I welcome the Minister for Finance.
Central Bank (Individual Accountability Framework) Bill 2022: Committee Stage
Sections 1 and 2, inclusive, agreed to.
SECTION 3
Question proposed: "That section 3 stand part of the Bill."
We have a serious number of amendments and a very technical Bill. I think there are 68 or 69 amendments that the Minister has submitted to this legislation which we received on Monday. We have a short period of time to consider it. However, it is very important legislation and we need to take ample time to make sure that it is right. Section 3 provides for the Central Bank to provide for regulations. Is that correct in regard to pre-approval controlled functions, PCF, holders and the responsibilities they have? Will the Minister elaborate on section 3 please?
I can indeed. I thank Deputy Doherty. Section 3 extends the Central Bank's existing power to make regulations under section 48 of the Central Bank Act 2013 in order to provide for the senior executive accountability regime. It provides power to the bank to make regulations for the proper and effective regulation of regulated financial service providers. By so doing it aims to introduce a regime that will place obligations on firms and senior individuals within them to set out clearly where responsibility and decision making lies. It will prescribe mandatory responsibility for firms which must be allocated to individuals carrying out a pre-approval controlled function, PCF, to ensure that there is a senior individual accountable for all key conduct and prudential risks. It provides for the allocation of inherent responsibilities to individuals and imposes a duty of responsibility on persons carrying out a PCF to take reasonable steps to avoid the firm committing or continuing to commit a proscribed contravention in regard to the areas of the business for which they are individually responsible.
Question put and agreed to.
Sections 4 and 5, inclusive, agreed to.
SECTION 6
Question proposed: "That section 6 stand part of the Bill".
On section 6, this is linked with section 4. In regard to the duties of responsibility it says that responsibility for the aspects of its spirit has been allocated to the person performing that function under arrangements adopted by the regulated financial services provider in accordance with the regulations made under section 48(2)(bc) of the Central Bank (Supervision and Enforcement) Act 2013. Will the Minister outline what section 48(2)(bc) says? This legislation obviously is not a stand-alone piece of legislation. It amends other serious pieces of legislation and is hard to follow in that regard. Will the Minister inform the committee in regard to section 48(2)(ba) of the Central Bank (Supervision and Enforcement) Act? It is something I could not find online and I would appreciate if the Minister could inform us because that is the reference in regard to this section.
The sections the Deputy has raised refer to the arrangements for the regulated financial service provider to allocate to PCF holders for the purposes of section 53(b) of the Central Bank Reform Act 2010 responsibility for aspects of its affairs specified in relation under section (2)(bb). I have the material in front of me which I can share with the Deputy as opposed to reading it out here. It comes from the 2013 Act. Very broadly it refers to further detail in regard to duty of responsibility, common conduct standards and additional conduct standards. I have the legislation here Deputy and I will share it with you.
I thank the Minister. That might be helpful. Looking at section 48 of the Central Bank (Supervision and Enforcement) Act 2013 which is on irishstatutebook.ie. Section 48(2) gives subsections from (a) to (y). Is that the section I am supposed to be looking at?
Bear with me Deputy. My officials will get it for me and I will confirm that to him in a moment. My officials tell me that is the right section.
If I am looking at section 48(2) and there are subsections from (a) down to (y), where is (ba)?
Where is-----
The reference in this legislation is 48(2)(ba).
That is what we are inserting. Under the item the Deputy referred to what we are doing is inserting into that Act the text that is now the subject of the new piece of legislation.
Okay. What is being amended?
The piece of text the Deputy referred to is being amended via this Act in section 3.
So the Minister is amending this Act. Under the duty of responsibility the Minister is amending the 2013 Act.
It states:
For the purposes of the section -
(a) a person has inherent responsibility for an aspect of the affairs of a regulated the financial services provider if -
(i) the person performs a pre-approval controlled function in relation to the regulated the financial service provider, and
(ii) the aspect of its affairs is specified in relation to that function by regulations made under section 48(2)(ba) of the Central Bank (Supervision and Enforcement) Act 2013.
Where is the section that changes 48(2)(ba)?
It is under the section entitled "duty of responsibility". It is section 53.
That is the section that is amending the Act to which the Deputy refers.
This legislation states: "the aspect of its affairs is specified in relation to that function by regulations made under section 48(2)(ba)". So what will section 48(2)(ba) read now if this legislation is passed? I would take from this that section 48(2)(ba) should empower the Central Bank to make regulations.
Absolutely.
To answer the Deputy's question, the text of the Bill now reads:
Section 48 of the Act of 2013 is amended—
(a) in subsection (2), by the insertion of the following paragraphs after paragraph (b):
“(ba) provision specifying the aspects of a regulated financial service provider’s affairs for which a PCF holder has inherent responsibility for the purposes of section 53B of the Central Bank Reform Act 2010;
(bb) provision specifying the aspects of a regulated financial service provider’s affairs for which responsibility is to be allocated by the regulated financial service provider to a PCF holder for the purposes of section 53B of the Central Bank Reform Act 2010;
(bc) provision as to the arrangements described in subsection (2A) that a regulated financial service provider is to adopt;”,
(b) by the insertion of the following subsection after subsection (2):
The subsection referred to in paragraph (b) is laid out in the Bill. If it would be of help, I can provide a copy of the text to the Deputy.
I would appreciate that. The Minister will be aware that we are amending different legislation, some of which is not consolidated, including other sections that we will come to later. Is it in this section that the pre-approval controlled functions will be defined? They are already defined by the Central Bank, but will this provide a legislative status in law for these functions, of which there are 47?
That is correct. The purpose of the prescribed responsibilities will be to provide clarity for a firm and the Central Bank as to who is responsible for the key activities of that firm. The Deputy is correct. That is what this section does.
The section will allow the Central Bank to make regulations under the new amendment we are making to the 2013 Act, which, I presume, will allow the bank to amend, add or delete pre-approval controlled functions from the list it already has.
Yes. That is correct.
I refer to the list of the pre-approval controlled functions published by the Central Bank. Is it the intention that the regulations will exclusively be used to regulate for the list that is provided or has the Central Bank given any indication that amendments will be made to that list?
Does the Deputy mean a list of institutions?
No. A list of the pre-approval controlled functions of, for example, the executive director down to the chief information officer.
For now, the Central Bank is not looking to expand matters beyond the roles it has already indicated.
If the roles were to be expanded, the bank has the power, under this section, to make regulations to add to the list. Is there a process the Central Bank would have to go through?
Under the existing legislation, the bank has the ability to determine what the roles will be. I imagine that, if and when this legislation is enacted, the Central Bank will determine what the roles are and whether they should be expanded. However, I expect that there would be consultation with the Department of Finance on the matter. It is a role for the bank.
Is section 6 agreed to?
Section 6 is probably the meatiest part of the Bill. The new section 53D deals with relevant circumstances for the purposes of the new sections 53B and 53C. This relates to determining the circumstances, relevant for the purpose of subsection (2), that would apply to a person performing functions in respect of a regulated financial service provider. Matters to be considered include: the nature of the business; the functions of the person; the level of knowledge and experience of the person; and the existence and application, or otherwise, of effective systems and oversight. Will the Minister explain the new section 53D and its purpose, particularly in the context of the knowledge and experience of the person and the relevance of that?
This would be for the Central Bank to gain confidence that the person involved in performing a particular role has the experience and background that would qualify him or her to perform the role in the first place. This is laid out in section 53D (b) and (c). One of the areas that will no doubt flow from this is looking at whether the right level of training or support is in place for individuals to demonstrate that they have to right level of knowledge and experience to perform roles.
This relates to financial institutions having to ensure that these criteria are met if they are allocating tasks, duties, or controlled functions to an individual. If a financial institution fails to do that, for example, by appointing a person as head of risk who does not have the necessary level of experience or knowledge, will the institution be in contravention of legislation?
Yes. The Central Bank has to be satisfied that the person being appointed - the head of risk is a great example - has the right level of knowledge and sufficient skills and experience to perform the very important roles in banks, roles that will be the subject of a lot more scrutiny and focus due to the enactment of this legislation.
I refer to the common conduct standards under the new section 53E, and the additional conduct standards, under 53F. As part of the additional conduct standards, I ask the Minister to explain the following:
The standards referred to in section 53C(2), in the case of a person who performs a pre-approval controlled function [that is easy to understand] in relation to a regulated financial service provider or any other function by which [a] person may exercise a significant influence on the conduct of a regulated financial service provider’s affairs ...
The section continues with a list. How do we determine a person who may exercise a significant influence over the conduct of a regulated financial service provider's affairs? Are we talking about a person at board level; a person appointed at a junior level with pre-approval controlled functions; a sole shareholder; a significant shareholder; or a third party? What does that passage mean?
With respect, the majority of individuals who would be in those roles would be in roles that are already defined as controlled function 1 roles under the existing fitness and probity regime. These will be individuals who will hold senior executive roles in banks but they will already be deemed to hold these by virtue of the existing regulatory framework in place for them. They are referred to as controlled function 1 roles. The standard definition of that, as the Deputy said, is a person who would have a significant influence on the conduct a regulated financial service provider.
There are two different standards: the common conduct standards and the additional conduct standards. They apply to two different category of individual, including those with pre-approval controlled functions. Will the Minister explain how that will work in practice and why there is an issue in terms of those exercising a significant influence. If a person has pre-approval controlled functions, he or she fall under the standards anyway, regardless of the significant influence. Will the Minister explain the difference between them?
They are laid out in terms of the expectations that are there regarding the roles. The conduct standards, to which the Deputy referred include: the need to act honestly and with integrity; act with due skill; be co-operative with the Central Bank; act in the best interests of customers; and operate in compliance with standards of market conduct. In addition to these requirements, individuals in more senior roles are required to deliver against an additional set of requirements of the Central Bank. They broadly refer to: the conduct of the business for which the individual is responsible; ensuring the business, for which they are responsible, meets the regulatory requirements; how they delegate tasks to people who report to them; and ensuring those delegated are performed effectively.
They have an additional responsibility with regard to any information they may have that the Central Bank would reasonably expect notice or information about. I guess the way to explain it is that we have one set of standards that would be common for everybody, which will be in the legislation and then we will have an additional set of standards for those who are in the more senior roles, that are as I have just described.
Obviously, the standards are different. There could be somebody in a senior role and because of his or her pre-approval controlled function or to whom the common standards apply. Due to the senior role, he or she will be the subject of the additional conduct standards. The additional conduct standards are probably defined as not being more loose but being more general.
They are broader.
Yes, exactly. They are broader. When we start to define this, we start to allow people to slip outside the net. Let us take somebody who is head of risk in a bank and who has not carried out his or her duties as would be expected under the legislation and according to the Central Bank. That individual would be in breach and, as a result of the enactment of this legislation, would be capable of being held accountable. Would a board member or CEO of a financial institution who may be aware of this, but who does not have the responsibility as a pre-approval controlled function of risk also be held liable for this? Under the additional conduct standards, the appointment of a person without due experience and proper oversight could breach them, but we could have a situation where the person did have experience and sufficient skill and even may have oversight, yet it still happened, and the CEO was aware of it. Is there any scope in this legislation for the CEO not to be held accountable? Will the accountability stop at the more junior level?
I do not think so. The reason for that is the caveat that is in here regarding the additional conduct standards, which refers to the delegation of tasks. It may need to be more precise, but I do not think so. My expectation is that somebody in a senior role, if they are subject to an additional conduct standard, would then be responsible for the performance of the individual who was reporting in to him or her and whether he or she has delivered the standards expected in this legislation.
