Markets in Financial Instruments Bill 2018: Committee Stage

In the unavoidable absence of the Chairman, I will chair the meeting. Is that agreed? Agreed. I remind members to ensure their mobile phones are switched off. This is important because not doing so can cause serious problems for broadcasting, editorial and sound staff.

This Bill was referred to the select committee by order of the Dáil of 3 May 2018. I welcome the Minister of State, Deputy Michael D'Arcy, to the meeting. Subject to the agreement of members, if Committee Stage proceedings have not concluded by 1 p.m., as they definitely should, it is proposed that the meeting be adjourned at that time. Is that agreed? Agreed.

SECTION 1
Question proposed: "That section 1 stand part of the Bill."

Section 1 sets out the Short Title of the proposed Act as the Markets in Financial Instruments Act 2018.

Question put and agreed to.
SECTION 2
Question proposed: "That section 2 stand part of the Bill."

Section 2 is a standard provision that provides the authority for any expenses incurred by the Minister in the administration of the legislation to be met out of funds provided by the Oireachtas.

Question put and agreed to.
SECTION 3
Question proposed: "That section 3 stand part of the Bill."

Section 3 repeals section 5 of the Markets in Financial Instruments and Miscellaneous Provisions Act 2007. Section 5 of that Act had provided for fines and convictions under infringements set out in the first markets in financial instruments directive, MiFID 1. It is necessary to repeal the legislation as it is no longer applicable since the coming into force of the markets in financial instruments regulations of 2017 on 3 January 2018. The fines and convictions repealed in the Act are now contained in section 5 of this Bill and are applicable to infringements under MiFID 2.

Question put and agreed to.
SECTION 4
Question proposed: "That section 4 stand part of the Bill."

Section 4 of the Bill simply provides a definition that "Act of 1942" means the Central Bank Act 1942.

Question put and agreed to.
SECTION 5
Question proposed: "That section 5 stand part of the Bill."

Section 5 is the main part of the Bill in respect of MiFID 2. It provides that a person guilty of an offence under certain provisions of the MiFID 2 regulations, such as operating without authorisation, is liable, on conviction on indictment, to a maximum penalty of €10 million or imprisonment for ten years, or both. This is a continuation of the criminal sanction regime that existed in Irish law under MiFID 1.

The section also sets out that relevant regulations means the European Union (Markets in Financial Instruments) Regulations 2017 in respect of the offences to which these sanctions will apply on summary conviction. Section 3 of the Bill repeals section 5 of the Markets in Financial Instruments and Miscellaneous Provisions Act 2007, which provided for the penalties and criminal sanctions under the previous regime.

I welcome this section and the approach that is being taken. It fits with what Sinn Féin has been arguing for quite some time, that is, that we need to move from relying on administrative sanctions alone. Those days are gone. Good riddance to them. This section chimes with what Deputy Doherty's legislation identified. I refer to the lacuna or loophole that had been acknowledged by the Central Bank whereby bankers, insurers and others who lie or give false information to the Central Bank, cannot be jailed under current rules. There have been some media reports recently that suggested the Government is considering its own legislation on this issue and on broader white-collar crime issues. Can the Minister of State offer us some information on that at this point in time?

The use of criminal sanctions and jail time for white-collar criminals is where we need to be going in policy terms. That means a focus on individual responsibility. That is something the Central Bank has pointed to in its submission on white-collar crime.

Could the Minister of State outline how the maximum penalties, of ten years' imprisonment and a fine of €10 million, were arrived at?

I do not have information on the substantive white-collar crime aspect. I just have information on what I have responsibility for, that is, MiFID, the sentence of ten years and the fine of €10 million.

They follow on from the previous regime. Under MiFID 1, there was also a fine of €10 million and the potential for ten years in jail.

Is the Minister of State aware of any proposals for Government legislation?

I am not aware, nor would I be made aware. It is not my side of the house. White-collar crime relates to the Department of Justice and Equality. Progress on this is a matter for that Department and the justice committee. This Bill just relates to financial instruments but it is also a matter for the Department of Business, Enterprise and Innovation. I would not be asked about white-collar crime so my not being aware of what is occurring does not mean there is no progress on what the Deputy is talking about.

I appreciate that but, since the Minister of State represents the Government, he might revert to me or Deputy Doherty on this.

I will try to get a note for the Deputy.

Question put and agreed to.
SECTION 6
Question proposed: "That section 6 stand part of the Bill."

