I move: "That the Bill be now read a Second Time."
At the outset I would like to say that this Bill, which deals with a complicated subject on which we have had no previous legislation in this country, has received a searching examination in the Seanad and a very large number of amendments to the original draft were tabled. I am glad to say that these amendments have improved the Bill in many important respects. In addition, I undertook to examine further a number of suggestions which were made on Report Stage in the Seanad and I propose to introduce amendments on some of these on Committee Stage. Legislation on unit trusts and similar investment schemes has also been under discussion in the Council of Europe and I have had regard in the drafting of this Bill to the consensus reached by the Council on a number of points. I propose to introduce a few further amendments to the Bill as a result of the meeting of the Council of Europe committee in October, 1971.
A unit trust scheme is an important medium of saving, particularly for people with small amounts of money to invest. The money collected from the investors is invested by the managing company in stocks, shares, gilt-edged securities and other property which are put into a fund in the custody of an independent trustee company and administered in accordance with the terms of a trust deed for the benefit of the participants. We are not concerned with private trusts but only with schemes which invite participation from the public. Each subscriber acquires a fractional interest in the fund and dividends from the investment are paid to subscribers or credited to their account in proportion to the size of their holding of units. The value of a unit will vary up and down as the value of the investments varies. As subscribers buy more units, managers acquire more securities and, conversely, if there is a net withdrawal of units the managers sell off securities. The advantage of this method of investment is that it gives a small investor the benefit of a spread of risk combined with skilled management; normally a fund should not contain the shares of any one company to the extent of more than 5 per cent of the total.
The scope of this Bill is comprehensive in that it embraces not only the normal type of unit trust scheme in which investment is confined to company shares and gilt-edged securities but also schemes for the collection of money from the public for investment in real estate, usually buildings used for flats and offices. In this I believe that I am going farther than other countries have done up to now. The growth of property schemes is a very recent phenomenon and legislation for their supervision brings up problems such as those of valuation and liquidity which are different from those encountered in the normal unit trust type of operation. I am satisfied, however, that the Bill which is before you is flexible enough to deal with diverse problems of control.
Unit trusts have been subject to regulation by legislation in Britain since 1939 and in the USA, where they are known as mutual funds, since 1940. More recently the idea has spread to the Continent of Europe where, however, the concept of a trust does not exist in the legal systems. The investment arrangement in European countries is governed by a set of fund rules and includes a managing company, but instead of the trustee there is a depositary bank which holds the investments. I am convinced that the unit trust from of collective investment is the firmest framework in which to operate the three-cornered relationship of manager, investment holder and subscribers. The development of these institutions in other countries has stimulated interest here and some schemes have been already established in this country while a number of groups are, I understand, contemplating the establishment of others. It is necessary, therefore, to provide legal safeguards for investors on the one hand, and, on the other, to provide that the money collected under schemes of this kind will, to an adequate extent, be invested in the development of our own economy.
Section 3 of the Bill provides for the registration of unit trust schemes and only registered schemes will be permitted to carry on business or advertise in this country. The conditions for registration are designed to ensure that registered trusts will be run by persons of satisfactory probity, competence and financial backing. I attach particular importance to the provision that the trustee should be independent of the manager. The trustee holds the investments in trust for the investors and it is desirable that he act in their interests and that he should not be subject to any pressure which might be exercised if he were dependent on the manager.
An application for registration may be refused, and this would arise if a manager or trustee was unable to meet one or more of the conditions for registration. Registration of a unit trust may be cancelled under section 4 for breach of a provision of the Bill or if any of the conditions under which registration was granted were no longer being fulfilled. The manager or trustee may appeal to the High Court against refusal of an application for registration or against a proposed cancellation of registration. As a safeguard for unit-holders, I will have power under section 5, in a case where cancellation of registration is contemplated, to replace the manager or trustee and, in the interim period before the new appointment takes effect, to require the manager to suspend the sale of units and the publication of advertisements. The right of appeal to the High Court also applies in relation to the exercise of this power.
The operation of unregistered unit trusts is prohibited under section 6. The prohibition extends to arrangements, resembling unit trusts, which provide for the participation of persons in profits or income from securities or any other property. Such institutions may be similar to unit trusts but there is the vital difference that they do not contain any provisions for trusts, and if they are not prohibited the legislation could be very easily and completely rendered ineffective. I feel that the inclusion of a trust is desirable in the interests of investors and that any arrangement not including a trust should not be allowed.