The responsibility under section 53F(c) is that the appointment would have the delegated task reassigned to an appropriate person with effective oversight. If we look at our history in terms of the banking crash, we had situations in the past where the head of risk basically went crazy in Anglo Irish Bank - to tell the God's honest truth - and allowed the type of lending that happened. The person may have been an appropriate person with the right qualifications, but because of the culture in that bank at the time, that individual allowed a major risk to build up. The risk committee in the bank would have been aware of it as well, so there was oversight, and the CEO was aware of it. If this legislation were in place, it would probably be captured under subsection 53F(a) because the business of the regulated service provider was not being controlled effectively. If, however, we take the less serious scenario whereby we have the head of risk, the risk committee and the CEO being aware of it and there is a breach, can all persons be sanctioned or because the pre-approval controlled function is with the head of risk, is it only them? That is my concern.
I would expect that would happen. The reason for that is not just what I said to the Deputy a moment ago regarding section 53F(c), which refers to delegated tasks. That is the issue he raises. In addition, if he looks at the senior role, whether it be the CEO or head of risk, he will see that section 53F(a) contains the phrase "that the business of the regulated financial services provider is controlled effectively,". In that scenario, my expectation is that if there is a failure to meet the regulatory standards, if somebody is subjected to an additional control standard and is in a senior role, that he or she would then be subjected to this legislation. That is why we have the additional conduct standards in the first place.
If I could make a point about the scenario to which the Deputy referred as well, to use a different scenario, what I think will be very important in the implementation of this legislation - the Central Bank will take account of this - we do need to be very careful to avoid the scenario in which it is always the responsibility of the most junior person for the adherence to standards and to regulations, and that if we get into a situation of regulatory failure, that we are not in a position where it is the people who were at the lower levels of units that were responsible for this and who are always the ones held accountable for it. This is why we have the additional conduct standards and the reason there is specific reference to delegated tasks within in. The responsibility also sits with those who are leading or managing a business overall or a unit of the business such as the risk unit referred to by the Deputy.
I agree with the Minister on that. I have been calling for this legislation for nearly five years. I am glad to see it before us. It is very important that we do not allow any cracks. There are some points we cannot legislate for. We are providing a lot of powers to the Central Bank, and much of this will be determined by the mapping process in regard to the responsibility for all of those pre-approval functions and ensuring that the CEO and those at board level and executive level also have those responsibilities and therefore would be captured for any breaches in regard to issues that happen lower down the ladder. It will really be up to the Central Bank to ensure that when these functions are outlined, that they are not designed in a way that would avoid capturing those at more senior levels.
This brings me to another point in respect of section 6. Training must be provided to all of those with pre-approval controlled functions. We are talking about a significant number of people across financial institutions. Has the Central Bank looked at how that training is going to be provided? The one thing we do not want is that someone who was supposed to be given training says it was not given and therefore he or she cannot be held accountable. When will the training be provided and what form will it take?
The only positive consequence of the amount of effort involved in getting the legislation prepared and how long it has taken is that the training is already being provided in banks and companies involved, in particular legal firms, in implementing this legislation within banks. I am aware of many different seminars that have taken place already on how this will be implemented. This is work that I anticipate will require most of next year to do. Upon the passage of the legislation, the Central Bank will then have to publish detailed guidance on how the legislation will be implemented. I expect that next year we will then see the entities that are subject to this legislation will have to put a lot of focus into making sure there is sufficient awareness in place among staff regarding their heightened legal responsibilities. That said, all we are seeking to do with the legislation is require people who are affected by it to abide by the standards that we already want them to abide by and that, I think, employers would expect them to abide by.
It will be a lot of work but it can and will be done next year. The obligation here in relation to all of this will sit with firms rather than the Central Bank. It will be up to employers to make sure that those who are working for them have access to the training and courses they need. If there is any message to come out of this particular exchange that Deputy Doherty and I are having for those who are looking on, it is that employers and those charged with overseeing the provisions of this legislation within their companies have a solemn duty to make sure that those who are working for them have access across next year to the training needed to make sure this legislation is implemented.
I appreciate that and am aware that the regulated financial institutions have the responsibility under this law to provide the training but the Central Bank has the responsibility to provide the guidelines upon which the institutions will have to rely. We do not have the guidelines as yet and while there may be training going on, this is going to be hard to implement. The Minister has introduced more than 60 amendments so the institutions will want to see the guidelines. I presume the Central Bank will provide guidelines to individual organisations, through webinars and other means, on what it expects from them. Is there a timeline for the publication of the guidelines under this section?
I understand that the Central Bank will engage in consultation with the financial services sector to make sure there is clarity regarding key aspects of this legislation and the guidelines will be published six months after that consultation has concluded.
That will probably be the latter end of next year. The guidelines will be published in Iris Oifigiúil and will be available for all to see but will they be published before the end of next year?
I would expect that if we are successful in passing this legislation before the recess, the guidelines will be published before the middle of next year.
My last question-----
My officials have reminded me that at that point the guidelines will also be shared with this committee.
Yes, they are to be published on the website anyway and in Iris Oifigiúil.
As an act of courtesy we will make sure they are shared with this committee too.
I appreciate that. Given the Minister's spirit, maybe he will also share the Korn Ferry report on banker remuneration commissioned in 2019 which was never published.
It was not published because it did not lead to a recommendation coming to Cabinet but I will certainly consider whether it should be published now.
The committee agreed earlier to request it from the Minister. We could submit a freedom of information, FOI, request now that matters have been agreed at Cabinet level but I would urge the Minister to ask his officials to send it to the committee this evening.
I am happy to consider that request. In the spirit of giving Deputy Doherty an answer I can stand over, I will consider it and get back to him quickly.
I really do not think that is acceptable. When this committee asks for a report on banker's pay that was prepared three years ago using taxpayer's money, there is not much for the Minister to consider, in fairness. He should just agree to give the committee the report.
I am not sure how the Deputy's question relates to the particular section we are discussing but I accept that he is entitled to put it to me. I am very happy to consider the request and get back to him promptly on how I can share the report with the committee or if I can share it.
The reason I ask is that the Minister has made the point on the Dáil record time and time again that bank remuneration should be linked to accountability in terms of the behaviour of banks, a point with which I agree. A report was done and I presume there is some type of evidence on pay and remuneration. The retail report that was published yesterday contains no evidence whatsoever to back up the Minister's decision, bar what the Banking and Payments Federation Ireland, BPFI, has said. Now that the Cabinet has made a decision, this committee wants to determine whether it should investigate this matter further. It is a function of democracy on behalf of the Irish people that this committee is able to explore these matters. The Minister has had a report on this for three years that he has not published. It is a matter of public interest and the committee unanimously agreed this morning to ask the Minister to give us the report. The decent and right thing for the Minister to do would be to agree to give us the report and to ask his officials to email it to us this evening.
I have always performed in a decent way in front of this committee over a number of years. I am well aware of my obligations to this committee from a democratic point of view and have always sought to fulfil them. I thank Deputy Doherty for informing me of the very recent decision of the committee to request a copy of the report. I can commit to giving the request careful and quick consideration and to reverting to the committee as quickly as I can.
We are also looking for the remuneration covenants that the Minister has with each of the individual banks.
That is noted.
I will now return to the issues relating to section 6. Section 53I deals with the limitation of requirements to produce documents, give information or answer questions. I understand and accept the first three provisions, (a), (b) and (c) under this section, namely that one cannot ask for documents or information or pose a question that the courts would not have the power to elicit from the individual but I have issues with section 53I(d). It provides that a person cannot be asked to furnish documents or information or to answer questions that may incriminate that person. Is that not a serious issue? If one thinks of the tracker mortgage scandal or other banking scandals, it is clear that some of the documentation could incriminate individuals. Is this now going to be a standard defence, that one could be incriminated?
I understand that this is already a very well-established legal principle. It is a common principle of civil and criminal law. That said, there are ample other grounds in this legislation that would allow for the pursuit of an issue like the tracker mortgage scandal, particularly with regard to the additional conduct standards that we discussed earlier and the requirement for the business of a regulated financial service provider to be controlled effectively. There are other ways in which matters like this could be pursued but I understand that the particular recognition to which the Deputy refers is the standard privilege that exists in law to protect an individual against self-incrimination. It is a constitutional right-----
Deputies Durkan, Nash and Barry have indicated and I want to give them a chance to speak-----
Can I just make one point? I would understand that if it related to criminal proceedings but this is about incriminating a person in relation to anything. This is not linked to a crime. There is no requirement to produce documents, give information or answer questions that "might tend to incriminate the person", not in relation to a criminal act but in relation to a person's failure to perform his or her duty, for example. The terminology here is loose and I wanted to make that point.
I thank the Deputy. I understand that even in civil law, this is a standard constitutional right that exists. This is a long-standing constitutional privilege that individuals enjoy if they stand accused of a matter. As I said a moment ago, elsewhere in the legislation, particularly in terms of the conduct standards that are laid out, there will be ample opportunity for a regulator to raise issues of malfeasance and access information in an appropriate way under those parts of the legislation.
We will now have Deputies Durkan, Nash and Barry on section 6, beginning with Deputy Durkan.
If this legislation had been in place 15 or 20 years ago, how would it have affected the financial crash? Could it have prevented or ameliorated it? What would the situation have been in relation to malfeasance or misfeasance, as the case might be?
Can we look forward in the belief that this cannot happen to the same extent again without certain red lights flashing on the screen or could we find ourselves in the same position again? I ask this specifically concerning the fact that the Central Bank was in situ and the European Central Bank, ECB, was aware of the way the show was being operated at the time of the financial crash. In the context of discussion even in the last few days, here we are ten or 15 years further on and this situation has not gone away insofar as the customers are concerned. From the point of view of inquiry into the lenders, however, it does seem to have gone away. The question still remains, therefore. I know the Minister will answer it in good faith. In recent days, though, we saw a court case where a great solution was found, allegedly. The borrower lost everything, of course. All was gone forever. Whatever structure is put on it, therefore, the outcome is that everything is gone. The borrower has lost a home for a lifetime. This is not a great achievement after all this, because after the whole process, it is gone too.
The situation is that a great industry has grown up in the meantime. Many people who were just simple borrowers were hurt and just washed away in the course of what happened. We are all dealing with the consequences daily. It is so sad. Even as we sit here, cases are being pushed into receivership and properties are being put on the market without the knowledge or approval of the borrowers. It is, therefore, a rough old world out there. It is tough stuff for those who must pay the penalty. Is the Minister satisfied, insofar as it can be achieved, that this type of situation could be prevented by the application of this legislation?
The Deputy referred to the importance of good faith in answering the question. He put his question to me in good faith as well. I am conscious that every financial crisis is different. Many banking crises can be different from those that have gone before. Can I, therefore, guarantee to the Deputy or give him an assurance that our country may never face a huge financial difficulty again in which the financial sector may play a role? I would be foolhardy to give the Deputy such a guarantee. What I can say, however, is that when I look at the legislation in place now, especially concerning the fitness and probity regimes we already have in place for senior roles and, specifically, at how much capital our banks now hold to deal with the consequences of risk developing in a way that affects their balance sheets and that could, in turn, affect our economy, I believe we have strong safeguards in place that give us the best chance against the risks we currently know about. I believe this legislation will be very valuable because we have a clear deficiency now in how we can hold individuals responsible for what we will now see as civil offences. When this legislation is enacted, it will add a further important pillar to the way in which we regulate our banks. Is this a guarantee there will not be difficulties in the future? It is not. With the passage of this legislation, though, we will have the final tool we need to give us the best chance of dealing with the risks that we are aware of and that have happened to us in the past in respect of holding individuals and organisations accountable in the future if issues develop.
