We will now consider the Finance (Miscellaneous Provisions) Bill 2015. As was mentioned, the Bill was referred to the select sub-committee by Dáil Éireann on 22 October 2015.
Finance (Miscellaneous Provisions) Bill 2015: Committee Stage
Sections 1 to 6, inclusive, agreed to.
SECTION 7
Amendments Nos. 1 to 5, inclusive, may be discussed together.
I move amendment No. 1:
In page 7, lines 3 and 4, to delete “in the case of a bank, a bank authorised (or deemed to be authorised by the European Central Bank on application therefor)” and substitute the following:
"in the case of a bank, a bank authorised, or deemed to be authorised, by the European Central Bank on application therefor".
I will speak to amendments Nos. 1 to 5, inclusive, together. These amendments to the definition section of the Financial Services (Deposit Guarantee) Scheme Act 2009 are of a technical and drafting nature and have been recommended by the Attorney General. These changes do not have any substantive impact on the meaning of section 7.
Amendment agreed to.
I move amendment No. 2:
In page 7, line 5, to delete "of the Act".
Amendment agreed to.
I move amendment No. 3:
In page 7, lines 6 to 8, to delete all words from and including "in" in line 6 down to and including "therefor)" in line 8 and substitute the following:
"in the case of a building society, a building society authorised, or deemed to be authorised, by the European Central Bank on application therefor".
Amendment agreed to.
I move amendment No. 4:
In page 7, between lines 29 and 30, to insert the following:
“(c) in paragraph (b) of the definition of “credit institution” by substituting “section 17” for “section 27”,”.
Amendment agreed to.
I move amendment No. 5:
In page 7, line 33, to delete “European Communities Act 1972 (No. 27 of 1972);” and substitute
“European Communities Act 1972 (No. 27 of 1972) to give effect to the Directive of 2014;”.
Amendment agreed to.
Section 7, as amended, agreed to.
SECTION 8
Question proposed: "That section 8 stand part of the Bill."
Perhaps the Minister would clarify some points on sections 8 and 9 pertaining to the deposit guarantee scheme. I know there has been consultation around whether low risk entities should be paying a lower rate. The credit union movement has made a strong and convincing argument that, given the risk nature of the credit unions and given that there are other funds in operation, it falls into this category and the lower rate should apply. I would appreciate comment from the Minister on the submission made by the credit union movement on the question of whether there should be consideration of a low risk sector which qualifies for a lower level of contribution.
I thank Deputy Doherty. I will read the briefing note.
As part of the public consultation process in relation to transposition of Directive 2014/49/EU on the deposit guarantee scheme a number of submissions were received from the credit union sector, including from credit union representative bodies favouring this position. Question 7 in the consultation document asks for justification for particular sectors being considered low risk and thus qualifying for a lower level of contribution. The Department is cognisant that the credit union sector considers credit unions a lower risk sector for a number of reasons thus suggesting that credit unions should qualify for a lower level of contribution. However, the matter is still being considered and a decision will be made in the context of the broader consideration of the calculation of contribution levels, in particular the risk based element. In this regard, it should be noted that the directive allows us up to 31 May 2016 to finalise this matter.
I would be prepared to take into account the views of colleagues on the committee.
I believe that the credit union movement has made a very strong argument in regard to the risk profile of its institutions and the fact that they are individual entities with their own boards etc. I would be interested to hear the Minister's or the Department's view on the adequacies or inadequacies of the level of the other funds available to the credit unions and whether, if those institutions are allowed to make a lower contribution, this would create any risk in the future. Although no final decision has been made will the Minister clarify whether he is leaning towards the arguments made by the credit union movement; that it is a lower risk sector which should benefit from a lower contribution?
I am awaiting advice. The Department has until May 2016 to make a decision. The size of an institution and levels of its assets are factors when one tries to make comparisons between financial institutions. However, the really key question is the risk and it is in trying to measure the risk objectively that I will arrive at a decision. It is possible to have a credit union with a small amount of assets but with a high risk, which we have seen before. As the Deputy is aware, and it is a view shared here at this committee, Deputies in this House are generally well disposed to the credit union movement because we realise its importance. This is also a consideration.
That goes without-----
I am not going to make a decision now, but I hear what the Deputy is saying.
