Léim ar aghaidh chuig an bpríomhábhar

Dáil Éireann díospóireacht -
Thursday, 6 Dec 1990

Vol. 403 No. 6

Unit Trusts Bill, 1990: Second Stage.

I move: "That the Bill be now read a Second Time".

The primary purpose of this Bill is to establish, in the public interest and in the interest of investors, new and enhanced arrangements for the control and regulation of unit trust schemes. While many of the provisions of this Bill are similar to those of the Unit Trusts Act, 1972, it was considered that, having regard to the extensive amendment of the 1972 Act which would have been necessary to effect the required changes, the most effective and logical approach was to repeal the 1972 Act.

Under this Bill the Central Bank will assume from the Minister for Industry and commerce statutory responsibility for the supervision of unit trusts. The other main objective of the Bill is to provide for developments in accepted international practice with regard to the supervision and operation of unit trusts since the 1972 Act was passed by the Oireachtas.

The transfer of supervisory functions from the Minister for Industry and Commerce to the Central Bank is part of a process which has been ongoing for a number of years, with the objective of reducing, as far as is practical and desirable, the range of supervisory authorities responsible for the financial services sector. Thus, in addition to their responsibility for the banking sector, the Central Bank have, over the past few years, been given regulatory powers with regard to building societies and trustee savings banks, as well as being given supervisory powers in relation to the International Financial Services Centre in Dublin.

In the area of investment funds the Central Bank is the supervisory authority for UCITS — undertakings for collective investment in transferable securities — under the European Communities (UCITS) Regulations, 1989, and it will assume a similar supervisory role for variable capital companies under Part XIII of the Companies (No. 2) Bill, 1987, which is currently nearing completion of its passage through the Oireachtas. The Unit Trusts Bill, 1990, will complete the adoption of a consistent approach to the control and supervision of this sector of the financial services industry.

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.

The other main objective of the Bill is to up-date the provisions of the Unit Trusts Act, 1972, to provide for developments in accepted international practice concerning the operation and supervision of unit trusts. Since the passage of the 1972 Act, this sector of the financial services industry has developed and expanded enormously and this has been reflected internationally in changes in the form and degree of control and regulation. From being a relatively new investment vehicle here in the early seventies — in 1973 only two units trusts were registered in Ireland — unit trusts are now firmly established. At present, there are some 30 registered unit trusts with investments worth just under £1 billion. With supervisory systems in existence in most developed countries for many years the unit trust industry has now, in contrast to the situation prevailing when the 1972 Act was enacted, a body of well known and accepted rules and best practices.

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.

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 Irish Financial Services Centre in particular, as a location for investment fund management services.

Before I pass on to the detail of the Bill I would like, for the benefit of those Deputies who may not be familiar with unit trusts, to explain what unit trusts are. A unit trust is an important medium of investment, particularly for individuals with small amounts of money to invest. The money paid by participants or unit-holders is invested by the professional management company in a range of stocks, shares, securities and other property which are put into a fund which is in the custody of an independent trustee and administered in accordance with the terms of a trust deed for the benefit of unit-holders. The advantage of this medium of investment is that it gives a small investor the benefit of a spread of risk which he would be unable to obtain on his own, combined with professional management of his investment.

I would now like to summarise, for the benefit of Deputies, the general thrust of the most important sections of the Bill.

The definitions of certain terms used in the Bill are contained in section 1. Provision is made in section 2 to exclude from the application of the Bill undertakings authorised, and therefore supervised, under the European Communities (UCITS) Regulations, 1989. Section 3 provides that the Central Bank establish and maintain a register of authorised unit trust schemes. This provision is similar to that contained in section 2 of the 1972 Act. In addition, the section also covers other public disclosure requirements imposed on the bank. The necessary conditions, similar to those of the 1972 Act, for the authorisation of a unit trust are set out in section 4. These include the bank being satisfied with: the competence and probity of the management company and trustee; the financial resources and corporate status of the management company and trustee; the independence of the management company and trustee from one another; the trust deed's compliance with the provisions of the Bill and its deposit with the bank; and the name of the unit trust scheme. This section also empowers the Minister to direct that authorisations be subject to specified conditions or requirements, as long as these do not constrain the prudential supervision of a scheme by the bank.

Section 5 gives the bank power to impose conditions for authorisation of unit trusts generally, individually or of a particular class. This will allow the bank to regulate the operation of unit trust schemes, taking due account of the different characteristics of schemes, e.g. a scheme which offers units to the public needs to be subjected to more rigorous conditions than a scheme whose unit holders are a select group of major institutions.

In the event of a refusal of an authorisation by the bank, section 6 provides that the management company or trustee may appeal to the High Court. Sections 7 and 8 of the Bill require that the approval of the bank is necessary to any alteration in the trust deed, or change in name or replacement of the management company or trustee of a scheme. Section 8 also gives the bank the power, where it is in the interests of unit holders, to replace the management company or trustee, who would have the right to appeal any such decision to the High Court.

In section 9 the sale or purchase of units, or any solicitation in that regard, by unauthorised unit trusts is prohibited unless approval has been received from the bank, which may attach conditions to any such approval. This prohibition extends to any arrangements, resembling unit trusts, which provide for the participation of the public in profits or income from securities or any other property. This prohibition does not extend to private trusts. Neither does it cover investment schemes linked with life assurance or companies incorporated under the Companies Acts or by statute or charter, building societies, friendly societies or industrial and provident societies, which are already covered by separate legislation. The effect of this section is to prohibit the operation of unauthorised unit trust schemes and is similar to the provisions of section 7 of the 1972 Act.