The Minister gave a good reply. I was one of the people involved years ago in the deposit interest retention tax, DIRT, inquiry. During its course, we realised all the things that had gone wrong, that should not have gone wrong, and tried to prevent them from occurring. Ultimately, we were given assurances concerning good governance, good auditory practices, there being no repeat auditing and no handing out of business to the same auditors to get the same results in consecutive years or within a period of years. We were given a whole lot of other guarantees or understandings then as well.
As someone who was there then, and I think I am the only one left in the House, all I can say is that we had scarcely gone around the corner when moves were afoot to repeat the process. I recognise and acknowledge the Minister's reply. He gave an honest reply to my question. We must, however, be vigilant and fearless in the future to protect not only the financial institutions and the public but those who are inquiring as well. I say this because people can quickly come around and point the finger, as has happened, and ask how we missed things and where we were when it happened. These things happen. I accept the answer the Minister gave me and I recognise it entirely for what it is. We must, though, be vigilant in future again, notwithstanding all the structures we have put in place to prevent a recurrence of such a situation. I thank the Minister.
We do need to be vigilant. If the Oireachtas agrees to the passage of this legislation, then it will be a further step forward in how we regulate and guard against risks. I take some heart from the fact that we went through a pandemic that put such a strain on people who had loans with banks and were in relationship with banks, particularly SMEs. While the massive financial support the State provided to individuals played a really critical role, if not the critical role, in managing the risks of the last two years, we never reached a point here Ireland where the financial sector ran the risk of becoming a part of the problem. This demonstrates that over the years leading up to that point, standards regarding lending and the regulation of our banks made a difference. As I said, however, I am still being precise in the point I made. The fiscal support, indirectly, of course, played a valuable role in avoiding the banking sector being a source of additional problems, but I still believe the regulatory standards we adhered to up to that point, in respect of loans, how they were made available and at what level, did have a value in dealing with the pandemic.
I thank the Minister.
Undoubtedly, a constitutionally and legally robust accountability regime is something that has been absent for many years. There is consensus across the Oireachtas regarding the necessity of this legislation. It is a good thing and everybody recognises the accountability regime needs to be strong and robust for all the reasons we know. Our society and economy have paid the price due to the absence of regulation and individual accountability. Time and again, I have said it is the people who make decisions and not just corporate bodies. I imagine the decision the Minister took yesterday concerning variable pay rates and benefits, and the question of a cap in this regard, was undoubtedly informed by the evolution of this legislation and that we will, ultimately, have in the years to come a strong individual accountability framework in place. I am convinced yesterday's decision was informed by this development.
There has been much discussion in the media and these Houses about this question. Pointedly, as well, questions have been asked about whether the lifting of the variable pay and benefits restrictions up to €20,000 will be more beneficial, for example, to bank staff starting off on salaries of €26,000 annually in retail banks or to the senior management staff of those retail banks earning multiples of that amount. The Taoiseach was clear yesterday on his perspective in this regard. Frankly, I tend to agree with him that this legislation will ultimately be of greater benefit than the decision the Minister made yesterday to ordinary banking staff who are in a competitive situation.
Retail banks are losing staff hand over fist to competitor organisations that do not have the same constraints. These are people on moderate and modest incomes, who have been prevented from obtaining packages that are on offer elsewhere. This is particularly important in the context of the cost-of-living crisis.
I have two questions for the Minister about the Government's decision yesterday. Does he agree that the next step should be for the Financial Services Union, which is the key union representing retail banking staff, to come together and agree a framework and a mechanism for how ordinary bank staff could benefit from the announcement by the Minister yesterday? My next point is important. Does the Minister agree with me that it would be unimaginable and unconscionable for senior bank managers to benefit first from the changes announced by him yesterday before there was full agreement between the Financial Services Union and banks about the necessity for ordinary bank workers - people on low and modest incomes - to benefit from the decision he made yesterday?
Regarding the scenario that is on my mind and that I believe will grow in the time ahead, I will pick IT as an example. My decision yesterday provoked a debate. I understand why and I have a duty to engage in this debate. It tends to be seen through the prism of bankers' pay in the context of people who are already earning a lot of money and who the public may feel will now gain very large bonuses. I understand the reason for that image given the terrible difficulties we went through and that too many are still going through.
However, another way of looking at this is through the prism of those who work for banks as opposed to those who may perform senior banking functions. If we look at the pay rates in our banks, 48% of staff in our three banks earn less than €49,999, while 75% of staff earn less than €75,000. Let me be clear - €75,000 is a very good salary and well above the average levels of salary in our economy. However, for 48% of people to earn less than €49,999 reminds us of the wage structures in our three banks. I will use the example of one person who has the skills to work in IT or risk, about which Deputy Doherty correctly inquired earlier, given how important it is to this legislation. At the moment, the only three banks that are not in a position to offer variable pay are also the large employers and the banks that hold a very large amount of deposits. Let us take the example of somebody who has just completed an apprenticeship in IT and gets two job offers. Until yesterday, this person would have got one job offer from AIB, PTSB or Bank of Ireland in which he or she would have no option to earn variable pay in the future or a bonus. This person will get another option from any one of a number of other very large banks that employ an awful lot of people here and where variable pay and bonuses constitute a standard element of how people are paid. This is the reason I made a difficult decision that will take a lot of explaining. I want to be in a position to ensure that this person will at least consider working in a bank that is holding the deposits of ordinary Irish people and businesses and possibly be able to have a full career within them. My concern is that in the absence of that decision, it would become harder and harder for that to happen.
That is at the core of the debate that I know my decision has provoked. I know why the public associate this with the very large bonuses of the past and the harm that was done. Over 40 banks are registered in this country, of which only three are not in a position to offer variable pay to those carrying out roles that matter to the ability of these banks to function. While this will be portrayed as affecting those at the top, the groups I have in mind are the groups referred to by the Deputy and listed by me. I want to ensure that somebody earning €40,000 who has been working in AIB, PTSB or Bank of Ireland for a few years will decide to develop his or her career in that bank rather than go to another very large employer - thank God, we have them here - that is in a position to offer these benefits and where we would lose that expertise.
If I look at what has happened as we have tried to migrate staff over to AIB, Bank of Ireland and PTSB from the two banks that are leaving the country, I can see that we have not been successful in getting the numbers of people into those banks that I would have expected. This is the hard reality I have to contemplate in making the case to Government in respect of this decision.
This leads on to the two points put to me by the Deputy. I very much would call on the banks to engage with their staff on this decision. I would expect that would happen anyway but I hope that engagement happens in a timely and ordered way. I know recent pay agreements have been reached in our banks regarding the next 12 to 18 months so I know the unions and bank management will engage in respect of the consequences of the Government's decision.
While I cannot control who gets what because it is up to the employer to make that decision, I very much want to see the decision I made offering a benefit to the 48% of people earning less than €50,000 or the 75% of people earning less than €75,000, which I acknowledge is a good wage, who are critical to these large employers in our economy having the ability to be stable and grow in the future. They are the people I want to see receive the greatest benefit from the Government's decision.
I was not going to speak about the bankers' pay cap and bankers' bonuses. I was going to focus on some of the finer details of the Central Bank (Individual Accountability Framework) Bill 2022. However, a discussion has kicked off here and the Minister has made some points so I will join the debate. I will start by asking him a question. The Taoiseach made the argument in the Dáil yesterday that this is fundamentally about allowing bank workers on low and middle pay to have variable pay and increase their income. The Minister has made the same argument here. I do not buy it for a minute. This is codology. Is there any legal impediment or any reason the Minister could not lift the ban on variable pay for people under a certain threshold - he used the figure of €49,000 and said that 48% of bank workers have a basic income of less than that and that 75% have an income of less than €75,000 - of say €100,000? I would be okay with that. Everyone earning below €100,000 could have variable pay but the Minister would keep a cap in place for people earning more than that, including people on the top rates, who are earning €500,000 per year.
Is there a legal impediment to the Minister doing this or is there any reason it could not be done?
To the best of my knowledge there is no legal impediment to doing this. I have several points to make on this issue. I am glad the debate has brought to light the pay structures in our banks. The reality that a very large number of the staff we are discussing do not earn very large amounts of money, although some do earn good salaries and I acknowledge that. This decision will be very meaningful to them. The team that produced the report for me with which I engaged on making the recommendation to the Government had to contemplate several challenges. I find it interesting that the Deputy has said that if I were to say variable pay would be available for people earning up to €100,000, he would not have had a problem with it. I can only take it in good faith that he would not have a problem with it. At least what is valuable for me is that he is acknowledging that there is a role for variable pay in banking remuneration. This is good to hear from the Deputy.
I will come back on this.
It is a positive shift in stance from the Deputy, which I appreciate. Indicating his support for the principle of this up to a certain wage level is an honest admission of the challenges that are there at present.
We encountered two difficulties with regard to the €100,000 threshold in this regard. Bearing in mind that those who earn more than €100,000 in our banks currently account for roughly 10% of the total bank staff of these companies, it means that 90% earn below this. However, those earning €100,000 and more are still performing roles that matter to the performance of these banks. Some of these roles are those that will be subject to the additional conduct standards Deputy Doherty spoke about earlier. It is still the case that in the large number of other banks that are operating, growing and employing many people in this country those individuals will be able to get variable pay. There are individuals in these roles whom I want to see, subject to this legislation, stay in and contribute to the banks that employ a lot of people in Ireland and look after more than €200 billion of deposits. That is why picking a particular pay level is not something the Government decided to do. We would deal with all kinds of perverse incentives by adopting such an approach. Let us say somebody on €90,000 receives, for the sake of argument, a bonus of €15,000. This would mean the salary was €105,000 in a given year. If such people could not get an option for variable pay, they would earn less by being promoted to a role in which they would earn €101,000. These are the real-life difficulties that can play out in very large companies. If we pick a salary level under which variable pay would not be available, it could weaken the incentive or attraction of the roles at that level and above.
This is not the world that any of us are in. Nobody here earns bonuses. I am very much aware of the hours that everybody in the Chamber puts into performing their roles for their salaries. In many other large employers variable pay is a standard way in which people are paid. Pegging this at a certain salary level would create counter-productive consequences for something I believe is worth achieving. This is to ensure the three banks we have left in this country are competitive versus the rest of the banks located here which employ an awful lot of people and can also pay bonuses. The Deputy's recognition of the role variable pay can play and his support for this principle is a welcome development.
The most important statement the Minister made in his reply, by a long way, was his comment that to the best of his knowledge, and I presume he would know being the Minister, there is not a legal impediment to having a pay cap, which he might set at €100,000. He could maintain his ban on pay increases and bonuses for people earning above this level, including those on €500,000 a year. There is no legal impediment the Minister is aware of. This completely undermines the argument made in the Dáil yesterday by the Taoiseach that it was about those on low and middle pay and bank workers fundamentally. It is in my eye, as is pretty clear from the comments of the Minister. He gave us examples of people on €49,000 a year or less and €75,000 a year. Even with the extreme example he gave of a €26,000 bonus for a person on €75,000, 99.95% of the people in the categories mentioned would be covered in a scenario such as that which I have explained.
As for the issue of variable pay, I am open to a discussion about it but it is not the fundamental issue. What is fundamental is basic pay. That is the issue. I welcome the comment the Minister made on the need to tackle insufficient pay in the banking sector. I hope the State will use its shares in two of the three big banks to push for and try to ensure that bank workers have pay justice and decent pay. I have not seen too much evidence of it to date. If this is a change of policy on the part of the Minister, I would welcome it.
