Dáil Éireann Debate, Thursday - 2 October 2014
23. Deputy Mick Wallace asked the Minister for Finance his views in relation to the input into Europe-wide standards of financial regulation in order to ensure that there is no repeat of the economic crisis of 2007-2008 and the subsequent bailouts. [37017/14]
View answerA comprehensive overhaul of the regulatory framework in the financial sector has been pursued at EU level since the financial crisis. Through the introduction of various initiatives, the stability and resilience of the financial sector has been strengthened and restored to a position where it better serves the economies and people of Europe. We have played a crucial role in driving that reform agenda, none more so than during our Presidency in 2013.
A series of measures have been introduced to reduce the risks across the financial system and to minimise the adverse effects of future financial crises. The Deposit Guarantee Scheme Directive (DGSD) significantly enhances depositors' confidence by introducing faster pay-out and more credible funding of the various Deposit Guarantee Schemes. Agreement was reached during our presidency on the Capital Requirements Directive and Regulation which increases the level and quality of bank capital thereby improving banks' capacity to absorb losses. The package requires banks to build additional capital buffers in good times that can be used in periods of stress. The Directive for Bank Recovery and Resolution (BRRD) is geared at reducing the impact of bank failures on the economy and to help insure that the costs of future failures are not borne by taxpayers. It provides for a more orderly resolution of EU banks thereby minimising the risk of future state interventions to maintain financial stability.
Measures have also been introduced to address weaknesses in the institutional structures. In this regard, three new European Supervisory Authorities and the European Systemic Risk Board were established in 2011 to improve cross-border cooperation and to ensure consistent enforcement of rules and systemic oversight. The creation of the European System of Financial Supervisors (ESFS) and in particular the three European supervisory authorities, the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA), and the European Insurance and Occupational Pensions Authority (EIOPA), ensure a single regulatory framework and its uniform application across the EU. The Single Rulebook for all EU member states will mean a common set of rules on supervision, deposit insurance and resolution. Building on the single rulebook, the first pillar of banking union is the Single Supervisory Mechanism (SSM) which transfers key supervisory tasks for significant banks in the euro area to the European Central Bank. The second pillar of banking union, the Single Resolution Mechanism (SRM), provides for an integrated and effective resolution process for all banks in participating member states including Ireland.
Measures have also been brought forward aimed at improving the stability and efficiency of the single market in financial services. The Markets in Financial Instruments Directive (MiFID) and the Markets in Financial Instruments Regulation (MiFIR) aim to strengthen the protection of investors by making financial markets more efficient, resilient and transparent. The new framework will also increase the supervisory powers of regulators and provide clear operating rules for all trading activities. The European Markets Infrastructure Regulation (EMIR) provides for more stability, transparency and efficiency in derivatives markets regulation. The funds sector is being overhauled by the Alternative Investment Fund Managers Directive (AIFMD) and the Money Market Funds Regulation (MMF). The AIFMD provides Europe-wide regulation for the management of collective investment schemes aimed at professional or qualified investors while the MMF proposal provides for greater regulation of shadow banking thereby safeguarding the integrity of the internal market by addressing the liquidity and stability of money market funds.
In relation to insurance regulation, the Solvency II proposal, coupled with Omnibus II, sets out stronger EU-wide requirements on capital adequacy and risk management for insurers with the key aim of increasing policyholder protection. This new risk-based system for the regulation and supervision of European insurance and reinsurance undertakings is necessary in order to ensure a safe and solid insurance sector that can provide sustainable insurance products and support the real economy through long-term investments and additional stability.
The reform of our statutory code for the financial services sector has been and continues to be driven by the comprehensive set of reforms that have been brought forward at EU level. However, a number of significant domestic legislative reforms have been undertaken towards building a strengthened regulatory framework for the financial services sector which complements the strategically important reforms at EU level.
The Central Bank Reform Act 2010 created a single fully-integrated Central Bank of Ireland with a unitary board, the Central Bank Commission, chaired by the Governor of the Central Bank. The unitary Central Bank structure gives the Commission members a more complete remit over prudential regulation and financial stability issues. In 2011 the new Fitness and Probity regime was rolled out by the Central Bank in accordance with the provisions of the Central Bank Reform Act 2010. The regime provides for new powers to be exercised by the Central Bank to ensure the fitness and probity of nominees to key positions within financial service providers and of key office-holders within those providers.
The Central Bank and Credit Institutions (Resolution) Act was also introduced in 2011. It provides the necessary mechanisms to enable the Central Bank to intervene where a credit institution gets into serious difficulty and is in danger of becoming destabilised or otherwise failing.
The Central Bank (Supervision and Enforcement) Act 2013 enhances the Central Bank's regulatory powers, drawing on the lessons of the recent past. It strengthens the ability of the Central Bank to impose and supervise compliance with regulatory requirements and to undertake timely prudential interventions. The Act also provides the Central Bank with greater access to information and analysis and underpins the credible enforcement of Irish financial services legislation in line with international best practice.
The EU financial regulation reform agenda is continuing to strengthen regulation and supervision to improve the stability and functioning of the financial system for the benefit of the economies and people of the EU. The financial system has changed significantly since the financial crisis and improved in areas of key importance. I and my Department will continue to work with our EU colleagues towards providing for a balanced regulatory framework that is consistent with both long-term growth and job creation and a more focused and proactive financial services sector.
