As amendments Nos. 1, 2, 4, 5, 6, 7, 8, 9, 12, 13 and 14 are technical drafting amendments, I suggest we debate them together.
Central Bank Bill, 1996: Report and Final Stages.
We shall take them seriatim.
I move amendment No. 1:
In page 7, to delete lines 20 to 23 and substitute the following:
"(3) This Act, other than sections 3, 36 to 51, 62, 66 to 70, 80 to 85 and 87 and the Central Bank Acts, 1942 to 1989, shall be construed together as one Act and may be cited together as the Central Bank Acts, 1942 to 1997.".
Amendment agreed to.
I move amendment No. 2:
In page 9, line 3, to delete "enactment." and substitute "enactment;".
Amendment agreed to.
I observe that amendments Nos. 3, 10 and 11 are related. I suggest, therefore, that we discuss them together.
I move amendment No. 3:
In page 9, to delete lines 6 to 10 and substitute the following:
"(2) For the purposes of the Central Bank Acts, 1942 to 1997, 'deposit', on or after the commencement of this section, means a sum of money accepted on terms under which it is repayable with or without interest whether on demand or on notice or at a fixed or determinable future date.".
"Banking Business" is defined in Irish law as the taking of deposits. A number of exclusions to the definition are listed in the Central Bank Acts, 1971 and 1989. However, no Irish legal definition of what constitutes a "deposit" is provided for in law. The Bill, as published, provided for such a definition to be incorporated into Irish law. This was necessary because, as the savings market becomes more competitive, the distinction between deposits and other forms of investment is becoming more blurred and the lack of a legal definition of a deposit is causing concern. This anomaly caused particular concern during a recent successful prosecution of a finance company by the Central Bank.
As I notified the House on Committee Stage, representations were made to the Department and the Central Bank by the banks and the Incorporated Law Society in regard to possible difficulties concerning the definition of "deposit" as set out in section 2(2) of the Bill as published. Following consultations between the Department, the Central Bank and the Office of the Attorney General it was decided to tighten the definitions to provide that only deposits "taken from the public" would be covered and to broaden the list of exclusions as already provided for in the 1971 and 1989 Acts. The opportunity has also been taken to include a provision to allow the Minister for Finance to amend the list of exclusions if the need arises.
For purposes of clarity and for the sake of ease of reference, I have decided to substitute an entirely new section for the existing provisions related to the definition of "banking business" which are currently spread across the existing banking legislation, from the 1971 Act to regulations in 1995. Accordingly, whereas the provision I am presenting today is lengthy, technical and amends several existing provisions, for the first time, it brings all the provisions on banking business along with the new definition of deposition into one provision. However, the number of amendments to the existing definitions are few and primarily related to the new definition of "deposit".
Banking Business is defined essentially as the taking of deposits. There is, however, no Irish legal definition of what constitutes a deposit. Amendment No. 3 provides for such a definition to be incorporated into Irish law. The provision encompasses all sums of money accepted from the public on terms under which they are repayable, with or without interest, either on demand, on notice or at a fixed or determinable future date. Amendment No. 10 amends a number of provisions in the 1971 Act to cater for the new definition of deposit that I have outlined.
Paragraph (a) substitutes a new subsection (1) in section 7 of the 1971 Act. The new subsection encompasses the amendments made to the original section 7(1) in the European Communities (Deposit Guarantee Schemes) Regulations, 1995 and takes into account the new definition of "deposit" and the changes to the definition of "banking business", set out in paragraph (b).
The new provision is that subject to the provisions of the Act, a person, other than the bank shall not, in or outside the State, carry on banking business or hold themselves out or represent themselves as bankers or as carrying on banking business or on behalf of any other person accept deposits or other repayable funds from the public, unless they hold a licence.
Paragraph (b) provides for a substitution in section 2 of the Act of 1971 of a new definition of "banking business". The new definition incorporates amendments made to the original definition in the 1971 Act by section 29 of the Act of 1989 and takes into account the new definition of deposit set out in amendment No. 2. The new definition provides that "banking business" means: (a) the business of accepting deposits or other repayable funds from the public on own account, whether involving the issue of securities or other obligations howsoever described, or (b) as provided for in (a) and any other business normally carried on by banks including the granting of credits on own account.
The following are excluded from the definition of banking business: (i) as already provided for in the 1971 Act, deposits with a trader from persons employed by him in his trading business or from his customers in the normal course of his trading business and deposits or instalments in respect of the letting, leasing or selling of goods under hire-purchase agreement or a leasing agreement or a credit-sale agreement, or (ii) a sum or sums of money accepted as security or collateral or as a bond for the repayment of a debt or the performance of a contract related to goods or services, (iii) a sum or sums of money accepted by way of advance or part payment under a contract for the sale, hire or other provision of goods or services, and repayable only in the event that the goods or services are not sold, hired or otherwise provided; (iv) — as already provided for in the 1989 Act — a sum or sums of money accepted solely as a premium in respect of the issue or renewal of a life assurance policy issued by a holder of an authorisation under the European Communities (Life Assurance) Regulations, 1984 (S.I. No. 57 of 1984); (v) a sum or sums of money accepted as a contribution within the meaning of the Pensions Acts, 1990 to 1996; (vi) — as already provided for in the 1989 Act — a sum or sums of money accepted by a person where it can be shown that (I) no part of the business activities of the person so accepting or of any other person is financed wholly or substantially out of those funds, and (II) such funds are, in the normal course of business, accepted on a casual or incidental basis only; (vii) a sum or sums of money accepted under financial contracts, within the meaning of the Netting of Financial Contracts Act, 1995, which may include the acceptance of collateral.
