Financial Services and Pensions Ombudsman Bill 2017: Committee Stage
I thank the Chairman. A number of amendments are being moved today. We hope and expect to have another look at some, not all, of these on Report Stage. If we have the flexibility from the committee it would be very helpful.
I also wish to outline to the committee the situation with Deputy Doherty's Bill, which is quite similar to this Bill and which is currently moving through the Seanad. We have requested the Seanad to consider that Bill next week, on Committee Stage, depending on the consent of the Seanad. With regard to Deputy Doherty's Bill it is my objective, as I have said in the Seanad, to bring forward the best legislation we can. We are taking Committee Stage of that Bill next week in the Seanad and then we will take the subsequent Report Stage. There will be two bites at that Bill and two bites at this Bill. I ask the committee for flexibility today, if possible, so we can have another opportunity to think about this and try to improve it. We shall have as good and solid a debate as we can, but all of us have the objective of trying to ensure the best legislation.
SECTION 1
Question proposed: "That section 1 stand part of the Bill."
While there is a wee bit of confusion with two pieces of legislation that are broadly similar, I believe that the process has helped us to refine and strengthen the legislation, especially in the areas of the six-year rules and around the categories of determinations by the Financial Services Ombudsman. I welcome the fact that the Minister of State has requested the Seanad to deal with the legislation next week. As I have said to this committee as far back as last year, it is my intention to ensure there is legislation in place before the summer recess to remove the six-year rule. I am not convinced that this Bill will be enacted in law before then. This is why we are still proceeding with the other Bill, but they work hand in glove.
While I do not propose to move some of my amendments on the basis that some technical issues have arisen with them, I will introduce them again on Report Stage.
On section 1, I have a minor query regarding commencement orders. The Bill provides that the Minister may commence certain sections on a particular day. Will the Minister of State confirm there is no intention to delay various sections, particular the section which would allow for the six-year rule to take effect? Will a commencement order be made immediately in respect of that section?
Question put and agreed to.
SECTION 2
Amendments Nos. 1 to 4, inclusive, are related and may be discussed together.
I move amendment No. 1:
In page 9, line 6, to delete "or".
Amendment No. 2 makes an addition which deletes the word "service" and replaces it with the words "an actual or potential beneficiary of an income continuance plan". An income continuance plan is permanent health insurance which was not included in the section. The purpose of the amendment is to ensure income continuance plans are covered by the legislation.
The Minister of State did not refer to the other amendments in the group.
The section primarily covers two definitions, namely, those of an "income continuance plan" and a "long-term financial service". Amendment No. 2 makes an addition to the definition of the word "consumer" to include employees or former employees who benefit from an income continuance plan. After part (c) of the definition of consumer in page 9, the amendment proposes to add "(d) an actual or potential beneficiary of an income continuance plan;".
In the Government's Bill, published on 10 May 2017, a "consumer" in respect of a financial service was defined in section 2 as being, in general terms, individuals, small businesses, charities, clubs and so on of financial services. The definition seeks to encompass as many financial services as possible. During the engagement on the drafting of the Bill, the Office of the Pensions Ombudsman made us aware of the unusual case of income continuance plans or ICPs, which are also known as permanent health insurance plans. In an ICP, the employee is a third party and the contract exists between the employer who takes out the group scheme for the employees and the insurer. If an employee has an issue with non-payment of a benefit to which he or she may be entitled, he or she is currently excluded from the Pensions Ombudsman's remit because he or she is not a party to the contract in respect of the income continuance plan. The amendment seeks to address this lacuna in law which prevents a third party from taking a case in such circumstances.
The overarching aim of the legislation is to strengthen consumer protection and ensure consumers are not excluded from seeking appropriate and fair resolution and redress. With this in mind, the amendment to extend the definition of "consumer" to include those who may benefit from income continuance plans is important.
Deputies may recall that in the Bill, as published, the Department sought to include income continuance plans in the definition of "long-term financial service" by the use of the words "and not subject to [...] a right to unilateral cancellation by either party". On reflection, however, this group of amendments to the definition of the term "consumer" is the better way to accommodate these ICP cases.
I have no issue with amendment No. 1, which is technical in nature. I had intended to seek clarification in respect of amendments Nos. 2 and 3, which relate to income continuance plans, but the Minister of State addressed the issue. On amendment No. 4, we discussed this issue when debating my legislation and I am glad the Government has removed from the draft Bill the provision which would mean that where a contract was unilaterally cancelled, it would not be considered a long-term financial service. While this move is welcome, an issue remains in respect of people who will not be able to avail of the Office of the Financial Services Ombudsman because their contracts are considered not to fall within the six-year rule, even though the contract has continued for longer than six years. I refer, for example, to insurance contracts that are defined in my legislation as contracts that have been consecutive for more than five years. A legal issue arises regarding whether an insurance contract which was entered into and renewed annually for a long period is legally treated as a single contract of consecutive terms. In other words, a contract renewed annually for ten years should be considered a long-term contract, rather than a one-year contract entered into when it was renewed in the previous year. If the latter were the case, the product would fall outside the scope of the Financial Services Ombudsman.
This argument has been thrashed out and the Minister of State and I will not see eye to eye on it. While I will not oppose the Government's amendment, I reiterate that while we are making significant strides in providing access to the Financial Services Ombudsman, access is also being restricted in a way that it should not have been. I ask the Minister of State to address the point I raise regarding a financial services contract, such as an insurance contract, that has been renewed annually for ten years. Can such a contract be legally defined as a single contract of consecutive terms, which would mean it was entered into ten years ago, or is it a new contract that is considered to have been entered into each year? If the starting point is considered to be the previous year rather than ten years previously, under the scope of the Bill, the holder of the contract will have no recourse to the Financial Services Ombudsman outside of the time limits that already exist.
As there has been no meeting of minds on this point, it may be helpful to the Deputy to read my briefing note. The definition of the term "long-term financial service" has been considered in great detail during the passage of this Bill and Deputy Pearse Doherty's Private Members' Bill through the Houses. As the time limit is one of the biggest changes for consumers in the Bill, it was paramount that an effective definition was constructed. I am pleased to note that the Department listened carefully to the contributions made by Deputies during the various Stages of both Bills and extensively engaged with the ombudsman, the Central Bank of Ireland and Office of Parliamentary Counsel on this drafting issue in recent weeks.
