Investment Limited Partnerships (Amendment) Bill 2020 [Seanad]: Committee Stage

I have two questions. Should I ask them or at the end? There are no amendments.

The Deputy may ask the questions now. That might be better.

I am sorry because I am sure I am being a pain at this committee.

Not at all. It might be the best way to do it.

I welcome the Aire Stáit. My colleague Deputy Doherty mentioned issues concerning beneficial ownership to former Minister of State Michael D'Arcy. I welcome the fact that there have been amendments since then. I have a question on the submission of the annual return. Could the Minister of State clarify whether that information will be publicly available?

On beneficial ownership, where someone has a 25% shareholding but decides to split it in two, using a shell company and another mechanism, would we know the identity of the ultimate beneficial owner rather than the intermediaries posing as beneficial owners? Would that information also be publicly available?

As the Deputy rightly pointed out, this legislation, bearing in mind its original intention, has improved significantly in respect of identifying the identities of investors. If they are Irish, they will have to produce their PPS number, or the equivalent across the EU. Apart from that, a person will have to produce a passport. The Deputy has indicated that a company may sometimes have an investment in the investment limited partnership or in a fund under that partnership. Her question was on establishing the identity of the shareholders behind the company. There are two tests. If one owns over 25%, one is identified as a person involved, but if one owns less than 25% but has a controlling interest in the company, perhaps through other people, one is also deemed a person whose identity must be disclosed. The legislative phrasing is in line with the anti-money laundering legislation that is already in place.

If a person has a 25% shareholding, the owners of the remaining 75% control the company. A person with only 15% or 20% does not usually have a controlling interest but someone with a shareholding of less than 25% might have a controlling interest if he or she is working in league with other shareholders who also have shareholdings of less than 25%. However, only one person – we are talking about a person, not a company – can be the beneficial owner.

The important point is that it is up to the general partner in the investment limited partnership to satisfy himself or herself that he or she has all the documentation to get Central Bank approval. If that person does not do his or her job properly, he will lose the benefit of limited partnership and all the limited liability. He or she would then be open personally and have no protection under the legislation. The onus is really on the general partner to satisfy himself or herself regarding everybody who invests in the fund. If the general partner does not do his or her job, he or she will be liable to direct action by the Central Bank.

That is the safeguard. The general partner is the person who is personally on the line when all is said and done.

I thank the Minister of State for that clarification. Will the annual return be publicly available?

The proposed amendments regarding beneficial ownership, which relate to the earlier stage, will enable the public to access certain beneficial ownership information regarding investors in an investment limited partnership and will ensure that the highest international transparency standards apply to the investment limited partnership. Part 5 of the Bill amends the Social Welfare Consolidation Act 2005 to include the register of beneficial ownership of investment limited partnerships. There is an amendment in this legislation regarding social welfare which will ensure that PPS numbers can be allocated and that persons can be identified by name. This will enable the public to ascertain certain information about who the beneficial owners are, but not their detailed financial information.

One will be able to find this out from the annual return.

It will be in the register of beneficial ownership, which will be maintained by the Central Bank. It will not be in the annual return. To get approval for a fund, the general partner has to lodge this information, and any amendment thereto thereafter, with the Central Bank. There is a register of beneficial ownership, which is separate from the annual return. That is where the names of all beneficial owners of the fund is made known. This can be accessed through the Central Bank. It is like a planning register. One can find out the name of those involved. That is a publicly available document.

There may be a small fee to inspect the register. I cannot confirm that yet. These names will, however, be on the Central Bank register.

That covers my question. I thank the Minister of State.

On the same issue, the Minister of State has given a good explanation as to the controlling entities and the degree to which they will be visible to the general public, to possible investors and so on. Could two or more entities separate their visible contacts while still maintaining a beneficial interest in the operation and control of the overall policy thereof? In other words, could two or three venture capital companies be involved under separate headings so that, to the casual observer, each could be seen as an individual although they were all brought together by the same controlling company? This would give them undue influence. Rather than being separate entities, they would represent a single entity disguised as a multitude.

If an individual invests, it is clear who he or she is. If a company invests, one will know who the shareholders are. The beneficial ownership threshold is clearly 25% so if there are three investors in a company which holds more than 25% of shares in a fund, the three beneficial owners have to be made known. It is not the case that a company must only declare one beneficial owner. Once any investment company owns more than 25% of shares or has a controlling interest in the fund, each and every one of its shareholders must be declared. What is also important about this legislation is that the beneficial owners - and there may be multiple beneficial owners - have to produce their PPS numbers. If they do not have one, they must produce their passport. No shell company can be an investor without the ultimate beneficial owner's identity being listed on the Central Bank's register of beneficial owners. If a person is a shareholder, his or her passport must be produced before the company and the fund can get the approval of the Central Bank. We will have the details of these individuals regardless of where they are in the world. They may be in America, Canada, Malaysia or anywhere else but, if they do not have an Irish PPS number, we will get a copy of their passports. There will be multiple beneficial owners. That is the point.