This Bill does not prohibit investment by Irish citizens in the unit trusts or investment funds of other countries but it does provide, as I have already said, that these funds cannot carry on business here, and in addition, section 7 prohibits advertising by them. There is nothing in the Bill that affects the present position in regard to the establishment of a company, so that nonnationals will not be precluded from participating in the operation of a unit trust provided it is duly registered in this country. I would like to point out also that any unit established in this country which proposes to attract funds from abroad will face restrictions on operation of business and on advertising in other countries similar to those proposed under this Bill.
Advertisements relating to investment funds appear not only in Irish newspapers but also in a number of foreign newspapers and periodicals circulating in this country. Some of these periodicals are high-class, and specialise to such an extent that they have a relatively small readership. I do not wish the Bill to have the effect of preventing such publications from entering this country in view of their value to the commercial community and to those interested in the economy. Section 7, therefore, provides for the grant of an exemption in any case where the cost of producing a special edition of such a newspaper or magazine for circulation in this country would be unreasonably heavy. I do not intend to grant exemptions lightly and I would require adequate evidence to support a case that the production of a special edition would impose an unreasonably heavy burden on a newspaper owner.
I have been concerned to ensure that persons contemplating the establishment of a unit trust will find in the legislation as much of the requirements which they will have to meet as it is possible to put into an Act and Deputies will find these requirements set out in detail in sections 9 to 15. They will appreciate, however, that it is not possible in legislation of this kind, where it is necessary to allow flexibility, to put all the requirements into an Act and provision is, accordingly, made in the Bill under section 8 to give me power to make orders in relation to a number of other requirements which may prove to be necessary for the protection of the interests of the unit-holders. An indication is given in section 8 of the principal matters which may be provided by order.
I would like to draw the attention of the House particularly to the fact that it is proposed under section 8 to give me power to provide by order that not less than a specified proportion of a trust fund shall be invested in Irish securities or other property in the State. Deputies are well aware that an expanding economy such as ours needs investment capital and it is my intention that unit trusts should make a contribution to this investment as insurance companies do. The two Irish life insurance companies have invested in this country a substantial proportion of the amount of their liabilities to Irish policy holders. Under an informal agreement, the external life assurance companies operating here have undertaken to invest in Ireland to an extent increasing from a sum of 66? per cent of their outstanding liabilities to Irish policy holders in 1969 to 80 per cent by the end of 1977.
The Bill does not prescribe the minimum level of investment by unit trusts in Ireland but instead leaves it to me to determine by order. This method has the advantage of enabling me to vary the appropriate level of investment in accordance with changing circumstances.
I would like to point out here that a requirement to invest in domestic assets is not exceptional and, in fact, several European countries have similar requirements.
On Report Stage in the Seanad, amendments were adopted which had the effect of excluding from the scope of the Bill schemes of collective investment associated with policies of life or industrial assurance effected with assurance companies licensed under the Insurance Act, 1936. As I explained to the Seanad when I introduced the amendments, these schemes fall into two categories. The first is a fund for investment either in securities or other property which forms an integral part of the insurance company's funds. The second is an arrangement whereby a separate management company, which is a subsidiary of the insurance company, manages a separate fund under a trust deed and the investments are held by a trustee. I am satisfied that the exclusion of insurance-linked schemes will not affect the two main objectives of the Bill which, as I have already pointed out, are the protection if investors and the promotion of investment in this country. Investors in these schemes will have the protection provided for life policy holders under the Insurance Acts. If that protection is thought to be lacking in any way in the light of modern practice and modern developments, I would expect that the Committee of Inquiry into the Insurance Industry, which is sitting at present, would make recommendations for improvements or a general tightening up of the insurance law. The second main objective of the Bill, namely, investment in this country, is secured by the informal agreement to which I have already referred. I have therefore concluded that it would be unnecessary to oblige such insurance-linked schemes to be registered. At the same time, as I expect there will be some managers who will prefer to register even though not legally required, I propose to introduce later an amendment which would permit them to do so.
The appearance of unit trusts in Ireland in recent years and the prospect of the development of the movement on a larger scale render it necessary to legislate for their regulation. I feel that the enactment of this Bill would provide a suitable framework of control, and that it will be welcomed by Deputies. I am anxious that it should provide for the establishment of a system of control which will be at once effective and conductive to the growth of unit trust schemes in this country and I shall be open to suggestions from Deputies on all sides of the House as to how it might be further improved.
I commend the Bill to the House.