The disposition of the House towards the credit union movement goes without question and is broadly shared across the political spectrum. However, I would agree with the Minister that whether we like their ethos and what credit unions do, it does come down to risk and we must act prudently and responsibly. That is why I agree with the Minister's point on risk. Will the Minister indicate how much credence he will give to the fact that the Central Bank has already categorised the risk weighting of financial institutions through the PRISM system and has deemed the credit unions to be low risk whereas the other financial institutions are considered high risk? Does that classification not answer questions being posed here - that the credit unions have already been categorised by the Central Bank as, in the main, low risk entities?
The PRISM model is a supervisory model but we do take all considerations into account. No decision will be taken in the immediate future on this issue.
Will the members get a bite of it again before a decision is made?
I am sure we will be here for the Finance Bill again; we will be here regularly.
The Minister says that he has until 31 May 2016 to finalise the matter but is he expecting to make the decision prior to that date?
I have not thought out a timeline but I will not rush this issue.
I thank the Minister. That is fair enough.
I remind Deputy Doherty that representatives of the credit union movement will be before the committee at the end of November 2015 which will offer a further opportunity to discuss this.
I thank the Acting Chairman.
Question put and agreed to.
Sections 9 to 11, inclusive, agreed to.
SECTION 12
I move amendment No. 6:
In page 11, line 5, to delete “, with the approval of the Minister,”.
The amendment is being made after my consultation with the ECB on the DGS part of this legislation. They have indicated that as the purpose of this provision is to reimburse the Central Bank for short-term loans it has provided to the DGS, this repayment from the Exchequer has to be automatic in order to comply with the prohibition on monetary financing as outlined in Article 123 of the Lisbon treaty. Consequently they have suggested that the words “with the approval of the Minister” be deleted, which I am proposing to do with this amendment. The members know how the ECB is chary about monetary financing and if something was done with "ministerial discretion" it would suggest that a Minister could influence monetary financing. If the term is deleted, as proposed in this amendment, it becomes automatic and therefore there is no suggestion of monetary financing.
I have an issue with this amendment. I know we are talking about scenarios where there is enough money in the fund, but imagine a scenario where a bank gets into trouble and the Central Bank needs to provide that fund to them and there is not enough in the fund to cover it. The amendment means that regardless of the state of the Exchequer it has to pay that money within two weeks. I know the money will be reimbursed when the fund increases in value but we do not know how long that could take or whether that would be within one year or not. There are numerous other rules that can impact the relation of the Exchequer and the Central Fund. For example, how would it all play out if we had to make a contribution of a couple of billion euro to the Central Bank and the State had to wait two years for that money to be repaid? Regardless of the health of the Exchequer finances it is a blank IOU to the banks. The State will get the money back at some time in the future as the fund increases but I would be concerned about this. I understand the issues around monetary finance but I am concerned that while we talk of breaking the link this is clearly showing where the link exists between banking and the State's finances.
That is a legitimate point of view but the banks are now heavily capitalised and one would go through a lot of other assets before this funding mechanism could be triggered. While the Deputy has identified a risk I do not think the risk is very big. Frankfurt is chary of its independence and because of the legal position under the Lisbon treaty, in particular Article 123, the ECB will not get involved in anything that it would regard as monetary financing. It would be challenged constitutionally in some jurisdictions if it did get involved. If it moved into that space it would certainly be challenged in the German constitutional court. Ireland has had long experience of tip-toeing around this when we were trying to negotiate alternative arrangements on the promissory note. The big problem all the time was that the bank was inhibited from doing anything that could be interpreted as monetary financing.
I understand what the Minister is saying in terms of the risk being small but it is risk the Central Bank is not going to take. Indeed, the bank is willing for that risk to be placed on the shoulders of the taxpayers. That is something with which I cannot agree. It goes against the spirit of the thing, even though what we are discussing does not complete the commitment made to break the link between the sovereign and banking. The link is still there. There will be a call on the State after a series of other mechanisms and bail-ins. There is still a potential for a call on the State. A state also has the ability not to make that. This year is an automatic regardless of whether a government or parliament wants to provide the money. Basically, we are writing it into our law that if the Central Bank issues this cheque to a bank that gets into trouble in the future, we will refund the Central Bank within two weeks. That is a blank cheque which takes matters a step too far because we do not know where we will be in a number of years. Touch wood, we will not be in dire straits and hopefully an issue of this nature would not be one of huge concern. Hopefully, the fund will have enough money at a point in time to deal with all eventualities. However, there are risks. The issue is that we are putting this into law today. The officials in the Department of Finance are well aware of the ECB's rules on monetary financing. I do not expect that people are unaware of these rules, given that it is one of the biggest issues we have been discussing in the State around a number of matters including the promissory note. Nevertheless, this Bill, which passed scrutiny by the Attorney General, threw up the issue relating to the phrase "with the approval of the Minister". I presume that somewhere within the Department there was a view that this phrase could be inserted and that there would still be compliance in the context of the ECB's role regarding the prohibition on monetary financing. I am reluctant to approve the deletion of these words.