Section 10 prohibits the advertising of unauthorised unit trusts, as defined in section 9, unless approval has been received from the bank, who may attach conditions to any such approval. The effectiveness of the Bill depends on prohibiting unauthorised schemes, not only in the matter of carrying on business, but also the matter of advertising. The bank will also have the power to exempt foreign newspapers and magazines with only a small circulation in Ireland from compliance with this provision.

Sections 9 and 10 effectively prevent unauthorised unit trusts from operating in Ireland and avoiding the duties and responsibilities attendant upon authorisation.

A fundamental operating principle of unit trusts is that the proceeds of the sale of any units or any income in respect of the assets of a scheme that is not distributed to unit holders shall be assets of the scheme and be treated accordingly and this continues to be provided for in section 11.

Another fundamental principle is incorporated in section 12 which obliges the management company, as soon as may be, to purchase units from unit holders who so request. The section allows for the temporary suspension of such purchase in exceptional circumstances in the interests of investors. There is also provision for the bank to specify other limited circumstances under which this stipulation need not apply.

Section 13 prohibits a management company, or connected persons, from making profits from transactions in any assets held under the scheme. It also prohibits a management company or trustee borrowing or lending on the scheme. The bank will be empowered to allow such practices under conditions it might impose in certain circumstances.

Strict liability of trustees under authorised unit trust schemes is provided for in section 14, which is in itself a re-enactment of section 15 of the 1972 Act.

The application to authorised unit trusts of certain provisions of the European Communities — Undertakings for Collective Investment in Transferable Securities — Regulations, 1989 is provided for in section 15. These adapted provisions relate to the temporary suspension of the purchase of units, reporting and auditing requirements, keeping of records, appellate procedures, revocation of authorisation, the bank's power of intervention and the review of the bank's decisions by the High Court.

Finally, I would like to say that this Bill, largely reflecting the provisions of the 1972 Act — albeit amended to take account of more modern conditions and practices — will provide a continuing framework of control and supervision which will allow for the protection of the public's and investors' interests into the next century without inhibiting the development and growth of this sector of the financial services industry.

I am sure the Bill will be welcomed by Deputies on all sides.

I commend the Bill to the House.

I am glad to be afforded an opportunity to make a few comments on this Bill.

Like all modern legislation, in appearance at least, it seems to have the effect of streamlining our laws, in this case bringing them into line with EC Directives. I welcome the fact that this is being done by way of legislation rather than by ministerial order or statutory instrument. The Minister saw fit to avail of the opportunity to review the provisions of the 1972 Act, update them in a way which will be reassuring, one would hope, to the consumer/investor and instil public confidence in the system.

I welcome the fact that we are dealing with a Bill, the provisions of which will prepare us for the changes now taking place and those likely to occur in ensuing years. The Financial Services Centre, once on stream in this city, will be a case in point which will warrant the implementation of the provisions of this Bill. Its provisions also shift the onus of responsibility for supervision in this area from the Department of Industry and Commerce to the Central Bank. I suppose that is a good thing. It is something we discussed at some length in the Joint Committee on Secondary Legislation of the EC when debating various EC Directives. By and large it was felt better to have one central organisation responsible right across Europe. Of course, here we have shades of the European Central Bank which, we are told, ultimately will be likely to assume full and absolute control.

I might make one or two comments in relation to controls in circumstances such as these. Modern technology has been extremely helpful in creating a greater level of efficiency and accountability, certainly greater speed of reaction in certain circumstances but, simultaneously, greater vulnerability in certain areas. We do not have to go back very far in recent years to find examples of that.

Generally speaking while allowing foreign companies to advertise and promote their schemes here we need to have a central controlling agency with some continuous contact with their counterparts in Europe. Can we be reassured that companies operating here are likely to have a clean bill of health when they advertise and operate? I note that henceforth the Central Bank will be empowered to investigate their state of health and, as it were, give their imprimatur. Having done so they will have access to the usual sources of information in such cases. Therefore, one can assume that, having arrived here with a clean bill of health — with a Euro certificate — that will withstand the test so that we will not have any fast moving relocations or shifts that might not be of a useful or positive nature.

In both the recent and distant past there has been quite a number of instances of investment houses having been able to operate here in a way which has not been beneficial to the country, to the investor, or indeed to the casual investor, a different category. I mention those examples because, from our discussions at the Joint Committee on Secondary Legislation of the EC, my fear is that not even the provisions of this Bill will in any way inhibit or restrict the activities of agents who might not be as scrupulous as we would wish. I do not see any provision in the Bill that will change that position. For example, there could be a company, acting in an agency capacity, buying, selling, investing and so on, disappear overnight, operating for and on behalf of a legitimate investment scheme, quite above board but which — because of the management of that scheme by the agent — might well fall into disrepute. I am sure that every Member of this House has dealt with constituents over the past ten years who have been the unfortunate victims of such circumstances, in this case, the investor and, more often than not, a small investor. I do not see how that small, uninformed casual investor, can be safeguarded — somebody who is unfortunate enough to, say, sell a house to acquire a short term investment who, through sheer bad luck, invests in an area proving less than beneficial.

