I have to confess that I am disappointed about the way this Bill has been presented to the House; I am not just disappointed but I am almost appalled because this is an important Bill which provides for the regulation of a important part of our financial institutions, a part of our financial institutions which, although not exclusively limited to small savers, is one of particular interest to relatively small savers.
The Minister has told us what is in the Bill. In fact, he told us very little more than we can read in the explanatory memorandum but he has not said why the various options in the Bill have been taken; he has not said anything about the question of control, the involvement of the Minister for Industry and Commerce, the number of exemptions provided in the Bill, etc. I find it most unsatisfactory that on a Second Stage debate, unless the Minister is going to give us more information in his reply, we are not given more of the thinking behind the choices made in this Bill.
I appreciate the need for unified control of the various parts of our financial institutions and financial services sector. I appreciate the need for the setting of standards, for the setting of criteria as to the operation of these various institutions, but I would like to know why the specific choices set out in this Bill have been made. Some very specific choices have been made in the preparation of this Bill. I quote from the Minister's contribution as follows:
To take account of the situation facing existing and future unit trusts in the nineties, and moving into the 21st century, it is essential, I believe, to adapt our supervisory system to accommodate these new circumstances. I consider that the best way of dealing with this is to adopt an approach which allows for more flexibility in dealing with modern practices yet maintains fundamental principles of investor protection enshrined in the 1972 Act. A less rigid approach will allow the supervisory authority to respond more rapidly to developments by using the powers devolved on them in this Bill.
That may well be true. It may well be the case that a less rigid approach would allow the supervisory authority to respond more rapidly to developments by using the powers devolved to him under the Bill, but the Minister has not shown that the less rigid approach is appropriate. He has simply asserted that it is appropriate; he has not shown that it is appropriate. He has not given us any assessment of how this less rigid approach is in some way to be preferred to a more rigid approach. He has not indicated what other options there might be or, indeed, whether there are any, so that the House might be in a position to assess whether a less rigid approach gives us a better opportunity of satisfying ourselves in relation to the operation of unit trusts.
The Minister went on to assert:
In addition I consider that this Bill, in updating our supervisory system, will, without any reduction in supervisory standards, enhance the attractiveness and competitiveness of Ireland, and the IFSC in particular, as a location for investment fund management services.
That is a very popular and trendy thing to say. It is very satisfying for the Minister to be able to say that this measure will mean that the International Financial Services Centre will work even better than it now seems to be about to work. I have to say, if I may digress from the Bill for a moment, that I have rarely seen a more ugly group of buildings than those in the IFSC. Whatever about the financial side, the physical planning of that operation has been appalling.
The Minister is asserting that the provisions of this Bill, and the updating of our supervisory services, will enhance the attractiveness and competitiveness of Ireland, and the IFSC in particular, as a location for investment fund management services. That is an assertion; he has not said how this enhancement is to take place and how this Bill will make us more attractive and competitive. Are we to assume that because we will have what the Minister described as a less rigid approach, without explaining what it is, that we are somehow going to gain in competitiveness or attraction and, if so, why? Will this less rigid approach be better than anybody else's or is it simply looser than anybody elses' so that there will be fewer constraints? How does the proposed legislation stand in comparison with the approach adopted in other member states of the European Community or elsewhere — our financial services centre is designed to attract investment in from a much wider field than the European Community? The Minister gave us no information on this. I have to say that the Government have made very little effort to show us why the options adopted in framing this Bill are the appropriate ones.
I approve of the proposal to centralise the control, the monitoring and supervision of unit trust operations in the hands of the Central Bank. I have long believed that we need unified control in the financial services sector here. It has been clear to me for quite some time that some of the less desirable things which have happened here in the last three years have been due partly to the fact that we have had a fragmented approach to the control of financial institutions and deposit-taking institutions. Contrary to Deputy Taylor's view, I am very much in favour of unifying control in the hands of the Central Bank. I do not see this in any sense as being a move by the Government, or any other agency, to shift responsibility. I have to make the point that we have to allocate responsibility very clearly and make sure that that responsibility can be put into effect efficiently and properly and in a way that is desired and clearly specified in legislation passed by this House.