While we may not achieve a meeting of minds on the definition, the Department believes it has got the definition in the section broadly correct. Deputy Doherty's argument is essentially that an annualised insurance contract entered into a decade previously and renewed annually with the same company merits being treated as a long-term financial product. The Department does not agree with this view. Some concern was expressed that if a company attempted to insert some form of break in a long-term plan, the product would no longer be defined as a long-term financial service.
A great deal of work has been done on this complex issue. Following consultations with the entities to which I referred, the Department believes it has got the definition broadly correct. The definition set out in amendment No. 4 in general terms encompasses all financial products and services of a fixed term of five years and one month or more, such as mortgages, payment protection in connection with a long-term service, long-term loans and life assurance to pay annuities on human life. The definition of the term "life assurance" comes from the definition of that term on the Statute Book and also includes contracts of insurance to provide a sum on marriage or on the birth of a child, life assurance linked to investment funds, permanent health insurance, also known as income continuance plans, a "tontine", as it is known, where capital is paid into a common pool and each investor receives dividends until his or her death, and capital redemption products. Those are the areas that we believe are best served by this legislation.
The revised wording clarifies, for the avoidance of doubt, that a range of policies or services which are short-term financial services, for example, house and travel insurance, are not included in the definition of long-term financial services. There is no intention to change the meaning of the definition the Minister for Finance set out at various stages.
However, the drafting has now improved the wording for the avoidance of doubt and set out anti-avoidance type wording to prevent a provider from introducing a sham annual renewal process to avoid falling within the definition of long-term financial service. The Government rationale for excluding annual policies from the definition of long-term financial services and concern to avoid passing extra cost to consumers were well set out during the various Stages of these Bills. In essence, insurance companies would have to be mindful of the possibility of claims being taken in a longer timeframe for these products and would accordingly pass the extra costs onto consumers. Additionally they could perhaps seek to refuse to cover customers after a five year period or increase the annual premiums substantially after a five year period to deter them from becoming a long-term product, which would include customers in the current definition in the Private Members Bill. This would have a negative impact on customers.
From a consumer point of view, this is the centrepiece of the Bill. There has been a political consensus for some time that the six year rule needs to change. I broadly welcome the definition that has been brought forward. I understand Deputy Doherty's point. It is nuanced but important. My instinctive reaction is that a product that is subject to an annual renewal is not a long-term financial product. For instance, if one took out their house insurance policy in 2010, and one is still with the same firm in 2016 and renews it again, if an issue arises over that policy in the calendar year 2016, then the baseline for invoking the complaints procedure kicks in from 2016 if it relates to an issue in 2016 and the policy the person renewed for 2016. The Minister of State might give an assurance that the Department has raised that issue, having considered it, taken a view on the matter and raised it with the appropriate bodies. My instinct is that if it is subject to annual review, that it is not a long-term product. I welcome that the Government has removed the revocation clause whereby a product could be revoked, that it would not then qualify as a long-term product. I raised that issue on Second Stage. I am glad that it has been removed. Having the six year rule amended, particularly in respect of long-term products, and bringing in the three year provision for when someone knew or ought to have known, is the big win in the legislation. It is important that we get the finer details right but I am satisfied with the definition.
Does Deputy Doherty wish to come in?
Yes, I do. As Deputy McGrath says, the issue here is the one that goes to the core of it. There are three main points. First, whatever we agree at this committee, I will table an amendment to my own legislation in the Seanad to replicate the provisions. I did not propose an amendment to this section because I knew on Committee Stage that we would not have a meeting of minds. At this stage, I am looking for reassurances. There are probably two assurances that are required. The first is that when this legislation passes into law, that after an appropriate period of time, possibly 12 months, we would ask the Financial Services Ombudsman to report to this committee whether it has seen any issues or people being blocked as a result of this definition and the fact that the annual renewable contracts were not included in it. That would be helpful. Second, on clarification on the legal status of an annually renewable contract, is it deemed as a single contract of consecutive terms, which I understand has been argued in legal cases before the courts, that is that someone took out their home insurance policy in 2004, and not 2016 when they renewed it? Therefore, if there was an issue in 2016, they could potentially be barred from access to justice or in this case to the FSO, because of that definition. If we can get clarification that the Attorney General has considered that concern and has satisfied the Minister and this committee that that will not arise -----
Deputy McGrath has clearly outlined his interpretation of when the clock would start in relation to the long-term service. On the question of whether it adds up each year to be a long-term service or not, the Government's interpretation is that it does not. An annualised service is an annualised service and it starts when one takes out a policy, as Deputy McGrath outlined. As the Deputy will know, the courts have an obligation to hear and view the debates. We are having the debate. That is the interpretation as we see it, and that is also Deputy McGrath's interpretation. If a case goes before the courts, we have outlined the legislation and the spirit of the legislation to do what we want it to do. It is really a matter for the courts. We have pitched it in the way that we feel it should be. Deputy McGrath has articulated that well. I understand his outline of it as, I am sure, does Deputy Doherty. If that happens it will be a matter for the courts rather than the Financial Services Ombudsman. I am happy to try to facilitate that.
I appreciate that but for clarity, there was a word which slipped which was quite significant regarding when the clock starts ticking. The Minister of State said it was when one takes the policy out. From the legal opinion received by the Department, is it that a contract entered into a number of years ago that is renewed consecutively is not a single contract of consecutive terms? This would mean the clock does not start ticking when the contract was taken out initially but that the consumer is entering into a new contract each year so that the time the clock starts ticking under this legislation is the last time the contract was renewed.
That is correct. Each year that an annualised contract comes out to someone, it starts when they take it out. Car insurance is the best example. If the customer renews it on a particular date, say 23 May 2017, if they had the same insurance with the same company over the last nine years, that it is not a nine year contract, it is a one year contract starting on the date of renewal. That is my understanding of Deputy McGrath's interpretation and it is my understanding of what this legislation means.
My last point is if the ombudsman observes something significant in relation to this definition that it would be advisable for this committee to look into this after an appropriate period of time had passed and ask the ombudsman to report to us regarding the definition. I hope the Government would be open to that. It should be standard practice anyway.