Sub-paragraphs (ii), (iii), (v), and (vii) are being added to the list of exclusions as a result of developments since 1989. Paragraph (c) inserts a new subsection (2) into section 2 of the 1971 Act and provides that the Minister for Finance, where he considers it consistent with the proper and orderly regulation of banking, may, by order, amend the list of exclusions, either by addition or deletion, from the definition of banking business.
Paragraph (d) substitutes a new paragraph (a) into section 8(2) of the 1971 Act taking account of amendments made to section 8 in the 1989 Act and provides that the bank may exempt any person or any class or classes of person from the requirement to hold a licence in respect of the issuing of any category or categories of securities or other obligations, howsoever described, where (i) the requirements would arise only out of the issuing of such securities or other obligations to which the definition of banking business relates; and (ii) the bank is of the opinion that the exemption would not conflict with the orderly and proper regulation of banking.
Paragraph (e) substitutes a new section for section 27 of the Act of 1971, as amended in the 1989 Act and in the European Communities (Licensing and Supervision of Credit Institutions) Regulations, 1992, which deals with the advertising for deposits. The amendment incorporates the necessary changes to take account of the new definitions of "deposit" and "banking business" and provides that: subject to subsection (2) of this section, a person shall not advertise for or otherwise solicit deposits or other repayable funds from the public on his or her own behalf or on behalf of any other person; subsection (1) of this section does not apply to advertising for or otherwise soliciting deposits or other repayable funds from the public (a) by the holder of a licence or the bank or a person to whom, by virtue of section 7(4) of the 1971 Act, section 7(1) of the Act of 1971 does not apply, (b) by a person authorised by virtue of the European Communities (Licensing and Supervision of Credit Institutions) Regulations, 1992, to carry on business in the State, or (c) by any person on behalf of a person specified in paragraph (a) or (b) of this subsection; if an advertisement or other solicitation for deposits or other repayable funds from the public is published and it does not include the name and address of the person who arranged with the publisher for the advertisement or solicitation, the bank may, at any time within the period of 12 months after any publication of the advertisement, request the publisher to supply the name and address of that person to the bank and the publisher shall forthwith comply with that request; in this section "deposits or other repayable funds from the public" does not include the acceptance of a sum or sums of money excluded from the definition of banking business under section 2 of the Act of 1971, as amended by this Bill — I refer to my comments on amendment No. 10; reference in this section or section 58(3) of this Act, as amended by section 9 of the Act of 1989, to the solicitation of deposits, however expressed, includes every form of solicitation for deposits including, in particular, the display or publication of any such matter by way of notice, leaflet, circular, pamphlet, brochure, photograph, film, video, sound broadcasting, television, electronic communication or personal canvassing.
Amendment No. 11 is a technical one which amends the current section 76 of the Bill to cater for the amendments to the 1971 Act outlined in amendments Nos. 3 and 10. The provision is, essentially, the same as the original section 76; only cross-references to the amending legislation have changed.
By way of background explanation, a recent prosecution by the bank against a finance company, although successful, highlighted a weakness in the Central Bank's powers. The offence related to the advertising for deposits by a company which had no authorisation to do so. A substantial delay occurred between the date on which the advertisement was first noted by the bank and the final hearing of the prosecution, during which time the bank had no power to prohibit the company from accepting deposits. Section 76 overcomes this delay by providing for the conferring on the bank of a statutory power to apply to the civil courts for an injunction in respect of the taking of, or advertising for, deposits by a person not licensed or authorised to do so under the Central Bank, Building Societies, TSB, ACC or ICC Acts.
I will have to take the Minister's word that all these provisions are necessary. Amendment No. 10 states: "In page 33, to delete lines 34 to 43 and substitute the following", and the following contains about two and a half pages. The change, therefore, must be fairly significant, or perhaps there is another explanation for the amendment. The deletion of nine lines is a small matter, but the insertion of two and a half pages of an amendment gives grounds for believing that the amendment is substantial. Perhaps the Minister will clarify that matter.
It is not a good idea to introduce such a substantial amendment on Report Stage, although I recognise that between the initiation of a Bill and its passing matters come to light as a result of representations made by organisations and further research. I am sure the Minister will agree that it should not be standard practice to substitute nine lines with about 110 lines. Since this is Report Stage and I may speak on the amendment only once——
By reason of a change made in the procedure, the Deputy may speak twice, but his second speech may last not longer than two minutes.
What is the purpose of the exclusions from banking business? Why is it necessary to list these matters as exclusions from banking business?
I accept this seems a rather comprehensive amendment to bring forward on Report Stage, but it is not so in terms of incorporating new material. I decided to substitute a new section for the existing provisions because defining the term "deposit" for the first time in the Bill necessitated extending the definition of banking business. As the definition of banking business is currently spread across four or five different Acts from 1971 and regulations in 1995, we decided to consolidate them in this Bill so that law agents and other legal advisers would not have to search through four or five pieces of legislation. This Bill now incorporates the definition of deposit for the first time and the extended definition of banking business. This is a tidying up exercise.
The seven or eight exclusions I mentioned are already included in legislation, but we have gathered them together in this new subsection and added a few more. I mentioned four new exclusions which have been included because of the complexity of banking today in comparison to when the legislation was first introduced. This is in response to demands in the banking business and as a result of the new services being provided by credit institutions generally. We want to ensure that by tightening our definition of banking business and including a definition of deposit, we do not inadvertently exclude legitimate business. That is why we broadened our definition to cater for all the services provided by credit institutions. Our purpose is to consolidate. We are including existing exclusions and adding three or four more to ensure we do not inadvertently exclude the legitimate services provided by legitimate credit institutions.
Amendment agreed to.