If I may make the point, Deputy Taylor believes that some control must remain in this House. I agree with this sentiment but the way to do it is to make sure that the provisions we make, by law, for the executive, supervisory and monitoring functions, the prosecution of breaches and the remedying of any deficiencies which might be there, are adequate and carry out the functions we want to see carried out in the interests of investers and of those in whose operations these funds are invested. It is our job to make sure that the legislation is appropriate and that the bodies to which we entrust the operation of the legislation have the necessary powers and controls over them to do this.
It is not our job as Members of the Oireachtas to be financial regulators. It is not our job to be involved in any sense in the day-to-day supervision and monitoring of what goes on in our financial institutions. I would have thought that the experience of socialist systems where legislators, to the extent that they are allowed to do anything, have a finger in every pie and as a result have failed abysmally to do it, would have shown that this is the wrong way to go. As I am sure Deputy Taylor knows, there are far more financial scandals on a far bigger scale in socialist run operations — happily now becoming a thing of the past — than there ever have been in capitalist or private enterprise systems.
As I said, I agree with the approach in this Bill to centralise and unify control under the aegis of the Central Bank. I believe the Central Bank are the appropriate organ to carry out this kind of function. We need to have a consistent approach and this should go across the whole range of financial institutions. I agree with all of those points but I cannot understand why the Bill provides for a continuing role for the Minister for Industry and Commerce. Quite bluntly, it seems that the Minister with the powers being given to him under this Bill — I will refer to this in a moment — could turn out to be a fly in the ointment. It is not at all inconceivable that a Minister for Industry and Commerce looking at the situation might have very different considerations in mind from those which would motivate or inspire the Central Bank in carrying out their duties under this Bill, if we enact it. Why should there be two different fingers in the pie?
It seems our system of Government, if it is designed to do anything, is designed to produce a collective Cabinet view and if a Minister in a Cabinet with a particular set of functions has a view as to how financial institutions should be regulated, monitored or controlled that is a view of which he should persuade the Government and the Government should come in here and propose legislation to the House to give effect to it. The provision in this Bill for the continuing involvement of the Minister for Industry and Commerce is going to produce rather a cumbersome system and could produce delays, and possibly even inconsistencies, in the way effect is given to the central objective set out in the Bill.
There are other areas in the Bill which are far from properly specified and the Minister has given us no real indication of the thinking behind them. For example, section 3 provides for the keeping of a register. It would be useful to know if the register of authorised unit trust schemes referred to in this section will include authorised unit trust schemes incorporated under the law of other member states of the European Community, as provided for in section 4, and the names of authorised unit trust schemes from any other country. We have to bear in mind that financial services are increasingly becoming an international type of activity. Not alone have we Europe-wide marketing of these instruments but world-wide marketing of them.
The Bill provides for the authorisation of unit trust schemes set up under the law of other member states of the European Community. Will this register include those unit trust schemes and unit trusts set up under the law of any other country outside of the European Community? This is important from both sides of the operation. As has rightly been pointed out, unit trusts have proved to be a very useful vehicle both for individual investors and savers and for those — we should not forget this side — in whose projects, operations and properties unit trusts invest. There has been a very useful development of the relationship between the saver and the investor, the doer, and the unit trusts have been a very important part of this.
It is important from the point of view of the saver that the unit trusts have the maximum freedom and scope to ensure that they get the best results. If that means giving them a free hand to invest elsewhere than in this country, then they should have it. It is my belief that since we are rapidly getting away from exchange controls, this will increasingly be the case with unit trusts. Perhaps the Minister will expand on that point. This must be done in the interests of the small saver and investor who puts money into unit trusts. I would add that investors in unit trusts are not all small savers; there are some bigger operators in that area. We need more information as to the scope of the register of authorised unit trust schemes provided for in section 3.
