Dáil Éireann díospóireacht -
Tuesday, 18 Jun 2002

Vol. 553 No. 2

Central Bank and Financial Services Authority of Ireland Bill, 2002: Second Stage.

Minister for Finance (Mr. McCreevy)

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

It seems to me to be appropriate that we are considering a major financial services regulation Bill this year – the 60th anniversary of the passage of the Central Bank Act, 1942, which established the Central Bank of Ireland. Let me hasten to add that in the intervening years there have been several major Acts bearing on the banking and financial services sector and on the Central Bank's functions.

The world in which the Central Bank of Ireland operates has changed enormously since 1942. The Deputies of that time would not recognise the modern Irish financial industry. At the end of December, 2001 there were 55 holders of banking licences and 32 branches of EU banks operating in this country. These include the most important financial institutions in the world. In addition to the banks, there are literally thousands of investment firms and financial and investment intermediaries supervised by the Central Bank which the Oireachtas established 60 years ago. Outside the realm of current Central Bank supervision there are insurance companies, credit unions and so forth, adding to the complexity and sophistication of the financial services industry. The financial services industry plays a major role in the economy, as it provides direct employment to about 50,000 people and supplies a wide range of services and products that are vital in a modern economy. As this industry has changed and grown over the years, there have been considerable changes in the legal and regulatory framework.

I pay tribute to the unseen and largely unknown guardians of the public interest in the Central Bank, the Department of Enterprise, Trade and Employment and the Office of the Registrar of Friendly Societies. It is a tribute to their effectiveness that they are so rarely in the public eye. Failure of a financial institution has been a rare event in this country, although it is important that Deputies are aware that high standards of regulation do not provide an absolute assurance that difficulties will not arise in individual financial institutions. High quality regulation seeks to minimise the risk of serious problems in individual firms and, more widely, in the financial sector, while maintaining a climate in which the industry can continue to innovate and develop.

The main purposes of this Bill are to provide for the establishment of the Irish Financial Services Regulatory Authority – IFSRA – within the overall new structure of the Central Bank and Financial Services Authority of Ireland; to assign functions to the IFSRA as the single regulator for the financial services sector, thereby providing a one stop shop by having the regulation of insurance, banking and credit unions under one roof; to strengthen the consumer focus of regulation by giving the authority specific responsibilities in this regard and creating a statutory position of consumer director; and to establish the financial services appeals tribunal.

In this Bill I seek to improve on the solid foundation that exists in relation to the State's oversight of financial services. I wish to respond to the demand for a better service for consumers of financial services and greater accountability by financial institutions and the new regulatory authorities. A key objective of the Bill is to give a strong mandate to the regulatory authority with regard to the regulation of the conduct of financial services business while also providing a stronger framework for regulating the manner in which financial institutions deal with their customers – so-called "conduct of business" regulation – and also on consumer protection. While talking about protecting consumers of financial services, we should not forget that the most basic protection sought by consumers is a reasonable assurance that the institution to which they entrust their money is financially sound and that the financial system of which it is a part is fundamentally solid.

A second objective of the Bill is to redesign the structure of regulation to reflect changes in the market and the legislation governing it which have taken place during the last ten years. As different sectors of the wider financial services increasingly offer similar products, it makes sense that they be regulated by a single institution. It makes sense, especially for a small country like Ireland, that we make best use of the necessarily limited pool of regulatory expertise at our disposal. This approach has wide-ranging support and its case has been made by the Joint Committee on Finance and the Public Service. It has been accepted by Government and it has been reviewed and approved by the McDowell group.

I wish to take this opportunity to point out another advantage of the integration of financial services regulation. Not only is there increased integration of financial services within Ireland, but there is increased integration of financial services internationally, which leads to consolidation of services centres, administration, asset management and dealing activities. We compete internationally to be the location for such activities and one of the major factors in determining where such centres are located is the reputation and expertise of the regulator. I expect that a single integrated regulator and continued high standards will be positive elements in the context of attracting such investment to Ireland. These argu ments support the integration of prudential, consumer and conduct of business regulation for all sectors of financial services providers under one regulator.

Deputies are aware that the McDowell group recommended that the single regulatory authority should be an entirely new independent organisation. After long deliberation and discussion, I present in this Bill an arrangement which has been approved by the Government and which is fully in the spirit of the McDowell report. It accommodates the different views of the minority on the group in relation to the ideal structure for regulation of financial services in Ireland. The structure provided for in the Bill differs somewhat from the structure announced by the Government in February 2001. It provides for a monetary committee of the board, rather than a separate monetary authority, within the Central Bank and Financial Services Authority of Ireland. Following informal discussions with ECB officials last year, it was deemed desirable to make clear that there is no attempt to circumvent the institutional independence of the Central Bank or the Governor in carrying out European System of Central Banks related tasks. It has been agreed that the Governor will have a more direct role in relation to the budget and regulatory activities of the IFSRA to ensure that financial stability issues and ESCB tasks are dealt with in a co-ordinated fashion.

The establishment of a new entity, the Irish Financial Services Regulatory Authority, as a constituent part of a new bank structure is at the heart of this Bill's proposals. The authority will manage the regulation of financial institutions in Ireland. The IFSRA will take on and develop the financial services supervisory functions of the bank, as well as handling the regulation of credit unions and the insurance sector. The regulatory authority is to be established under section 33B of the principal Act and will operate as a constituent part of the new bank. It will have its own chairperson, chief executive and consumer director and will have independent functions. The chairperson, chief executive and some authority members will also be members of the board of the Central Bank and Financial Services Authority of Ireland. The post of consumer director is specifically provided for in the Bill and a separate statutory post of registrar of credit unions is also provided for, in recognition of the unique role played by credit unions in Irish society.

The regulatory authority will have two main sets of functions. It will be responsible for the licensing and prudential regulation of all financial services providers and for consumer protection across the sectors. It will consist of a chairperson, the chief executive, the consumer director and no fewer than six and no more than eight persons appointed by the Minister for Finance after consultation with the Minister for Enterprise, Trade and Employment. The chairperson of the authority will be appointed by the Minister for Finance. Deputies will be aware I appointed an interim board, on a non-statutory basis, on 16 April 2002. The chairperson of the interim board is Mr. Brian Patterson. The role of the interim board will include selecting a chief executive for the IFSRA and assisting the chief executive-designate, the Ministers and the Central Bank in preparing for the establishment of the IFSRA. The appointment of the interim board will help ensure that a smooth transition to the new regulatory arrangements takes place as soon as possible.

A steering committee and a support group have been established, drawn from officials of the Central Bank, the Department of Enterprise, Trade and Employment and my Department, to ensure that the chairperson and the interim board are assisted and supported to enable them to perform the tasks which the interim board was set up to do. I intend that the interim board will become the regulatory authority once it has been established under this legislation. It is essential that the regulatory authority is properly and adequately funded if it is to exercise fully its powers and functions. The McDowell group considered this issue and favoured funding by the industry. Accordingly, the Bill gives the chief executive of the authority, with the agreement of the authority, power to make regulations to impose levies. These regulations only come into effect, however, if they have been approved by the Minister for Finance. If the funds raised from the fees and levies imposed prove inadequate for the authority to perform its functions, the bank may provide the authority with funds to meet a shortfall.

