Dáil Éireann díospóireacht -
Wednesday, 19 Jun 2002

Vol. 553 No. 3

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

The following motion was moved by the Minister for Finance, Deputy McCreevy, on Tuesday, 18 June 2002:

That the Bill be now read a Second Time.

Debate resumed on 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".

—(Deputy R. Bruton).

Mr. Naughten: When the Minister of State, Deputy Roche, was in the House last evening, I made the point that the establishment of the regulator may lead to a conflict as he or she will have to examine the prudential aspect – making sure banks remain solvent – while also having responsibility for consumer protection. The concerns that are held in relation to this matter were outlined yesterday by my colleague, Deputy Richard Bruton, when he said that the prudential aspect will take precedence over consumer protection. This issue will have to be addressed.

Section 27 of this Bill, which inserts a new section 33D into the principal Act, provides that the Governor of the Central Bank may issue guidelines to the regulatory authority. This calls into question the independence of the regulator, as it may the case that he or she will be subservient to the bank itself. Consequently, the director of consumer affairs within the regulatory authority, who is subservient to the chief executive of the regulatory authority, is also subservient to the chief executive of the bank. There seems to be a conflict in the fact that an authority that was originally intended to stand alone and have independent powers to ensure regulation within the industry will now have to report continually to the Central Bank.

The staff of the new authority will be recruited from within the Central Bank and the Departments of Enterprise, Trade and Employment and Finance. The new agency's officials will naturally have a certain bias as a result of their previous experiences. The chief executive of the new body does not have the independence to appoint his or her own officials, as they will have to come from the Central Bank or the Departments. Such provisions cast doubt on the ability of the new authority to maintain the independence it will require. The Minister for Enterprise, Trade and Employment indicated confidence that such independence can be achieved in her response to the publication of this Bill, but many people who have commented on the Bill since its publication are not convinced.

I understand that the compliance costs to be imposed will be borne by the financial services industry, which means that the consumer will ultimately pay. There will be a knock-on effect in terms of charges on the consumer, an issue to which I will return.

It is important that the regulator is accountable to a committee of this House. When the Office of the Director of Corporate Enforcement was established by the Minister, Deputy Harney, she ensured that the director would have to report to the Joint Committee on Enterprise and Small Business. The committee has the power to call the director to appear before it if questions have to be asked in relation to certain investigations and this does not compromise the office's investigations. I ask the Minister for Finance to investigate the corporate enforcement mechanism that has been put in place so that a similar mechanism can be applied to ensure that the financial services regulator is accountable to this House. It is important that we do not repeat the mistake made during the establishment of the National Roads Authority, a body which is not accountable to this House.

The director of consumer protection will have a role under this Bill in relation to bank charges. It is important that this issue is addressed as concerns have been expressed on many occasions about the lack of transparency in relation to bank charges. Particular worries have been outlined as regards credit cards, as consumers are baffled by the various rates on offer. One would need a degree in advanced mathematics and a dedicated team of experts to work out the interest charged on credit card transactions. The transparency needed to help citizens shop around and benefit from the most competitive rates does not exist at present. Interest rates must be made easier to understand if those of us without a degree in calculus are to compare credit card products. Many new credit card companies have entered the Irish market and have advertised different APRs, but direct comparison is impossible.

The UK Consumers' Association has estimated that the repayment of an identical credit card debt with an identical APR can vary by up to 40% and I imagine that a similar situation prevails here. I ask the Minister for Finance to ensure that the promotion of transparency is one of the first tasks of the director of consumer affairs within the regulatory authority. Direct comparison between the rates charged by various credit card companies is especially necessary in Ireland as we have some of the highest credit card rates in the EU. It is unacceptable that one should need to be a mathematician to work out the actual rates charged and to make valid comparisons. The transparency we need cannot be found, as it has been a tradition of the banks not to provide it. The Central Bank has ignored these issues over many years; it is not prepared to ensure that high street banks and credit card companies promote a policy of transparency.

Recent falls in the stock markets in the EU and the United States have led to concerns about solvency levels within the life assurance sector. This causes serious concern because many insurers hold investments of billions of euro within the equity markets. Concern has been expressed also in regard to home loans which are tied into the equity markets. Many young couples tied themselves into this type of mechanism which was promoted by the banks. Because of the drop off in interest rates the banks pursued the equity markets and encouraged people to invest in them. The equity markets have now gone down. There is concern within the home loan sector in this regard because people planned to get back a certain dividend. The banks gave the impression that to invest in the equity markets would be money for nothing. Many of those young couples have serious concerns at the moment. There is a need for the new consumer director within the regulatory authority to ensure these products are marketed correctly and that the risks associated with them are highlighted so that consumers can make an informed decision.

The legislation must address the huge responsibility in regard to consumer protection. I have concerns in regard to how the regulator has been established. There are questions over the independence of the regulator and the independence of the consumer protection element. That is the reason my colleague, Deputy Richard Bruton, tabled the amendment. The issue must be re-assessed to ensure the consumer is given priority. This has not been the case in the past with the Central Bank, a fact which in itself raises serious questions. I hope the Minister will re-assess the position before proceeding with the legislation.

Mr. C. Lenihan

I congratulate the Minister on retaining his post as Minister for Finance. When the financial history of the country is written he will emerge as one of the finest and longest serving Ministers for Finance. This Bill and all the other Bills he has introduced in this House have addressed the vital issue of reform, either of the way financial services operate or the way in which the tax code operates. This Minister, Deputy McCreevy, has not neglected the essential duty of all Ministers to reform our administration. He deserves a pat on the shoulders for his work in this area.

I make no secret of the fact that for a long time I have been an advocate of retaining the regulatory function of the financial services within the general ambit of the Central Bank. I took the matter up in a number of Dáil committees and forcefully made the argument in this regard and contrary to the recommendations of the McDowell report. I was very much an advocate of what the Minister now advocates in the Bill whereby the regulator is strongly regulated from within the Central Bank.