However, the most serious point is that not only would it have been a bad investment but it could have been a bad investment by virtue of mismanagement of the scheme, and the deliberate mismanagement of a particular scheme. I envisage a matter which is not dealt with in the Bill but which could and must be dealt with at some stage. I do not accept that a company or individual acting in an agency capacity, dealing in the sale or advertising of trusts or investment schemes, in the event of they going bankrupt or into liquidation can eliminate any responsibility from the parent company or the original investment company. For example, A is operating in an agency capacity for B who has a number of similar agents, and A disappears or, by virtue of mismanagement, proves unreliable with consequent loss to investors. Can we not devise a system and introduce in a Bill like this some means where the parent company, perhaps a national household name, can be held responsible?

We have discussed this before in this House but I still am not satisfied. I do not want to use names in the House and I shall not, but if an agent acting on behalf of an investment company, in many cases an expensive investment company, enters into arrangements and agreements on behalf of that company over a period, many of which are beneficial to both the agent and the parent or original company, then the agent defaults with the consequent loss to the investor, the parent company should be responsible, and should be responsible for compensation. Our experience in the past ten years or so should have taught us that when framing future legislation, particularly in the broader European arena having regard to the open market, etc., we should be more careful to ensure that the scope for abuse is reduced as far as possible. I know that, no matter what restrictions are in place, the unscrupulous will always find ways and means to circumvent the system. Be that as it may, we still have to make every possible effort to close all loopholes to ensure the protection of the consumer or investor.

That has another significance in the sense that in the European arena, ensuring that observation of all criteria is borne in mind by parent companies, investment companies, insurance companies and anybody involved in the financial services, a great deal will depend on the way we can apply the regulations. From the point of view of the confidence the European financial services business will have in our ability to operate in this country, that is a very important aspect. This country depends to a large extent on foreign investors, and if they have confidence in our ability to operate the structure in this country, that will stand us in good stead. On the other hand, if there is a lack of confidence, not only will it create suspicion on the one hand, but it will damage our investment prospects, our integrity and our good name generally in this area.

This legislation is welcome so far as it goes: it is useful in that it brings our domestic situation into line with the financial services directives; it updates the 1972 legislation; it gives at least limited consumer protection and, as it were, creates a kind of universal application of a regime right across Europe, so far as unit trusts and various other financial investment schemes are concerned.

I know my colleagues intend to home in on some of the other details on Committee Stage, and it is probably better that we just deal with the general principle at this stage and allow the Minister some time to consider the possibility of accepting a number of amendments which may be put down on Committee Stage. From discussions with my colleagues I understand there are a number of such amendments.

I welcome the legislation. I hope it provides some protection for the investor or consumer and will streamline European legislation with our own, as is intended. I hope sincerely that the bureaucracy and Eurospeak to which we have become so accustomed in the past number of years, particularly in the financial services area, will be simplified slightly in future legislation. Whatever chance the people involved in financial services and investment have of interpreting many of the directives coming from Europe which we take on board, the casual investor, the elderly person who has £10,000 or £15,000 to invest on a once off basis, cannot be expected to see through the intricate web of Eurospeak and bureauspeak that have been associated with directives of this nature. There can be no possibility of such a person operating or investing other than on the advice of somebody acting as either a parent company or in an agency capacity. I feel the biggest weakness in the Bill relates to those acting in an agency capacity because it does nothing to tighten up the possible loopholes there. The Minister might consider amendments on Committee Stage which will achieve something along the lines I have been suggesting.

I hope the Minister will consider introducing amendments on Report Stage to ensure responsibility and accountability on the part of the parent firm. If that could be done the legislation would be extremely worthwhile.

As the Minister said, the unit trusts phenomenon has increased substantially over the years and there is now a very appreciable sum invested in them made up, for the most part, of small savings. The probability is that such investments will increase substantially in the years ahead. Therefore, it is appropriate that the House should seek to take all possible steps to protect the position of savers and ensure the safety of their savings; ensure that they are not ripped off, that they get a reasonable return on their savings and that their savings are dealt with in a responsible, prudent, fair and honest manner. That has not always applied to small savers in various institutions here. We have had examples over the years where small savers have lost their life savings. There was the PMPS where very large sums of money went astray and unfortunate people found themselves left in a sad and sorry position. It, therefore, behoves the House to be very careful about this.

In this regard there is one preliminary point I want to make about the security of small savings. The Bill is giving the Central Bank wide ranging and substantial licensing and supervisory powers in connection with unit trusts. The Minister also is keeping his finger in the pie — I will be saying a word about that aspect of the matter later. The Central Bank and the Minister are taking substantial powers of control, regulation, supervision, inspection and so on in regard to the unit trusts. I agree with that. It is right and proper and in order that they should do that but they should have those powers and should use them with great care, rigour and dedication to ensure that the supervision is carried out in a proper manner and that the savings of small savers are properly and prudently managed. That is all right as far as it goes.

However, having taken those powers, it is sought to exonerate the bank completely, and presumably the Minister, in the event of anything going wrong. That is totally unacceptable. When powers are taken to do a job, there should go along with that, as part and parcel of it, a responsibility to ensure that the job is done, and done properly, and if it is not and the result is that some unfortunate person or widow or family lose their money, then the Central Bank and/or the Minister should be responsible for compensating them for their losses. I do not think there is anything unreasonable or unfair about that proposal. One cannot just take powers and then, if one slips up and as the result of one's carelessness or lack of dedication in exercising those powers, somebody loses, wash one's hands of all responsibility. I do not think that is right.