Section 4 sets out conditions for the authorisation of unit trust schemes, but again we lack background information. The section sets out the kinds of things about which the bank must satisfy themselves if they are to authorise a unit trust scheme. They must be satisfied about the competence of the management company and trustee. They must be satisfied as to their probity and suitability to act as a management company. The bank must be satisfied that the company under the scheme is a body corporate which is incorporated under the law of the State or any other member state of the European Community, with sufficient financial resources at its disposal to conduct its business and meet its liabilities and that it will be in a position to comply with any conditions imposed by the bank under section 5.
I am glad the Bill provides for the authorisation of unit trusts incorporated under the law of other member states of the EC. The section does not set out, nor has the Minister indicated, how the banks are to satisfy themselves in relation to all these conditions in regard to trusts set up under the law of other member states of the EC. What means will the bank have at their disposal? Will particular channels be laid down through which the bank must go to satisfy themselves? Is there any concept of a body in any of the other member states whose word our Central Bank would accept in deciding to authorise these things? Is any standard of proof or satisfaction to be suggested to the bank or laid upon the bank which they must achieve if they are to authorise a unit trust scheme? If we go outside the member states of the EC, again the question arises as to how our Central Bank are to satisfy themselves in relation to the criteria laid down here before they can authorise a unit trust scheme.
Section 4 also provides that a copy of the deed setting up the unit trust scheme must be deposited with the Central Bank. That applies to unit trust schemes set up under our law and under the law of other member states of the EC. Although it is not provided for here, it would apply to unit trust schemes set up under the law of any non-EC country. What provisions will be made for the depositing with our bank of a copy of this deed setting up the unit trust? In spite of the fact that we live in the age of facsimile transmissions, there are many legal questions as to the validity of certain kinds of copies. Are we to have a scheme which allows the bank properly to satisfy themselves but without creating so many onerous conditions that the provisions of this part of the section would be impossible to comply with or so unattractive as to dissuade other unit trusts from registering here?
The intention of the Bill is certainly right in that the saver here should have access to the widest possible range of unit trusts. Competition in this area is healthy and is good for the people in whose operations these funds are invested. We must make sure that the competition is between firms we know we can trust and is not brought about in such a way that the conditions stifle competition by making it impossible for outside firms to operate in our market.
Section 4 goes on to allow the Minister for Industry and Commerce to direct the bank to make any authorisation, subject to the imposition by them of conditions or requirements specified in his direction. It says they should relate to such matters which the Minister is satisfied, after consultation with the Minister for Finance and the bank, do not constrain the prudential supervision by the bank of a scheme. It is not clear from the Bill, nor is it mentioned in the explanatory memorandum, why we should provide this power of direction to the Minister for Industry and Commerce. Is it envisaged that there might be some conditions which that Minister might legitimately want to impose which would not be thought of by the bank or by the Minister for Finance?
The Minister for Finance is mentioned in only one instance in this Bill, where the hapless person has to agree with the Minister for Industry and Commerce, and the bank, about directions that the Minister for Industry and Commerce is allowed to give to the bank. What conditions might the Minister for Industry and Commerce wish to impose in addition to those imposed by the bank? What might be the reason for doing this? If there is something legitimately to be demanded or required above and beyond the conditions set out here, why not provide that the bank can do it? Either we are making the Central Bank the central authority for monitoring and regulating the activities of these unit trusts or we are not. If we are, there is no point in having a second thought and leaving a residual power to the Minister for Industry and Commerce to stick his nose into this business and impose conditions which might or might not be otherwise thought of by the bank.
How does all this sit with section 5? Section 5 (1) gives the bank fairly wide powers to impose such conditions for the authorisation of the unit trust scheme as they consider appropriate and prudent. In view of that, why have this power for the Minister for Industry and Commerce? Section 5 sets out all the proper concerns we should have in laying down the conditions. Subsection (4) lists the various other requirements. It puts an obligation on the management company and the trustee under an authorised unit trust scheme to comply with any conditions imposed by the bank. Why is there this half afterthought which allows the Minister for Industry and Commerce to become involved?