There is no issue with that.
It could be that under Standing Orders, post-enactment, the report could be laid before the House and we would the debate it so that we can trigger that Standing Order, if we wish.
Amendment agreed to.
I move amendment No. 2:
In page 9, line 7, to delete “service;” and substitute the following:
“service, or
(d) an employee or a former employee entitled to benefit from an income continuance plan;”.
Amendment agreed to.
I move amendment No. 3:
In page 10, between lines 27 and 28, to insert the following:
“ “income continuance plan” means an insurance contract taken out by an employer (whether or not in conjunction with employees) designed to pay an income to an employee on the occurrence of certain events specified in the contract that render the employee unable to continue to perform the duties under his or her contract of employment on a long-term basis;”.
Amendment agreed to.
I move amendment No. 4:
In page 10, to delete lines 30 to 34 and substitute the following:
“ “long-term financial service” means—
(a) subject to paragraph (b), a financial service the duration of which is a fixed term of 5 years and one month, or more, but, notwithstanding that the aggregate term of them may be 5 years and one month (or more), there does not fall within this paragraph a series of consecutive terms in respect of a financial service’s duration (provided no individual one of them is 5 years and one month, or more, in length); or
(b) a financial service that is life assurance to which, by virtue of Regulation 4 of those Regulations, the European Communities (Life Assurance) Framework Regulations 1994 (S.I. No. 360 of 1994) apply (not being life assurance falling within Class VII defined in the first Annex thereto) and regardless of whether the term of which life assurance is fixed at a specified calendar period or not;”.
Amendment agreed to.
Section 2, as amended, agreed to.
SECTION 3
Question proposed: "That section 3 stand part of the Bill."
I have a question regarding section 3 and how this is funded. The pensions complaints are funded by the Exchequer yet the financial services complaints are funded by the industry. My understanding is that the model used to determine how much either of these pays is based on the number of cases which relate to either category. Did the Department consider a different funding model now that there is a merged entity? What we are doing is continuing with two separate entities with two different funding structures and now we have a somewhat convoluted way of funding a single body.
Section 3 provides that the expenses incurred by the Minister for Finance in relation to the Act shall be funded by the Exchequer as sanctioned by the Minister for Public Expenditure and Reform.
Expenses incurred by the ombudsman in the performance of his or her functions shall be part-funded by a financial services industry levy and part-funded by the Exchequer in respect of pension complaints. Section 3(3) sets out how the expenses incurred by the ombudsman are to be apportioned between the financial services industry levy and moneys provided by the Oireachtas based on the division of workload from the previous year.
It is a convoluted process. I would rather that more of this was funded by the industry. This is a hybrid model, with money provided by the industry and the Exchequer, with the number of complaints having to be worked out to apportion the funding. It is not a clear and clean way for the Minister to budget for an organisation he or she is overseeing. There are two sources of income.
My concern is that the more it is funded by the industry, the more likely it is the cost will be passed on to the consumer. Everything we are doing in the legislation is intended to protect the consumer from increased premia.
Question put and agreed to.
SECTION 4
Question proposed: "That section 4 stand part of the Bill."
The section proposed to amend the powers of regulation. It will give the Minister the power to introduce regulations. This previously lay with the ombudsman council. I am curious about why the Minister is taking on these powers. Deputy McGrath tabled an amendment to previous legislation regarding one of the powers in respect of the maximum award to a complainant. Where do the powers rest when the section is enacted?
The Minister may make regulations for the purpose of the Act to increase the efficiency of the operation of the FSO and to allow for appropriate redress and compensation to be provided by him or her to complainants. The Minister may also make the regulations at the request of the ombudsman. Some of the instances which the regulation may cover are set out in section 4(2). For instance, the regulations may prescribe matters that the ombudsman must take into account when investigating or adjudicating on a complaint and procedures to be allowed to be followed by the ombudsman in processing a complaint. The section also provides the council and the ombudsman with a consultative role in the making of regulations by the Minister.
Are the powers of regulation, therefore, being transferred from the council into the hands of the Minister? Is that what section 4 does?
Under the original legislation, section 57 BF of the Central Bank Act, the council had regulation making powers. The powers will be transferred from the council to the Minister under the Bill. There are various rationales for such a change. It is believed that it is more appropriate for law making powers to be held by a Minister who is accountable to the public. Furthermore, the size of the council has been reduced under section 37, which may reduce the capability of the council to continue to fulfil its past regulation making role. The Minister will be the only authority to make regulations, impacting the role of ombudsman. The Minister can make regulations as necessary. However, he or she has to consult both the council and the ombudsman. There is a consultative process involving the council but the final authority will be with the Minister.
In principle, I do not oppose those powers being held in an individual or organisation, which can be held democratically accountable. I am concerned when important powers are transferred. For example, the powers relate to the top-up of awards and the maximum amount an individual can receive. I am concerned when such powers are being shifted away from the council without debate. This is the start of the debate on this without any rationale being provided bar that the council will reduce in size. I am not sure if there has been a case in the past of friction between the Minister and the council regarding the failure of the council to apply the regulations in a way that would be desirable or the council abusing the power in respect of applying the regulations. In principle, I do not have a major objection but I am not familiar with the rationale for doing this.
I am unable to answer whether there has been friction between the Minister and the council in the past. I do not want to comment, therefore, when I do not know. The objective is that the legislation will be beneficial to the consumer. The council is unelected whereas the Minister is proposed by the Taoiseach and voted on by the Dáil. I would like to think that Ministers would act in the interest of the consumer and if there are areas to be addressed, that the Minister would act in the best interest of the consumer rather than anybody else.
The council will continue to maintain its efficiency and effectiveness and that will be kept under review.
Question put and agreed to.
Section 5 agreed to.
SECTION 6
Question proposed: "That section 6 stand part of the Bill."
This relates to the establishment day and goes to the core of the legislation outside the most important element, which is consumer protection. This refers to the rationale for merging the FSO and the PO. I will not oppose this but I am not convinced that an argument has been made that this should take place. The Government has relied on the work done by Mr. Richard Hinz as a justification for what is happening. He also stated clearly that there is no compelling evidence of negative consequences as a result of having two separate bodies and given the work both offices do, I am not sure that there is a justifiable rationale for the need to merge them. I would like the Minister of State to outline the rationale.