Consumer protection is a vital issue. The McDowell group gave detailed consideration to the questions of prudential regulation and consumer protection. It recommended that the single regulatory authority – SRA – be given statutory responsibility for prudential regulation and for consumer issues relating to financial institutions. The group also recommended that responsibility for approval of bank charges be transferred to the SRA and that a statutory position of consumer protection director be established within the SRA.

It is intended that the consumer director will have a leading role in the exercise by the IFSRA of the consumer functions transferring from the Office of the Director of Consumer Affairs. The provisions contained in the Bill reflect this intention, particularly the requirement that the consumer director will be on the regulatory authority. The responsibilities of the consumer director are provided for in the Bill. In essence, they are to monitor the provision of financial services to consumers and to exercise important consumer protection powers under the Consumer Credit Act, 1995, the Investment Intermediaries Act, 1995, the Stock Exchange Act, 1995, and other legislation relating to the Central Bank and the insurance industry. The Bill also sets the reporting arrangements, etc, of the consumer director. In this regard, I draw the attention of Deputies to section 33V(6) of the Bill which provides that the consumer director can report directly to the regulatory authority on any matter.

I would now like to deal with the post of Registrar of Credit Unions. At the moment the Registrar of Friendly Societies has responsibility, inter alia, for the general regulation and financial supervision of credit unions. The McDowell group recognised the valuable contribution and the unique role of credit unions in society, with which I fully agree. The credit union movement is characterised by a large number of quite small, community-based credit unions providing fairly limited services to their members. However, some have grown into quite large operations which are now significant providers of services of a financial nature.

The McDowell group considered that all financial service providers should, in principle, be dealt with by a single regulatory authority, and that a compelling case would have to be made for the exclusion of any provider from its remit. In regard to the credit unions, the group recommended that the approach which would best address the unique characteristics of the credit union movement would be to have the existing functions of the Registrar of Friendly Societies in relation to credit unions brought into the single regulatory authority. The group considered that this should be done in a manner that would recognise and be supportive of the uniqueness of credit unions and also give comfort that their voluntary character would not be threatened by the establishment of a single regulatory authority while still addressing the appropriate regulatory and consumer protection requirements that arise. The McDowell group recommended that these concerns should be addressed by the establishment of a statutory position of credit unions within the single regulatory authority. The Bill provides for the implementation of the recommendations contained in the McDowell report.

I would now like to turn to another significant element of the package of recommendations contained in the McDowell report. The group agreed that where functions are being transferred to the single regulatory authority, relevant enforcement powers which relate to those functions should also be vested in the authority. The group considered that the ability of the single regulatory authority to regulate any financial market without it being able to impose civil sanction to enforce the same would result in ineffective regulation.

The group recommended that, in the first instance, the single regulatory authority should have power to impose sanctions on a financial services provider for breach of the relevant regulatory code. The group also identified a need to set up an appeals system for financial institutions which wished to appeal against the imposition of such sanctions. The group recommended that the tribunal should be established at the outset of the new regulatory arrangements and that this should be facilitated by the inclusion of the necessary provisions for the establishment of the tribunal in the legislation providing for the establishment of the SRA. Accordingly, the Bill contains provisions for the establishment and operation of the Financial Services Appeals Tribunal. The Bill provides also for procedures for hearing and determining appeals, for references and appeals to the High Court and for other miscellaneous matters relating to the tribunal.

I would now like to turn to staffing. It is intended that IFSRA will draw most of its initial staff from the regulatory departments of the Central Bank, which account for the great majority of the people currently engaged in supervision. Staff will also be drawn from the Department of Enterprise, Trade and Employment, including the offices of the Director of Consumer Affairs and the Registrar of Friendly Societies. The Bill includes provision for the permanent transfer of those staff, subject to their agreement, to the new authority. All the staff of the entity, whether working in IFSRA or elsewhere, will be employees of the re-organised bank, the Central Bank and Financial Services Authority of Ireland CBFSAI. At the same time the board is required, with the agreement of the chief executive of the regulatory authority, to arrange for employees of the bank to be assigned to the regulatory authority and to any divisions, branches or offices of the bank.

The Bill also provides for the mobility of staff, both existing and newly appointed, within the CBFSAI. The board of the CBFSAI is required to establish and operate a policy under which provision is made for employees of the CBFSAI to be given opportunities for training and experience in the various activities, and in the different constituent parts, of the overall organisation. These provisions should ensure that the regulatory authority will operate effectively and efficiently from the outset.

The broad structure of the Bill is as follows. Part I on page 5 of the Bill as initiated contains a Short Title and provisions for the commencement of the Act. Part II, which commences on page 5, provides for the amendment of the Central Bank Act, 1942 for the purposes of re-organising and renaming the Central Bank of Ireland. This part, in addition to amending and repealing the text of the 1942 Act, as appropriate, inserts additional parts and schedules into the 1942 Act.

The provisions relating to the IFSRA are set out in a new Part IIIA of the 1942 Act, to be inserted by section 27 of the Bill on page 26. Chapter 1 of this new part provides for the constitution, functions and powers of the authority. Chapter 2, which commences on page 38, provides for the establishment of the statutory position of Consumer Director and Chapter 3, on page 44, provides for the appointment of the Registrar of Credit Unions.

A new Part IIIB of the 1942 Act contains certain provisions relating to the Central Bank and Financial Services Authority of Ireland and its constituent parts. Part VIIA of the 1942 Act, as inserted by section 29 of the Bill on page 60, is divided into five chapters and deals with the Financial Services Appeals Tribunal. Section 30 on page 86 inserts a new Part VIIIA into the 1942 Act and sets out the provisions for making regulations and orders under the 1942 Act. As I said earlier, Part II of the Bill amends the 1942 Act by amending and inserting additional schedules. There are also three Schedules to the Bill.

Before concluding, I would like to refer to a number of procedural matters. Under European law, the Government is required to consult the European Central Bank on legislation of this type. Once this Bill was published, the ECB was formally consulted. It welcomed the proposed structure, while making some detailed comments on it. These will be examined before Committee Stage but I do not consider that any fundamental issues in relation to the new arrangements arise from the ECB views. It is my intention to lay the opinion of the ECB before both Houses, subject to any confidentiality issues, after the Government has considered the matter and before consideration of the Bill on Committee Stage. I will be bringing forward amendments to the Bill on Committee Stage. Some are technical and others arise from the ongoing consideration of this complex legislation. I will give Deputies details of these amendments in advance of Committee Stage and my officials will be available to brief Deputies on them if they so wish.