I move amendment No. 4:
In page 10, line 7, to delete "or" where it secondly occurs and substitute "of".
This is a technical drafting amendment.
Amendment agreed to.
I move amendment No. 5:
In page 10, line 8, to delete "State," and substitute "State;".
This is a technical drafting amendment, to replace a comma with a semi-colon.
I have seen minor amendments in my day but this should be given the record for the most scrupulous. I recommend that the parliamentary draftsman who spotted it should be given a European award.
There are a few more amendments like that.
Amendment agreed to.
I move amendment No. 6:
In page 11, line 17, to delete "or" and substitute "or,".
This is a technical drafting amendment.
Amendment agreed to.
I move amendment No. 7:
In page 11, line 17, to delete "appropriate" and substitute "appropriate,".
Amendment agreed to.
I move amendment No. 8:
In page 14, line 6, to delete "thereof." and substitute "thereof,".
Amendment agreed to.
I move amendment No. 9:
In page 31, line 12, to delete "(within" and substitute "within".
Amendment agreed to.
I move amendment No. 10:
In page 33, to delete lines 34 to 43 and substitute the following:
72. —The Act of 1971 is hereby amended—
(a) by the deletion of subsection (1) (as amended by the European Communities (Deposit Guarantee Schemes) Regulations, 1995 (S.I. No. 168 of 1995)) of section 7 and the substitution therefore of the following subsection:
‘(1) Subject to the provisions of this Act, a person, other than the Bank, shall not, in or outside the State, carry on banking business or hold himself out or represent himself as a banker or as carrying on banking business or on behalf of any other person accept deposits or other repayable funds from the public, unless he is the holder of a licence.',
(b) by the substitution in section 2 (as amended by section 29 of the Act of 1989) for the definition of 'banking business' of the following definition:
"‘banking business" means—
(a) the business of accepting, on own account, sums of money from the public in the form of deposits or other repayable funds whether or not involving the issue of securities or other obligations, howsoever described, or
(b) the business aforesaid and any other business normally carried on by a bank, which may include the granting of credits on own account;
but excluding—
(i) deposits with a trader from persons employed by him in his trading business or from his customers in the normal course of his trading business and deposits or instalments in respect of the letting, leasing or selling of goods under a hire-purchase agreement, or a leasing agreement or a credit-sale agreement, or
(ii) a sum or sums of money accepted as security or collateral or as a bond for the repayment of a debt or the performance of a contract related to goods or services, or
(iii) a sum or sums of money accepted by way of advance or part payment under a contract for the sale, hire or other provision of goods or services, and repayable only in the event that the goods or services are not in fact sold, hired or otherwise provided, or
(iv) a sum or sums of money accepted solely as a premium in respect of the issue or renewal of a life assurance policy issued by a holder of an authorisation under the European Communities (Life Assurance Regulations, 1984 (S.I. No. 57 of 1984), or
(v) a sum or sums of money accepted as a contribution within the meaning of the Pensions Acts, 1990 to 1996, or
(vi) a sum or sums of money accepted by a person where it can be shown that—
(I) no part of the business activities of the person so accepting or of any other person is financed wholly or substantially out of those funds, and
(II) such funds are, in the normal course of business, accepted on a casual or incidental basis only, or
(vii) a sum or sums of money accepted under financial contracts, (within the meaning of the Netting of Financial Contracts Act, 1995) which may include the acceptance of collateral,
and "banking" and cognate words shall be construed accordingly.',
(c) by the insertion in section 2 of the following subsection:
‘(2) Where the Minister is of the opinion that it is consistent with the orderly and proper regulation of banking he may, after consultation with the Bank, by order amend this section to add thereto any category of funds or delete therefrom any category of funds mentioned therein for the time being.',
(d) by the substitution of the following paragraph for paragraph (a) of section 8 (2) (as amended by section 31 of the Act of 1989):
‘(a) Subject to such conditions, if any, as it may consider appropriate, the Bank may exempt any person or any class or classes of person from the requirement to hold a licence in respect of the issuing of any category or categories of securities or other obligations, howsoever described, where—
(i) the requirements would arise only out of the issuing of such securities or other obligations to which the definition of banking business relates; and
(ii) the Bank is of the opinion that the exemption would not conflict with the orderly and proper regulation of banking.', and
(e) by the substitution of the following section for section 27 (as amended by section 43 of the Act of 1989 and the Regulations of 1992) of the Act of 1971:
‘27. —(1) Subject to subsection (2) of this section, a person shall not advertise for or otherwise solicit deposits or other repayable funds from the public on his own behalf or on behalf of any other person.
(2) Subsection (I) of this section does not apply to advertising for or otherwise soliciting deposits or other repayable funds from the public—
(a) by the holder of a licence or the Bank or a person to whom, by virtue of section 7(4) of this Act, section 7(1) of this Act does not apply, or
(b) by a person authorised by virtue of the European Communities (Licensing and Supervision of Credit Institutions) Regulations, 1992, to carry on business in the State, or
(c) by any person on behalf of a person specified in paragraph (a) or (b) of this subsection.
(3) If an advertisement or other solicitation for deposits or other repayable funds from the public is published and it does not include the name and address of the person who arranged with the publisher for the advertisement or solicitation, then the Bank may, at any time within the period of twelve months after any publication of the advertisement, request the publisher to supply the name and address of that person to the Bank and the publisher shall forthwith comply with that request.
(4) In this section "deposits or other repayable funds from the public" does not include the acceptance of a sum or sums of money excluded from the definition of banking business under section 2 of the Act of 1971.