As the Deputy will be well aware as he has been shadowing the finance brief for four or five years, there is an incredible crossover in the financial products that are available and because of this and the methods by which people are investing those products in pensions, the belief is that if a single person was in charge of both financial services and pensions, the office would have a greater overview rather than them being sectionalised or marginalised in one area. If there is a concern that something is in the wrong area, it is appropriate that there would be one individual over both areas.
There is concern that there will be a lack of focus in respect of expertise in particular areas. For example, when two bodies, which cover different products, are merged, the expertise and focus on either financial products or pension products could diminish. They are separate and I am not convinced that a justifiable rationale has been provided as to why these bodies, which carry out serious, important work on behalf of consumers, should merge. The evidence in the consultation process did not diminish that argument. Indeed, the process probably strengthened the argument against it because time and time again, concern was raised about the potential lack of expertise in either body as a result of the merger. Expertise is required in respect of complicated financial products in some cases.
The intention of the legislation and the merger of the offices is not to merge two agencies into one and make it worse. The objective is to improve the service and to improve the opportunity for consumers. With the financial products that are in place now there have been examples of consumers being locked out and not getting the opportunity to pursue a case for redress. That is why we are doing this in line with the report.
When is the establishment day envisaged? If this legislation is enacted in September or October how quickly would the Minister hope to press the button and merge the offices?
When we conclude the passing of the legislation through the Houses the expectation is that we will consult with the Attorney General immediately.
Question put and agreed to.
SECTION 7
Question proposed: "That section 7 stand part of the Bill."
Section 7 deals with the establishment of the office. There is no way that this new office will be able to operate and meet the demands of the public unless it has additional resources. That will be required from the first moment. Will the Minister of State enlighten us as to how many staff are currently in each office and how many will be in place after the establishment of the office of financial services and pensions ombudsman? What efficiencies will there be in the service, such as savings in rents and so forth? Do cases currently with either office remain with that office until they are closed or do they automatically transfer to the new office? If a complaint is made to the Financial Services Ombudsman Bureau or the Pensions Ombudsman, does it remain with that office or does it transfer to the new office established under section 7?
There are 37 staff in the Financial Services Ombudsman Bureau and six in the Office of the Pensions Ombudsman. In terms of the what, when, where and how of the merger, I do not have that information. However, on Report Stage I will get the information on the thought process and the extent to which it is advanced.
I would appreciate it if we could return to this on Report Stage. I am not sure if the council has made recommendations. Indeed, there are two different councils. There must be an awareness in the Government that the number of personnel will have to be increased. The six-year rule and its retrospective element allows for potentially 3,000 or more applications to be submitted immediately. My office is inundated with calls from people who are waiting for this legislation or my legislation to pass so they can make their complaints. The FSO will not be able to deal with the potential tsunami of complaints that will arrive after this legislation if we do not increase its staff. It will be a bad experience for consumers if they cannot access the FSO, or the new office after the enactment of the legislation, in a timely manner.
I ask the Minister of State to refer back to us with an indication of the type of resources that will be applied to this new office. It is fine to merge the two offices under the legislation, but if additional demand will be created for those two offices we need to know whether there will be efficiencies in that regard. If there is duplication between the 37 and six staff, there might be a number of personnel savings in that regard but they and others should be redeployed to dealing with consumers.
There is no intention of putting in place an inferior service. We are trying the improve the circumstances in which consumers will have the benefit of the protection of the State and the legislation. Section 35 provides for the transfer of staff from the dissolved bodies of the Financial Services Ombudsman Bureau and the Office of the Pensions Ombudsman into the newly-established office. Subsection (1) provides that with the establishment of the amalgamated office of financial services and pensions ombudsman those who were employed in the Financial Services Ombudsman Bureau will be employed in the new amalgamated body. The terms and conditions of their employment will not be less favourable than what they have.
In addition, under section 16(3) the ombudsman will have the power to supplement staff by contracts for services. While the 37 and six staff will be in place, the ombudsman has the authority to bring in external staff to help if what the Deputy describes happens. If that happens there might be a budget implication. The objective is that the service will be better. If there is a requirement for additional staff I am sure that will become apparent very quickly.
Question put and agreed to.
SECTION 8
Question proposed: "That section 8 stand part of the Bill."
Under the section the deputy Financial Services Ombudsman will become the new deputy in the new office. The ombudsman and the deputy of both offices will have a five-year term. Does the five-year term begin from the day of establishment of the office?
Section 8 provides for the appointment of a financial services and pensions ombudsman and a deputy financial services and pensions ombudsman by the Minister, having consulted with the Minister for Social Protection, following a public competition pursuant to the Public Service Management (Recruitment and Appointments) Act 2004. The term of office will not exceed five years. This is a change from the previous legislation where the Financial Services Ombudsman was appointed by the Financial Services Ombudsman Council under section 57 BJ of the Central Bank Act 1942. The Pensions Ombudsman was appointed by the Minister for Social Protection under section 128 of the Pensions Act 1990. The section also provides for the appointment of an existing financial services and pensions ombudsman. Mr. Ger Deering was appointed to this role in 2016 under the amendment of the Social Welfare Pensions Act pending the passing of this Bill, to be deemed an appointment under this section.
The usual criteria for public appointments are applied to the office. The remuneration, allowances and superannuation of the office will be determined by the Minister with the consent of the Minister for Public Expenditure and Reform. The tenure of the office is five years. Subsection (1) provides that the ombudsman and deputy ombudsman will be appointed by the Minister for Finance in consultation with the Minister for Social Protection from candidates who have been successful in the competition process carried out by the Public Appointments Service. Subsection (2) provides that the Public Appointments Service shall recommend no more than three candidates for any vacancy. Subsection (3) provides that anybody acting in the capacity of Financial Services Ombudsman prior to commencement shall be deemed to have been appointed to that office under this section. Such a person will be subject to the same terms and conditions as applied to them immediately before commencement. Subsection (4) provides that anybody acting in the capacity of deputy Financial Services Ombudsman prior to the commencement shall be deemed to have been appointed to that office under the section. Such a person will be subject to the same terms and conditions as applied to them immediately before the commencement of the section.