Provision is made in section 6 for an appeal to the High Court against a decision to refuse an authorisation of a unit trust scheme or against conditions imposed. I would like to know whether that right of appeal includes a right of appeal against any condition set down by the Minister for Industry and Commerce and whether it includes a right of appeal against any condition required by the Minister for Industry and Commerce and imposed as a result by the bank.
Section 7 deals with a change in name of an authorised unit trust scheme. It is not specified in the section but may I assume that the provisions in relation to alterations would apply equally to unit trusts authorised under the law of another European Community member state or any others which might be authorised in the same way as they would apply to unit trust schemes set up under our law?
Section 9 deals with the prohibition of the sale or purchase of units of unauthorised unit trust schemes and certain like schemes. It provides for certain exemptions. I would like to know — the Minister has not explained it — why there is an exemption for schemes linked with life assurance companies, companies incorporated under the Companies Act or by statute or charter, on building societies, friendly societies or industrial and provident societies. Why is this exclusion made? The Minister did not explain that in his speech and it is not immediately apparent from the explanatory memorandum and it certainly is not clear from the Bill. Are there not dangers here? Is it being suggested, for example, that a company, building society, friendly society or an industrial and provident society could in some way which is not open to unit trust schemes solicit funds from savers without being caught by the provisions of this Bill and, if so, are there corresponding provisions anywhere else which would give us the same standard of control, accountability and protection for potential depositors and investors which this Bill seeks to ensure for those who put their money into unit trusts? Why is this exemption there? Is it entirely appropriate and are there not dangers arising from it?
Provision is made for another exemption in section 10. Subsection 2 (a) states:
Whenever it is shown to the satisfaction of the Bank, in the case of a newspaper or magazine printed outside the State that, in the opinion of the Bank, has only a small circulation in the State, that compliance with this section would necessitate the production for circulation in the State of a special edition of the newspaper or magazine and that the cost of such production would impose a burden on the owner of the newspaper or magazine that would be unreasonably heavy in all the circumstances, the Bank may exempt from the application of this section advertisements published in the newspaper or magazine.
Again, I would like to know why it was felt appropriate to include that provision in the Bill. It may not be generally known but there are a great many newspapers or magazines with only a small circulation in Ireland. There are indeed a great many financial newspapers and magazines which have, almost by definition, only a small circulation in Ireland. I can tell the House that in the offices of any respectable stockbroking firm, investment broking or financial advice firm you will find copies of magazines that have a very limited circulation in total. I dare say some of them may have a circulation of not more than ten or 12 copies in Ireland. They are marketing financial services and potential investments and therefore helping to solicit funds on behalf of financial operators of various kind not only in member states of the European Community but also in the United States, and in certain of the more balmy islands in the Caribbean and elsewhere.
I could readily see a situation where a number of such magazines would be held, under the provisions of this section, to have a very small circulation and where the production of a special edition for Ireland would impose an unreasonably heavy cost in all the circumstances as set out in the section, and we could find quite a wide range of potential investment and savings vehicles being offered to people here without there being the kind of supervision and control that this Bill sets out to apply.
I would ask the Minister to outline the reason that provision was made in the way it is and to state if he is satisfied that that exemption does not in fact go much further than appears on the surface and that he can happily exempt magazines which, as I said, almost by definition have a very small circulation; thereby reducing the protection to be given to the citizens of this country who wish to put their funds into these kinds of operations.
There is of course a very general and much wider problem of supervision of financial operators and their activities. We have to satisfy ourselves that when we put regulatory mechanisms in place the agency to which we entrust the job have the ability and the resources to carry it out. The Minister referred to this very briefly in his remarks this morning, and I quote:
The consolidation of regulatory control for these financial services in a single supervisory authority will result, I believe, in a more efficient use of scarce resources and the ready availability of a pool of expertise should enhance the quality of supervision and help eliminate any gaps in the supervisory structure in this particular sector. Such a supervisory authority will help ensure that the rules impact evenly on all institutions operating in this sector and allow for a more coherent response to developments, having regard to the rapid and substantial developments in financial services.