I ask the Minister to clarify how much is in the deposit guarantee fund at present. I also ask him to clarify that the circumstances in which this scenario would arise would be those in which the fund was exhausted, whereupon the Central Bank would have to use its resources to make a payment to depositors under a compensation event and to state that it would only be in such a scenario that the Central Fund would be obliged to reimburse the Central Bank and make good the deficit. Is that what we are talking about?
Yes. The figure the Deputy is seeking is €380 million. Deputy Pearse Doherty is right that the phrase "with the approval of the Minister" was included in the original draft. Like many matters where Europe and the European Central Bank are involved, we were obliged - after we published the Bill - to have consultations with the latter. It was quite convincing in its argument that to allow that phrase in would contravene Article 123 of the Lisbon treaty and that it would be deemed to be monetary financing if there was a ministerial discretion over the repayment of the money. That is why it was changed. We were legally constrained to change. However, the Deputy was right that our opening position was to put in a discretionary clause.
How will this impact on the other rules in terms of the fiscal treaty? How does it work in the context of expenditure benchmarks and all of those types of rules? For example, if this were to arise this month and there was a call of €500 million that had to be repaid from the Central Fund to the Central Bank because of a payment, what would happen in relation to budgetary arithmetic and how would it be accounted for?
I do not see a crossover into other areas. It is obviously very complex but the essential idea about monetary financing is that the central banking system in Frankfurt or any of its components like the Central Bank in Dublin could not financially assist the Exchequer because one would then get involved in monetary financing of a fiscal position. If money was owed to the Central Bank by the Exchequer and the Minister had discretion not to pay it, that would be deemed to be monetary financing and to contravene the Lisbon treaty according to the ECB. There is merit to that argument. That is where we are. If there is a liability, the obvious thing is to levy the banking system to make good anything the Exchequer loses in the process.
We are toing and froing a fair bit and I ask Deputy Pearse Doherty to be concise with his questions.
This is serious stuff. These are the things that in ten years' time will be the subject of arguments as to why we did not tease them out in greater detail. With respect, there are a lot of amendments on which I will not be passing many remarks. However, this one is important because it is about the State financing banks that have got into trouble. History has taught us that we need to pay more attention to legislation and regulation.
I thoroughly agree.
In relation to the ECB, I have mentioned that there were conversations and discussions going on, but is this really monetary finance? The Central Bank would get its money back from the fund in any event and it is just a case of who has to put up with the pain until the fund reaches a point where it can pay for any outlays that have been made. The Central Bank has involved itself in some of these activities in the past through different mechanisms and the promissory note is one example. As such, how is this monetary finance? If it does not fall on the Exchequer to repay this, could not the fund directly repay the Central Bank?
It is like arguments about what certain articles of the Constitution mean. I remember an experience when I was in the Department of Justice and I asked the Secretary General about what a particular article in the Constitution meant. He very succinctly answered that it meant whatever the Supreme Court decided it meant. It is the same with monetary financing. It is monetary financing if the ECB decides it is and is supported by the legal authorities. That is the position and it is the one we found ourselves in notwithstanding that we initially had a different view when we laid out the original draft. We take the advice now. The ECB says it is monetary financing and is supported by legal opinion to that effect. Our Attorney General does not challenge that opinion and, as such, we amend.
The Attorney General had already approved the legislation with "with the approval of the Minister" in it. The Attorney General's view, I assume, is that it was legal under Irish and European law. The issue here is that the Central Bank does not want to take the risk and the Government has jumped.
Legislation is not complete until it is signed. If it was completed when the Attorney General provided a stamped copy to a Department, all the work of the committee members as parliamentarians would be redundant. There is always provision for amendment and we are amending on Committee Stage on the basis of the consultation with the European Central Bank and the legal advice underpinning the suggested change. That is the position.
Under Standing Orders we are obliged to wait for eight minutes before we can take the division.
Amendment put:
The Committee divided: Tá, 5; Níl, 1.
Tá
- Farrell, Alan.
- McGrath, Michael.
- Noonan, Michael.
- O'Donnell, Kieran.
- Stagg, Emmet.