It is not necessary to lift the €500,000 pay cap or the heavy taxation on the €20,000 bonus for those at the very top to sort out the bank workers on low and middle pay. It is not necessary to insult working people in this country. The Minister's decision is an insult to working people and hard-pressed families who are scraping the euros together to ensure their children have a decent Christmas this year in the middle of a cost-of-living crisis. Their hearts are broken every Friday evening when they come out of the supermarket and see by how much the basket of goods has increased over the previous week, let alone the previous month or several months ago. The Minister is giving the green light for big pay increases for people on €500,000 a year, the top 1% in our society.
I note the comments the Minister made yesterday. They were important and it is important that attention is drawn to them. This is very much linked to the question of privatisation. The Minister has made the point that Bank of Ireland is in private ownership and it has the green light to shoot above the €500,000. The other two banks are still in majority public ownership so they do not yet have the green light. The Minister's hope is that AIB will become majority private in the new year and it would then have the green light. It is logical that those who are against these bonuses for bankers, which by the way was the policy the former British Prime Minister Liz Truss and her Chancellor Mr. Kwarteng tried to introduce in their budget, also oppose the privatisation of the banks the Minister is pushing for and are in favour of maintaining the banks in public ownership.
I note the argument the Taoiseach made in the Dáil yesterday, that the market demands that you pay higher rates for the bank executives and so on. Why is that argument not used for our nurses or teachers? A teacher or a nurse can go abroad, get higher rates of pay and have a better standard of living but the Government does not argue that if we want to retain our nurses or teachers we have to increase the rates of pay significantly. It is the line of argument that is being put forward on the top banking executives but let us see if it is the line of argument that is made on the pay of teachers and nurses over the next while.
I ask the Minister to comment on the following point. I accept that the Minister does not have a legal obligation to put his proposal on bankers' pay and bonuses to a vote of the Dáil. He has a moral responsibility to do so, however. The mood of people and society is one of strong opposition to this. My office got a lot of contact on this yesterday and I am not the only Deputy who has had that experience. If the Government has the courage of its convictions on this issue and believes it is the right thing then it should do the right thing and put it to a vote in the Dáil. We will see the colour of the money of the Fianna Fáil, Fine Gael and Green Party Deputies, and of the Independent Deputies who prop them up. I ask the Minister to comment on that.
It is always up to the voters or viewers to form a view on what the most important thing that has been said in this committee is. As a humble member of this committee it is a significant development that, given the Deputy's views on capitalism, he has said he would be okay with bonuses of up to €100,000.
I did not say that. I ask the Minister not to misrepresent my words.
That was a genuine slip of the tongue, which I apologise for.
I will clarify my position because the Minister seems to be confused about it.
The following is what I thought I heard the Deputy say. In fact it is what the Deputy said. He said a few minutes ago that he would be okay with bonuses for workers in our banks who are earning up to €100,000. That is important because it indicates that, given the Deputy's commitment to overthrow capitalism, even with that commitment his statement shows how the sands and background to this debate have shifted.
The reality for people who are in the three big retail banks we have left, after two others decided to leave our country, is that the majority of them have the ability to go and work in other financial service providers or other parts of our economy in which variable pay is the norm. I am telling the Deputy in all sincerity, having considered this matter and my Department having considered this matter intensely over the past year, that this will further weaken the ability of these banks to grow and keep staff. The reason that is a concern for me is it matters to the people who work for them and it will matter to our economy. What the Deputy has said is a significant intervention in this debate.
The Deputy made some claims on the super tax and the €500,000 pay cap. I am not proposing a change in the super tax. I made it explicitly clear yesterday that variable pay and bonuses above €20,000 are not allowed. In any situation in which, despite the policy of the Government, they did happen, the super tax of 89% applies to them. I am not removing that tax and have no intention of removing it.
On the €500,000 pay cap, as I am sure the Deputy will know, that only refers to Bank of Ireland. It does not refer to AIB or PTSB. I thank Deputy Barry for the contribution he has made because hearing a Deputy of his political outlook say he is open to a discussion on variable pay shows how things have shifted. I am sure that will influence the debate in the time ahead. I am only repeating what Deputy Barry has said.
The key point that has been raised in this debate is the Minister's admission that there is no legal impediment which would allow for pay increases and bonuses for low-paid and middle-paid banking staff on the one hand, while maintaining a pay maximum and super tax on bonuses for the people at the top. That completely undermines the line of argument that was put forward in the Dáil yesterday by the Taoiseach. It is not just the one bank that the Minister is talking about. It is one bank today in November or December but the Minister has another bank in mind for early in the new year. He has it in mind that AIB would switch from being majority publicly owned to majority privately owned. Once it is majority privately owned, the rules that apply to Bank of Ireland would apply to AIB.
We have to look at the direction of travel and under the guiding hand of the Minister it is a direction of privatisation, the lifting of the €500,000 cap and opening the door to €20,000 bonuses. That is the issue that is concerning the public, who are under the hammer in a cost-of-living crisis and who see these changes being introduced for the benefit of the 1%.
But the Deputy is open to somebody who is earning €95,000 earning variable pay in a bank.
I will clarify this point because the Minister wants to make a mountain out a molehill, and he can shake his head all he wants. The key point I am making on the pay of low-paid and middle-paid banking workers is as follows. The issue of variable pay becomes far less of an issue if the key question of the unsatisfactory basic rates of pay is dealt with. There are too many low-paid workers in the banks and there are too many workers on middle incomes in the banks who should be paid at a higher rate. The key way to address that is the question of the basic rate of pay.
The State has used its controlling interest in the banks to prevent those pay issues being addressed in the past. In that sense the Minister has been part of the problem, rather than the solution. I am open to a discussion on variable pay and I do not have a problem with that, provided the Minister is talking about low and medium-paid workers, rather than the executives at the top. It is far less of an issue if the Minister does what I am arguing for and deals with the key issue, namely the basic rates of pay, which this Government has been a problem on in the last while.
The Minister has not addressed my question about a vote in the Dáil. It is not a legal necessity but it would be the right moral thing to do. I put the question to him again and I ask him to answer it this time. Will the Minister have the courage of his convictions and allow a vote of the Dáil on this issue?
I am not required to bring, nor will be I bringing forward, a Dáil resolution on the matter. Under the current legal framework it is a decision I make myself, with the consent of the Government. I have to get the agreement of Government, which I did yesterday. However, I have little doubt that there will be many other opportunities to debate it in the Dáil and for the matter to be discussed there. I will be present to have that debate and make the case.
It is factually wrong to say that the Government and I have used a shareholding in any of the banks to be involved in debates and decisions regarding pay. That is wrong.
The pay rates have remained low when the State has had a majority share.
As Deputy Barry knows, as a shareholder in a bank, neither I or the State are allowed to be involved in commercial decisions the bank makes. That is the nature of the relationship framework agreement we have with three banks. We have not been involved in any discussions on pay or the pay negotiations that are under way. That is led between management and unions. The State has played no role in this-----
It had no influence whatsoever.
-----and to make such an assertion is wrong. Finally, I will go back to the point that there has been a revelation this afternoon, which is that Deputy Barry, the man who wants to overthrow capitalism, said he is open to a discussion on variable pay. That shows a recognition of some of the issues this decision yesterday aimed to address.
I want to get into the detail of this legislation because we do not have much time. The Minister addressed this to another Deputy, however. People are shocked that the Minister's parting gift as he leaves the office of Minister for Finance is a bonus for bankers and unlimited pay for senior executives in Bank of Ireland with an indication that the same will apply to AIB and Permanent TSB in the future. These are two banks that were levied the largest fine ever in the history of the State.
Where the Minister is sitting now, this committee had to bring in victims of the tracker mortgage scandal in order that this issue was dealt with seriously by the Central Bank of Ireland. These banks fought those victims tooth and nail for years. They reduced them to tears and stole their family homes from them. As I said, it was the greatest robbery in the history of the State and it was done by the banks. More than half a billion euro was taken from 40,000 accounts and 98 houses were lost. That is not something from history.
The Central Bank of Ireland found that when AIB was levied with the highest fine in the history of the State after having breached 96 regulations, with the 12,000 customers it and EBS affected, it continued to impact on its customers right up until March of this year. It was the same in other banks. Houses were repossessed, even during the inquiry period of the Central Bank of Ireland that went on for nearly five years. That is the culture we have. It is not something historic or something that happened during the banking crash. That is the culture we have today.
I agreed with the Minister when he said remuneration had to be linked to culture. The culture has not changed, but the Minister has given an early Christmas present to senior bankers. there is no appetite for senior executives in banks that were bailed out by the State to have a pay cap of €500,000 lifted. The Financial Services Union suggested that retention or the churn in banks at senior level is similar to that in banks that do not have pay caps in place. Mr. Philip Lane wrote to the Minister and said that the pay caps should not be introduced. People are motivated for different reasons.
There are serious problems the Minister should address. The housing crisis is one. The cost of rents is another. We have retention and recruitment problems now in education, health and other areas. However, the Minister decided yesterday to prioritise the issue of bankers' pay. It is completely tone deaf to where people are at and all the rest of it.
Deputy Barry is 100% right but the Minister took him to task. Therefore, he might answer this question. Did the Minister approve - and I support this - the three retail banks paying a €1,000 cost-of-living payment to their employees earlier this year? My understanding is that he did. Therefore, he does have a role with regard to the pay and in respect of workers. Deputy Barry is right in that regard.
The second issue is that tomorrow, the Minister could approve another €1,000 to low-paid staff if he wanted to. He said he has no control over who these bonus go to. That is because he decided yesterday to hand it away. Variable pay in the context of the €1,000 was already gifted to these staff just a couple of weeks ago. It could have gone up to €5,000 for low-paid individuals in the banks if the Minister wanted to. The difference is that he would have to sign off on it. What has happened now is that €20,000 bankers’ bonuses can be paid and who determines this? It will be the CEO, who can be paid an unlimited amount of money because of the Minister’s decision yesterday. That is the reality. Let us call a spade a spade.
The Financial Services Union will argue it and good luck to it. Fair play to it in achieving the 7.5% increase it got for its employees. It will try to make sure that ordinary workers benefit from this. We were lobbied on this, however. I do not know how many people in this committee were lobbied. I was lobbied by the CEOs of banks and by the banking spokesperson, the Minister’s former colleague and former junior Minister with responsibility for Finance. It is senior and mid-management levels they are talking about in terms of the bonuses. Not one of them talked to me about the person who needed a bonus who works in the bank in Falcarragh or on O’Connell Street or anywhere else. They are talking about high levels.
What the Minister did yesterday is completely out of touch with the culture. He said repeatedly in this Dáil that remuneration had to be linked with culture. One does not reward bad behaviour. What these banks did was unforgivable. This is not going back ten years. This is happening right now. I have sat in too many kitchens and watched too many women fall apart in tears over what the banks did during the tracker mortgage scandal. The banks were told over and over again to stop it. The Central Bank of Ireland told them to do no harm. Does the Minister know what they did? They continued with the harm principle. Those are not my words but those of the Governor of the Central Bank of Ireland in the findings. What the Minister has done is reward them. That is it. He can dress it up whatever way he wants. He had the power to control bonuses for low-paid workers in our banks if he so wished. He could have provided for that. He could have allowed banks to pay for childcare costs if he so wished, but he did not. He has now handed that over to the CEOs of the banks. He does not even know what way the bonuses will be applied in the future. There is a real issue in terms of the type of bonus culture we had in this State in the past that rewarded risk. The best way of increasing pay for low-paid workers is through their basic pay. These banks are profitable.