As Deputies will be aware, the McDowell report contained a package of recommendations in regard to financial regulation. This Bill deals mainly with the establishment of IFSRA. I intend to publish a second Bill later this year to implement the remainder of the recommendations contained in the McDowell report. The main provisions to be included in the second Bill are to establish a statutory financial services ombudsman; establish consultative panels of the financial services industry and of consumers; address issues arising from the recommendations contained in the report of the review group on auditing; and make provisions arising from a review of section 16 of the Central Bank Act, 1989 dealing with confidentiality of Central Bank information.

I must stress, therefore, that this Bill is, first, concerned essentially with structures and, second, is part of a package of measures rather than stand-alone legislation. As regards the basic structures for regulation, I am confident that the new structure provided for in this Bill gives us the best of all worlds. On the one hand, there is a new regulatory authority, IFSRA, with a clear consumer mandate and on the other there is an organic linkage to the authority responsible for stability and monetary issues. There is also a structure in the Central Bank and Financial Services Authority of Ireland which facilitates efficient use of resources and mobility of staff. The Bill also provides for clear accountability, both within the new structure and to the Oireachtas.

The measures incorporated in this Bill and the proposed second Bill will together lead to more efficient regulation, with a stronger consumer focus than heretofore. I commend the Bill to the House.

Mr. R. Bruton

A Leas-Cheann Comhairle, I wish to congratulate you on your appointment. I enjoyed your rulings as Ceann Comhairle and look forward to equally enjoying them in your position as Leas-Cheann Comhairle.

I move amendment No. 1:

To delete all words after "That" and substitute the following:

"Dáil Éireann declines to give the Central Bank and Financial Services Authority of Ireland Bill, 2002, a Second Reading for at least three months until

(a) a full assessment of best practice in regulatory supervision has been undertaken, which takes into account the lessons of recent regulatory failures (including the lessons of Enron and Allfirst); and

(b) a full assessment of best practice in providing consumer protection in relation to financial services has been undertaken;

and the proposed merger of consumer protection and prudential regulation into a single Regulatory Agency can be viewed against best practice requirements identified by those assessments".

The reason I am doing this is that essentially the Bill has come from very whimsical origins. The decision to merge consumer protection and prudential regulation has not been justified in the documentation by any Minister. It was not justified adequately by the group chaired by Mr. McDowell. It was opposed by the Oireachtas Joint Committee on Finance and the Public Service when it reported on the issue in July 1998. There was no significant analysis of any merit as to whether merging consumer protection with prudential regulation would improve either of those functions.

The Government decided four years ago, in October 1998, that in principle it would establish a single regulatory authority for the supervision of financial services. Many people would welcome that if what it involved was simply moving the supervision of insurance from the Department of Enterprise, Trade and Employment to a new regulatory authority. It was quite clear that the Department was not at the world's cutting edge in relation to supervision and no one would have suggested that the idea was not a good one. Equally, everyone realised that the Central Bank was not the receptacle for consumer protection. It had and continues to have a poor record and it has clear conflicts in respect of the objectives which it pursues and the objective of consumer protection.

Mr. McCreevy

It was not its job.

Mr. R. Bruton

There was no proper attempt to deal with this issue and when the Government decision was made, the McDowell group was set up to implement it. The group never went back to first principles to ask whether merging consumer protection and prudential regulation was a good thing, it solely dealt with the implementation. In fact the word "implementation" was in the advisory group's name. It did not have a mandate to look at this. An ill thought out decision made in 1998 prejudiced the whole debate that evolved. The result has been that the McDowell group did not look at first principles to see whether we have a good regulatory regime. It did not look to see if we have best practice in relation to consumer protection in financial services and we see the product of that in today's Bill. It is a massive bulldog clip put around the existing regulatory functions and transferred holus bolus to this new authority. There was no discernment or assessment as to whether those functions were up to speed and that is why I say we should not go ahead with this until we do that very important work.

If the importance of finding out if we have best practice needed underlining, Enron and Allfirst provide ample evidence. I hope the Minister will accept that we have not had the sort of debate we need to go ahead with this. The advisory group was holed below the waterline before it started its work and the really important questions were ducked because the Government had already made its mind up on these issues. That is not a criticism of Deputy McDowell and his group.

This decision also spawned a very barren turf war which the Minister knows all about. The Department of Enterprise, Trade and Employment sought to remove the regulatory authority from the Central Bank, no doubt motivated by its record of little enough interest in consumer protection. Furthermore, the Central Bank was very pleased, as the Oireachtas committee report suggested, to move consumer protection to a dedicated independent directorate of consumer affairs. I recall, as will Deputy Rabbitte, that the Central Bank agreed, in respect of consumer credit, that all the functions it previously had would be given to the Director of Consumer Affairs. It recognised that it had not been and did not see itself as primarily a consumer protection body. For the past 20 years public policy has been to go in the opposite direction and that has been endorsed by several policy initiatives, but no apparent justification was offered by the Minister today as to why he is reversing that position. I did not see it in his speech, which was totally devoid of any argument as to why we ought to be pleased with the Bill being presented to us. In this barren turf war quite clearly the Department of Finance and the Central Bank won out and the consumer lost. The consumer has lost out in this debate and anyone who championed the consumer interest will see this as a defeat. I agree with them. The Central Bank has a poor record in dealing with consumer protection issues and it has now absorbed these responsibilities from the independent and fearless Director of Consumer Affairs, who has rattled many cages over the years, unlike the bank which does not see itself as having that role.

Probably the greatest defeat to consumers came with the earlier decision of the Government that it would merge consumer protection with prudential regulation, which has very different objectives. We have simply brought together in one place all of these regulatory provisions, none of which has been vetted or scrutinised to see if it is good. There is ample evidence that consumer protection regulations and legislation are not up to speed. Transparency of information about financial products is poor and we do not have good legislation in that area. Undoubtedly, the Director of Consumer Affairs has begun to get to grips with that, but we are clearly a long way from best practice. Opportunities for consumers to shop around are easily and openly curtailed. Very rarely when one's insurance is coming up for renewal does one get advance notice that gives time to shop around and there is actually a conspiracy to prevent people from doing that, which could be addressed through legislation. There is clearly no vigorous competition within many sections of the financial services industry and Deputy Rabbitte earlier spoke about the insurance industry which is one element that is being brought into this. It is obvious that consumer interests are not being adequately protected.

I notice that the advisory group made the interesting observation that one of the roles the Department of Enterprise, Trade and Employment saw itself as having related to cost competitiveness. It believed in bringing down the cost of insurance. None of the other agencies, one being the Central Bank, has ever seen competitiveness as being part of its core mandate. The bank has simply been interested in solvency and by the merger of consumer interest with the regulatory authority we are losing this strong thrust in the Department in the direction of vigorous competition. Many cosy practices are being tolerated in the insurance industry that should not be and there is much for it to clean up. The cost of key financial services is much higher here than in other countries. The interest rates spread is much higher and profits in the banking sector are double the return on capital afforded in other countries. Very clearly, the Central Bank has had an approach to competitiveness issues that is not sympathetic to consumers or users of financial services, but these issues are being entrusted to it.