It is important to recognise the contribution the financial services have played in Ireland, particularly the role of the Irish Financial Services Centre, which led to the resurgence in our economic fortunes in the 1980s. It is no accident that the IFSC has become a flagship of our renewal, recovery and improvement as an economy. It was the decision by Dermot Desmond and the former Taoiseach, Mr. Haughey, to set up the Financial Services Centre which led to the stabilising of the economy and the renewed interest from abroad in investing in Ireland. It is no accident that planting the flag in the docklands brought about a situation whereby international investors took a different view of Ireland. Some of the biggest players in the financial services scene decided it was worth investing there. The whole thing is a huge success story with over 6,000 employed.

We must not forget that over the years the financial services have made a huge contribution towards restoring our economic fortunes. It is no accident that officials from the Department of Finance used to be embarrassed at the riches the Financial Services Centre contributed in terms of Exchequer returns. I recall as a journalist reporting on many Exchequer returns where this item was politely hidden at the back of the returns. The taxes raised from the Financial Services Centre made an enormous contribution to the improved balance sheet of the national books. This is something we must be mindful of going forward. We must protect what exists in the Financial Services Centre, albeit some of it tax driven. Much of it is driven by the skilled people who work there. I suppose I have a vested interest because my wife works there and I need her to continue. I am making an argument in my own interest that we must continue to protect the Financial Services Centre. We must develop and build on the level of skills because in future from a tax treatment point of view those jobs will to an extent be insecure. Given that the tax advantages of locating in this area are being eroded, this must be replaced by a high skill factor. The pull for investors must be the clear advantage for them to invest in the area because of the skills and support available. Importantly, innovation skills and financial instruments can be availed of by international investors.

I emigrated to England in the 1980s at the time of the fabled "big bang" where the financial services sector was encouraged to go electronic. It was a very interesting time to arrive in London and witness what was happening in the financial services area. We must be careful how we regulate here. That is why the regulation of the financial services by the Central Bank, with a new regulator and new transparent procedures, is very important because international investors require world class regulation. If we depart from that we will lose out.

It is important to remember that many investors like to be regulated by a central bank. It is noticeable that this Minister won the debate in Cabinet. This is important because the head of the European Central Bank, Mr. Duisenberg, made it very clear on numerous occasions that he would prefer if the Central Bank retained that function. I am pleased his intervention led to this result from the Cabinet and I congratulate the Minister on achieving it.

It is fashionable to denigrate the role and work of the Central Bank over the years but it is less fashionable to understand that the financial markets have gone through an enormous transformation over the last few years, not just in Ireland but at a global level. What we are seeing is more liberalisation, more deregulation, more globalisation and more sophisticated financial instruments, not least in the area of derivatives, swaps and other forms of security. I was very proud to have played a role with the Minister in introducing the Asset Covered Securities Bill. This legislation will allow our financial services to grow further. It will try to make the financial services more attractive for people who wish to invest here.

I was intrigued at Deputy Naughten's statement last night that the new body had no power to impose sanctions against directors or senior executives of banks or financial institutions who behave in an improper manner. That is simply not the case. The existing legislation provides for a role by the Central Bank when it comes to the appointment of senior managers, senior executives or director level appointments in banks. All these appointments must be cleared in advance by the Central Bank. It is a role the Central Bank has played in a very active manner over the years. This is not advertised in the newspapers and perhaps that is the reason Deputy Naughten was not aware of the particular function. In effect, it is a vetting procedure, not unlike the procedure adopted by the Garda Síochána when it comes to crucial or key appointments. Naturally, that is an issue that is not advertised, but what happens is very simple. Appointments are assessed by the Central Bank and if it regards a person as unsuitable or as lacking the experience to work in a vital area involving financial risk and control, that is indicated and the appointment does not gener ally go ahead. The banks get the message and do not appoint such persons. It is an important matter and I am glad it was raised because, increasingly, we are seeing new walls in the banking industry between the traders who take the risks and those who control the risks in the control rooms. It is vital that continues to happen more and more and the financial services authority will play its role in the encouragement of that trend. We have had a number of very high profile cases internationally. The Rusnak affair has its own lessons for Allied Irish Banks and there was also the Nick Leeson rogue trader affair in which a great, blue-blood, blue-chip bank went out of business overnight. It is important that the rogue traders are controlled and policed properly. This Bill will provide for that while maintaining the primacy of the Central Bank.

I am glad we did not go down the same path as the UK. Having two regulators is flawed and the British are even having second thoughts about that. We have gone the right route in not copying their example and in going ahead and regulating properly.

There are a few points which are new and interesting about this. The role of the credit union is important in financial services, as is the recognition of that by the Minister. Increasingly, people will depend on the credit unions for their small loans, such as those for going to the World Cup. Why would they not? In relation to the issues raised by Deputy Rabbitte, the Minister has addressed wholesale tax evasion in the banking industry, as was uncovered by the DIRT Inquiry. It is important that the Central Bank has the power to refer cases where it sees widespread or concerted tax evasion by a particular industry. That will happen when the Minister brings in this new legislation.

We are also providing for an ombudsman for financial services, which is important from the customer's point of view. In our constituency work we all run into people who feel they have been unfairly treated or charged the wrong interest rate over a period of years. Some of us have uncovered extraordinary stories where financial institutions were docking too much in interest over periods of ten or 14 years, which people only discovered when it was too late. Often, when people seek redress they are bombarded with paper work and asked to produce documentation which they cannot find for obvious reasons, given that it is ten years old. It is important to have an ombudsman to investigate these matters on behalf of those who feel their rights have been transgressed. I discovered after switching banks on one occasion that I was being docked for a loan that I had paid off.

Mr. Hayes

They would know the Deputy is honest.

Mr. C. Lenihan

By asking me to provide proof of something that happened five to eight years earlier, the bank was putting the onus on me. I simply wrote it a letter asking it to prove that the loan existed. I won that one and I was very happy about it, though the bank seemed to be freaked out a little by my aggressive approach. I do not feel too sorry for it.

The Minister has now provided for regulation, though it is a pity there was such a long delay and that the debate had to go on for so long at Cabinet. It would have been better had this happened more quickly, but it is now in place and we will have a world class system of regulation. We should not lose the run of ourselves because there is a danger that we could over-regulate financial services. It is inevitable, given the enormous globalisation that has occurred, that regulation will lag behind the market, which has been the case for centuries in financial services. Regulation always has and always will lag behind the innovation that takes place in areas like this. It is important to keep up and we have made every effort to do so in line with our new-found wealth. However, we must not over-regulate the banking sector to the extent that it becomes a disincentive factor. Many of those from abroad who establish financial services here do so precisely because they believe the regulation is good, not heavy handed, and that should not be lost sight of.