Therefore, I will make it clear to the Minister and again, Deputy Barry is completely right in this. There is a trajectory in the Government. I put it to the Minister, although he will not be here long enough to see this out, that this is and always was the plan. That is the reality. The reality is that the shareholding of AIB will be sold down as quickly as the Government can do so to get into a minority share hold. The report that suggested the Government allow unbridled pay at senor level will then take effect. The same will happen in Permanent TSB.
The Minister argued that the banks need to go back to normal. In the so-called normal phase, bankers in this country were being paid €3 million. They wrecked the country. They put the interests of themselves and their shareholders first. That is the culture that has not changed today. Every survey that is done, whether it is by the Irish Banking Culture Board or the Minister’s own retail review of banking, tells us that the culture has not changed. We do not even have to look at whether the culture has changed. We can see the proof of what senior bankers have done in this country. People who sit on boards today were breaching regulations and continuing to harm individuals right up until six months ago in terms of the tracker mortgage scandal. It is absolutely disgusting in my view that the Minister has given them this gift. The Minister can dress it up whatever way he wants with whatever focus group analysis he has got in terms of how he will try to spin it, but this is very clearly a gift to senior bankers and those on the highest pay. We have not had a situation where we could not fill the vacancy of the senior positions in any of those banks so far. None of them are vacant. Yet, the Minister said that in Bank of Ireland, €900,000 is not enough and in the future in AIB and Permanent TSB, €500,000 will not be enough. The public has a very different view.
The Minister will make the point about competitors and all the rest in what is happening. I have heard him make this argument that 40% to 45% of people who are leaving our banks are going to banks that pay variable pay. That means the majority of people who are leaving our banks are going to banks that do not pay bonuses or they are going to other institutions where they do not get bonuses. More than just money is motivating people in terms of leaving the banks. However, the difference in terms of other institutions that do not have those restrictions is that we did not have to bail them out. Collectively, according to the Comptroller and Auditor General, the net cost to be received back from the banks so that the State investment would be repaid is €45.7 billion.
That is just on the balance sheet end. However, the Government will never repay the suffering the Irish people had to go through because of all the other issues that led to emigration, poverty and people at risk. That is the difference. That is why, when these banks were rescued and were told they would not exist in the morning had it not been for taxpayers bailing them out at that time, there was an understanding there would be no more bonuses, that bankers' pay had to be capped and that the culture had to change. The culture has not changed. I will leave it at that but I think it is ridiculous.
I thank the Deputy for his contribution. He made reference, as he has done on a number of occasions, to the letter Philip Lane sent to me in 2019. He quoted selectively from page 2 of the letter. Did he have a look at what was stated on page 3 of the letter? If he did not, I will read it out to him. Page 3 of the letter he has quoted copiously from over recent days states, "Against this background and taking account of the more stringent European remuneration regulations now in place, we believe there may be merit in allowing more enhanced flexibility with respect to remuneration for such staff." The letter goes on to say-----
Is that the cap? The taxpayer will pay-----
I will answer the Deputy's question-----
Variable pay.
-----and maybe we will then get into exactly what the Sinn Féin stance on this is. The letter also acknowledges that, "There is a risk of losing staff in critical functions or with specialist skills in the areas of IT, risk, compliance and related functions to firms that are not subject to remuneration restrictions." I never heard the Deputy quote that line.
It is variable pay.
The letter goes on to state that, "The incorporation of variable pay into remuneration packages would also allow banks the flexibility to vary their costs in line with economic circumstances or business needs." The reason I begin with reminding the Deputy of elements of the letter-----
Read the bit about the cap. That is the point I put to the Minister.
I acknowledged that.
There is no reason to lift to cap.
It is always the same with the Deputy. He makes an argument. I make an argument back but he never allows me to finish my point or to complete the argument. For fear that his interruptions did not allow him to hear the point I made to him, he selectively quoted from a letter Philip Lane sent to me. That is the point I made. The reason I made it is because he is selectively quoting. Elsewhere in the letter the Deputy referred to, references are made to the very thinking and issues that influenced yesterday's decision. It makes reference both to variable pay and to the cap. It is in the letter. He never made any acknowledgement of that either here or elsewhere.
I know we are getting to the point where the Deputy infers that I do not care about all those-----
The Minister cares. He cares about the bankers.
-----who have had their lives-----
The Minister showed us yesterday where his priorities are.
The Deputy says that I do not care. I know he does not like having his selective quotations pointed out to him in front of the committee. I understand why he wants to interrupt me again, but to continue my point, he again made the point that I do not care about those who have been affected by the appalling scandal of what happened with tracker mortgages. I assure the committee that of course I do. That is why I have again and again used the word "scandal" regarding how those people were treated, and "scandal" regarding how banks dealt with issues in the conduct of the investigation of the Central Bank and how long it took for the issue to be concluded. I have a duty to those families that I aim to discharge through supporting our independent regulators.
I also have other duties. Some of these other duties relate to the fact that we now have only three banks left in our country that have the ambition of being large, retail banks with branches that employ many people. At present, those banks employ just over 19,000 with the aim of getting to 20,000 people. Do we want those banks to have people within them who are attracted to stay in roles looking after deposits, and lending to SMEs and small businesses, or do we want some of those people going to many other banks that offer variable pay as a norm? It is not just banks but many other employers throughout our country. While that is a difficult argument, it is nonetheless one I have to make in the context of thinking about the future of retail banking. Do I want those people working in Irish banks that are registered and employ people in Ireland or other large, global organisations that do not have a focus on lending within the Irish economy, employing 20,000 people within the Irish economy, and that make bonuses available as a standard part of their packages?
As regards the charge the Deputy made about me only being interested in senior bankers, the Financial Services Union, FSU, would not have welcomed the decision I made yesterday if the only people who will benefit from this are senior bankers. The FSU would not have made the case for this change if its ambition and aim was to ensure senior bankers are paid more. I do not make decisions with a view to entirely meeting the needs of unions or employers, but the fact that the FSU made this case for so long makes it very clear that the motivation for that argument and for the decision is not just about those at the top. It is about all the other people who I want to have an opportunity to continue to have careers in the three banks that are subject to this legislation. That is why I made the decision.
I have allowed plenty of discussion and debate on this section.
Question put and agreed to.
Section 7 agreed to.
SECTION 8
Question proposed: "That section 8 stand part of the Bill."
I want to clarify that "relevant obligations" in the Chapter will mean "all designated enactments and all designated statutory instruments that apply to it ... all codes ... and notices issued by the Bank that apply to it, and ... all other enactments and statutory instruments with which it must comply".
That are in effect.
Yes. Does that include future enactments, statutory instruments, guidelines, and notices for the banks? They are referenced in the past tense. I just wanted to make that clear.
Yes. It would include them.
Question put and agreed to.
Sections 9 to 12, inclusive, agreed to.
SECTION 13
Amendments Nos. 1 to 5, inclusive, are related and may be discussed together.
I move amendment No. 1:
In page 24, line 11, to delete “subsections” and substitute “subsection”.
These amendments propose to amend section 13. They all relate to the European Central Bank, ECB, competence in approving persons to pre-approval controlled function roles in significant entities. Section 13 amends section 23A of the Central Bank Reform Act 2010, which provides for how the fitness and probity regime operates in relation to banks that are subject to the direct supervision of the ECB.
The amendments provided for in section 13 are intended to underline the fact that it is the ECB rather than the Central Bank of Ireland that has the competence of the pre-approval assessment of the fitness and probity of individuals who are proposed for appointment to certain positions in significant supervised entities.
Following its publication in July, I consulted the ECB on the provisions of the Bill and I am now bringing forward several amendments to section 13, which arise out of this consultation. Since there is no existing statutory definition for “key function holder”, the Bill, as initiated, proposed to address this by allowing the Central Bank of Ireland to make regulations prescribing those roles that are subject to ECB approval. The ECB raised concerns that regulatory authority and tasks should not be conferred on the Central Bank of Ireland which may impinge on the exclusive competence of the ECB in relation to significant credit institutions. It recommended that section 23A should be clarified so that the role of the ECB in respect of the supervision of these entities is maintained in line with the Single Supervisory Mechanism, SSM, regulation. The amendments will replace the reference to regulations made by the Central Bank of Ireland with a reference to Article 4(1)(e) of the SSM regulation and achieve the same policy objective of clarifying that approval of the appointments concerned is the exclusive competence of the ECB.
Amendment No. 1 is technical. Amendment No. 2 clarifies that the entity shall not appoint a person whose appointment is subject to ECB approval under Article 4(1)(e) of the SSM regulation. Amendment No. 3 clarifies that the entity should not appoint a person to a role unless the ECB has approved the appointment in writing. Amendment No. 4 removes the Central Bank of Ireland from the approval process for appointments to pre-approval controlled functions, PCF, roles in significant entities, approval of which falls within the exclusive competence within the ECB. Amendment No. 5 removes the role of the Central Bank of Ireland in notifying the entity of the ECB’s approval of the proposed amendment.
I recommend these amendments be approved by the committee.
The amendments are fine. There is no substance in them. I know the original draft had a similar type of wording, but this just clarifies the ECB’s competence in relation to significant regulated firms. To clarify, when we are talking about how it is not the Central Bank that has the function or authority to approve the pre-approval controlled functions in these firms, the firms we are talking about are AIB and Bank of Ireland. Is that it?
Yes, that is correct.
Only two of them.
Excuse me. I apologise. My answer to the Deputy’s question has just been framed by the debate we have been having on another matter. It is AIB and Bank of Ireland, but there is a larger group of banks that is under direct provision of the ECB. It includes AIB and Bank of Ireland, as I said, but it also references a large number of international banks that are present in Ireland. I can give the Deputy a list of them if he wishes.
No, that is fair enough. I understand that. They would be regulated here as well in terms of passporting.
That is correct.
That is fair enough. The main ones, from our point of view, are AIB and Bank of Ireland.
On the legislation and given the SSM framework regulation, is that the only issue? Let us ignore the international banks for a second and look at AIB and Bank of Ireland. Given that they fall under the authority of the ECB as opposed to the Central Bank, is this section the only area that diverges from Permanent TSB, for example, which falls under the competency of the Central Bank for regulation as opposed to the ECB? Is this only area of difference in terms of the legislation? The Central Bank has all of the other powers in terms of carrying out inquiries, the report, making decisions and appeals - the whole gamut of it. The only divergence is this section.
That is correct.
Okay.
Amendment agreed to.
I move amendment No. 2:
In page 24, to delete lines 18 and 19 and substitute the following:
“(b) make any other appointment the approval of which is subject to the exclusive competence of the ECB under Article 4(1)(e) of the SSM Regulation,”.
Amendment agreed to.
I move amendment No. 3:
In page 24, to delete lines 20 and 21 and substitute the following:
“unless the entity has been notified in writing by the ECB that it has approved the appointment.”,”.
Amendment agreed to.
I move amendment No. 4:
In page 24, to delete lines 22 to 27.
Amendment agreed to.
I move amendment No. 5:
In page 24, in line 30, to delete “body”.” and substitute the following:
“body”,
and
(c) by the deletion of subsection (7).”.
Amendment agreed to.
Section 13, as amended, agreed to.
SECTION 14
Question proposed: "That section 14 stand part of the Bill."
The Minister might talk to us about the significance of the period of six years. This is a section that I welcome, where an individual can be looked at even if they are no longer with the firm. Will the Minister talk to us about the significance of the six-year period and why six years was chosen?