(5) Reference in this section or section 58(3) of this Act (as amended by section 9 of the Act of 1989) to the solicitation of deposits, however expressed, includes every form of solicitation for deposits including, in particular, the display or publication of any such matter by way of notice, leaflet, circular, pamphlet, brochure, photograph, film, video, sound broadcasting, television, electronic communication or personal canvassing...'"
Amendment agreed to.
I move amendment No. 11:
In page 34, to delete lines 35 to 39 and substitute the following:
76. —The Bank may apply to the Court to seek an injunction to prohibit the continuance by any person of any contravention of section 7 (as amended by section 30 of the Act of 1989, as amended by the European Communities (Deposit Guarantee Schemes) Regulations 1995 (S.I. No. 168 of 1995) and as amended by this Act) of the Act of 1971, or section 27 (as amended by section 43 of the Act of 1989, as amended by the Regulations of 1992 and as amended by this Act) of the Act of 1971 where such a person is not a credit institution.".
Amendment agreed to.
I move amendment No. 12:
In page 38, line 1, to delete "General," and substitute "General".
Amendment agreed to.
I move amendment No. 13:
In page 39, line 3, to delete "officer" and substitute "officer,".
Amendment agreed to.
I move amendment No. 14:
In page 39, line 3, to delete "authorisation" and substitute "authorisation,".
Amendment agreed to.
Amendments Nos. 15 and 16 are related and may be discussed together.
I move amendment No. 15:
In page 39, lines 33 and 34, to delete "amended by the insertion after section 101 of the following section:" and substitute the following:
"amended—
(a) in section 101 by the insertion after subsection (6) of the following subsections—
‘(7) The terms of a conversion scheme may, if it has been approved by the board of directors of the society, specify that if the Central Bank considers it in the commercial interest of the successor company the successor company may allot or agree to allot any shares in or debentures of the company so as to enable more than 15 per cent. and up to 100 per cent. of the shares in or debentures of the company to be subscribed for or acquired and held by, or by nominees for, any one person.
(8) The Central Bank may, in contemplation of the intended exercise of its powers under section 102 (4) undertake by notice to a building society that conditional upon and immediately following approval, confirmation and registration of a conversion scheme in accordance with Part XI, it will consider it in the commercial interest of the successor company to direct, and that it will direct by notice in writing to such successor company that subsections (1), (2) and (3) of section 102 shall cease to apply to such successor company, forthwith upon registration of the society as a company, pursuant to section 106, so as to enable more than 15 per cent. and up to 100 per cent. of the shares in or debentures of the company to be subscribed for or acquired and held by, or by nominees for, any one person in accordance with the provisions of the conversion scheme.',
(b) by the insertion after section 101 of the following section:".
We had a good debate on this issue on Committee Stage. This amendment seeks to change the building societies Act. The Irish Nationwide lobbied the Department of Finance, the Department of the Environment and myself in relation to this issue and this amendment was tabled to accommodate its concerns. I and my partner have a mortgage with that building society and I declared that interest on Committee Stage under the Ethics in Public Office Act. The Minister knows my views on ethics in Government which are reflected on all sides of the House. We must be careful to declare everything under this Act because people are waiting to catch us out if we forget something. My parents always taught me to bless myself every time I passed a church. I feel like blessing myself every time there is something to declare under the Ethics in Public Office Act.
I also received representations from other building societies which did not want me to table these amendments. I met one building society in the past week and I had correspondence with another. Since I named the Irish Nationwide, it is only fair to state that the Educational Building Society and the First National Building Society also lobbied me during the past week because they are opposed to the change. Yesterday morning I received a letter from Norwich Union which supports the amendments I tabled. It seems that opinions are evenly divided among the building societies. As I said on Committee Stage, opinions in the Department of Finance, the Department of the Environment and the Central Bank are probably evenly split, although I understand the Central Bank has no strong views one way or the other on this matter. This shows there is a difference of opinion about these amendments. On Committee Stage a fortnight ago the Minister argued forcefully against the proposed changes to the Building Societies Acts while I argued forcefully that changes should be made. Since then I have given the matter further thought and am still convinced of the merits of my argument. On balance, the proposed changes should be followed through.
I wrote to the Minister about this matter. It is his view this Bill is not an appropriate vehicle for a proposal which would involve a major change of policy towards the mutual building society movement. Building societies come within the remit of the Department of the Enterprise and Employment. The question has been raised during the years whether that Department should be the sole regulator or the parent Department with responsibility for initiating or amending legislation. This matter would be more appropriate to the remit of the Department of Finance than any other.
There are some strange anomalies in the system of regulatory control. The Investment Intermediaries Act, to which it is proposed to make changes in this Bill to resolve the problems which have arisen following the collapse of the Taylor companies, is the responsibility of the Department of Enterprise and Employment. It would be more appropriate to the remit of the Department of Finance. The Department of Enterprise and Employment is processing the Credit Union Bill and the accompanying financial instruments. That too would be more appropriate to the remit of the Department of Finance or perhaps the Central Bank. I presume the reason the Credit Union Bill is being processed by the Department of the Enterprise and Employment is that the Registrar of Friendly Societies came within the remit of the old Department of Industry and Commerce.
The Government or an incoming Administration should consider making changes in this area. Politicians often make the flamboyant gesture of changing the names of Departments. Yesterday, the Minister of State at the Department of Education proposed that a new Administration should consider the establishment of a Ministry of Sport. This has also been advocated by my party. Following the negotiations on the formation of the Fianna Fáil-Labour Party Government I was appointed Minister at the newly established Department of Tourism and Trade. Other changes were also made at that time. The Government or an incoming Administration should look at the functions performed by various Departments to see if they are still appropriate to am well aware of the rule in the public service that what one has one holds and that one should not give anything away to the Department of Finance.