Subsection (5) provides that such persons are limited to terms of five years. Subsection (6) provides that the Minister may re-appoint a person as ombudsman or deputy ombudsman whose term expires at the efflux of time. Subsection (7) provides that the terms and conditions of the ombudsman's and deputy ombudsman's term in office shall be determined by the Minister for Finance with the consent of the Minister for Public Expenditure and Reform. Subsection (8) states that the ombudsman and deputy ombudsman shall not hold any other office or employment or any other business without the consent of the Minister.
Question put and agreed to.
Sections 9 to 13, inclusive, agreed to.
SECTION 14
Question proposed: "That section 14 stand part of the Bill."
We will be considering introducing an amendment on Report Stage in respect of section 14.
Question put and agreed to.
Section 15 agreed to.
SECTION 16
I move amendment No. 5:
In page 20, lines 30 and 31, to delete ", with the approval of the Minister and with the consent of the Minister for Public Expenditure and Reform,".
This amendment deals with the independence of the office and it comes from the view discussed earlier to the effect that the section of the office concerning the Financial Services Ombudsman is self-funding through the industry levy. As a result of the sometimes very technical financial products dealt with, expertise would be required from outside the organisation and there is a requirement to have access to justice in a timely manner. I am concerned in regard to the independence of this office if the appointment of consultants is to require the prior approval of the Minister, which is not currently the situation. My political instinct is that this is where it should rest but I must also question why it is happening now and whether there has been a problem in the past. Has the Financial Services Ombudsman previously appointed consultants whose fees were excessive, thus causing a drain on the Exchequer? Why are we tinkering with the independence of an office which should be independent? The Minister of State discussed how he would act in the interests of the consumer at all times. While one would hope for that to be the case, the Minister must also weigh up not only the interests of the consumer but the interests of the economy, financial services and so on. There are many Members of the Oireachtas and far more people in wider society who would argue that Ministers for Finance in different Governments did not act in the interests of consumers. I am not referring to the Minister for State, Deputy D'Arcy, in this regard. This is an independent office and it sets alarm bells ringing when I perceive that there is a kind of power grab involving the Minister. We have dealt with the issue of regulations such that the council will no longer have authority to set caps on the maximum or minimum payouts or whatever regulations it wants to introduce. There is now this issue in terms of the appointment of external consultants, which, as all members know, will be necessary in some of these cases because of the complexity of financial products that are sometimes dealt with.
There is no power grab. I assume the Deputy's rationale for the amendment, as he outlined, relates to the efficient functioning of the ombudsman's office. His concern may be that the function of the office may be impacted upon by the requirement to obtain ministerial approval before engaging consultants and advisers. However, that is not the case. It is important to note that because voted funds are used by the office, the relevant provision in the Bill is essential and that is why I cannot accept the Deputy's amendment. The premise of the section is that the financial services and pensions ombudsman, as an entity partly funded by the taxpayer and under the aegis of the Department of Finance, should seek the approval of the Minister for Finance before spending on a consultant or adviser who may be tasked with carrying out a review of the office, for example. The provision in the Bill is a standard requirement for public bodies in receipt of public taxpayers' funds. Recent legislation in respect of other public bodies, such as the Tax Appeals Commission and the Irish Fiscal Advisory Council, contains similar requirements to obtain ministerial approval before the expenditure of voted funds.
This section of the Bill on consultants and advisers came from section 133 of the Pensions Act 1990, with some drafting updates from the Office of the Parliamentary Counsel. As the Pensions Ombudsman was funded by the Exchequer, it was subject to more stringent requirements than the Financial Service Ombudsman. In merging the two bodies - and in view the fact that the new body will have Exchequer funding - this accountability for the use of public funds is essential as it follows best practice. This provision was not an impediment to the functioning of the Pensions Ombudsman in office, nor did it negatively interfere with the independence of the Pensions Ombudsman. The Deputy is aware that consultant fees are a sensitive topic and are frequently subject to analysis and parliamentary questions. It is not the intention that the ombudsman should seek consent before hiring temporary front-line workers or support staff such those necessary to provide payroll, audit or IT services. Section 15(3) of the Bill outlines that persons may be appointed to the office as consultants or advisers or on a contract for services or on a permanent, temporary or part-time basis. Thus, there are many staffing options available to the ombudsman. For the reasons I have just listed, I cannot accept Deputy Pearse Doherty's amendment.
As I said, my political instinct is that this is the right approach but there is an onus on us to question why it is happening. I may be wrong but do hospitals and the HSE have to receive ministerial approval before appointing or seeking information from consultants or advisers? I imagine not but perhaps that is the case. The Minister of State is right that the issue of consultants is a red-hot topic and I have put down many parliamentary questions regarding both consultants and advisers. I am not sure whether this section covers obtaining legal advice and so on. The Minister of State says that section 15(3) allows for the ombudsman to appoint consultants and advisers but only in accordance with section 16. Therefore, while the power is there to do so, ministerial approval is first required. As I said, my political instinct is that this is democratic accountability but I am concerned whether the office or offices raised any concern with regard to how this would play out in practice. Are there many appointments or advice sought from the Financial Services Ombudsman currently? My concern is from the consumer's point of view in terms of access to timely judgments by the office. Will the Financial Services Ombudsman or the new office require a ministerial signature for every type of external advice it requires? The Minister of State says this is standard practice. Is it the same case in the HSE and does this also cover legal advice?
On the question of the ombudsman drawing from external expertise, commissioning consultants' reports, etc., the officials might know whether the ombudsman has a budget line for external expertise and consultancy. I understand the logic of seeking ministerial approval if an entity goes beyond its budget and a Supplementary Estimate is required. If it comes from within existing resources, however, why would consent be required every time it has to draw on external expertise? The main question is whether a budgetary provision currently exists for drawing on external advice or support.
To answer Deputy Pearse Doherty's point in respect of the HSE, it is allowed appoint within delegated sanction limits. If, however, it goes above a delegated sanction limit, ministerial approval is required.
I am unable to answer Deputy Michael McGrath's specific question on voted expenditure but I will try to get the answer for him before Report Stage.
To come back on this issue-----
Before Deputy Pearse Doherty continues, it is important to note that I hope and expect officials will work in a co-operative manner with the ombudsman's office to bring clarity on how the provisions will operate in practice when the legislation is enacted.