It is fashionable to bash the banks and to criticise them. We have all had our difficulties with them at times, but we should not over-regulate them to the extent that it becomes unattractive for people to invest here, not because the country is not doing well, but because there is an overarching panoply of regulation which acts as a disincentive. We have seen many of the European economies – France and Germany in particular – trying to move away from the over-regulation they have imposed in terms of labour market practices and in other areas. We should be conscious of that and, in our zeal to get closer to Berlin, not replicate the mistakes continental countries have made in the way they regulated their economies. We have to be close to Boston in that regard.

I praise the Minister for this and wish all of the new Ministers of State success in their briefs, in particular Deputy Browne who is sitting in front of me. He well deserves his promotion after a period of absence from ministerial office and it is great to see him back. I am sure he will play a fabulous role in his portfolio.

Mr. Hayes

I congratulate the Minister of State, Deputy Browne. I am delighted that he got the portfolio. He was out in the cold for a while and I am delighted to see him in the junior ranks, particularly as he is from the same region as I am. I wish him well and hope that all works out for him.

Minister of State at the Department of Communications, the Marine and Natural Resources (Mr. Browne)

There will be no more trips to Chicago. I thank the Deputy.

Mr. Hayes

He will have the interests of the south east at heart.

I am glad to have the opportunity to say a few words about the Central Bank and Financial Services Authority of Ireland Bill, 2002. The purpose of the Bill is to amend the Central Bank Act, 1942, to reorganise and rename it. That is fine by me. It also seeks to establish a financial services regulatory authority, a financial services appeals tribunal and to amend certain other Acts consequential on the reorganisation of the Central Bank of Ireland. The Bill states that it should be noted that it is intended to achieve its objectives by means of amending of existing legislation and there is, therefore, a good deal of restatement and reordering of existing legislation. When one reads that, turns to what is happening on the ground and looks at the history of banking institutions here and how they have served the people, a few points suggest themselves which I wish to make forcefully.

Banks have been central to the development of our economy. Banks in towns and villages have played their part nationally and locally and they have benefited hugely. They have enjoyed enormous profits, but their customers are not happy. According to the explanatory memorandum to the Bill, there was legislation but people are not satisfied with what they got. In south Tipperary, in a place called Killenaule, the location of which the Minister of State knows well, people have been sitting-in at a local bank for the last two days to protest against the cutting back of hours of service. The local development association felt so strongly that on Tuesday evening five very respected members of the community entered the bank with their sleeping bags and have been occupying it since. They have taken on the fight at every level. They have contacted the Department of Finance, the Central Bank and the head office of the bank involved but the bank is still going ahead with the partial closure. The people involved are from a rural area that has been neglected for various reasons but they are determined to keep the community alive. The story I related about Killenaule can be repeated about several other small towns and villages.

Banks have gone down the road of closure of small branches and have left communities with no alternative but to do what the Killenaule community has done. The time has come for banks to redefine this policy. They have benefited significantly from rural communities with small and dwindling populations that have been forgotten. If the financial institutions reassess the direction in which they are going, they will discover it is profitable to remain committed to small rural communities. People in these communities have been more loyal to the banks involved than some of their bigger customers to whom they have pandered over the years. I call on them to give a greater commitment to small towns and villages such as Killenaule and provide better facilities, through a shared operation, for example, in rural Ireland.

There is another aspect to this issue. The Government is correctly criticised for being slow to decentralise Departments and offices to rural towns but there is nothing to prevent financial institutions from relocating their head offices from major centres of populations to towns that have a great deal to offer such as Tipperary, Carrick-on-Suir and many others throughout the country. These towns have the infrastructure and facilities to enable banks to decentralise sections of their operations from Dublin and other cities.

If decentralisation is to be successful and have a significant impact on Ireland's development, the private sector must participate together with the Government. Financial institutions have a major role to play given that they have taken the lead on other issues in the past. If they are serious about Ireland's development and long-term prospects they must play their part and keep small, rural branches open. They must also examine the possibility of relocating some of their operations to the regions to support the development of towns and cities.

I refer to the cost of credit from financial institutions. When an individual applies for a Visa card, a car loan or a mortgage it is almost impossible to calculate the difference in the cost of credit between one institution and another because special offers are promoted and extra charges are hidden. This is unfair, particularly to young people who apply for a house loan and are at a vulnerable stage of their lives. I regularly introduce people to the loans officer of my county council. Purchasing a house is the biggest step they will take in their lives and they must deal with auctioneers, solicitors and a host of other professionals. They are under the greatest pressure and, therefore, the amount they must repay should be more clearly defined.

When one goes into a shop to buy a pound of butter, one knows what it will cost. When one enters a public house, one will know the price of a pint of Guinness because it can be seen on a price list in the bar. However, the cost of credit is not clearly outlined and consumers are, therefore, at a loss, particularly those who purchase houses.

The same applies to credit cards. One would need to be a magician to work out which financial institution offers the cheapest credit. Special offers and promotions are widely available. I attended a race meeting on one occasion and was given a free travel bag in return for completing a form for a credit card company. I did not complete the credit card application because I already had a credit card but I was given a free travel bag. These gimmicks should be banned because people are vulnerable when they seek credit and clearer guidelines are needed.

I refer to another issue which is the greatest disgrace of all time. When one undertakes to buy a new car, one visits various garages and the price varies by a few euro. I recently purchased a new car and there was such a minuscule difference in prices between different dealerships, it hardly covered the cost of the petrol I used travelling between them. However, I subsequently discovered how dealers make money. They receive an under the table payment if they recommend a certain financial institution to car buyers who need a car loan. I am led to believe car dealers can earn up to €900 per loan and I would like clarification on this. If it is true, consumers are being ripped off. Some people must borrow to buy a car and they do not benefit from these payments. I would like clarification as to whether such payments are covered by the Bill because, if they are not, amendments should be tabled to address this issue.