This section amends section 25 of the 2010 Act. The six-year period is significant because it refers to the timeframe within which a person can be investigated for their performance of a controlled function preceding the commencement of the investigation itself. In other words, to state it more plainly, the lookback period for the breach of regulations is six years. The reason we picked the six-year figure is my officials tell me that is consistent with the time window with regard to the Statute of Limitations.
Does it need to be six years? Regarding the Statute of Limitations, we might say we are always kind of looking for something to guide us in relation to this. My concern is that if we take, for example, the tracker mortgage scandal that we just spoke about, not to open it up again, but it was not the Central Bank that identified this, rather it was ordinary individuals who identified it and took the case to the ombudsman, particularly in relation to Permanent TSB. The initial cohort was about 80 individuals. A test case flowed where the ombudsman upheld the decision, the High Court upheld the decision and Permanent TSB appealed that to the Supreme Court, until eventually the investigation or the examination was carried out. Some of those individuals were taken off those trackers more than six years before that. In addition, there are many other people. We should remember they said they had 300 or 400, and it went up 1,000, then 2,000 and 5,000 and then it was 10,000 and 12,000 cases in individual banks. It was years after that other cases were identified.
The issue here is that people would not be captured because they would be in a controlled function and they may have moved on from it. Therefore, because the investigation began after the six-year period, the powers of this legislation are mute, basically. They cannot be applied to the individual, despite the damage. I am using the tracker mortgage scandal as an example, but I agree with the point that it is very rare that these repeat themselves in exactly the same way. This is the problem with financial products. It is sometimes years after that one becomes aware of it and, therefore, a six-year lookback period would not be sufficient in this case.
I might be reading this section wrong. As I said, much of this is technical. However, my reading of this is that this section can apply to them if they performed a controlled function in relation to a regulated financial service provider or holding company within a period of six years immediately preceding the commencement of the investigation referred to subsection (1).
There are two things in relation to that. Somebody who has moved on or who is retired cannot be held accountable if the Central Bank did not notice this in time. That is a major issue. When a crime or something is committed, it is usually obvious but in the case of financial services and products and many of these scandals, it is not obvious. It is years later that it is found out that something happened. Many of these banks continue the harm right throughout as I have discussed but I have a serious issue with that time period. Even looking at the collapse of the banks, some of that was set in train a way back such as the risk appetite regarding Anglo and so on and so forth. I would be concerned a lot of people could fall through the cracks in six years.
I have listened to what the Deputy has said. At the moment, as he knows, this provision is not in place at all. When I was explaining how this would work to him and to the committee, I was not clear enough because the six-year period refers to the period of time after which an individual has resigned from the particular controlled function role. In my earlier explanation to the Deputy, I incorrectly said it might refer to when the regulatory breech has occurred and I was wrong in saying that. To clarify for the committee, what it refers to is the period after which an individual has resigned from a role. I will consider the point made by the Deputy. We have used our judgment on this issue. We have looked at the Statute of Limitations elsewhere to help guide the six-year period and we are using judgment in coming up with a period of time which we hope will be sufficiently long in order for the bank to be able to perform an investigation into individuals who are no longer in the role they were in. I appreciate the point the Deputy made and why he made it. Again, I am not giving a commitment to change the six-year period in this legislation now but certainly it is something the Department and myself will monitor if there are any issues in relation to it. The intent here is to provide a sufficient period of time that if somebody has left the role in which they committed a regulatory breach, that they can still be held accountable for it. I felt a six-year period was sufficient but I appreciate the argument made by the Deputy, particularly the point he made a moment ago that it may take some time for the regulatory breach to be identified. That is a fair point. As I said, I am not giving a commitment that I am going to change the legislation, particularly with a view to the value of trying to get this legislation enacted, but it is an important point my Department should consider.
I am looking for clarity on one piece but want to elaborate on this point. If you take AIB for example, it was only found to have regulatory breaches this year for issues that took place a decade before that, though they continued right up until March. Therefore, if people had left their position, they would not be captured in that and for many of us, that is the test. We ask ourselves if we could go back in time whether this would have prevented some of the issues. Hopefully it would be a deterrent in the first instance but if the issues still happened, would those involved be able to be held individually accountable. I have an issue regarding that. I am happy to hear the Minister will consider the matter.
I am looking for clarity on a second point as I am unsure if the Minister articulated that this is the case as it is written, or if it is as my interpretation of how it is written. Is it as the Minister said that it refers to a situation where a person leaves the role they held when the breach happened, or is it, which is my interpretation, when they performed any control function? You could have a situation where somebody could be head of risk in a bank where there was a breach and they have left that position six years ago but now they are the CEO of the bank. Is it if they have held any performed function in the bank at the time of the breach?
It is any performed function. In the scenario the Deputy has identified, if the individual had been in another controlled function and they moved up to a more senior role, or indeed any other role, they are still captured by this legislation.
Yes. That was my interpretation of it. To tease that, if the head of risk in bank X which had the breach, moved to bank Y, and has a controlled function in a different financial institution, my reading of this is they would still be able to be prosecuted.
Yes, that is correct. One of the issues this Bill is trying to address is not just some of the difficulties we have just discussed regarding how long it can take to identify an incident. While that is a key issue, it is also to address the risk that somebody might decide to resign and by resigning from a controlled function, they would then argue they are not subject to the scope of the law. One of the intentions behind this Bill is if somebody does resign from a controlled function, and let us say they have left the industry, they are still subject to this legislation within the six-year window.
What reach does this have? I know all legislation has international reach but given that people in financial institutions are mobile and international banks exist and so on and so forth, even if they are not resident here, the Central Bank has the powers to prosecute them for any of these breaches. Does it have all the powers in terms of sanctions and all the rest and does that apply to somebody who has left bank X and has moved to bank B in Germany? How does that apply, or does it apply?
We will confirm this before Report Stage, but my view is regardless of where they are resident, they still have to be subject to this law. If they leave the country, then they are still subject to the remit of this law if, obviously, the regulatory breach was committed in this jurisdiction in the first place.
Question put and agreed to.
Section 15 agreed to.
SECTION 16
Amendments Nos. 6 to 12, inclusive, are related and will be discussed together.
Before we get into this, I remind members that it is just after 3.30 p.m. and we are scheduled to deal with the Supplementary Estimates from the Department of Public Expenditure and Reform today and another committee is meeting in this room at 5.30 p.m. Therefore, we are confined on time and I ask members to bear that in mind as we may have to set another date for the remainder of this Bill if we do not reach the end.
I move amendment No. 6:
In page 26, to delete lines 29 to 38, and in page 27, to delete lines 1 and 2 and substitute the following:
“(a) by the substitution of the following subsections for subsection (1):
“(1) The Head of Financial Regulation may issue a notice (in this Part called a ‘suspension notice’) in relation to a person if—
(a) subject to subsection (1A), the person’s fitness and probity is or has been the subject of an investigation under section 25, or
(b) the Bank or the Governor has imposed a prohibition on the person under section 43 (whether or not there has been any investigation under section 25),
and the Head of Financial Regulation is satisfied that it is necessary in the interests of the proper regulation of a regulated financial service provider or holding company that the person not perform the relevant controlled function, a part of the relevant controlled function, or any controlled function, while the Head of Financial Regulation, the Bank or the Governor, as the case may be, is carrying out any function in relation to the person under this Chapter or Chapter 4.
(1A) In paragraph (a) of subsection (1), the reference to an investigation under section 25 does not include an investigation in the circumstances referred to in paragraph (aa) of section 25(2), unless any other paragraph of section 25(2) also applies.
(1B) Where paragraph (b) of subsection (1) applies, the reference in that subsection to the relevant controlled function, or a part of the relevant controlled function, is a reference to a controlled function, or a part of a controlled function, to which the prohibition applies.”,”.
I propose to take amendments Nos. 6 to 12 together as they provide for procedures for issuing suspension notices in the situation where a person has been prohibited. Amendment No. 6 provides for the bank to issue a suspension notice where a person has been the subject of an investigation under section 25 of the Act of 2010 where the head of financial regulation has imposed a prohibition on the person whether or not there has been an investigation. There is an exception included in the amendment to provide for a situation where a suspension notice does not apply. That is in the case where the person being investigated is no longer performing a controlled function role as there is no need for a suspension notice in such a case.
Amendment No. 7 is a technical amendment to provide that the suspension notice sets the grounds of the prohibition notice. Amendment No. 8 provides for a five-day period of response by the person or holding company to the notice issued. Amendment No. 9 provides greater clarity on the nature of the submissions a suspended person or regulated financial provider or holding company concerned may make in respect of a suspension notice. Amendment No. 10 provides that a person who is not suspended during a fitness and probity investigation can be suspended on prohibition pending the confirmation of the prohibition by the High Court. Amendment No. 11 provides that the period for which a suspension notice issued following the prohibition of the person concerned has effect does not extend beyond the time that the High Court determines whether to confirm the prohibition. Amendment No. 12 deletes the new subsection (11A) in section 43 as it is no longer required in view of the redrafting of sections 16 and 19.
I recommend that the committee approve amendments Nos. 6 to 12, inclusive.
Amendment agreed to.
I move amendment No. 7:
In page 27, lines 8 and 9, to delete “details of a notification received under section 43(11A), as the case may be” and substitute “where subsection (1)(b) of this section applies, details of the prohibition”.
Amendment agreed to.
I move amendment No. 8:
In page 27, to delete lines 11 to 13 and substitute the following:
“(ii) by the substitution of the following paragraph for paragraph (d)—
“(d) shall require the suspended person and any regulated financial service provider or holding company on which a copy of the notice is served to show cause, in writing, within 5 days after service of the notice, why the suspension notice should not be confirmed, and”,
and”.
Amendment agreed to.
I move amendment No. 9:
In page 27, to delete line 34 and substitute the following:
“(i) in subsection (9)—
(i) by the insertion of “or holding company” after “provider”, and
(ii) by the substitution of “as to why the suspension notice should not be confirmed” for “in relation to the fitness and probity of the suspended person concerned”.”.
Amendment agreed to.
Question proposed: "That section 16, as amended, stand part of the Bill."
Sorry, I am trying to follow this. I wanted to raise with the Minister an issue with section 15, which I missed, because we cannot table Report Stage amendments if we do not discuss them on this Stage. The issue is that an investigation can be discontinued for reason of resources. I genuinely do not believe that the Central Bank should discontinue any investigation into the fitness and probity of an individual or a breach in the bank because of resources. I do not know why that provision is in the legislation.
I understand that. What we are referring to here is giving the Central Bank the flexibility to decide whether the commitment of resources is appropriate to pursue a particular matter. In practice, however, while it is important that it be given that role, I have little doubt at all but that if the Central Bank were to pursue a matter that it believed involved a breach of law or a serious issue, and if it did not have the resources available to do that work, they would be made available to it by the Department of Finance and support would be given. I can imagine very few circumstances in which lack of resources would be an impediment to the pursuit of an issue.
I would believe so. I imagine that any Minister for Finance would make the resources available if the Central Bank were to inform him or her that it could not carry out an investigation into suspected activities within a bank or a regulated financial institution. For that reason I do not understand why this provision is in the Bill. I do not think we give the Garda the right to decide not to investigate a crime because of resources. I do not know why this should apply. I understand the motivation behind it but if we are trying to strengthen the law here, I do not think there should be an issue here. If there is an issue with resources, the bank has to come to the Central Fund to look for resources, but there should not be a situation in which we cannot follow up on the fitness of people in our regulated financial institutions or breaches of the law because of lack of resources. I strongly suggest that this provision be deleted from the text of the Bill.