I do not know whether there will be a voted amount but I am sure that can be figured out as we go along. There will be some things to figure out when the offices merge and this can be part of that process.
Under this legislation, the new office will not be able to seek external advice or appoint any consultant without the express permission of the Minister and changing that will require a change in the law. The reference in the Minister of State's answer to Deputy Michael McGrath's comment about being outside expenditure limits is interesting but that is not what we are doing here. Will the Minister of State talk me through the hybrid funding model for this new office? It is self-funded to an extent in respect of financial complaints. If the case is a financial case to the Financial Services Ombudsman, FSO, how much of that is from the industry and how much from the Exchequer?
I do not have the answer. I will need a minute to check that out.
Is it 50:50, like the Central Bank?
I would assume and anticipate that within the budget for the SFO, there would be delegated sanction limits similar to those in the Health Service Executive, HSE. If it stays within those limits, the ombudsman would not require ministerial consent. If it goes beyond that, the section would then apply. The expenses incurred by the ombudsman are to be apportioned between the financial services industry levy and moneys provided by the Oireachtas based on the division of workload from the previous year.
Is it not the case that at present, the old office, namely, the FSO, is solely funded through levies from the industry?
Yes it is solely from the industry.
At present the FSO is not a drain on Exchequer funding. We are merging two bodies and part of the new body is a drain on Exchequer funding because it is not funded by the industry. If I was taking a case against AIB that was being heard by the FSO and it wanted to hire a consultant it should be allowed to hire as many consultants as it wants because the only people paying are the industry. There should not be a limit on its advice in making a decision. Ministerial approval is not required for something that is not a drain on the Exchequer. There is a legitimate argument that part of this new body is a drain and therefore it could be a pension case but we are creating a catch-all here for cases where external advice would be required and if it is secured it is not a drain on the Exchequer because it is funded through an industry levy. We are not suggesting that the old FSO should run away with itself and start paying huge sums of money to advisers or consultants but this may be overreach in that any type of external advice now requires ministerial approval and that will clog the system. The natural instinct will be for the body to think twice or three times before applying for ministerial approval and wait for that to be sanctioned, instead of deciding to seek a consultant's advice in a complicated case.
The FSO is currently funded by the industry but the Pensions Service Ombudsman is funded by the State. We do not have the option to subdivide expenditure. As a result this section applies. What the Deputy says would be correct if there was not going to be a delegated sanction similar to that of other agencies. If the body is within the delegated sanction, it will not require ministerial consent but if it goes beyond that in line with other agencies such as the Irish Fiscal Advisory Council or the HSE, the same rule applies to it. I cannot go beyond that. It is governed by the same rule as everybody else within the public sector.
At the minute the FSO does not have this requirement.
We will leave it at that.
Amendment, by leave, withdrawn.
Section 16 agreed to.
Section 17 agreed to.
SECTION 18
Question proposed "That section 18 stand part of the Bill."
I intend to table an amendment to this section on Report Stage.
Question put and agreed to.
Sections 19 to 24, inclusive, agreed to.
SECTION 25
Amendments Nos. 6 to 11, inclusive, 16, 18 to 22, inclusive, 26 and 27 are related and may be discussed together. Amendment No. 7 is a physical alternative to amendment No. 6, amendment No. 9 is a physical alternative to amendment No. 8, amendment No. 11 is a physical alternative to amendment No. 10, amendments Nos. 19 and 20 are physical alternatives to amendment No. 18, amendment No. 22 is a physical alternative to amendment No. 21 and amendment No. 27 is a physical alternative to amendment No. 26.
I move amendment No. 6:
In page 26, line 23, to delete “substantiated or partly substantiated” and substitute “upheld or substantially upheld”.
Amendments Nos. 6 to 11, inclusive, 16, 18, 19 and 20 all relate to updating the categories of decisions. The intention behind this group of amendments is amending the Government Bill to align it with the Sinn Féin Bill, as passed by the Dáil, and the Free Legal Aid Centres, FLAC's, recommendation to bring more transparency and clarity to consumers about the labelling of decisions the ombudsman makes after completing an investigation in relation to a consumer complaint. In the existing Central Bank Act 1997, legislation on the ombudsman, and the published Government Bill, section 60, on completing an investigation the ombudsman must make a decision in writing that the complaint is substantiated, not substantiated or partly substantiated. My amendments on this issue, as well as those of Deputy Pearse Doherty, aim to change the categories to four more precise categories of outcomes. The categories of decisions are referred to in several sections in the Bill, hence the number of amendments. Section 60 of the Bill sets out four categories of decisions that can be made by the ombudsman on conclusion of his or her investigation of a complaint. Currently the possible decisions are limited to: "substantiated", "not substantiated" and "partially substantiated". The aim of the Minister for Finance's amendments in this group of amendments is to allow for a revised categorisation of decisions of: "upheld", "substantially upheld", "substantially rejected" or "rejected". These four categories are in line with Deputy Pearse Doherty's categories of decisions as set out in his Private Member's Bill as passed by Dáil Éireann, and I thank him for proposing this change.
A change in the categories of decisions, from three to four, allows for increased transparency and better reporting regarding the ombudsman's investigation of complaints. This is a reasonable update and modernisation of the current rules which will bring more clarity to consumers. As I mentioned in the Seanad last week, this change is a good outcome for both the ombudsman’s process and consumers, and will be in addition to the publication of decisions in section 62 of the Government’s Bill. There are consequential amendments to update and restate the existing legislation with the updated categories of findings. However, I now see that Deputy Pearse Doherty seeks to improve on his four new categories of decisions. The proposed new categories set out in this amendment are upheld, substantially upheld, partially upheld - which is new - and rejected. Deputy Doherty wants to revise the third category from substantially rejected to partially upheld. I can understand the principle of what he is trying to achieve but there may be drafting issues with his amendments, and I suggest that we return to this topic for Report Stage.
I can set out the purpose of each amendment in this group now if necessary, but I am withdrawing my amendments and I think the Deputy may take the opportunity to withdraw his amendments on the basis that we return to this on Report Stage.