Níl
- Doherty, Pearse.
Amendment declared carried.
Section 12, as amended, agreed to.
SECTION 13
Amendments Nos. 7 and 8 are related and may be discussed together.
I move amendment No. 7:
In page 11, lines 18 and 19, to delete “after the coming into operation of this Part ”.
With the Acting Chairman's permission I shall speak to amendments Nos. 7 and 8 together.
These are technical amendments to streamline the wording and to make it absolutely clear that this provision applies to money recovered from DGS actions commenced before the coming into operation of this Part. It has no substantive effect on section 13.
Amendment agreed to.
I move amendment No. 8:
In page 11, line 20, to delete “1 November 2015” and substitute “the coming into operation of the Deposit Guarantee Regulations”.
Amendment agreed to.
Section 13, as amended, agreed to.
Section 14 agreed to.
SECTION 15
Amendments Nos. 9 to 17, inclusive, and 20 are related and may be discussed together.
I move amendment No. 9:
In page 12, lines 16 and 17, to delete “regulations made under section 3 of the Act of 1972 to give effect to the Solvency II Directive” and substitute “Solvency II Regulations”.
With the Acting Chairman's permission, I will speak to amendments 9 to 17, inclusive, and 20 together.
Amendments to section 17, to which I shall come to in a while, necessitated the addition of some definitions to section 15 as well as the simplification of some of the definitions contained in the Bill, as published. Section 15 is the section that contains explanations for the particular terms used in this Bill. Amendments Nos. 16, 17 and 20 reflect the carrying forward of these definition changes.
Amendment agreed to.
I move amendment No. 10:
In page 12, lines 19 and 20, to delete “European Communities (Life Assurance) Framework Regulations 1994 (S.I. No. 360 of 1994)” and substitute “Life Regulations”.
Amendment agreed to.
I move amendment No. 11:
In page 12, between lines 21 and 22, to insert the following:
“ “Life Regulations” means the European Communities (Life Assurance) Framework Regulations 1994 (S.I. No. 360 of 1994);”.
Amendment agreed to.
I move amendment No. 12:
In page 12, lines 23 and 24, to delete “European Communities (Non-Life Insurance) Framework Regulations 1994 (S.I. No. 359 of 1994)” and substitute “Non-Life Regulations”.
Amendment agreed to.
I move amendment No. 13:
In page 12, between lines 25 and 26, to insert the following:
“ “Non-Life Regulations” means the European Communities (Non-Life Insurance) Framework Regulations 1994 (S.I. No. 359 of 1994);”.
Amendment agreed to.
I move amendment No. 14:
In page 12, lines 26 and 27, to delete “regulations made under section 3 of the Act of 1972 to give effect to the Solvency II Directive” and substitute “Solvency II Regulations”.
Amendment agreed to.
I move amendment No. 15:
In page 13, between lines 9 and 10, to insert the following:
“ “Solvency II Regulations” means the regulations made under section 3 of the Act of 1972 to give effect to the Solvency II Directive;”.
Amendment agreed to.
Section 15, as amended, agreed to.
SECTION 16
I move amendment No. 16:
In page 13, line 18, to delete “European Communities (Non-Life Insurance) Framework Regulations 1994” and substitute “Non-Life Regulations”.
Amendment agreed to.
I move amendment No. 17:
In page 13, line 19, to delete “European Communities (Life Assurance) Framework Regulations 1994” and substitute “Life Regulations”.
Amendment agreed to.
Question proposed: "That section 16, as amended, stand part of the Bill."
My question is on amendment No. 17. What effect will this directive have on existing insurance companies that do not fall under the new regime? How does the new regime differ from the current regime?
No difference, I am told. The entire reason for this Bill is the entry into force on 1 January 2016 of the Solvency II regime. This is a new EU-wide regulatory regime for the insurance sector. The directive repeals the EU directives underpinning the current insurance regulatory regime but the directive also excludes certain undertakings from the new regime. In order to ensure there are no insurance undertakings operating in Ireland from 1 January, unregulated, we have provided for that regulation by way of this Bill. This section seeks to continue the current regulatory regime for such undertakings.
Does that mean the situation continues exactly as it was?
Question put and agreed to.
NEW SECTION
The acceptance of amendment No. 18 will involve the deletion of section 17 of the Bill.