When the powers are taken the Minister or the Central Bank should take the responsibility also, as happens in every other walk of life. When people outside the Government or semi-State bodies have jobs to do, they are legally responsible to compensate those who have suffered damage if they make a mistake and things go wrong, be they solicitors, doctors, architects, engineers or whatever. The same principle should apply to the Central Bank and to the Minister. The idea of putting exonerations in the Bill to excuse them if they do not do their job in a proper manner is totally unacceptable.

I turn now to the main thrust of the Bill which is to transfer the role of supervisor and licensing authority in the matter of unit trusts from the Minister to the Central Bank. A strange phenomenon seems to be developing in the Department of Industry and Commerce.

The Minister seems to be divesting himself of functions that properly should be his and hiving them off either to the private sector or even a semi-State body, as is being done here.

A week ago or so it was announced that the Minister was appointing consultants in the private sector to undertake a review of the whole scheme of export credit insurance and finance. Now we find that the Minister is setting about divesting himself of the responsibility he has had until now to supervise and regulate unit trusts. What is going on here? Is there some idea now that governmental functions have to be hived off from the Minister? What is the idea here? It is not a healthy development. I am sure the trend I have indicated is not confined to this Minister or this Department. It is not a great idea. At the end of the day answerability and responsibility where people's savings are concerned should rest with this House.

If, in the future, there are difficulties with the unit trusts and we have some thousands of our constituents coming to us in distress and difficulty, as happened with the PMPS, wanting to find out what has happened, after this Bill goes through and the responsibility for the whole issue is hived off from the Minister for Industry to the Central Bank, questions will not be answered here in this House. We will not be able to raise the matter. When we look for an Adjourment debate, a Cheann Comhairle, you will tell us that the Minister has no responsibility, that it is the responsibility of the Central Bank. Questions in the House, debates on the issue, will be taken from us and the responsibility hived off to the semi-State sector.

The same applies with An Post and Telecom. That is the trend that is developing and it is not a healthy trend. I believe it would be better if the Minister retained the responsibility in his own office for supervising, controlling, licensing and regulating unit trusts. He should take on whatever expertise might be required to enable him to carry out that function in a prudent, careful and proper manner. Likewise on the question of a review of export credit insurance that is a key matter of Government policy that should not be hived off to the private sector. It should be retained within the ambit of the Minister for which he would be answerable here. He should take on whatever expertise he needs in that regard. That is part of a trend that I am rather concerned about.

Another aspect of the Bill that troubles me somewhat is this strange phenomenon that we are presenting ourselves with here. It is not as though the Minister is hiving off the issue completely and saying that this is a matter for the Central Bank, that the Central Bank will license, examine, investigate, control, regulate and so on. Under the Bill the Minister vests the power in the Central Bank to do these things but in some strange, vague way which is defined neither in the Bill nor in the Minister's speech he goes on to provide that the Minister has power to specify conditions which may be imposed on the licensee in the controlling process of the unit trusts. That is all very strange. What is the reason for imposing these conditions? If you are hiving off responsibility to the Central Bank, why keep your finger in the pie?

If the Central Bank are being given this job to do — I am not happy about that — and if, as the Minister said in his speech, they will of necessity have to employ experts who will know the job and be able to do it in a proper manner, who will know what to look for and what steps to take to ensure they are getting the right trustees and the right management teams to look after these unit trusts, why duplicate the issue even in part by retaining the power to impose conditions? I find that rather strange. If the Central Bank are being given the job we should let them do it in its entirety in a proper manner rather than trying to retain a controlling hand in that job. Why is this all so vague? What conditions will be imposed? Would it not have been appropriate to indicate in the Bill or at least in the Minister's speech what is in mind here rather than simply saying that the Minister may impose conditions, without giving the slightest indication of what is contemplated in that proviso?

There are important matters that need to be provided for, and maybe some of these have been contemplated in the section. For example, regulations as to the amount which the management team may charge for their services in administering the unit trust is a bit of a grey area. That is an annual item. In other words when the income of the unit trust is aggregated at the end of each year, before any saver or unit trust holder gets anything the cream is sliced off by the management company — it may be called costs of administration or whatever. Those people have to be paid for doing the job and that is all right provided the charges they make each year are reasonable and fair. I would like to know from the Minister in what way that will be examined. Will parameters be set under which a maximum percentage charge will be allowed? Is that perhaps one of the conditions the Minister has in mind? Will he be dealing with that or imposing a condition limiting the percentage charge which the management team may take for themselves? I would be interested to know that.

There is also the other aspect under which management teams on occasion in unit trusts will, from the time of the first subscription, take for themselves a chunk of the money saved, a capital tax as it were. A person may buy £100 worth of units but a certain amount, 5 per cent, 10 per cent or 20 per cent is immediately deducted and the remainder goes into the savings pool. I do not know whether that is fair. The figure may vary from case to case, but there ought to be regulations that would set maximum figures that could be taken by these management teams.

As an overriding feature to that, as far as the initial take by the management team and as far as the annual administration charge is concerned, it ought to be made very clear at all stages, not in Euro-speak or business-speak but in plain, everyday layman's language that anybody can understand, exactly what these hidden charges would be and what it would mean to the saver. All too often these matters are buried in small print. People who are about to put their savings — small savings for the most part — into these trusts should know how much of their money is going to be invested and how much is likely to end up in the pockets of the financial and banking institutions or directors thereof who for the most part are the people who run these trusts. Is that going to be contemplated in the conditions which the Minister arrogates and retains under the Bill? These matters should be spelled out. This is the nitty gritty that we need to know if we want to ensure that every possible step is being taken to protect the small saver.