It is totally unfair given that motorists are ripped off anyway as a result of the high cost of motoring. Cars are an essential part of our lives, no matter where we live, and the cost of car insurance is also another issue. It is disgraceful that payments are made to car dealers and I ask the Minister of State to clarify this when he replies. If he cannot do so then, I would like him to communicate with me at a later date in regard to this issue.

I hope the Bill, when passed, will benefit the consumer but I call on financial institutions to be more helpful to their customers who have been good to them in the past. The banks have contributed a great deal to communities but certain areas have not benefited. I ask the Minister of State to listen to the good, honest people of Killenaule, County Tipperary, who are so frustrated that they have undertaken a sit-in at a bank branch to secure that to which they believe their community is entitled.

Mr. S. Healy

The explanatory memorandum to the Central Bank and Financial Services Authority of Ireland Bill, 2002, states that the Bill will amend the Central Bank Act, 1942, for the purposes of re-organising and re-naming the Central Bank of Ireland, that it will establish the Irish Financial Services Regulatory Authority and the Financial Services Appeal Tribunal and will amend certain other Acts consequential on the re-organisation of the Central Bank of Ireland.

One of the features of the banking system in recent years has been the effective privatisation of the banking service. There is now a private banking cartel and a situation has been allowed to develop where what I call public service banking does not exist. TSB has been sold off and there is no third banking force which means there is now little or no competition in the banking sector. The private banks are operating as a cartel and have a policy of withdrawing from all rural towns and deprived urban areas with significant levels of unemployment where huge profits cannot be made. They are prepared to deal only in areas where they will make enormous profits. The half-yearly bank profits are in hundreds of millions of euro and some banks are making nearly €1 billion in profit. The banks are taking the pro fits and are reinvesting very little if anything back into local communities. This is particularly evident in rural areas and towns.

Reference has already been made in the House to Tipperary where the Allied Irish Bank branch in Killenaule has announced that it will not open for business on two days per week. The only guarantee being given is that the bank branch will stay in existence for the next five years. Last Monday, 17 June, at 4 o'clock five decent, honourable and respectable people from the local community took up the cudgels for their town and area and began a sit-in in the branch. John O'Dwyer of Pike Street, Killenaule; Seán Watts of Knockavardagh, Killenaule; Tony Cullivan of Bailey Street, Killenaule; John Lahert of Main Street, Killenaule; Séamus Kennedy of Waterloo, Killenaule, are all at present in the bank. They are demanding very little, merely that the decision be deferred and that the bank meet a deputation. The bank has refused to do that and continues in its policy of closing the branch on Tuesdays and Wednesdays. There is almost unanimous support in Killenaule for those who are occupying the bank. The Slieveardagh area has suffered significant unemployment. A study undertaken about two years ago by the small areas research unit of Trinity College indicated that this was one of the most deprived areas in the constituency and in the county. The study found that 50% of the people of Tipperary South lived in what were described as deprived areas. Deprivation was defined on a scale of one to five with one being best and five being the most deprived. The Slieveardagh area was in categories four and five of deprivation having large-scale unemployment and very little industry. People from the area looking for employment have to go as far as Kilkenny, Thurles or Clonmel to find work. The closure of the bank branch for two days a week is seen as the forerunner of the complete closure of the bank. It fits into a pattern evident in rural areas where not only banks but co-ops and Garda stations are closing. In many rural areas people can only speak to a garda by means of the Green Man speaker on the wall of the barracks.

I support fully the action taken by the five individuals and by the local development association in their efforts to ensure that the bank remains open for the foreseeable future in order to service the local community. I ask the Minister to immediately contact Mr. John Hickey, the manager of retail banking at AIB, to ensure the bank at least meets a deputation from the local community. I ask the Minister to contact the manager of AIB in Killenaule, Mary Bermingham, and indicate the concerns expressed in the House about this matter.

The banking sector is being operated by private enterprise in a cartel arrangement and there is no competition being provided by public banking facilities. Fethard is quite a large town situated between Clonmel and Killenaule but it does not have even an ATM machine. The question of fees charged for banking services and for the use of credit cards and cheques is of concern to many people. Fees provide huge profits for the banks.

I hope that significant amendments to this Bill will be taken to ensure events such as in Killenaule will not arise in the future. The banking service must respond to the needs of local communities.

Mr. J. Higgins

The Central Bank and Financial Services Authority of Ireland Bill, 2002, relates to the powers of the Central Bank in how the financial services and banks are regulated. I wish to see the banks being regulated and dealt with in a far more radical way than is proposed in this Bill. The banks are massively powerful institutions in this State.

The two leading private banks in the State bring in annual profits of well in excess of €1 billion. Their influence reaches into virtually every area of economic activity and they have the power to influence hugely the lives of citizens across the State. Yet these massively powerful institutions, which have such an impact on the economy, are privately owned and are not open to democratic accountability by way of being directly accountable to the millions of customers who are dependent on their services and whose fees and money make the huge profits these banks accrue annually. We therefore have a situation where largely faceless men and women attend secret board meetings and make decisions that affect the lives of millions of citizens. That does not square with the idea that we live in a democratic State. The democracy of the State relates to the possibility of people going out to vote for a Government every five years but in economic areas of life, which have a huge impact on people's living standards, jobs and quality of life, we have no control over the institutions whose decisions have a huge impact on those crucial areas.

On a regular basis the banks change their regimes of charges and fees in a way that suits themselves. As a customer of one of these banks, I regularly receive notification of new charges or changes in the facilities available and without exception these benefit the bottom line of the bank in question rather than facilitating the ordinary citizen who is dependent on the bank.

I fully concur with Deputy Healy's comments on the attitude of the main banks to rural Ireland. It is outrageous that in many rural towns the banks have not just closed down their services by cutting the number of days the bank is open, but they have abandoned some rural areas completely. The argument invariably given is that it is not profitable to maintain a branch in a rural society. This is absolutely impermissible at a time when rural Ireland is under threat and small farmers are under severe pressure. The fall in price for produce such as milk and the appalling weather of spring and early summer have put small vegetable growers and so on under enormous pressure. The banks, which are massively powerful and profitable, make decisions based only on what affects their profitability and not on what affects the quality of life in areas of rural life which are already under pressure. That is absolutely impermissible.