I move amendment No. 18:
In page 13, between lines 30 and 31, to insert the following:
“Portfolio transfers
17. (1) Notwithstanding the regulations made under section 3 of the Act of 1972 to give effect to Article 4 and Article 308b(1) to (4) of the Solvency II Directive, the regulations made under section 3 of the Act of 1972 to give effect to Article 39 of the Solvency II Directive (in this section referred to as the “portfolio transfer regulations”), in so far only as they apply to insurance undertakings (within the meaning of the Solvency II Regulations), shall apply to a relevant undertaking that is an insurance undertaking, subject to the following modifications:
(a) where the insurance undertaking that is transferring its business is a relevant undertaking to which the Solvency II Regulations do not apply by virtue of the regulations made under section 3 of the Act of 1972 to give effect to Article 4 of the Solvency II Directive, a reference in the portfolio transfer regulations to an insurance undertaking (within the meaning of the Solvency II Regulations) shall be construed as a reference to an insurance undertaking (within the meaning of this Act);
(b) where the insurance undertaking to which the business is being transferred is a relevant undertaking to which the Solvency II Regulations do not apply by virtue of the regulations made under section 3 of the Act of 1972 to give effect to Article 4 of the Solvency II Directive,
(i) a reference in the portfolio transfer regulations to an accepting undertaking shall be construed as a reference to an insurance undertaking (within the meaning of this Act), and
(ii) the obligation in the portfolio transfer regulations to certify that the accepting undertaking possesses the necessary eligible own funds to cover the Solvency Capital Requirement shall be construed as an obligation to certify that the accepting undertaking possesses the necessary solvency margin in accordance with the Life Regulations or the Non-Life Regulations, as applicable.
(2) Notwithstanding the regulations made under section 3 of the Act of 1972 to give effect to Article 4 and Article 308b(1) to (4) of the Solvency II Directive, the regulations made under section 3 of the Act of 1972 to give effect to Article 39 of the Solvency II Directive, in so far only as it applies to reinsurance undertakings (within the meaning of the Solvency II Regulations), shall apply to a relevant undertaking that is a reinsurance undertaking.”.
The insurance undertakings to be regulated under this Bill should be entitled to continue to transfer their portfolios if required and it was considered simplest to allow them to do so under the same rules pertaining to those insurance undertakings governed by Solvency II. From a legal perspective there was a need to change the wording of section 17 of the Bill, as published, so as to allow for no doubt regarding how the Solvency II portfolio transfer regime is to apply to undertakings regulated under this Bill.
Amendment agreed to.
Section 17 deleted.
Section 18 agreed to.
NEW SECTION
I move amendment No. 19:
In page 15, between lines 24 and 25, to insert the following:
“Deemed authorisation
19. (1) An insurance undertaking authorised under the European Communities (Non-Life Insurance) Regulations 1976 (S.I. No. 115 of 1976) that—
(a) is a relevant undertaking on the commencement of this section, and
(b) is not deemed authorised under the Solvency II Regulations,
shall be deemed to be authorised under the Non-Life Regulations.
(2) An insurance undertaking authorised under the European Communities (Life Assurance) Regulations 1984 (S.I. No. 57 of 1984) that—
(a) is a relevant undertaking on the commencement of this section, and
(b) is not deemed authorised under the regulations made under the Solvency II Regulations,
shall be deemed to be authorised under the Life Regulations.
(3) An insurance undertaking that, at any time after the commencement of this section, ceases to be an undertaking to which Title I, II or III of the Solvency II Directive applies and becomes a relevant undertaking, shall—
(a) in the case of an insurance undertaking which carries on life insurance business, be deemed to be authorised under the Life Regulations, and
(b) in the case of an insurance undertaking which carries on non-life insurance business, be deemed to be authorised under the Non-Life Regulations.”.
This amendment adds a new section which ensures that any insurance undertakings which are outside the scope of Solvency II and which were authorised under the 1976 and 1984 regulations, the regulations giving effect to the first non-life and life directives, respectively, are deemed authorised under the 1994 life or non-life regulations which are being continued by this Bill. The section further ensures that insurance undertakings which fall outside the scope of Solvency II, subsequent to the Solvency II transposing regulations coming into force, will be deemed to hold their authorisation under those same 1994 regulations.
Amendment agreed to.
SECTION 19
I move amendment No. 20:
In page 15, lines 28 and 29, to delete “European Communities (Non-Life Insurance) Framework Regulations 1994” and substitute “Non-Life Regulations”.
Amendment agreed to.
Section 19, as amended, agreed to.
Sections 20 to 22, inclusive, agreed to.
Schedule agreed to.
Title agreed to.
Bill reported with amendments.