The amendments I have tabled are Nos. 7, 9, 11, 18, 22 and 27. These six amendments all deal with the same issue, which is the four categories of determination that the ombudsman can make findings on as a result of this legislation. I welcome the fact that the proposal that I have made previously on my own legislation has been accepted by all parties. After further consideration and discussion with the office of the ombudsman. I have proposed to amend the language on how we address this issue to one that would be more favourable to consumers. The proposal is to replace the "substantially rejected" proposal in my own legislation with "partially upheld". It is a more positive finding for the consumer and allows for three different categories of upheld decisions to be found by the ombudsman, which are upheld, substantially upheld or partially upheld. The fourth possible decision is rejected. After further consideration of these amendments there is a technical issue in terms of the drafting but not the substance. I understand that the Government has no objection to the new wording, but because there is a drafting issue I withdraw all six amendments and will table a new version of them on Report Stage.
Amendment, by leave, withdrawn.
Amendments Nos. 7 to 11, inclusive, not moved.
Question proposed: "That section 25 stand part of the Bill."
I wish to inform the committee that I intend to introduce amendments on Report Stage.
Question put and agreed to.
SECTION 26
I move amendment No. 12:
In page 27, line 9, to delete “period of 2 years” and substitute “period of 3 years”.
I have submitted this amendment in order to change the frequency of the publication of the strategic plan. Section 26 currently mandates the creation of a strategic plan every two years to be implemented by the ombudsman. However, the code of practice for the governance of State bodies requires that such bodies should adopt a statement of strategy for a period of three to five years ahead. Therefore the time period to be covered by the strategic plan should be extended from two years to three years to bring it into line with both best practice and Department of Public Expenditure and Reform governance requirements.
Amendment agreed to.
I move amendment No. 13:
In page 27, line 10, to delete “period of 2 years” and substitute “period of 3 years”.
This amendment is the same as the previous amendment and it substitutes three years for two years in line 10 in section 26(1). It is necessary to pass both amendments in order for each individual one to become operative and extend the time period covered by the strategic plan from two years to three years.
Amendment agreed to.
Section 26, as amended, agreed to.
Sections 27 to 32, inclusive, agreed to.
SECTION 33
Question proposed: "That Section 33 stand part of the Bill".
I wish to inform the committee that I intend to introduce Report Stage amendments in respect of section 33.
Question put and agreed to.
Sections 34 to 49, inclusive, agreed to.
SECTION 50
Amendments Nos. 14, 15, 23, 28 and 29 are related and will be discussed together by agreement.
I move Amendment No. 14:
In page 41, line 4, to delete “sections 44(2)(b)” and substitute “sections 44(2)(a)(i)”.
Amendment No. 14 is a textual amendment relating to section 50 which remedies an incorrect cross reference. Section 50(1) allows the ombudsman to accept complaints that have begun legal proceedings where he or she believes the provider has engaged in such proceedings to frustrate the investigation. Section 44(2)(a)(i) states that a complainant may not make a complaint where the conduct giving rise to the complaint has been the subject of legal proceedings before a court or a tribunal. The correct cross reference within section 50(1) should therefore be section 44(2)(a)(i).
Amendment agreed to.
Section 50, as amended, agreed to.
SECTION 51
Amendment No. 15 has already been discussed with amendment No. 14.
I move amendment No. 15:
In page 42, line 13, to delete “subsection (2)” and substitute “subsections (1) and (2)”.
Amendment agreed to.
Section 51, as amended, agreed to.
Sections 52 to 55, inclusive, agreed to.
SECTION 56
Amendment No. 16 has already been discussed with amendment No. 6.
I move amendment No. 16:
In page 45, line 28, to delete “substantiated” and substitute “upheld”.
Amendment agreed to.
Section 56, as amended, agreed to.
Section 57 agreed to.
SECTION 58
I move amendment No. 17:
In page 46, lines 4 and 5, to delete all words from and including “The” in line 4 down to and including line 5 and substitute the following:
“On receiving a complaint, the Financial Services Ombudsman shall, as far as possible, try to resolve the complaint by mediation.”.
This amendment proposes the deletion of section 58(1), the first subsection in the mediation clause, which replaces the existing legislative provisions that establish a Financial Services Ombudsman. It is my view that section 58(1) is weaker than the original provisions. Section 58(1) reads: "The Ombudsman may, as part of an investigation, in circumstances where he or she deems it appropriate, try to resolve a complaint by mediation." My amendment would delete that subsection and re-establish the existing wording from the legislation establishing the Financial Services Ombudsman, to read: “On receiving a complaint, the Financial Services Ombudsman shall, as far as possible, try to resolve the complaint by mediation.”
As we discussed earlier, two pieces of legislation on this matter are currently going through the Houses of the Oireachtas. It is hoped that my own Bill will go before the Seanad next week. We have been drafting amendments for the Seanad and in doing so, found the wording that is proposed under this amendment. It is the wrong reference because, obviously, the Financial Services Ombudsman's office would no longer exist. We did try to engage with the Bills Office but the officials there would not allow us to amend the amendment. I will therefore be withdrawing amendment No. 17. However, I believe the substantive point stands, namely, that we should revert back to the existing provision under subsection 58(1).
The other subsections of section 58 are very positive and I commend the Government on them. It was an issue that I raised in my own draft legislation, published in 2014, which was intended to compel the financial institutions to engage in mediation or give valid reasons as to why they would not do so. I welcome the fact that there is more voluntary mediation. Although it may not always be the case, there are institutions that would reject the idea of mediation. Any court would look at the Bill before us and ask why the Legislature is now weakening the provision by using the word "may" instead of "shall". The powers provided here do allow the ombudsman to carry out mediation as part of an investigation. However, in any court case, these discussions and the intention behind the wording would be teased out and, as part of that process, the Judiciary would compare the new wording with the one it replaced.
I intend to withdraw the amendment. I have engaged with the officials and hope to come up with a resolution shortly. I know the intention of the Minister and the Government is that there would be no weakening of the provisions. I am concerned about possible unintended consequences.
Everybody here shares the objective of improving the legislation. While I am not saying that by weakening it, we improve it, our logic is that this is the direction in which we should go. To give Deputy Doherty some of the information, under the previous legislation about 1% of complaints concluded via the mediation process. My note states that 2,378 were resolved through mediation between 1 February and the end of 2016, following our tweaking of the existing provisions. That is about 60%, which is a big improvement. The concern is that, potentially, the retention of "shall" would deter or prevent people from attempting to conclude this via an informal process prior to mediation. Quite a few are concluded informally without going down the route of the mediation process.