I will consider the issue Deputy Doherty has raised. It is a fair point. I wish to give notice that I may consider the matter for change on Report Stage because I take the point the Deputy raises. My expectation is that resources would always be made available to deal with the serious matters covered in this legislation. I wish to reassure myself, however, that what we are doing here is legislatively consistent with other legislation in this area and to consult my Department as to why it is necessary to make this provision in law. While I anticipate I will get a good answer, I will give proper consideration to the matter.
Question put and agreed to.
Sections 17 and 18 agreed to.
SECTION 19
I move amendment No. 10:
In page 28, lines 14 and 15, to delete “following receipt of a notification under section 43(11A)” and substitute “in the circumstances mentioned in section 26(1)(b)”.
Amendment agreed to.
I move amendment No. 11:
In page 28, to delete line 28 and substitute the following:
“(d) by the substitution of the following subsection for subsection (4):
“(4) A suspension notice that has been confirmed in accordance with subsection (1) has effect until—
(a) the end of the period of 6 months from the date on which the suspension notice would otherwise have ceased to have effect under section 28(b), or
(b) if sooner, the revocation of the notice or, where the suspension notice was issued in the circumstances mentioned in section 26(1)
(b), the time when an application under section 45 for confirmation of the prohibition notice has been disposed of.”,”.
Amendment agreed to.
Question proposed: "That section 19, as amended, stand part of the Bill."
Section 19 relates to suspension notices. Just so we have this right, will the Minister take us through the process the bank has to go through in respect of the suspension notices? We dealt with this in a previous section in respect of allowing seven days for the information to be given, the requirement to give notice that the issue is being looked at and so on.
Then there is the appeals tribunal, which is probably an unknown body. Will the Minister explain to us the appeals tribunal, its function and the resources it has in this regard?
This section does indeed refer to the issue of the suspension notices. The process is as follows. If necessary, the Central Bank may suspend a person from a controlled function or a prescribed controlled function role temporarily by way of a suspension notice while carrying out an investigation or related process. A suspension notice confirmed by the head of financial regulation is valid for up to three months initially. The Central Bank may apply to the High Court for an extension of a further three months. The total period of suspension is therefore approximately six months.
As for the role of the Irish Financial Services Appeals Tribunal, it is the body to which such a suspension notice would be appealed. It would be its role to consider this matter and to allow a hearing in respect of the issue of the notice. The appeal provisions brought forward here are required by the outcome of the Zalewski case.
I thank the Minister for that. The Irish Financial Services Appeals Tribunal is a standing body. What is its function? Is it just to deal with appeals in respect of suspensions or does the tribunal have a broader function? How is its board constituted?
A wide range of Central Bank decisions may be appealed to the Irish Financial Services Appeals Tribunal, IFSAT. I do not have to hand the information as to how many people work in the tribunal, who they are and what their resources are, though that information is available to me and I can share it with the Deputy. My Department and I believe that the organisation has the financial services experience that would be needed to discharge the function it would be given under this legislation. Before Report Stage I will give a note to Deputy Doherty and to the committee on the tribunal's role, how many people are on its board, who they are and so on.
I appreciate that. I will go through the steps and the Minister can correct me if I am wrong. The Central Bank identifies an issue or an issue is reported to it. It carries out an investigation. It has to notify the individual who is the subject of the investigation and give the individual the right to furnish information within seven days. The Central Bank then concludes its investigation, taking on board any submissions that it has received and it issues a report. Is that correct? I presume the report will contain recommendations in relation to the suspension of an individual or whatever. To whom is the report issued? Does the investigation need to get High Court approval before you can issue the suspension for the three months or not?
In the interests of time, we might go into private session for a moment because those are particularly detailed questions. I will ask my officials to answer Deputy Doherty directly.
The Select Committee went into private session at 3.51 p.m. and resumed in public session at 3.57 p.m.
Question put and agreed to.
Sections 20 to 22, inclusive, agreed to.
SECTION 23
Question proposed: "That section 23 stand part of the Bill."
This is peppered right through the legislation where many of these sections just add a holding company to a provider of financial services. Has an issue been identified around holding companies or what is the motivation or rationale in ensuring that holding companies are also included in the provisions of the legislation and not just providers of financial services?
I am informed that the main reason we are doing this is that the Central Bank already does perform a role with regard to holding companies but the view of officials was that it was necessary to place it on more solid legal and statutory footing by the references which Deputy Doherty just mentioned which are quite frequent in the legislation.
Question put and agreed to.
Sections 24 to 26, inclusive, agreed to.
SECTION 27
I move amendment No. 12:
In page 34, to delete lines 33 to 37.
Amendment agreed to.
Section 27, as amended, agreed to.
Section 28 agreed to.
SECTION 29
Question proposed: "That Section 29 stand part of the Bill."
This section deals with the administrative sanctions or is this fitness and probity?
It is fitness and probity.
Okay. After a prohibition notice has been served, "the Bank or the Governor, as the case may be, shall, subject to section 46, make an application to the Court for confirmation of the notice."
When a notice of prohibition has been served, is it correct that it is necessary to go to the courts for confirmation, not in all cases, but where there is-----
Apart from where there is an agreement in respect of section 46. Yes, that is correct.
In this situation, the individual has a right to appeal to the Irish Financial Services Appeals Tribunal, IFSAT, at an earlier stage.
That is correct.
This relates to my earlier question in respect of at what point people go to the courts. It is stated that is as soon as practical after the service of a prohibition notice. The individual has a chance to defend the case in the context of the court, but he or she also has the right to appeal to the IFSAT. What are the steps in this regard? Is it a case where a prohibition notice is served that the individual is given notice of this and then he or she has the right to go to IFSAT, and, if the decision is upheld there, then the Governor or the Central Bank goes to the court and the individual at that point has an opportunity to fight such a case in court? Is this the sequence, or is it necessary for individuals to go to court before IFSAT can deal with an issue?
The difference is that prohibition notices cannot be dealt with by the IFSAT.
Okay.
They must go directly to the High Court. This is the key issue here. Regarding prohibition notices, the only recourse available is through the High Court.
Okay.
I am sorry for interrupting the Deputy, but this is all this section deals with. When I say "all", it is a big issue, because this is what this section is purely focused on. I refer to the relationship between the High Court, the Central Bank and the individual with regard to a prohibition notice.
I ask the Minister to give us an example of a prohibition notice. It is just to prohibit a regulated financial service provider from doing a certain activity-----
It is an individual rather than the regulated financial service provider.
Yes. It is, though, a notice to cease undertaking a certain activity, to do a certain activity or to comply with-----
It would refer to requiring the person concerned to cease performing an element of his or her role. This is the issue that could be subject to the High Court's role.
Regarding the process in this regard, if such a decision is disputed and it is not ex parte, what type of timeframe could we be looking at in this regard? Is there any kind of accelerated mechanism in the context of individuals performing a pre-approved function who have clearly been doing something impacting on customers, financial stability or whatever and are refusing to comply despite a notice?
Under the amendments we have made, in the situation described by the Deputy, for example, where an individual receives a prohibition notice and ends up deciding to appeal that to the High Court, even in that scenario the person concerned can still be suspended from his or her role while that process is playing out. Regarding the time involved, that is going to be a matter for the courts. As we all know, that could be some time. In turn, however, this is why the suspension function is available if there is a serious regulatory issue the Central Bank believes needs to be dealt with.
Okay.
Question put and agreed to.
Section 30 agreed to.
SECTION 31
Question proposed: "That section 31 stand part of the Bill."
This concerns a prohibition notice having an effect without confirmation. Following on from our last conversation, will the Minister explain the importance of this section and how it will work?
This section deals with the possibility that the prohibited person is performing a controlled function in respect of a holding company and that they incorporate the provisions of repealed section 44. Section 31 provides for the circumstances where a prohibited person or any regulated financial service provider or holding company, in relation to which the prohibited person was performing a controlled function and the prohibition notice was issued, agrees in writing with the Central Bank to be prohibited for the agreed time. In such cases, the notice does not need to be confirmed by the High Court, given the prohibited person has agreed to be prohibited.
Okay. I thank the Minister.
Question put and agreed to.
Sections 32 to 36, inclusive, agreed to.
SECTION 37
Amendments Nos. 13 to 17, inclusive, are related and will be discussed together.
I move amendment No. 13:
In page 38, line 26, after “means” to insert “, subject to subsection (1A),”.
I propose to discuss amendments Nos. 13 to 16, inclusive, in section 37, together with amendment No. 17 in section 43, as these amendments deal with the extension of the definition of "authorised officer" to be inserted into section 33AN of the Central Bank Act 1942. Section 37 of the Bill makes various additions and changes to section 33AN of the 1942 Act, which provides for a definition for Part IIIC of the Act which refers to administrative sanctions procedures. The Central Bank has the power to appoint authorised officers with powers exercisable regarding a prescribed contravention. Amendments in section 37 includes a definition of "authorised officer" to mean a person appointed under section 24 of the 2013 Act. The definition is included to support new sections inserted into the Bill to provide for fairness of procedures in the investigation processes of the Central Bank on foot of the Supreme Court's decision in the Zalewski case.
To ensure, however, that all instances where the Central Bank has the power to appoint an authorised officer are captured, it is necessary to extend that definition further. For example, authorised officers can be appointed not only under section 24 of the 2013 Act but also under various statutory instruments transposing EU sectoral legislation or under the Competition and Consumer Protection Act 2014. It is important to capture all these instances and the amendments brought forward today extend the definition to include all legislation where the Central Bank has the power to appoint authorised officers.
Amendments Nos. 13, 14 and 16 are technical amendments to facilitate the insertion of the extended definition of "authorised officers" who are appointed under the designated enactments or statutory instruments. Amendment No. 15 sets out the extended definition to include all authorised officers under designated enactments and statutory instruments. Amendment No. 17 is a consequential amendment to section 43 to remove the reference to authorised officer powers under Chapter 3 of Part 3 of the Central Bank (Supervision and Enforcement) Act 2013 as the definition of "authorised officers" will now be broader than that. I recommend and ask that amendments Nos. 13 to 16 be approved by the committee, with amendment No. 17 to be agreed at section 43.
Amendment agreed to.
I move amendment No. 14:
In page 39, line 2, to delete “following subsection” and substitute “following subsections”.
Amendment agreed to.
I move amendment No. 15:
In page 39, between lines 2 and 3, to insert the following:
“ “(1A) Where, under a provision of a designated enactment other than section 24 of the Central Bank (Supervision and Enforcement) Act 2013, or under a designated statutory instrument, the Bank has power to appoint authorised officers with powers exercisable in relation to a prescribed contravention, references in this Part to an authorised officer include, in relation to that prescribed contravention, references to an authorised officer so appointed.”.
Amendment agreed to.
I move amendment No. 16:
In page 39, line 3, to delete “ “(1A) For” and substitute “(1B) For”.
Amendment agreed to.
Section 37, as amended, agreed to.
Section 38 agreed to.
SECTION 39
Question proposed: "That section 39 stand part of the Bill."
Can I get an indication of when we will be proceeding to the next business?
Based on where we are, we will continue until 4.30 p.m. Members will then have to deal with the Estimates for the Department of Public Expenditure and Reform.
Okay.
We will probably get this finished before then, will we?
We will try our best. I will tell the Chair one thing, though, I do not wish to be sitting here dealing with the next financial crash and asking why we did not do this Bill correctly. Let us, therefore, at least carry out our functions.