The question of ensuring a fair distribution of the profits made by the trust then arises. I would like to know how that is to be tackled. At the end of each year the management board sit in one of their plush offices and see how much profit they have made. Then they decide how they will distribute it, what proportion they will retain for their own expenses, what proportion they will put into some notional reserve fund, what proportion they may use for making further capital investments and what proportion they will pay in dividends to the original investors. There is tremendous scope vested in the management board for doing down, as it were, the small investors and small savers if they felt like doing so.

For the most part, people who put small savings into unit trusts — I would think — reasonably expect that an appreciable proportion of the profits made from the investment of their money would be paid to them on a year to year basis. I do not think that most of them would be particularly interested in building up long term funds for five, ten, 15 or 20 years ahead. I suppose that a few might be interested in doing this but, for the most part, people who put in small savings like to get their return fairly quickly instead of building up a fund for the years ahead.

On the other hand, the management board may have other ideas and it may suit them, for their own purposes, to build up fees for the years ahead. However, in building up a bigger fund they would retain an unnecessarily large proportion of the profits made in any one year in reserve and for accumulation purposes. The best you could say about it is that some balance must be struck between those two extremes. I know that, in most cases, they will do their best and that a fair balance will be struck but there will be cases when the interests and wishes of the small savers will be in conflict with those of a banking management board. That is surely where the role of the supervisory authority — the Minister or the Central Bank — comes in. Do the Central Bank intend to involve themselves in that line? I would be interested to know if that is one of the things they will look at and to see how the profits of a unit trust are being distributed, retained or dealt with, to ensure that the small savers get a fair crack of the whip from the point of view of distribution and a return on their savings. That is very important, having regard to the fact that one is dealing with small savers who could not understand or follow the complex balance sheets or the thrust of the investment policies adopted by the management board from time to time.

The Bill also deals with the obligation being put on the management companies to repurchase the units. That is the one item which is spelt out in some form in the Bill as everything else is rather vague. There is no question of commission, fees, and so on. Section 12 includes a provision placing an obligation on the management to repurchase the units. I do not want to debate that in detail at this point because it would be more appropriate on Committee Stage. However, section 12 provides for an underhanded benefit. It says that there is an obligation on the management company to repurchase the units at the option of the unit-holder, but at what price?

The question of repurchase is meaningless unless one determines that the price a person would get for their unit — a return on their money put into savings — is reasonable. The section says that, if they seek to avail of that right, they are only entitled to the price prevailing at the time the management company purchase units of the scheme. That seems to mean that the management company can nominate their own price, which might be a pittance, if they were out to discourage units being cashed and the person getting their savings back. That is not good enough. I do not see any great merit in purporting to place an obligation on a management company to buy back the units and enable the small saver to get their money back if the institution can nominate their own price in doing so. What is the benefit? Where is the merit in that? It is an underhand benefit to any small saver.

If the Central Bank are to be the supervisory authority they should have some say in that regard and should be able to recommend a fair price which the management company should be obliged to pay when the small savers cash their savings. The Minister should introduce an amendment to this effect on Committee Stage and if not I will table an amendment. It should provide that the supervisory authority should have a role in examining the assets and in ensuring that, where a person wants to get their money back and cash in savings — as they are entitled to do — they get a fair and reasonable price. They should not be confined to the price which the management company decide for the repurchase of the units at any particular time.

Those are the main points which I wanted to make in connection with this Bill. I am convinced that the Central Bank are the appropriate supervisory authority and it would have been better to have left the matter as it was. The conditions should be spelt out and there should be answerability in the event of losses on the part of the supervisory authority. Subject to those matters, the Labour Party will support the Bill. We agree that updating is necessary and my points will be raised on Committee Stage.

Deputy Taylor's point relating to the merits of the transfer of supervisory and regulatory powers from the Minister for Industry and Commerce to the Central Bank is really the nub of this Bill. An argument could be made that there is an element of democratic accountability in having the Minister responsible and accountable to this House, but there has been a trend in recent years to diminish that accountability in the House, particularly so far as the Minister for Finance is concerned. It has always seemed crazy that one can pose a question to the Minister for Finance in the House about interest rates, which are central to the performance of the economy, to be told that it is not a matter for the Minister for Finance.

If one looks at the question of the responsibility of the Minister there is, ironically, in the case Deputy Taylor mentioned, action being taken in the High Court at the moment on behalf of the unfortunate people who lost their life savings in the PMPS debacle. The case was due to be heard last Monday, the date of the presidential inauguration, but it was postponed because of that. The people concerned had been waiting for this for a long time. Deputy Taylor's contribution reminded me of this. I am sorry I do not have the notes here, but I met some of those people the week before last and the point they made was that far from the Minister having been of assistance to them, they considered themselves to have been misled by him. The Minister for Industry and Commerce of the day apparently made a statement in the House the effect of which was to reassure the investors concerned of the soundness of the PMPA/PMPS at that time. The Minister had democratic accountability.