There is real conflict here. Prudential interests demand that the security of an institution is protected by large profit margins and they are not too fussy about tax issues or consumer interests as we have seen in the past. This Bill does not address tax issues, which I thought it would. Consumer protection interests are very different. They want to see lower profit margins, high efficiency, very contestable markets with lots of turnover and much activity. Very different objectives are being pursued by the two bodies the Minister is trying to thrust together and there is a conflict of interest. This is not bogus, which even the Central Bank would recognise. I would have expected the McDowell group to find out if the merging of consumer protection with regulatory provision was best practice. There is an appendix to its report which reviews what happens in other countries and it is staggering. The group came up with evidence that in 16 of 19 countries looked at no significant element of consumer protection law was given to the authority responsible for prudential regulation. The other three countries provided for a small element of consumer protection in that way, but none of the 19 has adopted the model the Minister is proposing today. The committee recommended against the approach taken in this legislation a few months prior to the Government decision.

I refer to prudential supervision. It is not advisable to proceed quickly with the passage of the legislation, which is the Minister's intention, without first asking whether our regulatory system is up to world best practice. The advisory group and the authors of this Bill are not totally silent on this issue. It is again assumed that by simply relocating some powers to a new institution, best practice is achieved. Such faith is not well placed and I gravely doubt that is the case.

There is no doubt the performance of regulators, auditors and internal controls has suffered a seismic shock in recent months and I am amazed that we are pushing forward with this legislation without examining the reports of the experts evaluating the various collapses in supervision that occurred. I will not be surprised if these reports recommend changes in our regulatory regime. Why should we push ahead with this legislation until the reports on Enron and Allfirst, for example, have been examined? The Central Bank of Ireland and the Federal Reserve in the US are both examining the Allfirst case, but the Government is intent on proceeding with this Bill regardless. New risks have not been considered. The Central Bank even conducted stress tests recently to ascertain whether contagion could catch on. While the bank has provided a little reassurance, it has also said it cannot be certain the procedures in place make it robust against new risks. The recommendations of the groups that are examining recent financial collapses should be awaited before proceeding with legislation.

The advisory group offered flimsy arguments as to why consumer protection and regulation should be merged. One argument was that it would facilitate the transfer of information. The Minister plans to amend the legislation relating to the transfer of information and that issue could have been overcome by amending existing legislation but it has not been considered as an option.

The second argument offered by the McDowell group was that it would be nice to have a one-stop-shop. That is great provided one is not trying to merge high grade surgery with the sale of nuts and bolts, which is what is being attempted. The Minister is trying to merge two areas that are incompatible. Creating a one-stop-shop would be valid only if there was genuine synergy between the two tasks that are undertaken. Such synergy does not exist and others share my view in that regard. Professor Kinsella, a colleague of the Minister, has argued trenchantly that there is no such synergy. There are conflicting regulatory objectives between consumer and prudential protection; limited synergy in terms of the skills that are needed; moral hazards and impediments; and different timescales to which both work. He made a persuasive case that the merger of regulation with consumer protection damages both and does not enhance them. That argument should be assessed in a manner that has not occurred to date.

An attempt was made when these financial authorities were structured to give responsibility for different functions that were incompatible to one institution and that has resulted in the enormous complexity of the structure before us. It bears all the hallmarks of a cobbled together compromise resulting from a policy that was ill-thought out in the first place. The Central Bank succeeded in scuppering the concept of a stand alone regulatory authority, separate from the bank, but instead there will be an authority which will be a subsidiary of the bank. This structure is uneasy and the delegated authority to the financial regulator is not entirely clear. It must act with an eye continually over its shoulder as to the views of the Central Bank and an uneasy compromise is contained in the sections relating to how the structure will work.

There is also evidence of incompatible elements being forced together within the subsidiary. A makeshift firewall is being constructed to prevent the consumer interest being overwhelmed by prudential concerns. The firewall will take the form of the appointment of a consumer director, who will be a member of board of the authority. However, this again is an effort to compensate for something that the Minister, in his heart, knows will go wrong. He is trying to create a counterbalance in this regard.

I am not entirely happy with the provisions relating to accountability to the House. For example, the Committee of Public Accounts will not have a say in regard to the role of the regulator and the Comptroller and Auditor General's remit will not be extended to cover the office. Oireachtas committees will be able to summon the regulator to appear before them but there should be more stringent accountability to the Dáil. The traditional independence of the Central Bank means that it should be more accountable.

When I approached the legislation initially I had certain ideas about what it would contain. It was extremely difficult to make sense of it and before I read it I jotted down what I thought the Minister would try to achieve in it. I was amazed when I re-examined the list I made how few of the issues in it had been addressed. The first issue I noted was that the Bill would deal with the perception that tax compliance has not been properly overseen in the context of regulation. There is no reference in the legislation to improved oversight of tax compliance in terms of regulatory functions. I thought it would address the belief that competitiveness concerns have unnecessarily succumbed to prudential interests. To the contrary, the legislation will further erode the belief that competitiveness will be a major concern of the regulatory authorities. The Bill, in dealing with the belief that consumer protection is a poor relation in terms of Central Bank supervision, has made the position worse because the solution to the turf war is that the Department of Enterprise, Trade and Employment has lost out to the Department of Finance and the Central Bank in this area.

The legislation places similar supervisory requirements on all regulatory bodies, which I commend. It is correct that brokers, tied agents, banks, credit unions, building societies, insurance agents and so on should be supervised on a level playing pitch and that has been achieved. However, I thought the most important issue the legislation would address was the sense that many of our scattered regulatory bodies were not up to best practice and that issue has been entirely ignored by the Minister. We do not know if best practice is observed and there are considerable reasons to believe it is not.

I am also amazed that when a Bill of such density and depth is introduced, the issues that would have made a difference to consumers and business have been omitted. The Minister intends to address them later in the year. Why not address these issues now if they are to be at the heart of an authority that will be responsive to consumer and business interests and give them a say under the new structure? Why are these issues being deferred until after the horse has bolted? It also has been brought to my attention that this legislation means that we are marching to a very different drum to the rest of Europe. No other country in Europe has sought to merge consumer protection with prudential regulation. I understand that the Minister has proposed at ECOFIN that there should be a single European regulatory authority. If that is so, what is the future for this legislation if in time we move to a single regulatory authority in Europe which will have no consumer protection role?

Mr. McCreevy

They would fuse together.

Mr. R. Bruton

They will not fuse together. The Minister is introducing this extra—

Mr. McCreevy

There would not be a single regulatory authority, each country would still have its own regulation and this European body would be an overseeing and co-ordinating body.