That is our thinking. I appreciate that the Deputy is withdrawing the amendment. If we can have a conversation between the officials, Deputy Doherty and myself, we might come to a position with which we are satisfied. There will certainly be no weakening of the provisions. While it might not sound as strong, the existing wording could be of greater benefit to consumers.
We all have to acknowledge that there has been a transformation in respect of how the office of the ombudsman deals with these cases and how financial institutions are engaging to try to resolve them informally, through mediation and through the decision process. There has been a step-change in how the office is dealing with this in respect of a large number of cases. I understand that in excess of 80% are now dealt with through mediation. It is 60%, the Minister of State tells me. That is under the existing legislation, which provides that the Office of the Financial Services Ombudsman "shall"-----
On a point of clarification, 60% of cases are concluded at mediation stage. That figure includes a number of cases that are concluded informally before mediation. We are concerned that if "shall" is left in place, the informal process might not continue and that all cases would go into mediation. Potentially, that might cause the overall percentage of cases concluded through mediation to fall. While we are not sure, that is our thought process.
That is fine. I accept the bona fides of the Minister of State in his approach to this section, which is about trying to ensure the best outcome, based on mediation and the informal process, is maintained. However, the existing legislation does contain the word "shall" and provides for a large percentage to be resolved through mediation and the informal mechanism. That provision has not been a hindrance at this point. The issue is that when the ombudsman engages with financial institutions, not every financial institution will engage in mediation. It is their right not to engage in mediation. Because of the word "shall", the ombudsman's office can say that under law, it has to engage. That argument will be gone as mediation will be just another way of resolving the complaint and will no longer be the way in which they should try to resolve the complaint.
I think we are on the same page in terms of what we are trying to achieve here. I will withdraw the amendment and intend to table another one on Report Stage. My own Bill should be going to Committee Stage in the Seanad next week. I and the Minister of State shall or may agree to something beforehand.
Amendment, by leave, withdrawn.
Question proposed: "That section 58 stand part of the Bill."
I wish to put the select committee on notice that amendments to section 58 will be tabled on Report Stage.
Question put and agreed to.
Section 59 agreed to.
SECTION 60
Amendment No. 18 not moved.
I move amendment No. 19:
In page 47, to delete lines 33 to 35 and substitute the following:
"(a) is upheld,
(b) is substantially upheld,
(c) is substantially rejected, or
(d) is rejected.".
Amendment, by leave, withdrawn.
I move amendment No. 20:
In page 47, line 36, to delete "substantiated or partly substantiated" and substitute "upheld or substantially upheld".
Amendment, by leave, withdrawn.
I move amendment No. 21:
In page 48, line 19, to delete "wholly or partly substantiated" and substitute "upheld or substantially upheld".
Amendment, by leave, withdrawn.
Amendment No. 22 not moved.
I would like to flag at this point that I will be bringing forward amendments to this section on Report Stage.
Section 60 agreed to.
SECTION 61
I move amendment No. 23:
In page 49, line 21, to delete "descretionary" and substitute "discretionary".
Amendment agreed to.
Section 61, as amended, agreed to.
Sections 62 and 63 agreed to.
SECTION 64
Amendments Nos. 24 and 25 are related. Amendment No. 25 is a logical alternative to amendment No. 24. Amendments Nos. 24 and 25 shall be discussed together.
I move amendment No. 24:
In page 50, between lines 23 and 24, to insert the following:
"(a) within 35 days of the date of notification of the decision of the Financial Services Ombudsman, or".
Amendment No. 24 deals with the length of time an individual, financial institution or pension provider has to appeal a decision to the High Court. Currently, the timeframe in this regard is quite limited. We dealt with this issue during the passage through the Dáil of the legislation I introduced on this issue and the timeframe of 35 days was agreed, which is a substantial increase and will hopefully allow individuals and so on to make an informed decision in regard to whether to take the course of action of an appeal to the High Court.
Amendment No. 25 similarly proposes a timeframe of 35 days. The only difference between amendments Nos. 24 and 25 is that my proposal provides "within 35 days....." and the Government amendment proposes "not later than 35 days.....". I believe the Government amendment is a better approach and I will, therefore, withdraw amendment No. 24.
Amendment, by leave, withdrawn.
I move amendment No. 25:
In page 50, to delete lines 24 and 25 and substitute the following:
"(a) not later than 35 days after the date of notification of the decision of the Ombudsman, or".
Amendment agreed to.
Section 64, as amended, agreed to.
Sections 65 to 71, inclusive, agreed to.
SECTION 72
I move amendment No. 26:
In page 53, line 27, to delete "wholly or partly substantiated" and substitute "upheld or substantially upheld".
Amendment, by leave, withdrawn.
Amendment No. 27 not moved.
Section 72 agreed to.
Sections 73 to 75, inclusive, agreed to.
SECTION 76
I move amendment No. 28:
In page 55, line 9, to delete "investigation or adjudication" and substitute "mediation, investigation or adjudication".
Amendment agreed to.
Section 76, as amended, agreed to.
SECTION 77
I move amendment No. 29:
In page 55, line 19, to delete "Ombudsman" and substitute "Council and Ombudsman".
Amendment agreed to.
Section 77, as amended, agreed to.
Section 78 agreed to.
Schedules 1 and 2 agreed to.
Title agreed to.
Bill reported with amendments.
As the Bill has completed Committee Stage it is recommended that members submit Report Stage amendments to the Bill's Office without delay as a Report Stage may be tabled at short notice.
I would like to clarify that I propose to table Report Stage amendments to sections 56 and 77 also. I thank the Chairman and members for facilitating this meeting. I believe this legislation when completed will be good legislation that will protect consumers to a greater degree than has been the case to date. My hope and expectation are that with the merger of the offices we will have a better service on behalf of consumers. I look forward to engaging further with members on Report Stage. I anticipate the Seanad will also facilitate Deputy Doherty's Bill for Committee Stage next week.
Will Report Stage of this Bill be taken next week?
No. I think it will be taken the following week.