While I would favour the general philosophical argument about the Minister being accountable to this House, I wonder how practical and meaningful it is when we come to something like unit trusts. I wonder if it means a great deal having regard to the scope of the legislation before us. There is a certain logic in this responsibility being afforded to the Central Bank as outlined by the Minister. One can see a certain symmetry. The Minister has listed areas where control passed to the Central Bank in recent times — responsibility for the building societies, and the Trustee Saving Bank, in the Companies Bill, which we dealt with last week, responsibility for variable capital companies now rests with the Central Bank, and the regulation of the financial services centre itself.

On examination most people will hold the view that the Gallagher fiasco was in no small part contributed to by either inadequacy of the powers vested in the Central Bank or poor administration of those powers by the Central Bank. In any event the Central Bank bears some responsibility for that situation.

On balance I can see the good sense in the supervision and regulation of unit trusts being passed to the Central Bank, although I am unhappy where things go wrong from the point of view of the small investor as to what powers there are to provide a remedy. The Minister in his address kindly explained to those of us with no expertise in the management of other people's finances what a unit trust is.

It was intended for a wider audience.

I wish the Minister had presumed a little more and gone on to explain some other definitions. I do not know whether the term "unit trust scheme" and "unit linked fund" are interchangeable. There was a reference to the fact that when the 1972 legislation became law in 1973 there were only two such registered schemes in Ireland. I understand that there is only one registered Irish scheme and that the range of the rest are unit linked funds which I presume is what we are talking about here. I would like to have that clarified because there is some confusion in my mind about it.

Will the Minister address the question of the exclusion of USITs from this legislation and the implications involved? What is the implication of USITs being excluded for the operation of unit trust schemes as we know them? Is there not a competitive advantage to USITs and to the development or expectation that USITs dominated by international companies would be attracted to the Financial Services Centre where, as I understand it, there is a tax advantage compared to the operation of domestic unit trust schemes? Is that likely to attract the preponderance of funds as distinct from unit trust schemes?

When replying will the Minister comment on whether there is any imposition in the case of USITs for any proportion of that money to be invested in the domestic market? For example, in the 1972 Act on unit trust schemes, section 10 (3) (a) gives the Minister power by order to provide

in relation to all registered unit trust schemes or a specified class or specified classes thereof ... or in relation to all such schemes other than a specified class ... that not less than a proportion specified in the order of any property for the time being subject to any trust created under a scheme to which the order applies shall be Irish securities or other property in the State.

The Minister of the day in introducing the 1972 Act made quite a deal of its importance as being a source of capital for the domestic economy and that the then envisaged growth of unit trusts in Ireland would be a valuable source of such capital. I note that the Minister today referred to the fact that some 13 registered unit trusts have investments worth just over £1 billion. I do not know to what extent that provision in the 1972 Act was ever invoked or whether there is such a requirement, but I see no reference to it in the new Bill. Is the thrust of that particular section excluded? What is the compulsion, if any, for a proportion to continue to be invested in the domestic economy?

The main question is whether one is in agreement with the central proposal which is to transfer the supervisory powers to the Central Bank. The Central Bank are effectively being asked to be the watchdogs for the public interest in this instance. We know from a number of examples that there have been deplorable cases in the past of people being cheated of their life savings in circumstances which — hopefully — this legislation will address.

A unit trust is an important medium of investment for small savers. In my constituency a great many people regard the credit union as the best they can aspire to in terms of small savings. I presume so far as the risk is spread that the unit trust, next to the Post Office, is the next safest option. In so far as the Central Bank are supposed to perform the role as watchdog for the public interest, my fear is that the Central Bank itself seems to be captive of the very people it is supposed to be watching. The Gallagher case does not create confidence. That situation as posited by Deputy Durkan could not happen again although the legislation has been tightened up since then.

Regarding definitions, I would like the Minister to address whether there is a distinction between the imposition of conditions for the authorisation of a unit trust scheme per se and the freedom of any individual or individuals to set themselves up without any licensing authority or without any question being raised about their competence as financial advisers. At least, this is my impression based on my experience as a trade union official and having been approached on a number of occasions in the past by gentlemen fronting for organisations soliciting funds in circumstances where they knew major redundancies had taken place.

The most recent example of that was during the introduction of the early retirement redeployment proposals in the public service arising from which a great number of public servants lost their jobs or opted for early retirement and — depending on one's point of view — qualified for not insignificant lump sums. I was approached — along with other colleagues in the trade union movement — to provide names and addresses to these people so that they could directly solicit funds from redundant employees with a view to investing it on their behalf in whatever unit link fund they determined. As a layman it seemed to me in some cases that they had no more competence than I had in the investment of financial resources, but that their play was pitched on their ability to market themselves and act as salesmen. I am not clear from reading the Bill whether that situation has been tightened up. Any two of us can still cause a company to be set up and market ourselves as investment experts and solicit money from anybody who is gullible enough to give it to us. It may well be that some of these people are competent. I am aware of cases where people have been less than happy with the outcome.

Under the provisions of section 5, the bank may impose conditions for the authorisation of a unit trust scheme but I do not know what control there is over the actual financial advisers who would be canvassing this scheme or the type of situation to which Deputy Durkan adverted when he talked about a company acting as an agency. That freedom is still there to solicit investment from gullible members of the public but I do not think there is anything in this legislation that shuts that out.