For example, a majority of people are of the view that a public transport infrastructure has to be maintained within the State. That means running a service in areas which will not make an immediate profit because it is a necessary social service for certain communities – rural areas of low population. The banks should be required in exactly the same way to spread their profits and to see this as a benefit which accrues from business generally within the State. If they have to take a small part of the profit from some branches in the rural towns or even suffer a loss of some kind, then so be it. They should be required to do so in the interests of these communities and of society generally.

That is a position the major establishment parties have not put to the banks at any stage in past decades. We have had a very unhealthy relationship between the banking sector and the major political parties of the State, which received substantial amounts of money in donations from the banks in the 1980s and 1990s. That is a total conflict of interest and completely unethical. Fianna Fáil, Fine Gael and the Labour Party benefited to a substantial degree from both Allied Irish Banks and the Bank of Ireland by way of large donations. Every citizen knows that no big business element gives away money for charity or the so-called good of democracy. They hope to influence Government policy and one or two percentage points one way or the other in a budget or a crucial financial provision can make a difference of tens of millions of pounds in profits to these banks. Though legal, it is corrupt to have had a situation where the major parties, which established the tax regime for the banks, on one hand receive large donations from the banks and on the other make policies which can be hugely beneficial to those banks. That is part of the reason the banks have been a law unto themselves.

I will not go over the ground which is now well known regarding the various scams and schemes operated by the most powerful bank to evade taxes and to defraud the Exchequer at a time in the 1980s and early 1990s when the ordinary PAYE worker was crucified by the level of taxation. We saw there the failure to regulate and to ensure the banking institutions of the State were a service for the people rather than for the institutional or individual shareholders, whose only interest is profit. There have also been unhealthy and questionable dealings between the banks and the semi-State sector. We continue to see semi-State companies forced to acquire huge debts from the banks and forced to pay a huge amount of their revenue in interest alone.

When the Government came forward with the proposal to privatise Nítrigin Éireann Teoranta, I highlighted how that company which was in the ownership of the State was bled dry by a grouping of banks which in the 1980s extended significant loans to it. I showed how by 1997 that semi-State body had paid back, if I am correct, £148 million which was loaned to it by the banks. That institution repaid that amount in interest alone. This huge organised rip-off by the banks of the semi-State sector continued for about ten years and not a single member of Government or of the major political parties put up his or her hand in opposition to it. The argument has been advanced for the privatisation of these companies – Aer Lingus, ESB, etc. – and how their cost base must be reduced when any objective analysis would show that a huge part of the costs of some crucial semi-State bodies comprised interest payments to the banks where these companies had been forced to apply for loans, successive Governments having refused to fund them to the proper extent.

The other area to which the Minister, Deputy McCreevy, should refer when replying, is the question of the transfer to the euro and the incredible price rip-off that is happening under cover of the changeover to the euro. I note from one of the sections of the Bill that in performing its functions and exercising its powers as part of the European system of central banks, the primary objective of the Central Bank is to maintain price stability. I take it that refers to maintaining a regime in the economy that is not inflationary. Yet the Government and the Minister for Finance have sat on their hands while there is a huge rip-off on a weekly basis of the ordinary citizens in this State under cover of the euro changeover. Has the Central Bank any role in this area and will the Minister explain why the Government washes its hands of this responsibility when there is an orgy of profiteering taking place in certain sectors of the economy, in certain services etc. resulting in a cost to the ordinary consumer who has no redress whatsoever? When workers, teachers or other groups seek decent pay rises to make up for that situation the venom of the media and the Government loudly denounces them, yet the Government is prepared to see vested interests use the financial system, in this case the changeover supervised by the Central Bank, in this particular way.

What I would like to see, as a representative of the Socialist Party, is a banking system in public ownership. It is wrong that institutions which have such power over people's lives and whose decisions can have such drastic effects on workers in particular employments right across the board should be in private and unaccountable hands. Instead of what is proposed in the Bill, the major banks should be taken into public ownership and be democratically owned and controlled. The boards should be composed of personnel knowledgeable in financial matters, consumers – ordinary users of the bank – and workers from semi-State boards so that that we would have a banking system where investment would be in the interest of the majority, in the interest of society and in the interest of preserving the quality of life in rural areas rather than banks soaking what they can from the system. I believe we will have such a system in the future. Of course, that would be anathema to the Minister for Finance who is a champion of privatisation and multinational corporations taking over large sectors of the economy rather than democratic accountability, ownership and control which would mean the banks would have to carry out their economic activities for the benefit of society and the achievement of social goals rather than the accumulation of huge profits as at present.

I outlined figures earlier in regard to Nítrigin Éireann Teoranta on its proposed privatisation. In reply to a parliamentary question from me, the Tánaiste replied that since 1987 an incredible £188 million was paid in interest alone on borrowings of £164 million. That is an astounding figure. Will the Minister for Finance avail of the opportunity to say why successive Ministers and those responsible for the semi-State bodies, allowed such an organised and co-ordinated rip-off of the taxpayer through the exploitation of this particular semi-State company? I would prefer regulation to root out that type of abuse and exploitation of the taxpayer rather than the less than radical measure before the House.

Mr. Durkan

I am glad to have the opportunity to say a few words on this legislation. It is no harm to comment on the importance of financial services here. The financial services here are recognised internationally as being of great importance. All credit is due to former Taoisigh who encouraged the location of such services here. It should also be recognised that it is important that the services run effectively and in accordance with the controls and checks and balances required. If not, far from being prestigious, they could undermine the entire economy and public confidence in the economy and in the services themselves.

Banking revolves around international confidence. If one is providing a service in which there is not sufficient confidence in the international markets, it will eventually fall apart and everyone will pay the price. The financial services, above and beyond all others, impact on all of us. If run effectively and correctly under strict guidelines, they reflect on the whole country and everybody gets the benefit. If the reverse happens, everybody pays the price, not only in interest rates but in pay backs and so on. The pay back I have in mind is the heavy repayment of interest, as referred to by the previous speaker. I recall, when I became a Member, a particular financial service located outside the country ran into financial difficulties and the customers, insurers and various other people had to become involved in paying back. The banking system itself did not make the biggest sacrifice, rather the general public had to pick up the tab. It is that issue I will address. That was 20 years ago. In more recent times, there have been illustrations of financial enterprises operating outside this jurisdiction, whose parent company resides here, running into trouble. We are all aware of the events at Allfirst in the United States.