The reasons advanced in support of these amendments on Committee Stage are still valid. Building societies have changed dramatically since the Minister of State and I were in University College Dublin together. One of the reasons customers are getting such a good deal from building societies and banks in seeking mortgages is that they are far more aware they are in the driving seat. Following her student days I do not know if the Minister of State was better off than I was but I had difficulty in obtaining my first housing loan. One was required to leave money on deposit for a year to a year and a half and was only allowed a multiple of one's earnings. Even if one had friends who were well in, it was still considered to be a big deal.
We should contrast this with the position today when one cannot turn on the radio without having one's ears blown off by one financial institution after another advertising their deposit rates for handing money over to them and the great deals on offer in seeking to borrow money from them, be it for a motor car, a foreign holiday, a first or second house or an apartment. Competition has led to these miraculous changes. I am sure the Minister of State remembers the days when one was brought by one's parents to the big town and when only those who were well in got in to see the bank manager. Nowadays they come out on to the street to ask if one wants to borrow money.
As an aside, stupid mistakes are being made by the financial institutions in the way they are pursuing the residential house market. I have no wish to be a prophet of doom but history, both here and abroad, teaches us that this may all end in tears, if there is a turn in the market. The financial institutions are helping to push up house prices but that is a matter for another day.
These amendments would give building societies another option. Under the law, as it stands, a building society wishing to expand can either stay as it is or go public. The Irish Permanent Building Society took this route. For a period of five years no one individual can accumulate a shareholding greater than 15 per cent. At the end of this period it may be taken over. There are people in this town who are holding on to their shares in the belief that there is a big suitor waiting to offer a colossal sum. I am sure the price of shares in the Irish Permanent reflects the earnings of the society but a large number of people are holding on to shares on the basis that that will happen. When it does, an individual or company anywhere in the world will be able to buy Irish Permanent shares and nobody else will have a say in it.
This amendment would allow another option to be taken by a building society. It would allow a building society to make its own arrangements with a potential suitor, another financial institution, either by becoming a subsidiary of that financial institution or making some other arrangement with it. All other financial institutions in the State, including the State's financial institutions, are allowed to do this.
Not long after we discussed this matter on Committee Stage the Industrial Credit Corporation announced its results and I am sure its chairman, Mr. Phil Flynn, for whom I have the greatest respect, will not be offended when I say that he is not regarded as a rabid capitalist. Far from it, Mr. Flynn comes from the other area of Irish life which believes that the State should have good control over many activities and that no financial institution could head off in a particular direction which would be to the detriment of the ordinary mortgage holder or lender. A report in The Irish Times on Tuesday, 11 February 1997, regarding the ICC results stated:
ICC Bank is now worth at least £100 million, according to bank chairman Mr Phil Flynn. The bank would like to form a strategic partnership to support future growth and Mr Flynn would favour a partnership with a foreign-based bank ...
Irrespective of all the talk of a third banking force, it looks like ICC Bank will remain a State bank for some time as the idea of any change in that regard has been put on the back burner. Therefore, one of the State banks is heading in that direction and it is allowed to do so. There is nothing in law to prevent it from doing so or to prevent the Agricultural Credit Corporation from heading in the same direction. I support the views of the chairman of ICC. He is right and I hope he will be able to form a strategic alliance with a strategic partner, home or foreign based. I have no objections to his contention. I am only using the example of the ICC chairman's comments regarding a partnership to enforce my view about what my amendments will achieve. All they will do is allow a mutual building society to form a partnership with either a home or foreign based institution. It will put them on the same footing as any other financial institution in the State.
Furthermore, built into the amendments which I have tabled would be three fences which a mutual building society would have to clear before it could head in that direction. First, the society policy holders or deposit holders would have to give their consent. Second, the mortgage holders would have to give their consent. Of course, the board of directors of the building society would have to give its consent and approve the deal at the outset. Finally, it would be subject to the overall consent of the Central Bank. For example, if a case was approved by the board, the mortgage holders and policy holders, but the Central Bank, acting in the national interest, said it was not the appropriate time to do it and the Central Bank had reasons for not allowing it, it could veto it. I have no objection to changing my amendment so that it could be subject to the final approval of the Minister for Finance nor have I any objection to incorporating a final fence which must be cleared, either the Central Bank or the Minister for Finance, who could say that this is not the proper course for the building society concerned at present.
I compliment the Educational Building Society and the First National Building Society who disagree with these amendments. I had a very thorough briefing by representatives of one of those building societies and I was most impressed by the way they put forward its case, not heckling or lecturing but in a forceful way, and I can readily understand their point of view. I was impressed by their presentation and their belief in their arguments but their view is short-sighted because we must take the overall broader interest into account.
Two building societies are in favour of my change and two are against it. None of the representatives on either side of the argument referred to competition, but some of their objections definitely relate to it. The building societies who are arguing against my changes are short-sighted. Think of the logical progression. If my amendments are not accepted, the building societies who want to develop more business will head the route of becoming public companies. If they do it will guarantee increased competition after the five years are up. The people who say "no change" give the example of what has happened in the UK but I believe the financial market has become so global that if the narrower view is taken you will get nowhere.
None of these building societies is a State organisation but this type of argument, about keeping things as they are, was used by many illustrious State organisations in a wide variety of areas to influence Departments and Ministers over the years. I readily recall when it was proposed many years ago in the Department of Transport that there could be other carriers the argument of Aer Lingus was that it could prove it was catering for the market. However, people know what happened since Ryanair came into the market. The market has grown and the customer and the taxpayer have benefited.
