Dáil Éireann Debate, Tuesday - 13 November 2012
185. Deputy Olivia Mitchell asked the Minister for Finance further to Parliamentary Question No. 207 of 16 October 2012, if legislation or new procedures are in place to ensure adequate monitoring and early action by the Central Bank of Ireland to prevent in the future the losses which occurred in the case of Custom House Capital; and if he will make a statement on the matter. [49405/12]
View answerI am advised by the Central Bank that since becoming aware of information relating to client investments and having substantiated its concerns, it ensured that Custom House Capital Limited advised affected clients and reviewed the information that was provided. The Central Bank has further advised that in July 2011, it received information, which increased its concerns regarding the integrity of client investments managed by Custom House Capital Limited. The Central Bank then decided to impose further directions on the firm and in July 2011 to seek the appointment of High Court Inspectors to investigate the affairs of the firm.
An independent review of the Regulatory Regime for the Safekeeping of Client Assets was published by the Central Bank earlier this year and is available on the Central Bank website. The Central Bank has fully accepted the specific recommendations contained in this independent review and is in the process of implementing all of the necessary changes required. However, no amount of skilled supervision or enhanced audit can absolutely guarantee that determined or deliberately concealed efforts to misuse client holdings can be prevented.
I can assure the Deputy that there are several existing powers in place and extensive new powers proposed to ensure adequate monitoring and early action by the Central Bank to prevent the loss of client assets as occurred in the case of Custom House Capital.
I have already brought forward a very wide range of statutory powers to enable the Central Bank to deal with such an issue across the financial service sector under the Central Bank Reform Act 2010, the MiFID Regulation 2007, The Central Bank and Credit Institutions (Resolution) Act 2011 (in respect of credit institutions) and the Central Bank (Supervision and Enforcement) Bill 2011, including a substantial number of new proposals for Committee Stage of the Bill.
The Central Bank Reform Act, 2010, sets out a far-reaching regime for the Central Bank to set out and enforce standards of fitness and probity across the financial service sector, including standards of honesty, integrity and ethical judgement, which apply to those in key management positions. The Act provides for sanctions, at the discretion of the Central Bank, of suspension, or even, prohibition orders, following an investigation and due process. In terms of addressing poor management, the code applies similar requirements in respect of skills and experience. Regulated financial service providers who fail to uphold these standards could find themselves subject to administrative sanction, up to and including a €10m fine or suspension/removal of authorisation.
The Central Bank (Supervision and Enforcement) Bill, 2011, also sets out a number of new provisions that are relevant. The fitness and probity provisions are reinforced by the whistleblower protections proposed in the Bill, which place an onus on those performing pre-approval controlled functions to disclose information relating to offences, prescribed contraventions, and breaches of Irish financial services legislation or the destruction of evidence.
The Authorised Officer powers proposed will allow the Central Bank full access to any information it needs, including the ability to question individuals and access premises. The Central Bank will also have, for the first time, the statutory right to attend meetings of regulated financial service providers and related undertakings, where necessary.
The proposed Skilled Person powers under Part 2 of the Bill will allow for independent and objective analysis of issues within a regulated financial service providers or related undertaking, including client asset requirements. This power has been specifically identified as important in the Central Bank’s recent internal report on safeguarding client assets.
The Bill will also give the Central Bank far-reaching powers of direction, which can be issued on grounds including where the regulated financial service provider is conducting business in such a manner as to jeopardise or prejudice monies held by or controlled by it on behalf of customers; these directions may also apply where the rights of customers are being prejudiced or jeopardised. In such cases the Central Bank can issue very strong directions regarding the suspension of business or modifications to practices, among other things. Such directions are enforceable through the High Court if necessary.
Furthermore, the Bill will provide the Central Bank with the power to make regulations setting out the standards to be met, and the procedures, systems and checks to be adopted, by regulated financial service providers for dealing with and holding the assets and money of customers. This includes provisions on the safeguarding of customers’ rights, in particular in the event of insolvency; the use to which customers’ assets and money may be put; and the management of customer accounts. Again these regulations will be enforceable through the administrative sanction procedure, as enhanced under the Bill.
Committee stage of the Bill as published, will propose further regulation-making powers to the Central Bank which are specifically targeted at enabling the Central Bank to support the protection of client assets including greatly enhanced information gathering powers to allow the Central Bank to ensure that it can demand information from regulated firms. These powers should facilitate investigations on compliance with client assets requirements.
The Bill also proposes a means of restitution, via a Central Bank application to the High Court, where a person has been unjustly enriched or where others have suffered loss or other adverse effects arising from the commission of an offence or a prescribed contravention. This provision is proposed to be further enhanced at Committee Stage in a way which will make it applicable to managers who commit offences or prescribed contraventions.