What is interesting in this regard is that the Secretary General of the Department of Finance intimated some time ago to the Committee of Public Accounts that it was possible, under existing legislation, for the banking system to have been more seriously damaged because the Central Bank had no control over overseas ventures of a banking system whose parent company resided here. That has serious significance not just for the banking system, but for the business sector as a whole.

It is unthinkable, for example, that vast amounts of a bank's resources could be siphoned off through an overseas subsidiary. We were extremely lucky that the damage was manageable, although I am sure the financial outlet concerned did not think so. Let us ponder for a moment the idea that the problem was not discovered for another year. What would have happened then? How does a parent company which, despite all the modern technology available, is unaware of a problem react to losing so much money so quickly? I presume nobody knew about the enterprising management style operated within the subsidiary. I sincerely hope that is the case because anybody who knew about it was duty bound to ring the alarm bells much earlier.

We have witnessed two cases of this kind during my time in the House, the most recent being the most serious. I do not think our system could bear another in the foreseeable future. Such an event would have a seriously damaging effect on confidence in our economy. Our international standing and prestige would be seriously damaged if that was to happen again.

We all know checks and balances are in place to ensure this does not happen again and that there is a sequence of events which should take place if, for instance, a pressure release valve does not work. We all know what happened at the DIRT inquiry. Document SMI.263 was put in abeyance for very good reason – for a specific period only – to enable the budget and the Finance Bill to take effect and to allow them to bed down. However, that document was never reactivated resulting in a situation where vast sums of money could be placed offshore and taken out of the economy. It is frightening that this happened in the early 1980s. If repeated now, given the advances in technology, it could have much more serious consequences for this country. I know the Minister, who happens to be my constituency colleague, and I are at one on this issue. No Minister for Finance can operate in a situation where if one of the checks and balances is missing, if one item is taken from the chain of command and nobody spots it, the whole economy is rendered vulnerable. The consequences of such an event do not bear contemplation.

The DIRT inquiry, after the event, went back over the processes and procedures that were in place and which should have been in place. What it did not do was emphasise the full extent of damage that could have been done. For example, there was constant discussion in the early 1980s about a black hole. The questions often asked were where was the money going and how it was not possible for the Department or the Minister for Finance to reach a conclusion on what was happening. It was not possible because of the absence of the senior inspectors memo which permitted a person to convert a bank account to an offshore account while keeping the money in the country and often the same bank. There was a link missing from the chain and nobody reacted to it for almost ten years.

It is important that the public has absolute confidence in the banking system and the Central Bank and the Department of Finance's control of the system. We must ensure such controls are put in place and kept in place and that all financial institutions adhere to them. This does not relate to individual financial institutions. It may well be more profitable for them to cut corners, but that is not good for the banking system or the economy. Such actions call public confidence into play. I hope this legislation has been sufficiently tweaked to deal with all possible situations in the future.

Banking today is less consumer friendly than heretofore. We regularly hear of the closure of various banks for what are called rationalisation or productivity reasons. However, we all know it is about economics. Economics determine the degree to which services are provided. Financial institutions must observe good economic criteria at all times. It is also important for them to remember – this has happened in other countries – that they have a duty to the customer and it is important to keep them on side. It is important that they recognise that the customer is not always wrong.

The customer is entitled to know whether that is a legitimate deduction. That is part and parcel of what will put the financial services sector and the banking system on par with those elsewhere. I emphasise that point because it is important to continue to ensure that our banking system and the manner in which it deals with its customers is seen to be as effective as others elsewhere and better than most. We are an island nation and we have to raise the standards and set ourselves up as experts in that area. The financial services sector has done that already and it is important to maintain it.

I am particularly anxious that the commercial banks would recognise that while they are providing their customers with a service, the customers are also providing the banks with a service by way of providing them with funds and creating the need to have a visible shop front in every town and village, where possible. Presenting themselves in that fashion should not always come down to the economics of the issue.

The general public has great difficulty when it hears that the branch system is to be revised, for want of a better description, because it is losing money. The banks will say that, economically, a particular branch is not viable due to the small number of customers using it and that in any case they all move to the next town and village and invest there, although there may be other reasons for that. The people almost cry into their handkerchiefs when they hear this tale of sadness and poverty emanating from the financial system concerned—

Mr. Ring

That is right.

Mr. Durkan

—but when the same institution issues its annual or six monthly returns it turns out that it has made an enormous profit and is competing with similar institutions in other financial services to show how viable it is and the billions it made in the past six or 12 months. That rings very hollow with the unfortunate customers who could walk into their local branch and cash their cheques. They will say that somebody is telling them a fib. The bottom line is that the customer is seen by the financial institutions as a disposable asset, for want of a better description. It is unfortunate, but that is the reality. The commercial banks would do well to recognise that the goodwill of the public is also important. They can spend a great deal of money on advertising to ingratiate themselves with the public but it should be borne in mind that a more practical demonstration carries a lot more weight.

I recently had occasion to attempt to assist a social welfare recipient in opening a bank account. That person was required to produce a driving licence, a birth certificate and a series of other documents. The ordinary citizen becomes upset and suspicious when somebody asks him or her that many questions. I queried this request with the bank and the reply was that the Houses of the Oireachtas introduced legislation which controlled the way bank accounts are opened and operated. That is right but it had to be done. The Minister for Finance had to do that because on one famous occasion dubious proceeds were found in a bank account which, allegedly, was opened legitimately in a certain part of the country. That issue was dealt with during the course of the DIRT inquiry as well. There is a vast difference between somebody lodging ill-gotten gains of one kind or other in large amounts in a bank account and an individual wishing to have his or her social welfare payments made through a particular bank account. It is easy to authenticate one as opposed to the other so the comparisons pass me by when I hear of social welfare recipients being put to that kind of trouble.