Section 6 allows the Central Bank, with the permission of the Minister for Finance, on having conducted appropriate consultations, to charge fees in respect of its functions under the European Union (Markets in Financial Instruments) Regulations 2017.

Question put and agreed to.
SECTION 7
Question proposed: "That section 7 stand part of the Bill."

Section 7 amends Schedule 2 of the Central Bank Act 1942 in order to ensure that the Central Bank's powers will cover the Markets in Financial Instruments Act 2018.

Question put and agreed to.
SECTION 8
Question proposed: "That section 8 stand part of the Bill."

Section 8 provides for a technical amendment to section 2 of the Credit Reporting Act 2013 in order to address a lacuna in the present definition of credit, which has the unintended effect of excluding hire purchase, personal contract plans, PCPs, and similar types of credit agreement from the scope of the Central Bank's central credit register.

Question put and agreed to.
SECTION 9

Amendments Nos. 1, 2 and 4 are related and may be discussed together. Amendment No. 1 is consequential on amendment No. 4.

I move amendment No. 1:

In page 6, line 6, after “paragraph (b)” to insert “and subsection (3)”.

It is fair to say that Deputy Pearse Doherty and I are not totally in opposition in terms of these amendments. We both want to ensure that long-term financial services which are not of a fixed or definite duration can be investigated by the ombudsman under the longer time limits applying to long-term financial services. These Government amendments are squarely aimed at ensuring that financial services which are long-term in nature but which do not specifically fix their duration can be investigated by the Financial Services and Pensions Ombudsman.

The first amendment is technical and is required by the substantive amendment. The substantive amendment allows the ombudsman to investigate cases where the duration is not fixed but where it is reasonable for a consumer to expect its duration to be longer than the five years and one month threshold by virtue of the manner in which the services operate, the type of assets with which it is connected, or by virtue of representations made by the financial service provider. It specifically excludes current accounts and other financial services of an indefinite duration which do not have such characteristics.

I appreciate that this is a complex amendment, and I can see the attraction of the simplicity of the amendment tabled by Deputy Pearse Doherty. However, I consider that it would capture more than we agreed we would include in the expanded definition of long-term financial service. For example, a consumer opening a current account on starting his or her first job or when he or she goes to college might reasonably expect that it will last more than five years, but we have been clear that such a product is not and should not be considered a long-term financial service.

These Government amendments mean that whole of life cases, which are not of fixed duration by definition, can be investigated by the ombudsman subject to the time limit in section 51 of the 2017 Act. Contrary to the common understanding that these time limits rule out misconduct that occurred prior to 2002, the current legislation permits the ombudsman to investigate cases outside this limit in particular circumstances. Section 51(2)(3) provides for a time limit of, "such longer period as the ombudsman may allow where it appears to him or her that there are reasonable grounds for requiring a longer period and that it would be just and equitable in all circumstances to so extend the period". This gives the ombudsman the discretion to extend the time period to cover events that occurred earlier than 2002. However, I should stress that there are conditions attaching to the exercise of this discretion. There must be reasonable grounds and it must be just and equitable in all circumstances. This means it must be just and equitable to both sides, both the consumer and the financial service provider.

Officials from the Department were in detailed discussions with the Office of the Attorney General to see whether it was possible for the office of the Parliamentary Counsel to draft a constitutionally robust amendment which would allow whole of life complaints to be made to the ombudsman without time limits. However, I would have concerns that it is arguably unfair and potentially unconstitutional to require the ombudsman to depart from these time limits regardless of whether he considers it fair or reasonable. The key question for legislative time limits for the bringing of complaints or legal actions is whether the Oireachtas has struck a reasonable balance between the rights of the plaintiffs, the applicants, the interests of the defendants-respondents, and the public interest.

I believe that the current Act, with the proposed Government amendments, strikes a reasonable balance. For these reasons I am pressing the Government amendments and cannot accept the amendment tabled by Deputy Pearse Doherty.

We welcome this group of amendments, which take aim at the same points, the inclusion of certain groups that, by the spirit of the legislation, should have redress to the Financial Services Ombudsman but which the ombudsman has ruled currently do not qualify. I am of the view that it is possible and arguable that the findings of the ombudsman could be challenged, but the best thing to do is to clear up any uncertainty by making it crystal clear and precise that they do indeed qualify. My colleague, Deputy Pearse Doherty, wrote to the Minister in October about this issue. The Minister responded positively and has acted with the amendments tabled today. The group in question are members of one member schemes which fell foul of the definition of long-term financial service. The issue was the definition of the word "fixed". Deputy Pearse Doherty's amendment sought to remedy this problem by introducing a new definition of a financial service in which the consumer could reasonably expect the service to last more than five years and one month, the point being that the definition of "fixed" was too restrictive.