Mr. R. Bruton

It is very clear that consumer protection has been left out in all other European countries. I think it is right that the Central Bank should have a role in relation to prudential regulation. I would not be in favour of a single regulatory authority dealing with prudential issues which is separate from the Central Bank; it should be in the Central Bank. I do not accept that consumer protection should be included because the consumer will lose out.

Mr. McCreevy

It may be a valid point but not for many people on the Deputy's side of the House.

Mr. R. Bruton

I presume many of them were represented on the Joint Committee on Finance and the Public Service which in its report of 28 April 1998 said very clearly that "The Director of Consumer Affairs should be made formally responsible for the comprehensive consumer protection in the sector falling within the remit of the Financial Services Authority."

Mr. McCreevy

Things came into the public domain as to what the Central Bank should be doing. The Deputy made a very good case earlier in his speech about the difference between prudential and others but that was never appreciated by most of the Deputy's colleagues on that side of the House.

Mr. R. Bruton

They seemed to have appreciated it when they put their names to this recommendation.

Mr. McCreevy

That was in committee.

An Leas-Ceann Comhairle

I would not like to see the debate continue in this fashion.

Mr. R. Bruton

I will conclude my speech. This Bill has been put before the House without proper thought being given to it. The attempt to merge two functions that are really quite different has resulted in the loss of key elements of good governance – simplicity, transparency and accountability. It has numerous interlocking and overlapping structures that give neither simplicity, transparency nor accountability. We will live to regret that we took this road and we will spend some time unpicking this omelette. We will wonder what happened to consumer protection and why we ever thought that consumer protection would be adequately dealt with in an authority whose primary concern is with solvency. Consumer protection will be sacrificed on the altar of solvency if a choice has to be made. The issue of solvency and regulatory control will of necessity be foremost in their minds. I am unhappy with this Bill and I will not be supporting it.

Mr. Rabbitte

The Bill arises from a decision taken in principle by the Government on 20 October 1998 to establish a single regulatory authority for the financial services sector "at the earliest possible date." That is now almost four years ago and to some extent it highlights the difficulty and tardiness in implementing a decision taken by Government. It is relevant to Deputy Bruton's amendment which seeks to delay the conclusion of Second Stage of the Bill for three months for the reasons which he has eloquently argued at the outset of his contribution. We have already waited four years so I do not think it would be unreasonable to have the examination conducted as Deputy Bruton argues.

The events at Allfirst and Enron have been unprecedented shocks to the system. A system of regulation cannot prevent what happened in the case of Allfirst because when somebody is dedicated to fraud that will happen; however it seems to the layman that it could have been picked up earlier. I am always bemused by the attention to duty in some cases by members of the Minister's profession in their capacity as auditors. I have always found it amazing that accounts can be signed off when there is a hole beneath the water line. My party will support the amendment that we provide time to assess whether we are following best practice in making this decision in this Bill.

The background to the Government decision of 20 October 1998 was the unprecedented public outcry at the time due to a number of events that had taken place and the perception that the Central Bank in particular and the regulatory authorities generally were not concerned so much with consumer protection as with prudential supervision. That is manifestly the case and the Central Bank does not argue that it is otherwise. There were a number of examples to show that consumer protection did not feature as a priority within the Central Bank. That conviction has been highlighted by the widespread public perception that the financial institutions have unjustifiably high profits within this jurisdiction, have imposed unconscionably high charges and levy interest rates that are frequently higher than elsewhere in the OECD countries. At the same time the marketplace is not characterised by vigorous competition in the sector. The view abroad is that there was a relatively cosy arrangement for a long time between the banks and financial institutions and the ordinary high street consumer was paying the price. When the events happened, the Government made this decision. I do not know how much thought went into the Government decision of 20 October 1998. There is no argument in the Minister's script to explain the ration ale that led to that decision; he merely takes it as a given.

The McDowell report was given its riding instructions and there is a view in some quarters that the McDowell group actually came up with the notion of a single financial regulatory authority that would fuse both the consumer and the prudential requirements. That is not the case, of course, and I do not think I am doing Deputy McDowell any injustice when I say that the instruction they received was to implement the Government decision and not to examine whether or not it was a good idea.

Mr. McCreevy

The point was made repeatedly in replies to parliamentary questions, time after time, that the job of the McDowell group was implementation of the Government decision but I might as well have been beating my head against a stone wall. Very few Deputies and few outside commentators listened to that.

Mr. Rabbitte

That may well be so, though I do not know if that amounts to an apologia for introducing the Bill in this shape. If only the Minister had been confronted by Deputy Bruton and I, he would have thought otherwise; that is what he seems to be saying. I am putting on the record that I do not have my mind made up on this issue. I would like to see the comparison with best practice Deputy Bruton refers to being subjected to scrutiny in the context of our regulatory requirements. To my knowledge that has not been done and the McDowell report, which is the genesis of this Bill with some tweaking here and there, did not address that question at all. It merely took the Government decision as a given and set about implementing it.

I am interested in this from my experience with the DIRT inquiry, where the public hearings obviously preceded the legislation; the controversy preceded the Government decision but not the hearings into tax evasion and DIRT, which for the first time subjected the State and its agencies, including the Central Bank and the Department of Finance, to a kind of scrutiny not previously experienced.

The first report of the DIRT inquiry found that the Central Bank did know about the deposit accounts problem before 1986 and knew about the DIRT problem after 1986. In the words of the then governor, "We had no legislative authority to go in and quantify it." The DIRT inquiry itself was persuaded that there was, ". . . no doubt that the bank knew of the problem going back before 1986 and that it discussed the matter with the Department of Finance." It further emerged that the bank felt constrained by the confidential protocol and that even if it had stumbled across particular cases of tax evasion it was prevented from bringing those to the attention of the Revenue Commissioners. The first report of the DIRT inquiry traces the evidence given by the Central Bank and puts on record the fact that this pretty extensive tax evasion was known to the Central Bank and that it discussed it at the time with the Department of Finance, though I am not saying the precise scale of it was known. The then Governor said they had no legislative authority to go in and quantify it. I refer here to the distinguished former Governor of the Central Bank, Maurice O'Connell, and his evidence to the committee. For example, he stated:

Chairman, the Central Bank participated at various times in discussions about the taxation of interest on deposits and non-resident accounts. The bank believed there was a problem regarding false statements on non-resident status but it had no direct knowledge of the amounts that might have been involved, however, because the focus of its inspection is prudential and it does not embrace taxation.

Again, Mr. O'Connell said:

I have made it quite clear that we were aware – I repeat, we were aware of this problem. We had no way of quantifying it, no way at all. We were unhappy about it. I said that already. I said we discussed this with the Department of Finance and that's all recorded here and so on. And I said it's a tax matter, to be solved by the tax system and all the parties involved were agreed on this.