My final point is a general one. I do not propose to offer advice to my good friend and constituency colleague—

Mr. Ring

He is open to advice.

Mr. Durkan

—although I know he is always open to good advice. Like many people, I am concerned about the likelihood that inflation will impact ultimately on interest rates because that is the way the system works now. If inflation rises above the European average, that in turn will put pressure on interest rates and, whether we like it, interest rates are not business or consumer friendly. They cost the economy more and can cause serious problems such as spiralling inflation. A rise in interest rates and inflation can be fuelled by the type of issues that have been referred to by previous speakers. For example, people seek higher wages as a result of not being able to live under the system as it currently stands. They may demand higher wages to allow them buy a house, for example. The whole question of house prices has fuelled inflation here for the past four or five years. That problem has not been resolved and the average first-time house buyer, be they young professionals or whatever, cannot buy an average starter home. That has to be borne in mind even in the context of this legislation because if we are talking about banking and financial services, and we will be talking about the economy at some stage in the future, it naturally follows that those issues that contribute to creating a threat should be addressed.

Mr. Ring

My contribution will be brief but I could not let the opportunity pass to talk about my very good friends in the banks who have used the Dáil and society when it suits them but have not given much back to the State. I remember the Dáil being recalled during a summer recess for the purpose of saving AIB, but AIB did not learn from that experience. Some weeks ago it almost happened again when one guy in the United States nearly brought down a financial institution, which would have had major effects on this country. That gave the impression that we were not able to look after our own business.

I often wonder about the role of the Central Bank. The Central Bank should be given the powers and more staff to control the banks on a day to day basis. If a complaint is made about a bank and the Central Bank wants to inspect the way it is operated, it should have those powers. There is no doubt that the banks have let people down. It is the old story, they give people an umbrella on a fine day but take it back on a rainy day. They certainly have not played their part in the country's economy. The banks are closing branches in rural Ireland instead of providing the necessary service for the people. The Central Bank should have a role and be able to say where a bank should be located. We could take the example of Westport where there was no ATM 15 years ago as no bank would put one there. Then the AIB put one in and a month later the Bank of Ireland followed. After that the Irish Permanent installed one and now the AIB has two machines. They did this because they saw that it worked.

However, someone in authority should have made them put these machines into that tourist town earlier. We could also look at Louisburgh which is 13 miles away and which the Minister has visited. It has suffered unemployment and is in a disadvantaged area. It is trying to live off tourism but it cannot get any of the major banks to install an ATM. The travelling banks, which did go to such places, have been withdrawn and the service of opening for two or three days has been reduced to a half day. That town is trying to create employment for the county, yet the banks, which make millions of euro profit, do not see fit to install an ATM.

We know that we are now in the world of credit cards and people using cards to withdraw money. I read an article recently about bank charges where a newspaper got someone to work out how the interest rate is calculated on credit charges. That person, who had a degree, found it very difficult to do. The Minister, the Dáil and the Central Bank should make the banks simplify their business. Documentation should be in simple language and not banker's jargon. It reminds me of this Bill because a person would need four degrees to understand it. Why can the Minister, who has made many good changes, not put the language of the Bill in lay person's terms so that we can know what the legal experts are trying to say? Not everyone has a degree in law or the resources to get the information on particular bills. It is the same with banks which cause such confusion that people do not understand what they are paying for when they pay big credit charges to banks which make a fortune by ripping off the customer. Someone should be there to protect the ordinary person and to tell the banks that the way they calculate accounts or charge interest rates is unacceptable because customers do not understand them. The Central Bank should be doing that and also make the banks provide services to people which they can understand. It should also have the power to say that banks should be located where they are needed.

Banks are getting richer, bigger and more powerful because there is no competition. If Governments had brought in the necessary legislation to allow post offices and credit unions to take business away from banks, there would have been competition and banks would have had to try to get customers. I would hate to see the amalgamation of the AIB and the Bank of Ireland and oppose it bitterly because we do not want more amalgamation but more competition. I would prefer to have banks from Europe and elsewhere competing and putting pressure on our banks to give the customers what they need. We should have a better choice of banks in place of the limited choice we have now. The banks control the market and I am sure that at the beginning of each week the chief executives of the AIB, the Bank of Ireland and the others phone each other to decide what they will do as it is in their interests. That is why someone should be appointed to protect the consumer and there should be an appeal system for customers who believe they are not being treated fairly by the banks. There ought to be an ombudsman with complete control over the banks able to make binding decisions. People do not believe at present that they get fair play from the banks, which do not look after the customer but are only interested in the quarterly returns and how much profit they make.

Yet, when the banks get into trouble, it is the ordinary taxpayer who helps them as happened to the AIB. There has been little in return from the banks to the taxpayer. The Government has to assist community projects because banks are not prepared to give them the necessary funding, and encourage banks to participate in various schemes which are good for the country, the economy and in the interest of all. Therefore Government should be taking a harder line with the banks, support post offices and credit unions and encourage variety in the market so that the banks have to compete. We would not then have to beg banks to install ATMs in towns such as Newport, Louisburgh and Achill, which need support. We frequently discuss the need to create employment in rural areas, decentralisation and encouraging people to return to rural areas, but financial institutions such as banks pull out the necessary services that exist, remove confidence from those communities and put nothing into them.

I could understand if the banks were struggling and could not afford to keep these offices open. The banks should be community friendly and not concerned just with making money. Legislation should be in place to compel them to provide a service, even if it does not make a massive profit, because they will make those profits in the bigger towns and cities. The Central Bank should make them provide necessary services in rural areas. I do not say to the banks, Government or the Central Bank that there should be a bank in every little village, but where there is a need and to avoid people travelling 30 miles or more, there should be a bank.

The banks have got away with much over the years. When AIB had its trouble in America, we were lucky it did not bring down our economy, although it had a major affect on shares. In future legislation, the Minister should give more powers to the post offices and credit unions so there is competition for the banks. They appear to be able to make representations to Government and are looked after by the State, but the consumers need to be protected from them. I hope to see more competition as the banks are getting stronger and the amalgamation between the Bank of Ireland and AIB should be opposed. I want more banks from outside competing in the market so that people will get better prices and be able to borrow money at a cheaper rate.

