive of the authority will consider it further in regard to having in place the appropriate regulations.
Amendment put and declared lost.
I move amendment No. 69:
In page 36, to delete lines 4 to 8, and substitute the following:
"(3) (a) The Board may provide funds under this section only after the Minister has approved the amount of the funds concerned and the conditions (if any) subject to which those funds are to be provided.
(b) Before deciding whether or not to give approval under paragraph (a), the Minister is required to consult with the Governor and the Governor may express his or her opinion on the amount of funds concerned, so far as it could affect-
(i) the carrying out by the Bank of its obligations with respect to the promotion of the financial stability of the State, and
(ii) the performance of the functions of the Bank in its capacity as a member of the European System of Central Banks.
(4) In approving any amount of funds under subsection (3), the Minister is required to have regard to the functions and powers of the Bank under the Rome Treaty and the ESCB Statute.".
This amendment arises from concerns expressed by the ECB in its opinion on the Bill. Under the terms of the Statute of the European System of Central Banks, the Government is required to consult the ECB regarding proposed changes to the structure and functions of the Central Bank of Ireland. A copy of the Bill was sent to the ECB last April and a reply was received the following June. A copy of the opinion, and a copy of the Department's response to the opinion, were laid before both Houses of the Oireachtas on 31 October 2002.
The European Central Bank expressed a number of technical reservations about the Bill. The main concerns relate to the corporate governance structure of the Central Bank and the powers of the governor in relation to the budget, funding and staffing of the regulatory authority. These concerns are being addressed by a package of proposals.
This amendment arises from a concern raised by the ECB that it may be unclear whether the governor would enjoy a sufficient degree of control over any decisions by the Central Bank to supplement the funding of the regulatory authority so as to be able to fully protect the Central Bank's institutional and financial independence in a manner that is consistent with its treaty and ESCB statute obligations. Section 33L provides that the bank may provide funds to the regulatory authority to meet any shortfall in the funds of the authority.
Subsection (3) provides that the Minister for Finance has to approve the amount of the funds concerned and any conditions attaching to them. In order to allay the fears of the ECB in this matter, subsection (3) is being expanded to provide that before deciding whether or not to give such approval, the Minister is required to consult the governor. The governor may express his opinion on the amount of the funds concerned so far as it could affect the carrying out by the bank of its obligations with respect to the promotion of the financial stability of the State and the performance of the functions of the bank in its capacity as a member of the European System of Central Banks. In addition, the amendment also provides that in approving any amount of such funds, the Minister is required to have regard to the functions and powers of the bank under the Rome Treaty and the ESCB statute.
This amendment is being made to copperfasten the role of the governor in relation to this funding issue so as not to exclude him giving his opinion on it. However, I would like to stress that the governor is confined to giving his opinion on the funding issue only in so far as it could affect the carrying out by the bank of its obligations with respect to the promotion of the financial stability of the State and the performance of the functions of the Bank in its capacity as a member of the European System of Central Banks.
Will the Minister give an example of when this situation might be likely to arise? I presume that if the regulatory authority discovers actions by banks or financial institutions which have to be investigated, that the cost of such an investigation could be substantial. Is the Minister saying that in that event the cost would be passed back to the State and that the European Central Bank——
No.
Will the Minister give an example of the circumstances in which this situation might arise?
If the Deputy were to read the opinion of the European Central Bank, she would note that it touches on a wide variety of areas, including this area. It wanted to copperfasten that the governor of the Central Bank would not be constrained in this particular area. Its opinion was to make sure that the governor of the Central Bank would be able to delegate funds to the regulatory authority, but he can do so only in the terms I outlined, and he would give his opinion on the matter. The ECB wanted this provision inserted. I do not have a particular example nor did it give us an example of what it had in mind, but this is what it wanted inserted.
In the event that the regulatory authority discovered a serious problem with a bank which would require fairly detailed investigation - as we all know these types of investigations, whether specialised audits or other types, usually involve the calling in of accountants and lawyers whose costs are expensive - my general understanding was that the levy system would meet the cost of that type of work. I presume the investigation in the case of Allfirst in America would have cost the investigative authorities in America, as well as the AIB, a great deal of money. We hope it would not happen here but if a similar situation were to occur and the cost of such an investigation was high, does the Minister have a view of how the costs of that investigation would be borne?
As a general principle I would favour the offending institution being liable for them and to contribute to them. However, there are occasions when that is not possible. I do not have any particular——
In the insurance industry, for instance, my current party leader had to deal with a particular case over a protracted period. Deputy Bruton might have been involved as well. The party that collapsed did not have any funds subsequently yet there was a substantial investigation which was ongoing for a number of years. The insurance industry does come within this, as the Minister knows.
One can think of a number of examples but we did not have one in mind. This is just to allow the funds to be provided under this section after being approved by the Minister. The ECB expressed an opinion that it wanted this copperfastened. As a general principle, I favour the offending institutions being liable for the costs of an investigation.