I remember the arguments put forward over the years by the major cement supplier in the State to the effect that it was supplying all the cement needed here and that the IDA should not grant-aid anybody else. That argument worked to protect it, but look what happened when other players, some Irish, came into the market. The market has grown, there is better competition and everybody has benefited.
Whereas I can understand the views of the building societies who do not want to change, they are short-sighted and looking at it from too narrow a focus. In years to come they will regret not having gone this route. I do not believe they or Irish mortgage holders have anything to fear because the situation is not like it was 20 years ago when the building societies cartel fixed interest rates. Those days are gone. Even if they wanted to do that now, it would make no difference because there are other players in the market who would be running after the customer. That is the result of competition. While Mr. Flynn might be more on the left side of Irish politics, I make no secret of the fact that I support competition in all sectors. These amendments would help to achieve that.
I am not convinced by the arguments put forward against this amendment on Committee Stage or by those put forward by the two building societies that argued in favour of the status quo. I respect the legitimacy of their viewpoints, their entitlement to make them known and thank them for doing so, but we should proceed along the lines set out in my amendment. I commend my amendments to the House.
I thank the Deputy for the fervour with which he argued his case. It will not come as any surprise to him that I will not be accepting his amendments. As I indicated on Committee Stage, these amendments are intended to effectively remove the protective provisions of section 102 of the Building Societies Act, 1989 which prevent any one person or institution holding more than 15 per cent of the shares in a building society for five years after conversion to plc status. The five year waiting period was introduced to ensure that a building society, having converted to plc status, was not exposed to take over within the five year period. It was also introduced, and more importantly in this context, to protect mutual building societies from speculative pressures to bring about a conversion with a view to takeover.
Deputy McCreevy appears to argue that his amendments will lead to greater competition. I do not agree. If his amendments were accepted it would be open season on the remaining mutual building societies and very quickly none would be left. The only agencies providing housing mortgage finance here would be those seeking to maximise the return to their shareholders at the expense of borrowers and savers. The Government has to consider the broader public interest, particularly from the housing policy point of view. The proposed amendments would lead to a loss of diversity and competition in the mortgage market, a monopoly position by plcs and, ultimately, to higher mortgage interest rates. That is not just an academic argument, there is evidence that would be the case.
At present societies committed to mutual status offer significantly lower mortgage rates and higher returns to savers than those available from other lending agencies. In addition, mutual building societies tend to be more even-handed in their treatment of new and existing borrowers, unlike other lending agencies which, in their efforts to increase market share, offer discounted rates to new borrowers at the expense of their existing borrowers.
The likely result of the proposed amendments would be that all building societies, including those committed to mutual status, would be forced to convert to plc status. The Deputy talked about the representations he received for and against his amendments by different building societies; two for and two against. I believe I am right in saying that those supporting Deputy McCreevy's arguments have committed themselves to a certain line of action and development in this regard. The two that are against them have not indicated this is the road they wish to travel. It is interesting that even though there is an even keel in terms of representations for and against his arguments, quite a different agenda is being played out by the two that support Deputy McCreevy's arguments as distinct from the two who do not support him. That distinction deserves to be put on the record.
The loss of mutual building societies would have adverse consequences including loss of competition and diversity in the mortgage market and higher mortgage interest rates than would otherwise be the case. Moreover, if building societies converting to plc status were taken over by UK or any other institutions, there is a real risk that higher loan ratios, negative equity problems on a market downturn and a significantly higher repossession rate, which are features of the UK market, would become more prevalent here.
It is also wrong for Deputy McCreevy to suggest that the Central Bank or the Minister for Finance would be in a position to protect the broader public interest, if these amendments were accepted. These amendments would enable the directors of a building society to include in a conversion scheme a provision which would effectively require the Central Bank to sanction the takeover of a society on conversion to plc status solely in the commercial interests of the company and regardless of any adverse affects on mortgage holders or the mortgage market generally. This would mean that if it were shown to be profitable for the successor company, the Central Bank — or for "Central Bank" to read "Minister for Finance" as Deputy McCreevy suggested — would have to give permission. Inevitably it would be profitable if the successor company could charge higher interest rates in a situation of reduced competition. The proposed amendments appear to ignore the long-term interest of borrowers and savers in mutual societies and are contrary to the overall need to have a diverse and competitive mortgage market.
As Deputy McCreevy mentioned, building societies legislation is under the aegis of the Department of the Environment. I do not disagree philosophically with his point about tidying up all legislation relating to financial institutions, but that is a debate for another day. Generally I would be sympathetic to the Deputy's case in that regard. As of now, as we discuss mutual building societies and Deputy McCreevy's amendment, building society legislation is a matter for the Department of the Environment. What the Deputy is suggesting would be a major policy change. Major changes in policy which would drastically affect mortgage holders and the mortgage market here should not be made by way of an amendment to this Bill that is not being sponsored by the parent Department responsible for building societies, the Department of the Environment, but by the Department of Finance. However, I am not saying the door is closed on further discussions in this area, but this is not the right Bill under which to amend building societies legislation.
We may not agree on the impact of such a policy change on the competitiveness of the market or on mortgage holders and the mortgage market generally, but at the very least I suggest this is not the correct time for that debate nor would we be doing justice to such a major policy change by introducing it by way of a mere amendment and, with the greatest respect to Deputy McCreevy's intellectual rigour, with he and I deciding the future of mutual building societies and mortgage holders. That is not the proper way to handle this policy change.
Deputy McCreevy might interest himself in the building societies legislation under the aegis of the Department of the Environment or speak to his party's spokesperson. The debate properly lies between the Minister for the Environment and his party's environment spokesperson. The Deputy and I are stepping into another territory. There is a precedent for taking on board an amendment which might properly be sponsored by another Department, but this is too major a policy change to contemplate by way of a short amendment to the Bill we are debating. There will be another day to debate this matter. There are two sides to the argument. I accept the Deputy's point that this is not a black and white case, but the jury is out. This is neither the time nor the place to make such a major policy change. I cannot accept the Deputy's amendments.