There are a few points I wish to bring forward on Committee Stage. The main thrust of the legislation makes sense. In the area of financial services the tidying up process is completed and the legislation is brought more into line with the developments in this area over recent years. I acknowledge what Deputy Durkan has said that this is a better way of dealing with it than some of the alternatives that may have been open to him. I should like to ask the Minister, in the wider context of the financial services, whether a financial services Bill is expected to be brought before the House and if there is any particular reason it was felt necessary to advance a Bill in respect of unit trusts at this stage separate from a wider financial services Bill.

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.

On behalf of the Green Party I offer my support to this Bill with certain reservations.

Deputy Taylor referred to the question of whether supervisory powers should be transferred from the Department of Industry and Commerce to the Central Bank. I share some of his fears in this respect. Nonetheless I feel that the balance of advantage lies with what the Bill proposes. The Department of Industry and Commerce is a very amorphous Department, covering a wide range of issues, controlling a vast, varied area of activity. It is my opinion that something as specialised as unit trusts would be better dealt with, as is proposed in this Bill, by the Central Bank which, while having wide responsibilities, are confined within a relatively narrow sphere.

The provisions of this Bill do appear to offer greater protection to investors in unit trusts than has been the case hitherto. That is very welcome bearing in mind that many of these will be small investors, in many cases people who will have invested their life savings in unit trusts. There is one unsatisfactory feature of unit trusts in general, that is, they represents the abrogation of responsibility on the part of investors. It should not be forgotten that shareholders still wield considerable power then they invest directly in companies. For example, they can sell or refuse to purchase shares in companies involved in, say, the armaments industry, companies involved in chemical manufacture, companies supportive of repressive regimes, such as South Africa, companies that manufacture cigarettes and so on.

Shareholders can and frequently do attend annual general meetings of companies in which they have invested and protest about some or all of the activities those companies carry on in their names. Let us be clear about that: if one invests in or is a shareholder in one of these companies one has to accept some responsibility for what those companies do. There is no use in washing one's hands, saying: well, of course, that is a matter for the directors. It is not just a matter for the directors; it is a matter for the shareholders because it is they who ultimately own and control the company.

More and more responsible investors realise the need for ethical investment to endeavour to redress the many injustices obtaining in this world and out of a justifiable concern for the needs of this planet. I would ask investors to examine their consciences, to accept that they must exercise discretion in their investments and not to be concerned solely with their financial implications.

So far as unit trusts are concerned, I would encourage Irish people to invest in green or ethical funds which are readily available. Some of these funds have outperformed the market so that, as well as enhancing their incomes, such investors play their part in ensuring the survival of this planet.

I would like to begin by thanking all the Deputies who have contributed in a general and constructive way to this debate. However, I must remind the House that the basic supervisory structure established under the 1972 Act has been essentially maintained under this Bill. Apart from the transfer of the supervisory role from the Minister for Industry and Commerce to the Central Bank and the introduction of a more flexible approach to supervisory requirements, this Bill closely reflects the provisions of the 1972 Act.

The 1972 Act was drafted and passed by this House at a time when unit trusts, as an investment vehicle, were at an early stage of development in this country and it is to the credit of the then Members of the Oireachtas that the provisions of the 1972 Act have stood the test of time remarkably well, having regard to the significant developments that have taken place in this sector in the interim. Not alone that, they provide the basis, incorporated into this Bill, for the supervision of unit trusts well into the next century.

As I said earlier, the two main changes in this Bill compared with the 1972 Act relate to the transfer of supervisory functions from the Minister for Industry and Commerce to the Central Bank and the adoption of a more flexible approach to authorisation. The transfer of supervisory functions is a recognition that, in the complex business into which the financial services industry has developed, it makes sense that the statutory body already responsible for regulating other sectors of the financial services industry, and which has the necessary expertise, should be given responsibility for supervising unit trusts. It should be borne in mind that the Minister for Industry and Commerce will retain reserve powers in relation to the authorisation, both initial and ongoing, of unit trusts under section 4 (2), (3) and (4) and, as a statutory requirement the Central Bank are — under section 20 of the Central Bank Act, 1989 — required to submit an annual report of their activities to the Oireachtas, including their supervision of unit trust schemes.

The adoption of a more flexible approach to authorisation does not, of course, mean a reduction in supervisory standards. The fact is that many different types of unit trust funds now exist which, because of their different characteristics, require differing degrees of supervision — a situation which was not envisaged in 1972 when all unit trusts in this country were of a similar nature. This less rigid approach also allows the supervisory authority to adapt quickly to new developments.

At this stage I would like to emphasise that the first layer of supervision in relation to unit trusts is that of the trustee who is legally obliged to look after the interests of unit-holders and hold the securities and cash of the fund on trust for the unit-holders. The trustees must also make sure that the managers are operating the fund in accordance with the terms of the trust deed. The trust deed is an essential, basic protection for the investors.

The level of supervision of unit trusts, by both the trustee and the Central Bank, ensures that the public interest and the investor are adequately protected. This Bill ensures that within that protective framework the unit trusts sector can develop and expand to international standards and enhance Ireland's standing as a location for investment fund management services.

The Central Bank will be setting conditions or standard rules which will cover areas needing detailed provisions. The Bill is intended to complete the adoption of a consistent approach to the supervision of this financial services sector. There are already analogous statutory regulations in place for UCITS and the Companies (No. 2) Bill, 1987 — of its passage through the Oireachtas is currently nearing completion — provides for a related area of investment companies.