The point I am trying to make is that the weaknesses perceived in public in terms of whether it was tax compliance or the consumer dimension are admitted by the Central Bank in so much as its primary concern was prudential supervision. The Minister said the greatest comfort the consumer can get is the fact that his or her money is safe in the bank. He stated:

When talking about protection of consumers of financial services, we must of course never forget that the most basic protection sought by the consumer is a reasonable assurance that the institution to which he or she entrusts his or her money is financially sound and that the financial system of which it is a part is fundamentally solid.

That goes without saying and is obviously true. We take that as read, just as we take as read that the Central Bank has a good record in prudential supervision. There have been some lapses. Regarding the bank in the news at the moment, Ansbacher, one must ask how that bank seemed to function outside the system. If one looks at the manner in which the Ansbacher bank functioned one can only conclude that effectively it was functioning outside the system. However, generally speaking I accept that the bank has a good record in prudential supervision and I accept that it should be the first comfort for any consumer that there is not likely to be a run on his or her bank or that the bank is not likely to go under. Taking that as read, however, the issue of consumer protection was never to the fore of consideration within the Central Bank, nor was the question of tax compliance.

Deputy Bruton referred to the question of tax compliance and to his surprise that there is no provision in the Bill for better oversight of tax compliance. On page 53, provision is made in section 33(a)(k) to restate all the existing restrictive positions that prevented the Governor or the bank previously from bringing tax evasion to the attention of the Revenue Commissioners, though the Minister's officials are looking again at section 33(a)(k) in terms of the overriding confidentiality provision. It is beyond belief to most compliant taxpayers that they can hear senior personnel in the Central Bank say they were aware there was tax evasion going on but that they were so restricted by the confidentiality protocol that they could not even bring that to the attention of the Revenue Commissioners. That does not make any sense to the people in the street doing their best to pay their taxes. I do not know what the Minister's officials have in mind in terms of dealing with this section – one need only read it to see how restrictive it is. The interpretation put on it by senior officials during the DIRT inquiry was that they were prevented from taking the steps one would think should be required of or normally expected from an authority.

That is still there in what is effectively a consolidated Bill. I look forward to seeing what changes the Minister's officials are contemplating, given that they said they would consider that again.

In his speech, the Minister promised a second Bill. He drew attention to the fact that he will introduce a second Bill, which will do things that are long over due in my opinion, such as establish the financial services ombudsman and implement recommendations of the review group on auditing. It is an additional compelling argument to support Deputy Bruton's amendment that if that Bill is coming within a matter of months and it is so central to confidence in the consumer protection role of the authority, or whoever has that responsibility – the role of a financial services ombudsman, the implementation of the recommendations of the review group on auditing and other matters – I do not know why we cannot wait to measure those against a review of what we now propose to do against best practice.

The review group on auditing made certain recommendations which I thought were cautious and conservative given what the DIRT inquiry, the beef tribunal and the tribunals currently under way have shown about auditors. I could never understand why in the Goodman case, a £500 million deficiency was discovered two or three months after the auditors signed off on the accounts. I cannot understand how Arthur Andersen conducted themselves vis-à-vis Enron. I cannot understand why senior personnel in Allied Irish Banks are so anxious to protect the auditors in the case of the Allfirst debacle. They do not seem to want auditors to have any whistleblowing dimension imposed on them in terms of their responsibilities. The Minister, I suspect, will argue that this second Bill is essential in terms of judging the first Bill which is before the House. There is the additional argument as to why we should wait having regard to the momentous events that have recently happened and having regard to our own experience before proceeding as now proposed in terms of merging the two different responsibilities.

I repeat that the Minister made no arguments. He seems to cede that there is merit in the argument being made on this side of the House that by all means the responsibility for regulation ought to rest with the Central Bank. I accept the arguments made about expertise in that regard, about experience, reputation, record, the influence it would have outside the country and its significance in terms of development here of the financial services sector. The development of the financial services sector ought to be distinct from the consumer protection dimension because inevitably there will be compromises if the developmental role is in any way confused with the consumer protection role. They are quite different. I do not argue and I have never argued, although I had the opportunity to put many questions on this matter to the Central Bank, the Department of Finance and others during the DIRT inquiry but I am persuaded, for the reasons I have just given, in terms of the competence and experience of staff and the signal it would send abroad, that the Central Bank is probably the place for regulation. The jury is still out on whether one can create a new authority that purports to give balanced consideration to the consumer dimension because consumers in this economy believe they have been ripped off by the banks and the financial institutions. They believe that a proliferation of charges were created in the past that were not merited. They believe excessive profits are being taken in this jurisdiction and we are now being asked to believe it is possible to meld into one organisation the consumer and the prudential responsibility. I do not know if it is. We are going to create a consumer director within this authority. Is he primus inter pares with the regulatory responsibility? How is the balance that ought to exist to be worked out between them?

I have no argument with treating the financial services sector as a single industry. That makes sense. I had the experience of having to live with the aftermath of the Tony Taylor affair. I am not sure any regulation would necessarily prevent that kind of thing happening but at the time it brought a sharp focus on the resources devoted by the Department of Enterprise, Trade and Employment to regulation of financial intermediaries. The decision I made at the time was that that responsibility ought to be transferred to the Central Bank. That is right. The Taylor affair was not the first time that people who invested their money were defrauded in various circumstances. The expertise and resources rested with the Central Bank to do that.

Under the Consumer Credit Act I had the opportunity to bring in requirements that obliged the financial institutions in future that if they contemplated any new bank charge a case would have to be set out to the Director of Consumer Affairs together with a fee. The Director of Consumer Affairs had the power to prevent such an additional charge. That power is imported into this Bill and will go to the single regulatory authority together with a decision to implement the McDowell conclusion that funding generally ought to be levied from the industry. I would like to discuss that issue in the House. I can see the arguments for it. I can also see the dangers of regulatory capture. Many ordinary taxpayers believe the Central Bank traditionally has been overly sensitive to the requirements of bankers. It is not often that a housewife, a trade unionist or a consumer representative is on the board of the Central Bank. I do not know if we have any reason to believe that will necessarily change.

We are going to have an authority that will have the onerous responsibility of regulation, prudential supervision on the one hand, consumer protection on the other hand. The argument obviously is why not beef up the Office of the Director of Consumer Affairs? Why not give the director the statutory power that she and her predecessor argued is necessary? The Central Bank could deal with the regulation aspect and the Director of Consumer Affairs could deal with the consumer aspect, provided it is statutorily based and the resources are forthcoming. I would like to have heard the Minister argue why that cannot be done. He simply shooed all arguments, accepted the McDowell report and said we must implement the decision.

Should credit unions be encompassed by this authority? We must have that debate. Had I been asked that question when I introduced the Credit Union Act I would have said no. There was never a Bill upon which so many Members spoke. In acknowledging an upcoming general election they wished to praise their local credit union. It was, nonetheless, a genuine statement by so many Members of the distinctive contribution of the credit union movement. Events since then do no more than reflect on the quality of supervision by the board – not by the registrar – and the quality of management, issues that are a cause of concern to thousands of credit union members. Mistakes have been made, as they have been made in the private, in the credit union movement resulting in divisions. Different unions see the world differently; local community based credit unions see things differently than big employment based ones.