As the Minister of State has outlined in his comments, his amendments very much tackle the same issue, and we are satisfied that they resolve it. We will consequently support those amendments and will withdraw our own.

The next challenge, as we see it, is amendment No. 5, which I believe has been ruled out of order. We should all be of one mind on the issue it raises; it allows access to the Financial Services Ombudsman for those people who bought whole of life insurance products and other whole of life products before 2002. There are some concerning issues being brought to the attention of Deputies about these cases. The interpretation of the 2002 Act by the ombudsman means that these people are being barred from the process. Amendment No. 5, which has been disallowed, was tabled by Deputy Pearse Doherty, and would have made an attempt to get to the heart of this issue. At the core of the legislation recently passed was a new rule that a consumer complaint within three years of being aware of an issue, or that they could reasonably be considered to have become aware of it, would allow a person access to the Financial Services Ombudsman process. This replaced the old six year blanket rule. Many people have benefited from that change, but in the case of very long-term products backstop has become a problem. We can make no judgment of the merits of the cases or whether the complainants have a good case or otherwise, but the point is that they deserve access to the process. This is something that Deputy Pearse Doherty and my party intend to return to on Report Stage. Given that the amendment was ruled out of order, I would like the Minister of State to commit to dealing with this issue and will consider it at that stage.

We have carried out a good deal of analysis on this matter. We are satisfied that the legislation that was passed last year is sufficient. I will read the note and we can then discuss it through the Chair. The current legislation permits the ombudsman to investigate complaints about long-term financial services that occurred before 2002 in particular circumstances. Section 51(2)(3) provides for a time limit of, "such longer period as the ombudsman may allow where it appears to him or her that there are reasonable grounds for requiring a longer period and that it would be just and equitable in all circumstances to so extend the period".

This gives the Ombudsman the discretion to extend the time period. I would stress there are conditions attaching to the exercise of this discretion. There must be reasonable grounds and they must be just and equitable to both the consumer and the financial service provider. It is a matter for the Ombudsman to make this decision and the Ombudsman is independent. The follow-on from that is important because it is something on which we are all like-minded. We want the Ombudsman to have the authority to deal with these matters. The Ombudsman has the authority. It is a matter for his discretion whether to use that authority.

I have a note that I want to put on the record. The Ombudsman will always consider whether the exercise of this discretion is appropriate when a long-term financial service is not being investigated due to time limits. The exercise of this discretion does not have to be requested by the complainant. I understand from the conversation between Department officials and the Ombudsman that there were only a small number of cases. I did not get the actual number of cases or whether the requester has requested him to exercise his discretion. To date, the Ombudsman has not exercised this discretion.

We are satisfied that the legislation is solid and that it is allowable for the Ombudsman to investigate but, as of now, he has not sanctioned any of those requests that have come to him. I do not have the actual number to go beyond the 2002 period. We have done our bit. The members, as Members of the Oireachtas, have done their bit in regard to the legislation. We are satisfied it is sufficiently strong. It then moves to the Ombudsman for him to exercise his discretion to facilitate an investigation to a pre-2002 long-term financial services product.

As Deputy Michael McGrath has just arrived, I will read the note again. Section 51 of the 2007 Act, the Act that we all put a good chunk of time into dealing with last year to get over the line, provides for a departure from a rigid six-year rule because the complainant has three years from the date he or she became aware or ought to have become aware of the cause of action to make a complaint. While there is a general time limit of 2002, in regard to the conduct being complained of there is a provision for the possibility of a longer period extending to before 2002 where the Ombudsman decides it would be reasonable to allow a longer period and would be just and equitable in the circumstances. It is a matter for the Ombudsman, therefore, to facilitate an investigation prior to the 2002 time schedule that is part of section 51 of last year's Act. It is a matter for the discretion of the Ombudsman.