Sections 1 to 64, inclusive, agreed to.
Title agreed to.

Is the Minister of State satisfied that, insofar as is possible, this legislation gives total and adequate protection to the consumers and investors? Is he satisfied that the necessary alarms are in place should there be a need to invoke other powers such as the Central Bank? In the past, we have sometimes had occasion to comment unfavourably on the lack of alacrity with which some of the supervisory agencies were activated. Is the Minister of State satisfied that sufficient provision has now been made to ensure that the State and the consumers, both nationally and internationally, are protected?

I thank the Deputy. On that issue, the Central Bank is the regulator of these funds. It is seen internationally as a very strong regulator. The Deputy points to the history in this area. There has been a strong response to that history with regard to improvements in how the Central Bank deals with this area and the level of supervision it provides.

The usual complaint I get is that it is overly bureaucratic, whether in respect of banks or credit unions or funds such as those addressed by the Bill. I do not accept that complaint because it is an asset for Ireland that we can state internationally that we have good, strong regulation. If a business comes to Ireland, it will have the benefit of one of the best regulators in Europe. We are particularly strong in terms of regulation.

On the issue of investors, this is a is very important point. The essence of the Bill relates to investment limited partnerships. As is the case when investing in any shares, if a company or a person invests €100,000, they can lose their money if the product does not work or the company does not succeed but, no matter what happens, their losses are always limited to what they invest. When investing in a financial product, one takes one's chances. However, there is absolute regulation The person who manages the fund has no limited liability and, as such, is fully on the hook personally if they do not do their job properly. If a company or a fund happens to run into a problem, the individual investor cannot be called on to contribute any more than he or she contributed on day one because his or her liability is limited to his or her original investment. All one can lose is the money one puts in, in the same way that in every walk of life and in every investment one makes there is no possibility of having to contribute further. Even if there is a loss, the investor's liability is completely limited to the original investment. There cannot be any greater loss. As I stated, we have strong regulation.

I thank members for their contributions. It is good that there is broad support for this essential Bill which will help to modernise investment limited partnerships offering in Ireland and will make changes to the Irish Collective Asset-management Vehicle Act 2015. The amendments to the Social Welfare Consolidation Act 2005 will help to ensure that the Central Bank can operate as the beneficial owner register which we already discussed. I believe the changes will help to further support Ireland's offering as a top-tier global location choice for financial services. As I mentioned at the outset, the legislation is consistent with the Ireland for finance strategy and is timed well to take advantage of the capital markets union agenda and to promote the establishment of private equity and venture capital vehicle funds in Ireland. Every new product like this on the market will lead to additional jobs in Ireland. People will work in this sector that was not available for Ireland before this legislation. Not only will it create additional investment, it will also create additional employment and additional taxation for the State. I thank members for their assistance.

Chairman

Repeating "That the section stand part of the Bill" 64 times reminded me of being in school. Not a day passed without me getting 100 lines for doing something. I was going to say it was for doing something extraordinary.

Deputy Bernard J. Durkan

Or not doing something extraordinary.

Chairman

It stood to me. On the remarks of the Minister of State, I did not intend to raise this matter but he mentioned it. The Central Bank over-regulates credit unions. It should not be the regulator of credit unions. It should not be the agency to operate protections for consumers. That really has to be considered and judged.

As far as regulation is concerned, I think the vulture funds have got away with murder. They have got away with far too much and have not been regulated as they ought to have been. It is as if they are able to bob and weave around the regulations and legislation we put in place. They get away with it and they literally torture people. I wish to put on record that, as Deputy Durkan has often mentioned, people, including public representatives, cannot contact the vulture funds. They do not return one's phone calls. Even when one is making an offer to sort something out on behalf of a constituent, their response is extremely poor. They are arrogant beyond belief and the language they use in confronting people about the issues of the loans and so on is just horrific.

The last thing I will say about the Central Bank, with which we are arranging a meeting, is that if it had regulated properly at the time that Jonathan Sugarman made his complaint regarding a bank, we might not have ended up in the deep trouble we were in during the ensuing financial collapse.

I thank the Minister of State and his officials.