If credit unions are to come under the remit of the regulatory authority, I cannot see an ongoing role for the Registrar of Friendly Societies as this is the greater part of his responsibilities. I have an open mind on whether a director for the credit unions can do the job. I do not suppose there is any reason they could not. This provision raises questions about the future role of the Registrar of Friendly Societies. I accept in principle that there is no reason the financial services sector ought not to be unified. The merits of merging the consumer interest and the question of prudential supervision is a different matter. Hopefully we will have more time, separate from Committee Stage, to go into some of the very detailed and complex questions which are given rise to here. I presume we will be taking a vote on the Fine Gael amendment at the end of this debate.

The Minister should give greater consideration to this very major decision. The House will rise in three or four weeks time. I do not decry the competence or record of the Central Bank generally but Irish consumers are tired of being ripped off. We need to be confident that we are not compromising the consumer interest in the interests of an organisation which lends itself to the description that a camel is a horse made by a committee. We have devised a very complex structure and I would like to see it tested before we legislate to put it into law.

Caoimhghín Ó Caoláin

I wish to share my time with Deputy Dan Boyle.

I congratulate the Minister on his appointment. I have no doubt with the upcoming debate on the re-run of the Nice Treaty that we will have various opportunities to engage.

This Bill is, interestingly, partly the result of the report of the implementation advisory group on the establishment of a single regulatory authority for the financial services sector, an expert group chaired by Deputy Michael McDowell now Minister for Justice, Equality and Law Reform. The original proposals for a single financial regulator have been watered down because of EU Commission directives and requirements. This is yet another example of the legislative authority of this Dáil and the sovereignty of this State being undermined by the over-centralised European Union. I hope the Ministers for Justice, Equality and Law Reform and Finance will address this issue when they reply to the debate.

It has been clear for some time that the Central Bank was failing in many aspects of its role. The report of the Committee of Public Accounts on DIRT fraud showed just how bad these failings were. Partly due to Central Bank policy, the taxpayer was out of pocket as the bank deliberately overlooked the fraudulent activities of Ireland's top banks, private and public, allowing them to open illegal bank accounts for up to 50,000 customers. Not only did the bank's authorities allow this environment of fraud to flourish, they lobbied the Government not to intervene as they claimed it would cause the flight of money out of the economy, or so they told us.

If the Central Bank was prepared to turn a blind eye to this, what other failings existed in its operations? More importantly, what does this Bill do to redress those failings? The Central Bank was only failing to protect the customer. One of the positive aspects of this Bill is the inclusion of a Commissioner for Consumer Protection. The authority will have its work cut out for it in that regard. Irish banks enjoy a return on their equity that is double the EU average. We have the most profitable banks in Europe. Where are these profits coming from? They are, of course, coming from ordinary customers who are being ruthlessly exploited.

Irish banks are charging customers for a range of services that their directly comparable counterparts in Britain do not. These services include the setting up an overdraft or a direct debit, account maintenance charges, ATM withdrawals and lodgements. Ulster Bank, in this State, charges €25 a year for setting up an overdraft, yet offers this service free elsewhere. It charges customers here just over €3 for setting up a direct debit and €5 per annum for account maintenance yet it does not apply these charges elsewhere. There is no charge for ATM withdrawals, lodgements or for writing a cheque for this bank's customers elsewhere yet there are such charges here. The primary reason this is allowed to continue is weak regulators. If the new authority does not tackle this exploitation, the legislation will be futile.

Part of the failing of the existing Central Bank was that it refused to use the powers it had. Much is made of the fact that in the modern market economies we need powerful regulators, but to whom will they be accountable? It is clear that the Central Bank was effectively above Government or any democratic control of its activities. We need to ensure the regulator is accountable to the Dáil, the voters and, more importantly, bank customers. In my view, there is not enough commitment in the Bill to these important clients. It is notable that there is more emphasis on outlining our responsibilities in an EU context than there is on the rights of Irish consumers.

Access to banking services has become an important issue in parts of rural and urban Ireland where banks have been closing branches and withdrawing services. A real regulator would have the power to ensure a universal access to financial services regardless of where one lives. The Bill overlooks any responsibility in this matter.

I worked in the commercial banking sector for 12 years and I recall the number of postings I had in different parts of the jurisdiction. Some of those smaller branches no longer exist and I am aware of the devastating consequences for those small rural communities which have suffered as a result. I make this point as somebody who has been at the coalface of the delivery of that service in the past and who appreciates the problems and the difficulties that such contraction has presented to bank customers in different parts of the country.

The recent report into motor insurance costs only underlined what all of us in this House must have already known. Once again, Irish customers are being ripped off by those who sell them finan cial services. All of this happened while the regulators did nothing. Clearly, as in the case of the banks, customers of insurance companies are being exploited.

We want to see a regulator with powers of inspection, visiting financial institutions, investigating their practices and forcing them to repay the moneys they have siphoned out of Irish customers over the years. In case people think that is a step beyond the potential reality, let us examine the situation north of the Border in relation to the electricity regulator who successfully squeezed money from overcharging power companies and paid it back to the customers. We need to see the same happening here and on a much wider scale in the whole area of insurance.

This evening, within a short time of my concluding this contribution, I will meet representatives of a manufacturing company in my constituency who are here to meet Deputies from the Cavan-Monaghan constituency and others pressing their concerns whereby, due to the practices of the insurance industry, their company is now at risk and the jobs it provides are now in jeopardy. That is serious and that concern which I have to face and address before this day is out is reflected in constituencies represented by Deputies throughout this Chamber. We have to seriously grasp the nettle in regard to the insurance company sector.

The DIRT debacle and the overcharging scandal at NIB in recent years have shown failures at the highest level of management in financial services in Ireland. How many of the executives and directors who preside over this failure are still at work? The regulator should have the power to ban any director from office who is found to have broken tax or banking law or enabled their customers or employees to break these laws. It is laughable that the very people who let the DIRT fraud happen escaped without censure.

Money does not acknowledge borders and the debacle at Ansbacher and Allfirst began in the Irish financial system. It is important we recognise that. We need to act on this issue and empower our regulator to be able to act to find not just tax defrauders but the financial institutions which, either through laxity or malice, are allowing fraud be perpetrated. Fraud costs money and this money is always borne by the taxpayer and the banking customer.

Why has it taken nearly five years to get to the point where we can only now name the holders of illegal Ansbacher accounts? Does this Bill take up any of the lessons learned from the Flood, McCracken and Moriarty tribunals when it comes to ensuring proper management of financial institutions?