If we could take that at face value I would jump up and applaud as I am sure would all the many potential investors and all the many advisers of potential investors but that is only an assertion. The Minister is saying that this will result in a more efficient use of scarce resources but, mind you, he did not say which scarce resources he was referring to. I assume that he means the scarce resources of the Central Bank. He also said that it will result in the ready availability of a pool of expertise which should enhance the quality of supervision and help to ensure that the rules impact evenly on all institutions operating in this sector. I do not know: they amount to assertions and the Minister is going to have to back them up.
Question number one is, what scarce resources is the Minister talking about? Is he talking about the scarce resources of the Central Bank, and, if so, will the Minister give us the reasons he is satisfied that those scarce resources will in fact be better used in this way or are they so scarce that we need worry about their adequacy to do the job this Bill set out to give them? The Minister went on to say:
... the ready availability of a pool of expertise should enhance the quality of supervision.
What pool of expertise? Is it the pool of expertise in the Central Bank? Is it the same pool that exists there now? Is it adequate for the job it is doing now? Will it be adequate to do this job when this Bill is enacted? Is the Minister giving any consideration to the pool of expertise outside the Central Bank? For example, is he giving any consideration to the pool of expertise available to the Garda Fraud Squad or to the Office of the Director of Public Prosecutions? If not, I would strongly recommend that he now turn his mind to these issues.
This Bill, as it must, sets out a number of offences. If people running authorised unit trusts infringe the provisions of this Bill, they are guilty of an offence; that appears at several points throughout the Bill. There is no point legislating to set up new regulations, the breach of which will be an offence, unless we will be able to prosecute in the event that offences take place. We know, and many investors know to their cost, that there is a big question mark over our ability to prosecute offences committed in the handling of money on behalf of savers and investors. We hardly need mention cases. There was the Gallagher affair, mentioned earlier, in respect of which no prosecution has taken place in this jurisdiction. The liquidator in that case has said quite clearly that it is his considered view that the Garda Síochána do not have the requisite resources to deal adequately with this particular branch of white collar crime. He has also said, in the clearest possible terms, that the Director of Public Prosecutions does not have the resources to deal effectively with this branch of white collar crime.
We are setting up new offences under the provisions of this Bill. Yet, all we are told by the Minister is that the ready availability of a pool of expertise should enhance the quality of supervision. I am extremely sceptical about that. In fact, unless the Minister has a good explanation and reinforcement to offer, I will be forced to the conclusion that I cannot believe a word of it.
There is another case going on here, that of International Investors Limited, in liquidation, where as far as I can see — I will not mention names in this House but many Members will know what I am talking about — the case is being pursued through the diligence of one person in this jurisdiction. That is not the ready availability of a pool of expertise of the kind about which the Minister spoke.
Of course, I have to say that there have been other cases in respect of which difficulties have been extremely well dealt with by this House. That has been because, fortunately enough, in the case of the PMPA and ICI, the House was able to deal with the problem, not by establishing new offences but by taking legislative action to deal with the problem, I might add, at no cost to the Irish taxpayer, something which has been overlooked in those cases in much recent comment.
I want to make the point again — an extremely important one for this House — that there is no point in having elegant, steamlined, centralising legislation that creates at least the possibility of new offences if we cannot be sure that those offences, if and when committed, can be properly prosecuted, followed-up and the appropriate penalties applied. It is not reasonable of the Minister to expect this House simply to accept the kind of assertion that he set out here about our ability to do all this without telling the House what these resources consist of; whether, in the light of the clear inadequacy of the resources obtaining, anything will be done to make additional resources available from whatever source.
That sums up the series of questions I have about this Bill. Of course, we must update our legislation. Of course, we must have effective and, in my view, centralised control and monitoring of the operations of people involved in financial services. To that extent I believe the direction of this Bill is correct, but there is too much left unsaid by the Minister, too much in this Bill remains unexplained for us to be able to take it without a very hefty dose of salt. The Minister will have to be much more forthcoming in replying to Second Stage and in his treatment of Committee Stage debate than the Government have shown themselves to date before this House can be properly satisfied that we should embark on the course set out here.