I guessed the Minister would not accept my amendment. I do not necessarily agree that this amendment should not be incorporated in this Bill. The debate about this change has been ongoing for some time. Representations were made to the Departments of Finance and Environment over a long number of years. What is good about this new era of openness, transparency and accountability is that everyone knows the arguments and who is putting them forward. It is a backhanded compliment to the Minister of State and me that we are open about who put forward these contentions on both sides. As she correctly pointed out, there is not universal agreement among the building societies.
Why should building societies, which are independent financial institutions, be treated differently from other such institutions? With competition between the lending institutions, past arguments no longer apply. The Irish Permanent Building Society, the largest operator in the market, has become a plc and in two years' time the Government will not be able to lay a glove on it. That building society retains the greatest share of the market because of the route it took. The Irish Civil Service Building Society was a major force in the market some years ago but legislation was introduced to allow it to be taken over by the Bank of Ireland.
Governments of the day have interfered in the lending market. I accept that the debate should be broadened and perhaps there is time for further discussion. However, in a number of years building societies who forcefully oppose this change will realise that they were very short-sighted.
Mortgage holders might regret that because their interests might not be the same as those of other concerned parties.
The Minister of State is correct. A number of vested interests are connected with this matter. It would be foolish for organisations to believe that everyone considers people's general interests. If legislation was introduced to reduce the number of Deputies from 166 to 110 — this would not necessitate a constitutional change because, in line with constitutional provisions, there would still be one Deputy per 30,000 members of the population——
The tolerance provisions.
——that legislation would not be passed by the House, despite the fact that it could be in the national interest to do so. This is similar to cases put forward by the building societies or other institutions which have vested interests at stake.
I do not believe the proposed change would lead to a loss of diversity. I do not agree with the Minister of State's arguments which were also put forward by the building societies who oppose the change. The Minister of State made the case that if the amendment was accepted a building society would be able to structure the case in favour of its being taken over in such a way that the Central Bank would be obliged to agree. I would be surprised if the parliamentary draftsmen and officials — who were able to draw up amendments to remove a word and substitute another word followed by full stops, semi-colons and commas — were unable to ensure that would not happen. I have no doubt that the sponsoring Department could include a section in the legislation to guard against such eventualities.
I am sorry that the Minister of State is not in a position to accept the amendments. I thank her for her openness during the debate. We both know that universal agreement does not exist in respect of the arguments put forward. I am certain that this matter will be revisited in time.
I wish to reply to Deputy McCreevy's point about the ICS Building Society. Lest there be any misunderstanding, the case of the ICS does not form a precedent for current proposals from, for example, the Irish Nationwide Building Society. The ICS was unique in that investment shares in the society, which were limited in number, were quoted and tradeable on the Stock Exchange.
Unfortunately I was not aware of that.
Shareholders in the ICS — savers in normal building society parlance — had no voting rights. The structure of the society was quite different from traditional mutual societies such as the Irish Nationwide Building Society, the EBS and others.
In 1984, the Bank of Ireland approached the ICS with a view to purchasing the investment and so gaining control of the society. The Government of the day decided to oppose the take-over by the Bank of Ireland on the grounds that it would reduce competition in the mortgage market. In the interests of consistency, my greatest difficulty with the Deputy's amendment would be the likely reduction in competition. Legislation was drafted to effect the then Government's decision but the Attorney General's office advised that this might give rise to constitutional difficulties because of a potential infringement of the constitutional property rights of ICS investment shareholders. It was, therefore, not possible to prevent the take-over but certain modifications to the structure of the society, such as voting rights for ordinary shareholders, were agreed with the Bank of Ireland. In recognition of the bank's large investment in the ICS and its rights in that regard, section 74(9) of the Building Societies Act, 1989 retained a provision enabling the bank to refer proposals for special resolutions — which relate to fundamental structural changes in the affairs of the society — to arbitration where they are made by savings shareholders and considered to be contrary to the interests of the investment shareholders, namely, the Bank of Ireland.
I place this explanation on record because the Deputy introduced to the debate the history of the ICS and the Bank of Ireland in the mid-1980s. His example cannot be used as a precedent in respect of current proposals from the Irish Nationwide Building Society because the cases are different. The ICS was unique among building societies during the period in question.
The Minister of State could hardly make the same contention, which was made in 1984, that the take-over of the ICS by the Bank of Ireland diminished competition. That argument does not stand because competition has increased.
The Government of the day intervened, although it could not go as far as it wanted to, and arrangements were made between the parties concerned and, as it happened, it did not reduce competition. The Government entered the playing field because of fears that the proposal would reduce competition in the mortgage market. We are not acceding to the change proposed by the Deputy because we are concerned that it would reduce competition in the mortgage market and would not be in the best interests of mortgage holders or the housing market in general.
Question, "That the words proposed to be deleted stand", put and declared carried.
Amendment declared lost.
I move amendment No. 16:
In page 40, between lines 37 and 38, to insert the following:
"(c) in section 102 by the substitution for subsection (4) of the following subsection—
‘(4) The Central Bank may direct by notice to the company that subsection (1), (2) and (3) shall cease to apply to it—
(a) if it considers it in the commercial interest of the company, or
(b) if it considers it necessary to do so in the interest of depositors with the successor company.'.".
Amendment put and declared lost.
Bill reported with amendments and received for final consideration.
Question proposed: "That the Bill do now pass."