We have been getting it right so far.
We have been waiting for five years.
I am sure if we need another day, the committee will be able to facilitate that speedily.
Section 39 relates to something I mentioned earlier. It replaces those in management with persons with a "controlled function". It involves breaking the participation link by replacing the concept of a person concerned with the management of a regulated financial services provider with the concept of a person performing a controlled function in relation to a regulated service provider. Obviously being able to identify the controlled function and, therefore, the individual is a really important step for reasons that are outlined in the Bill. People will have areas of responsibility in the context of controlled functions and all of that will be laid out by the Central Bank in the agreements with the regulated financial institutions in terms of the information they must furnish to it. This section replaces the concept of persons concerned with the management of a regulated financial services provider with the concept of persons with controlled functions. Does that in any way limit our ability to pursue those in management positions? Some in management positions will be performing controlled functions anyway and those controlled functions will have responsibility further on down the food chain.
Let us look at the controlled functions. We are talking about executive directors, non-executive directors, independent non-executive directors, as well as the chairs of the board and of the audit, risk, remuneration and nomination committees, the chief executives, members of partnerships, sole traders, heads of finance, heads of compliance, heads of internal audit, chief risk officers, branch managers, heads of retail, chief operating officers, chief information officers, and heads of anti-money laundering. In banking, we are also talking about treasury, credit, asset liability, material business line, head of market risk and so on. It is my understanding that other members of the boards would not fall under this. Is that right? There may be members of boards who are taking decisions that are risky or who have knowledge of what is happening but who do not have a pre-approved controlled function. We are replacing the concept of persons concerned in the management of a regulated financial service provider with those in controlled functions. While I support the idea of controlled functions being identified, I am concerned about how this would apply to those at senior levels who do not have controlled functions, that is, members of boards who are not the chair, for example.
I ask the Deputy to bear with me as I make sure I understand his question-----
That is just one example. There are others-----
Yes. The example the Deputy gives is of somebody being on a board but not in a controlled function. Is that the issue?
Yes. I refer to somebody like the deputy head of the risk committee, that is, the second in command in terms of risk.
In the context of the board example used by the Deputy, the role of controlled functions is so broad that it is impossible to see how somebody could be on a board and not be captured by the definitions here. In particular, I refer to the definition of PCF-2, which simply refers to non-executive directors. It is also open to the Central Bank to expand the roles here if it so wishes where it believes that the lacuna to which Deputy Doherty refers is actually there or that we have missed a sensitive role in these definitions. Having engaged with the Central Bank, we are of the view that the list of roles here is so broad that it captures any roles that could be objectively described as being senior within an organisation. That is why we included non-executive directors within the definition. We wanted to avoid a situation where somebody is on a board but is not subject to this legislation.
The chair of the risk committee would be captured, for example, but other members of that committee would not be captured. Is that correct?
In those situations, the other members of the committee would be controlled functions and would be subject to that part of the legislation. My understanding is that risk committees are formed by members of the board so the members of the risk committee, in that case, would be caught inside the net of PCF-2. They would be inside the parameters of PCF-2.
Okay.
In any event, when this legislation is being implemented, if the Central Bank is of the view that we have missed a particular role within the financial services sector, the list can be expanded. That would require regulation rather than primary legislation. That could happen but our view is that this list is really broad.
I just want to tease this out a bit. I asked a question about expanding the list. Let us take the example of Permanent TSB and look at its structure and board of directors. There is the chairperson who is, as the Minister said, a non-executive director. The CEO will be captured, as will independent non-executive directors, that is, all of the board members. There is also the company secretary who is not named as a non-executive director but who sits on the board-----
In which case, he or she would be performing in a controlled function role. The definition that would be relevant to the company secretary is the definition of controlled function No.1, which is the ability to exercise a significant influence on the conduct of the affairs of a regulated financial services provider.
That is a bit looser than other definitions. They are additional responsibilities and I just-----
In this situation, they are subject to the additional conduct standards that we discussed earlier.
Yes, they are subject to those but they would not necessarily be subject to the provisions for those who have a pre-approved controlled function. Company secretaries will not have to provide details to the Central Bank on their areas of responsibility because they are not pre-approved controlled functions under the list from the Central Bank, despite the fact that they sit on the board, participate in its meetings and may make decisions.
I will come back to the Deputy on that matter. I understand the point he is making.
I know we can amend this list but the point I am making is that as we move from the concept of persons concerned in the management of the financial services provider to the concept of those with controlled functions, we need to be really sure that nobody is avoiding the net.
I know there are numerous ways to do it in terms of influence and others are captured but-----
Absolutely. However I would make the point again, which the Deputy has acknowledged, that we have the ability to expand the list via regulation. I will look at the particular issue the Deputy raised where someone on a board might not be a non-executive director. That is a good issue of consistency which I will look at.
Question put and agreed to.
Sections 40 and 41 agreed to.
SECTION 42
Question proposed: "That section 42 stand part of the Bill."
Will the Minister clarify the intention behind section 42?
The intention of this section is to extend each pillar of the fitness and probity regime to holding companies in banking, insurance and the investment-firm sector and to individuals performing controlled functions in relation to those holding companies. This will introduce a uniform approach to fitness and probity across all regulated financial service providers and holding companies in banking, insurance and in the investment firm sector.
Question put and agreed to.
SECTION 43
I move amendment No. 17:
In page 43, to delete lines 40 and 41, and in page 44, to delete lines 1 to 3 and substitute the following:
“(b) any relevant information or evidence gathered or received in the course of the investigation, and”.
Amendment agreed to.
Amendments Nos. 18 to 22, inclusive, are related and will be discussed together.
I move amendment No. 18:
In page 45, to delete lines 5 to 9 and substitute the following:
“(7) A person who receives a copy of a final report or any submissions under subsection (5) shall not, subject to section 33AK, disclose the existence of or the content of the report or the submissions unless authorised to do so by the Bank in writing or required to do so by law.”.
Amendment No. 18 amends section 33(7), which refers to section 33 of the Act of 1942, which is the main provision dealing with the disclosure of confidential information. Amendment No. 19 provides that the obligation does not apply where information contained in the investigation report is disclosed to the person's legal representative. Amendments Nos. 20 and 21 are technical amendments to renumber the subsections and to allow the insertion of section 33ANI in the following amendment. Amendment No. 22 provides that a person must keep information received in the course of the investigation confidential where the Central Bank has advised that it is confidential unless authorised by the bank to disclose it or required to do so by law.
Amendment No. 18 relates to someone who would be subject to the investigation by the bank. Is it the case that the report is furnished to him or her and any submissions and that section 33AK, with which we are all too familiar, prevents him or her from discussing or disclosing the content of the report despite the fact that might -----
That is correct. Such people must keep it confidential.
And they can bring it to their legal representative?
That is someone who could be suspended from his or her job.
Would such a person be allowed to bring it to his or her union representative?
The answer is "No" to that. He or she has to bring it to his or her legal representative because it could be market-sensitive information.
I understand but there may be cases that we are looking where people did not break the regulations or there might be other motivations within regulated financial institutions and so on. I am not that familiar with the tribunal but would the union not be involved in any of these? I know they are dealing with sanctions such as fines issued by the Central Bank but now we are dealing with individuals. This is a departure from dealing with an institution to dealing with an individual. At the tribunal, where such people will be suspended from their employment, will this prevent them from being represented by their trade union?
Yes. They have to have a legal representative. To be more precise, it prohibits them from sharing information that the bank deems to be confidential with anyone other than their legal representative. In the scenario the Deputy mentioned, it would prohibit them from sharing that information with a trade union representative. It might be sections of the report. It is the sections of the report that the Central Bank deems to be confidential. Other sections of the report might be shared elsewhere, such as with a trade union, if they are not deemed to be confidential but the individuals concerned may not share those that are deemed to be confidential. This is a civil law matter in which the standing of a trade union would not be relevant.
I hear what the Minister is saying but the amendment he is putting forward puts the wrong emphasis on this. While it allows the report to be furnished to a third party, if authorised to do so by the bank in writing, on the principle of trade union representation, which is an employment hearing in reality, the individual should by right be able to discuss the report, which is the subject to his or her suspension or termination, with his or her trade union representative by right. It would be just in the exceptional case that sections of the report could not be shared. This puts the onus on the individual who is about to be suspended by the Central Bank from his or her position to get the Central Bank to give the individual approval to discuss this with his or her trade union representative. I think that is wrong. From a workers' rights point of view and given the right to representation, the focus there is wrong. I agree with the Minister's point that they may be commercially sensitive but that should be after the fact. There should be provision that the worker has the right to do it but that the Central Bank has the right to redact or restrict.
That is what we are doing here. I do not perceive this to be an employment law matter. This is a financial regulation issue. We are talking about fitness and probity first and foremost, in accordance with financial regulations. What we are referring to here only is those things that the Central Bank deems to be confidential. In the areas which it does not deem to be confidential, I am sure there would be no barrier in those being shared with a trade union if the individual decided to do it.
But that is not the way it is written. The way it is written here is that the starting point is the worker cannot share the report with his or her trade union representative. If you want to share the report with your trade union representative, regardless of how mundane the matter is and regardless of the fact that there could be nothing sensitive at all, you have to get the authorisation of the Central Bank of Ireland. It starts from the point of not being allowed to share. Maybe in practice it will play out that way anyway but because we are dealing with individuals as opposed to firms, there is an issue around the rights of employment. While it is a regulation, the purpose of this is the suspension of the individual.
Okay. I hear the Deputy's view and I think we have a difference of view on the matter.
Amendment agreed to.
I move amendment No. 19:
In page 45, between lines 9 and 10, to insert the following:
(8) Nothing in subsection (7) prevents a person from disclosing the existence of or the content of a report or submissions to his or her legal representative.”.
Amendment agreed to.
I move amendment No. 20:
In page 45, line 10, to delete “(8) A person” and substitute “(9) A person”.
Amendment agreed to.
I move amendment No. 21:
In page 45, line 12, to delete “both.”.” and substitute “both.”.
Amendment agreed to.
I move amendment No. 22:
In page 45, between lines 12 and 13, to insert the following:
“Confidential information provided for purposes of investigation etc. not to be disclosed
33ANL. (1) Where confidential information is provided to a person for the purposes of an investigation, or under or for the purposes of subsections (1) to (3) of section 33ANK, that person shall not, subject to section 33AK, disclose that information unless authorised to do so by the Bank in writing or required to do so by law.
(2) Nothing in subsection (1) prevents a person from disclosing information to his or her legal representative.
(3) In this section, ‘confidential information’ includes information given to a person for the purposes of an investigation, or under or for the purposes of subsections (1) to (3) of section 33ANK, where—
(a) the person has been notified by the responsible authorised officer that the information is confidential, or
(b) the information is of a class or description in relation to which the person has been notified by the responsible authorised officer that information of that class or description is confidential.”.”.
Amendment agreed to.
Section 43, as amended, agreed to.
It is 4.30 p.m. and we have Supplementary Estimates to deal with. I propose that we adjourn this part of our consideration of the Bill and complete it on another date. Unfortunately we have time constraints and we must be out of this room by 5.30 p.m.
Can we set another date for the Minister? We can liaise with his officials.
I am available at any point. I was hoping to complete the legislative process before the recess. We have to give the legislation the time it needs, however. We will find a suitable slot. I have made myself available at any time the committee is available.
The committee should meet as quickly as possible to try to get the Bill passed.
It is a matter of getting the appropriate dates in order. I thank the Minister and his officials for their attendance.
Progress reported; Committee to sit again.