Under this Bill there will be no facility to limit investments to Ireland except in so far as prudential rules set out by the Central Bank will determine. In the context of general EC rules in relation to liberalisation of capital movements and the freeing of exchange controls, it was decided to repeal this provision of the 1972 Act. As we all know, times have changed dramatically since the 1972 orders made by the Minister under the 1972 Act have been amended in recent times. Further amendments were already in the course of preparation. These developments are reflected in the decision to repeal these provisions of the 1972 Act.

Did the Minister make orders under that?

Yes. In order to operate in the State, unit trust schemes will have to be authorised by the Central Bank. These schemes will appear in the statutory register under section 3 of the Bill. Foreign unit trust schemes will be permitted to market in Ireland only with Central Bank approval under sections 9 and 10. The Central Bank will be enabled to impose conditions to ensure prudential controls, and control will have to take account of Ireland's international responsibilities. The Central Bank will be in a position to recognise adequate supervisory controls in the country of origin.

Deputy Rabbitte's referred to unit linked schemes. These schemes are linked to policies of life assurance and are subject to separate statutory regulations. The Minister would have reserve powers to direct the Central Bank to impose conditions only in constrained circumstances where such directions do not constrain the prudential supervision of a unit trust scheme. This is a precautionary measure. Let me refer in that context to Deputy Dukes's contribution which in many ways was perhaps more directed towards Committee Stage of this Bill than the general provisions. Any condition which the Minister for Industry and Commerce, in the context of this legislation, would impose on the Central Bank would then form part of the Central Bank conditions and as part of those conditions would be subject to appeal as is the case with normal Central Bank provisions.

Deputy Durkan's comments perhaps were more aptly directed at other areas of financial services and not at unit trusts which are a distinct form of investment vehicle. Unit trusts are legal trusts and as such have trustees whose job it is to look after the interests of unit holders. The trustee holds the case and securities on trust for unit holders. The management company cannot get their hands on the assets directly. There is no scope for abuse of funds either speculatively or fraudulently. Since unit trusts were created over 60 years ago, no one ever lost money in any unit trust through fraud. A number of Deputies have referred to this aspect and the question of who should assume responsibility in the event of such a development. That experience should indicate the position to the House. There are wider questions that could be answered in the context but they relate to other financial services areas.

Fraudulently — the question of negligence arises as well.

With regard to intermediaries, most investors deal directly with the management company of the unit trust, having become aware of it by advertising or solicitation. However, if an investor who approaches through an agent intermediary deals directly with the management company after being referred, the money is paid direct to the management company and that company send certificates direct to the unit-holder. The scope for fly-by-night agents is, therefore, negligible.

That is not true.

Because of the somewhat unique structure of unit trusts, the question raised by Deputies in this respect is not particularly relevant.

Deputy Durkan referred to the Conference of International Investors in the Irish Supervisory Regime. I assure him that the Irish Supervisory Regime is on a par with the highest standards in the world and is one of the most advanced in the EC. The confidence of foreign investors is reflected by the large number of international firms of world renown who have located or intend to locate in the International Services Centre.

Deputy Dukes asked why life assurance companies, building societies, friendly societies, industrial and provident societies are exempt. Deputy Rabbitte may have made the same point. These are supervised under separate regimes and, for that matter, the same exemptions apply as applied in 1972 with no change.

Deputy Rabbitte also asked why USITS are excluded from the scope of the Bill. Here again these schemes are supervised by the Central Bank under a separate statutory instrument.

I did not ask why they were excluded but whether there was a conflict, whether the existence of USITS under these new regulations would be likely to attract a preponderance of funds, if there is a competitive advantage as compared with domestic unit trusts.

USITS developed because of the degree of harmonisation which has evolved in the community, and regulations governing those have already been put into effect. Through this legislation we are bringing the unit trusts onto a more open playing field. That is not to say that they will now have an advantage. It will give them at least an equal opportunity, in the context of these regulations, to compete for these funds. To that extent they are in a considerably enhanced and improved position.

USITS have a tax advantage though.

Deputy Dukes referred to the exemption capability of the Central Banks in respect of foreign newspapers and magazines circulating in Ireland. Again that same provision was in the 1972 Act. The Oireachtas found that this was quite acceptable and there have been no representations since 1972 to indicate that that provision was in any way unsatisfactory.

I think I have dealt with the main items raised during this debate. Deputies have given exceptional consideration to the provisions and there has been a general welcome for the provisions contained in the Bill. Deputy Taylor had reservations about the assumption of the responsibilities of the Minister for Industry and Commerce by the Central Bank but he, too, having listened to the contributions from all sides of the House, will understand the complexities and the changes that have taken place in international practices and the fact that in so many other areas relating to financial services the Central Bank has this regulatory and supervisory control and that it would be a step backwards to separate the responsibilities in that whole area by taking part of it back to the Minister and leaving the remainder to the Central Bank.

On that basis I am assuming approval of passage of the Second Stage of the Bill and look forward to taking Committee Stage as early as possible, perhaps next week.

I would like to ask one question before we put down amendments. I would ask the Minister whether it is illegal under European law to cause any specified proportion to be invested in the Irish market? Is it illegal under European law to continue the provision that is in the 1972 Act?

I would not like to give a definitive answer to that question beyond saying that international practice has changed quite dramatically since the passage of the 1972 Act. If I find there is another dimension to this on which I can enlighten the Deputy further between now and Committee Stage I will be very glad to do so, but we are dealing in a very changed international scene.

Question put and agreed to.
Committee Stage ordered for Thursday, 13 December 1990.