We all favour that general principle. However, I could give four or five examples, and the Minister could probably offer more, of substantial failures by insurance brokers and stockbrokers over the last decade or so. The costs of those failures, for instance the cost of the failures of solicitors from time to time, have been spectacular for their member bodies. We will now have a regulatory authority to regulate the financial services edifice. At some time in the future, and we hope it will not happen too often, if a body providing financial services collapses due to bad management, fraud or whatever, this expensive outfit will, I hope, be in like a shot to regulate it and possibly prevent the collapse. Such investigations are incredibly expensive. I accept the principle that the offender or the party giving rise to the investigation pays but if it collapses, as has occurred in some cases, will the industry structure bear the cost? Is the policy in that regard clear? It is an important policy issue.
The Deputy seems to be advocating a type of mutual arrangement between bodies in a particular sector to pick up the costs. Solicitors, for example, have a system where members pay a levy to a fund to cover failures by solicitors. I understand that fund is in some difficulty because there have been a few spectacular failures over the last decade. The Deputy appears to be advocating something similar for these sectors. It is something that could be considered further. I imagine the cost of funding expensive investigations would generally be recouped from the funds in the regulatory authority. The other matter can be considered at a future time but I am not able to do it in this legislation.
This is a fundamental point. I hope this body will be a powerful regulatory agency in the financial services sector. When an investigation has to be undertaken by similar bodies in the United States, for example, as a result of a potential or actual collapse of a financial services provider, there are clear indications as to how those costs are to be met. Given that the Minister is talking about this body costing €20 million per year, it would be appropriate for him to give some indication of what road we are taking in regard to such investigations.
Deputy Burton is raising a relevant point. The cost of some of these investigations would probably dwarf the total annual budget of the regulator. It is not self evident that compliance institutions should carry the can for that, so an element of judgment has to be applied by somebody. The issue in this amendment is whether the Central Bank would apply its judgment as to whether it would use its resources to top up the costs, which ultimately would be underpinned by the Exchequer. Alternatively, it may be that the Minister should be the one to do so.
In this amendment we have said, in a roundabout way, that the bank may prop up such a situation but it has to get the approval of the Minister and the Minister has to consult with the governor and satisfy himself that the governor's obligations under other Acts are not being interfered with. There may be a case for simply saying that this top up money, if it did occur, should simply be funded by the Minister so that the Minister would exercise a policy judgment as to whether the extraordinary costs that might arise in some investigations should fall on the industry, the offending body or the Exchequer. At least it would be the Minister, as a person who is accountable to the Dáil, who would make such a decision.
Perhaps the simplest solution, if the Minister does not have a clear policy to enunciate now because it will depend on the merit of each case, is to provide that the Minister would provide these funds and thereby be accountable to the Dáil. Deputies could then challenge the policy that was being pursued and question whether it was appropriate in the circumstances.
I would prefer it to stay within the remit of the regulatory authority and the Central Bank.
Is it not the Minister's view that the regulator should establish the charges to apply? There is no question of the Minister being involved in deciding whether the authority has the resources to commit itself to an investigation.
No, and this provision gives recourse by the authority to the Central Bank to provide the funds for that.
We should reconsider this on Report Stage. The Minister might be a better person to do this because he or she is accountable to the Dáil and open to public scrutiny in a way the governor or the Central Bank will never be. It also ensures that the governor's primary responsibilities cannot be compromised. There is merit in a different approach to this.
Amendment put and declared carried.
I move amendment No. 70:
In page 36, to delete lines 31 to 35 and substitute the following:
"(5) The Regulatory Authority is required to make the records available at all reasonable times for inspection-
(a) by any member of the Board, or
(b) by any member of that Authority who is not a member of the Board, or
(c) by the Comptroller and Auditor General that is required for the performance of that officer’s functions or by a person employed in the Office of the Comptroller and Auditor General.”.
Section 27 of the Bill amends the principal Act by inserting two new parts, Part 3A and Part 3B, into the Act. Part 3A is concerned with the Irish Financial Services Regulatory Authority. Section 33(m) in Part 3A provides for the regulatory authority to keep proper accounts. This amendment affects section 33(5)(m). Subsection (5) currently obliges the regulatory authority to make its accounting records available for inspection by members of the authority or the board. The text of subsection (5) is being restructured to include the Comptroller and Auditor General among those to whom the regulatory authority is obliged to make its accounting records available. This change ensures consistency with similar provisions contained in the Bill in respect of the accounting records of the bank. Section 6(h) of the principal Act, which deals with the accounting arrangements of the bank, also provides that the bank transmit a statement of its accounts to the Comptroller and Auditor General.
Amendment agreed to.
As it is now 10.30 a.m., I propose that we conclude consideration of the Bill, as agreed. The date and time of the next meeting will be agreed and notified to the parties as soon as possible.
Progress reported; Committee to sit again.
The select committee adjourned at 10.30 a.m. sine die.