I thank the Minister of State for that response. It is all well and good to say that in certain circumstances the power exists but it is clear that power or discretion is not being exercised. I am sure Deputy Doherty and others can furnish him with examples of cases but there are people who are coming up against this obstacle. There are people who have what are essentially legitimate complaints about products that predate 2002 that have not been able to proceed because of the decisions of the Ombudsman. At the very least, that requires a further examination. If these people have complaints, whatever their merits , the spirit of which come within the meaning of the change in the six-year rules, there is clearly a problem in that regard. I ask that the Minister of State would consider that before Report Stage. I am sure Deputy Doherty can furnish him with examples. We will be returning with amendments to that end on Report Stage.

I thank the Deputy. We have had the further look. The spirit of the legislation was clear to anybody who sat through the debate on it. I sat through it on this side and the other side of the House prior to 11 months ago when I was a member of the committee. We want the Ombudsman to look at this. It is very clear. It is a matter for the Ombudsman to do so. I respectfully put it to the committee that we do not believe there is more we can do. We believe it is a matter for the Ombudsman to use his discretion, which he is allowed to do, to investigate these matters. The view of everybody on the committee, going back to last year, was that these would be allowable and investigable by the Ombudsman. That is very clear in my mind from when I moved to this side of the committee addressing the Members and also, when I was a member of the committee, being addressed to by other members of Government. The spirit of the legislation is very clear. I do not believe we can do any more.

What the Minister of State has said is significant. On a separate occasion I will ask the committee to write to the Ombudsman to look for data on the number of cases that have come before him that are in this category where the alleged mis-selling, for example, would have occurred prior to 2002 and where he has opted not to use the discretion to avail of the powers this Oireachtas gave to him under the Act to have a look-back. In that context, we should be looking for the information on the number of those cases, his reasons and his interpretation of the legislation on which we all worked hard to secure its passage.

We spoke on Second Stage about the issue of whole-of-life policies, which are very important. There are many people who have been very badly burned, so to speak, and I know the Minister of State is also aware of individual cases. I have sat down with many of those people and I am convinced that the terms and conditions of those products were not fully explained. There is certainly a case to be made in some instances that there was mis-selling, therefore, it would be very disappointing if the Ombudsman decided not to use the powers the Oireachtas gave him. It comes down to the interpretation of the reasonable grounds to extend the look-back prior to 2002. That is something we need to tease out further. We need to keep an open mind on this issue between now and Report Stage but it is very important that the committee would seek that clarification prior to Report Stage and that we reserve the right to introduce more explicit amendments at that stage to remove any element of doubt and make this absolutely clear. Obviously, they need to be constitutional but if we need to further strengthen the option the Ombudsman has to look back prior to 2001, I and my party would be in favour of that. However, we need an explanation from the Ombudsman first and if we can get that prior to Report Stage, that would be important because there are many long-term products. It is not just whole-of-life products. Those are important but there are many other long-term financial products, and those are the very products we designed that amendment for to enable them to be dealt with. I know mis-selling is a very difficult case to prove if we are looking back over 15 or 20 years in terms of who said what. The documentation may be limited. It is a very difficult case to prove but I am disappointed to hear that the Ombudsman has had that power for a period of months and has chosen not to exercise it. If we are allowed I would make the suggestion that the clerk would put that question to the Ombudsman.

If that is agreed we should write to him along those lines.

To act in good faith with the committee members, a lot of time and energy went into the debate on the Bill last year so this would be captured. The spirit of the legislation was that the Ombudsman would have the opportunity to investigate these matters. I have no doubt that was the spirit of the law. We believe we have gone as far as we can go. That said, I suggest that we would leave the opportunity available from Committee Stage to Report Stage to further examine it and talk to members of the committee to see if we can come to a position where these are available to be investigated.

We have all acted in the best interests of people, consumers in particular, but from what I can see none of them has been investigated. The legislation has only been enacted for a short period of time. I do not have a figure.

I am told that is a small number of cases but none has been consented to for an investigation. Additional scoping into that is required, and following that we can take the opportunity on Report Stage if more needs to be done. It must be constitutionally sound and there are implications which I want to flag. We cannot bring forward any legislation that does not have the consent of the Office of the Attorney General or something that is potentially not constitutional.

Has a post-enactment report on the impact of the legislation been laid before the House?

That was only passed last July; it was commenced on 1 January, so it was available for people to bring cases to the ombudsman from that date.

Sorry, will the Chairman repeat the question?

Is there a post-enactment report on the legislation?

No, there is a 12 month rule.

Therefore, it is after 12 months.

I am wondering if the Department, which has a close working relationship with the ombudsman, has received feedback from him. It has only been in place for a few months but is the Department clear on the interpretation that is being put on the provision by the ombudsman, what his understanding is and why he may be less willing to use it?