We need to recognise that with all these failures in the private banking and financial services sector there is an obvious role for a State bank and insurance company. These would be State banks or companies that would be efficiently and properly run, not exploitatively, as is obviously the case in the private sector currently. Once upon a time there was a Labour Party which supported such a bank. Where does it stand on this important proposal today?

For our part, we in Sinn Féin will continue to campaign for the establishment of both a State bank and State insurance company as we believe such State institutions would be of real national benefit.

Mr. Boyle

I thank Deputy Ó Caoláin for agreeing to share time with me.

What is proposed in the Bill appears to ignore the central tenet of the McDowell report in terms of having a stand alone, independent financial services authority and I am not sure if we will get the opportunity to hear Deputy McDowell, now a full member of the Government, express his opinions on that central recommendation. Even if he does not, I accept what the Government is proposing in relation to the Central Bank because it is the best way to proceed in terms of this type of regulatory authority, not least because there is a need for greater justification for the Central Bank which, after the onset of the euro, no longer has the responsibilities of a central bank in terms of the control of money supply and seeking to control the rate of inflation.

What is proposed in the Bill is subject to question and is a half-hearted attempt to deal with the issues involved in the lack of proper regulation of the financial services sector in general. The Central Bank already has significant regulatory powers in terms of the banking system and real questions have to be asked as to how those powers have been applied in the past ten years at least in terms of financial scandals that have occurred. Is that because the regulatory controls given to the Central Bank have not been adequate or is it a more central question of either an inability or an unwillingness to practice those regulatory controls? If it is the second area and if the Central Bank is being expanded to take on these new powers, does the confidence exist that such new regulatory powers will be applied to ensure that what happened in the past will not happen again?

The Bill tries to address many of the concerns about financial services and the Green Party welcomes the renewed emphasis on consumer protection. It is amusing to see, however, that the Minister agrees with the McDowell group in recognising the valuable contribution and unique role of the credit unions in Irish society. That is certainly a new departure for the Minister because during the lifetime of the previous Dáil he appeared to take every opportunity to demean and denigrate the whole system of community financing that is the credit union movement. Given what is taking place in the Phoenix Park at the moment, the role of the credit unions in adding to the gaiety of the nation is something that should be recognised even if the Construction Industry Federation might not be too happy that the money allocated to people was not used for its intended purpose.

There are other aspects in terms of controls that are to be welcomed, for example, the appeals tribunal and the establishment of a commissioner but the real problems are not being addressed. They have to do mainly with the insurance industry.

Other speakers referred to the recent report of the Motor Insurance Advisory Board and the colossal profit margins being imposed in relation to people's necessity, that is, the statutory obligation to have motor insurance. This affects mainly young people and their ability not only to meet their transport needs but also to become fully functioning members of society in an economic as much as a social sense. Many young people who have been affected by the sharp practices operating in motor insurance have been prevented from acquiring the means to achieve an economic livelihood because of the stranglehold of what passes for competition in the motor insurance sector which is a cartel. The hope is that regulatory authorities that come into being in the insurance industry will tackle these matters.

There is a more important area that I have not heard discussed in this Chamber, in which a regulatory authority can play an important role, and it also concerns the insurance industry. It is the issue of public liability insurance and how it affects the voluntary and community sector. Such insurance for voluntary and community groups is, in effect, a tax, even if it does not go to Government agencies. It is collected by the private sector through insurance and compromises the ability and willingness of people to contribute to society by providing social services that the Government is unwilling or unable to provide. I hope that what is being proposed will address the central issues concerning the type of requirements placed on such groups in the first instance, the liability that exists in the event of accident or mishap, the premia charged to meet such liabilities and the unwillingness of insurance companies to deal properly with the effects on the country of undermining voluntary and community activity.

Of concern in this Bill is the extent to which the Minister, the Department and the Government need to seek sanction for regulating the financial services by having recourse to the European Central Bank, a consequence of involvement in the European monetary system. It compromises our ability more than we imagined on joining the euro. It involves more than not being able to set our interest rates, control inflation or the money supply in and out of the country. Such decisions are being made elsewhere and we are hostages to fortune. When the extent of that control comes to this level, where we have to seek permission to change our legislation – even the degree to which we can move legislation regarding the regulation of financial services – we should be concerned. I hope the House will reflect that concern as this Bill progresses. I put on record the Green Party's reservations about this Bill and we will put forward a number of amendments to improve it. While in a general sense it meets a need, we hope the Central Bank and the new financial services authority will use their powers to avoid the type of problems we saw in the past.

Mr. Naughten

I welcome the opportunity to speak on this Bill because I recall on numerous occasions in this House, with Deputy Rabbitte, questioning the Minister for Enterprise, Trade and Employment and the Minister for Finance on who was going to take responsibility for the single financial regulator. Four years ago the Government made the decision to proceed with this regulator, but subsequently there was a turf war between the Departments of Enterprise, Trade and Employment and Finance about which Department would have the responsibility and bring forward this legislation. It is evident from this Bill's publication that those who championed the consumer's interests have lost out in this turf war.

Chapter One of the authority's establishment states that it is to take the financial services supervisory function of the Central Bank of Ireland and the new Director of Consumer Affairs will be subservient to the authority's chief executive whose main remit will be the supervisory role in relation to those functions it is taking over from the Central Bank. The Central Bank's main concern has always been solvency, not consumer protection. Sadly, that will lose out in this legislation. We should have seriously considered additional powers to give teeth to the Director of Consumer Affairs so that the director could act independently of this authority in protecting the rights of the consumer because the Central Bank has persistently and consistently failed to protect these rights.

Deputy Ó Caoláin highlighted some of these problems in relation to bank charges which over many years were hidden in the documentation distributed by the banks to the consumer. Only recently have they had access to the breakdown of those charges. It was recently highlighted, and many journalists have published articles on it, that the consumers have been charged much more than was advertised by the banks. The other element is the closure of many bank branches in which the Central Bank is not prepared to get involved. Throughout the country the closure of many rural bank branches, especially in the west, has ensured that the consumer has no access to banking facilities. The former Minister for Public Enterprise, Deputy O'Rourke, stated that she was going to introduce a type of universal system through the AIB but that has yet to come to pass and many parts of the country have banks closing and basic facilities unavailable.

Fine Gael will table an amendment calling for a full assessment of best practice in regulatory supervision to take into account the Enron and Allfirst debacles and how they should influence how we go forward from here with regulation in this legislation. We must remember that in the Allfirst case, as in others, it was the small investor who bore the brunt of the debacle, the small investor that puts a few euros away in a bank, the AIB in this case. We could have a similar situation in relation to other major banking systems. Many investors, who were encouraged by the banks not to put money on deposit but into shares or equities, have found that the price of these has collapsed because of the lack of controls within the banks. What control will this new regulator have of these offshore spurs of major banks because it can have a dramatic impact on many small investors? Yet to date that type of protection has not been in place. We also need a full assessment of the consumer protection element of this legislation.

Debate adjourned.