On Committee Stage I mentioned to Deputy McCreevy and his colleague, Deputy Cullen, that I was prepared to revisit a couple of issues about which there was some dissension. Amendments were not subsequently tabled by the Opposition which would have allowed the debate to be opened up on Report Stage. I will refer to those points because I said I would come back to them, and I do not want to appear disingenuous to those who do not understand procedure in the House by not referring to them when I said on Committee Stage that I would.
On Committee Stage Deputy Cullen raised the question of the role of the Central Bank as regulator and player in payment systems in the State as provided for in Part II of the Bill. This is a reference to section 15. I appreciate the Deputy's concerns in some areas. He rightly pointed to the regulation of health insurance. I reiterate, however, that the purpose is to ensure the stability of the markets by reducing systemic risk in the processing and settlement of payments and obligations between financial institutions. The Central Bank is the central counterparty in the current payments system, in that the clearing institutions all hold accounts with it. Also the bank issues liquidity into the market through the system. It is obvious, therefore, the bank must be a member of the system. The question is whether the Central Bank should also regulate the system. The simple answer is yes. Taking into account the bank's role as supervisor of the markets and the banks statutory function to ensure the stability of the market and the currency, there is no other alternative. I would emphasise that the Competition Authority and the European Commission have already certified the proposed structure of the new system as not being anti-competitive. That was the basis of Deputy Cullen's concerns. Both institutions will retain the authority to examine any payment system in the State from a competition point of view.
Deputy Cullen inquired on Committee Stage whether the provisions of section 20 dealing with electronic settlement of accounts are covered by the Data Protection Act. Following consultation with the Office of the Data Protection Commissioner, I can confirm that they are.
Much concern was expressed on Committee Stage about the provision in section 50 relating to crossed cheques. I undertook to revert to the House on Report Stage on whether it would be possible to tighten up the provisions in the Bill which confer legal status on crossed cheques. Deputies will recall the reasoning behind this provision is that such cheques should only be valid between the payer and the payee and should not be available for the use of an intermediary without the consent of the payee. While I have previously advised the House of the assurance received from the Attorney General that the provision does not impose any legal impediment to payees who do not hold bank accounts cashing such cheques in banks, some Deputies have asserted that the banks will still use the provision as a smokescreen and will refuse to cash them. In this context it should be noted that the opening of cheque encashment shops — there is one in Dame Street now — might indicate that banks are already becoming more reluctant about this sort of business.
I have consulted the Attorney General concerning production of the text of an amendment which would provide for the avoidance of doubt that a payee would not be required to hold an account for the purposes of encashment of a crossed cheque, even in instances where that cheque has been endorsed by the originally named payee to another. The Attorney General has responded by advising that such provision would serve no useful legal purpose in that it would not add to what is already the legal position regarding crossed cheques and may, indeed, have unintended consequences. He has reiterated his advice that there is nothing in the current provision which would prevent a bank cashing a crossed cheque across the counter. It is very important that we state this clearly today. It would be a retrograde step if banks were to use this legislation as a cover to refuse to cash crossed cheques from people who do not have accounts. That is not implied by this Bill. There is no change in this Bill which changes the right of people to have their cheques cashed, and I would urge banks and credit institutions not to pretend this legislation changes anything in relation to cashing crossed cheques. This legislation, once enacted, will not interfere with the position of banks cashing crossed cheques for people who do not have accounts with them. I would not like to see the banks or the credit institutions using this legislation in any untoward way, because there is no provision in this legislation that changes the present position.
I thank Deputies McCreevy, Cullen and other speakers who have taken the time to debate this important legislation. Although we have not agreed on all matters, we do not disagree vehemently on how matters should be dealt with. There will be another time and another place, and other legislation to further debates that commenced here today. I thank my officials in the Department of Finance for their forbearance and particularly for the amount of work they did between Committee and Report Stages in tick tacking with the industry, with banks, the Incorporated Law Society and the other institutions involved in technical financial legislation such as the Bill we have before us today.
It was I who made an issue of the question of crossed cheques both on Second Stage and on Committee Stage. I believe the banks will make an issue of this in years to come and will go very much the way they have gone in the United Kingdom. Agencies will set up — in the UK they charge a minimum of 4 per cent for cashing a crossed cheque, and that is what will happen here. I did not think there was any need for the section in the first place. Given what the Attorney General has now said about the proposed amendment — and I can see his reasons for so saying — it would have been simpler to have deleted the section in question because, as was pointed out by the Minister, the section was only included as a result of representations made by members of the Insurance Federation to get over their problem. There are many other ways of solving their problem. That matter may have to be revisited.
I suggest to the Department of Finance that a new explanatory memorandum be issued when the Bill has passed through the Seanad. Some Departments are now going to the trouble of issuing new explanatory memorandums, and I commend that strategy. I recommend it for the simple reason that this Bill began with about 70 sections and has finished up with 87 sections.
I take the Deputy's point, but there was no time.
I am not being critical, but I remember receiving an updated explanatory memorandum after a Bill had passed through both Houses. It may even have been the Department of Finance who issued it. It is a practice that could be taken on board by all Government Departments because it would be easier for practitioners to refer to the explanatory memorandum if it corresponded with the Bill than to refer to the Bill itself. However, the explanatory memorandum is usually published when the Bill is initiated and another is not issued despite the fact that the Bill undergoes a variety of changes during its passage through both Houses. I commend the new practice.
The Department of Finance issued an updated explanatory memorandum on the Finance Bill.
Perhaps the Department of Finance would issue an instruction to all Departments to do this, because it is a most worthwhile measure. I thank the Minister of State for her cooperation in putting the Bill through the House. I enjoyed the debates on the various matters.
Question put and agreed to.