I do not have that.

We will look for that.

I understand that the Minister indicated on Second Stage that this is a matter that could be resolved. Perhaps since then, there has been an investigation or examination, but the current comments seem to be to the effect that all is kosher and there is nothing more to be done.

I am not saying that. Our analysis now is that the powers are with the ombudsman and that he has the authority to deal with it. It is a matter for his or her discretion. Deputy Michael McGrath is saying that we might have to bolster the Bill somewhat. We will scope that further with the ombudsman in order to see exactly how and why and I ask that the committee do the same. If there is any confusion about the spirit of the legislation on any side of the House, the members of the committee can clarify to the ombudsman that the intention was that these would be investigated.

I am not disputing the spirit of the legislation but its effect. The Minister of State has confirmed to us that none of the cases, albeit that only a small number have been brought forward, had been investigated. Some of the cases are potentially very serious in terms of mis-selling. There must be an avenue, perhaps through the Financial Services Ombudsman or the Central Bank investigation, and if the legislation, as currently worded, is too restricted we need to consider that.

We are saying is that it is not.

On the one hand, the Minister of State is saying that it is not too restrictive and on the other that the Department will consider -----

No, we are satisfied that the legislation is sufficient to allow the ombudsman to investigate. What I am saying is that there is a matter of discretion on the part of the ombudsman's that he has to date chosen not to investigate any of these. We can only give the ombudsman the authority to do so but we cannot explicitly instruct him or her to do so.

We can also provide the ombudsman of an outline of when it is appropriate to exercise that discretion.

I am not sure that we can do that. That is the issue.

I do not understand why not. This is an organisation which has been established and given its remit by statute. Surely we can outline when it is appropriate that it take certain actions.

As I have said, the matter must be just and equitable to both parties, not just one. We have worked hard on it and we feel as though we have pushed as far as we can. It might be that somebody else feels they can push a little further. We are not questioning the ombudsman on this. I am sure that this committee has authority to do so. On Report Stage, it is open to pursue it again. We might have some more information at that stage.

We will conclude discussion of that group of amendments but we will return to the issue of the ombudsman.

For clarity, we will be in scope to bring amendments forward on Report Stage on this issue. It has been well discussed. Some months ago I went onto the website of the office of the ombudsman as I had a query from a constituent. There was no information there about the change in the law, no clarity on the change to the six year rule and the discoverability clause that we introduced. I contacted the office and got information from it but for consumers who want to know where they stand, there has been no real awareness campaign about the change in the law and what it means exactly. That is an issue and is something that we might highlight in correspondence with the ombudsman.

In common with Deputy Ó Laoghaire, we retain the right to bring this issue forward again on Report Stage which will presumably the week after next. Hopefully by then we will have clarity from the ombudsman, if we write today.

Can we ask the Minister that we get the post-enactment report laid before the House after the 12 month period has elapsed so that we might see the impact of this?

Amendment agreed to.

I move amendment No. 2:

In page 6, between lines 12 and 13, to insert the following:

“(b) a financial service in which the consumer could reasonably expect the service to last more than 5 years and one month,”.

Amendment, by leave, withdrawn.

I move amendment No. 3:

In page 6, lines 16 to 18, to delete all words from and including “(not” in line 16 down to and including “thereto)” in line 18.

Amendment, by leave, withdrawn.

I move amendment No. 4:

In page 6, after line 24, to insert the following:

“(2) Section 2 of the Financial Services and Pensions Ombudsman Act 2017 is amended by the insertion of the following after subsection (2):

“(3) Notwithstanding the fact that the financial service does not fix its duration to be of a term such as is referred to in paragraph (a) of the definition of ‘long-term financial service’ in subsection (1), a financial service shall be regarded as falling within that definition if it would be reasonable for a consumer to expect its duration to be of at least the length referred to in that paragraph and that reasonable expectation arises by reason of—

(a) the manner in which the financial service operates to provide a financial benefit to the consumer,

(b) the type of assets with which its operation is connected, or

(c) representations made by the financial service provider, as distinct from where such an expectation arises in the case of—

(i) a current account with a financial institution, or

(ii) any other financial service of an indefinite duration that is widely available and does not possess specialised characteristics.”.”.

Amendment agreed to.
Section 9, as amended, agreed to.
Amendment No. 5 not moved.
Title agreed to.