Minister for Finance (Mr. McCreevy)

The Bill before the House is complex and technical in nature. In addition to providing for the establishment of the Irish Financial Services Regulatory Authority and for the reorganisation and renam ing of the Central Bank, the parliamentary draftsman has also identified and listed the specific enactments and regulations under which the regulatory authority is to perform functions of the bank; amended and restated provisions of the 1942 Central Bank Act; repealed and amended other Acts consequential on the provisions of the Bill; and amended European Communities regulations.

I thank the Deputies for their many contributions to the debate which raised many interesting issues. I would like to respond to the main issues raised by the Deputies and we will have an opportunity to deal with the other matters on Committee Stage.

One of the main issues raised by the Deputies was the proposed structure for the new regulatory authority. The ongoing consolidation within institutional sectors and convergence across categories of financial service providers makes the choice of an appropriate supervisory structure very difficult. These developments have increasingly blurred traditional lines of demarcation among the four pillars of the financial systems, banks insurance companies, pension funds and securities firms, as institutions have sought opportunities to cross-sell products, expand across borders and achieve economies of scale. Financial institutions of all types are increasingly offering products and services, directly or through affiliates, that compete not only against those offered by similar types of institutions but also against those offered by other categories of service providers.

As regards a supervisory structure, the only thing one can say with certainty is that there is no one model internationally that can be picked off the shelf and put in place.

In 1998 the Government decided in principle that a single regulatory authority, SRA, for the financial services sector should be established. It asked the Implementation Advisory Group to advise it on the various requirements for such an SRA, including the organisational structure for the authority. The McDowell group noted that the type of structure for such a body has implications for the degree of information that can flow between the prudential regulation and consumer protection functions. Having examined several models for an SRA, the group concluded that, given the requirements imposed by the relevant European Union law, the best mechanism for providing for the maximum flow of information between the two functions is to combine both within one authority. The Bill implements this recommendation.

In February 2001 the Government approved a memorandum which provided that the new regulatory authority should be established within the new structure of the Central Bank of Ireland and Financial Services Authority. In this regard, the ECB in a recent opinion has welcomed the fact that IFSRA will be a constituent part of the new structure.

I am satisfied this structure will work well because it will provide a one-stop-shop for consumers, business and the financial services industry by having the regulation of insurance banking and credit unions under the one roof; it will facilitate the exchange of information between the twin functions of prudential regulation and consumer protection, as both will be part of the one authority; and it places the interests of consumers at the heart of financial services regulations by giving the authority specific responsibilities in this regard and creating a statutory position of consumer director.

As I said in my opening statement, the McDowell report contained a package of recommendations in regard to financial regulation and consumer protection. 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 the McDowell report including establishing a statutory financial services ombudsman; establishing consultation panels of the financial services industry and of consumers; addressing issues arising from the recommendations contained in the report of the Review Group on Auditing; and making provisions arising from a review of section 16 of the Central Bank Act, 1989, dealing with confidentiality of Central Bank information.

I would like to refer to the amendment tabled by Deputies Burton and McGrath regarding the Second Reading, the basic effect of which would be to delay progress of this Bill pending further study.

As regards the question of further studies or reviews of financial services supervision, I remind Deputies that this issue has already been heavily studied, as the very detailed report of the McDowell group will attest. It is not correct to say that the McDowell group was prevented by its terms of reference from considering whether consumer protection should be combined with prudential regulation. The group carried out an extensive consultation process, considered the option of consumer protection being dealt with separately and came out against it. I refer the Deputies to paragraph 4.15 of the report. In the final analysis, we have to act, and I am of the opinion that this Bill should be allowed to progress through Second Stage and on to Committee Stage in a prompt and timely manner.

I have, as Minister, listened carefully to points made by Deputies during this debate and I will give them detailed consideration before moving on to Committee Stage. As further information becomes available about recent financial scandals, I will happily take on board appropriate lessons during the progress of this Bill and the proposed subsequent legislation, but I am firmly of the view that we should not now call a halt to this Bill. Essentially, it is far too late in the day for the Deputies to seek a postponement of the reading of the Bill and I reject the amendment.

In the course of tabling this amendment, Deputies seem to suggest that there was a ques tion over prudential regulation in Ireland and that it might not be up to the best international standards. The International Monetary Fund, at our request, has carried out a comprehensive review of our financial regulatory system by reference to international best practice. The report – a summary of which is on the IMF's website – concluded that our prudential regulatory system complied with established international standards in all respects. The suggestions for improvements that the IMF made have since been addressed by the relevant regulatory authorities.

Turing to the issue of Allfirst, as I mentioned before in response to questions in this House, the primary responsibility for managing a bank and preventing fraud lies with the management of that institution. No regulatory authority can put in place a supervisory regime to ensure a financial institution can never be a victim of fraudulent activity from within. It is up to the management of the bank, in the first instance, to ensure that its own internal control policies are properly complied with at subsidiary and group level.

Deputy Naughten asked what is the level of regulatory control in relation to such foreign subsidiaries. It is established international practice that host country regulators supervise local subsidiaries of internationally active banks. The home country regulator of such banks look at the group on a consolidated basis.

Before an Irish bank is allowed to open a subsidiary abroad the Central Bank requires that it operates in a jurisdiction which has a well established system of financial supervision. It would also establish a relationship with those local supervisors. Co-operation between the home and host country regulators is always a feature of such arrangements.

Thus, the primary supervision of overseas subsidiaries of Irish banks is carried out by local regulators in the jurisdictions in which they operate, just as the Central Bank supervises Irish subsidiaries of foreign banks. It would therefore be misleading to suggest that this means there is a lack of supervision of Irish banks operating abroad.

In the particular case of Irish banks operating in the United States of America, where they have been active for many years, the USA has a well developed system of financial regulation. However, the risk of unexpected financial loss cannot be eliminated even by the most advanced systems.

I have asked the Central Bank to provide a report identifying if its investigation revealed the need for any necessary legislative changes. The initial reaction provided by the Central Bank on 13 March stated that there is no evidence to suggest that the Irish legislative framework contributed to the losses incurred. I await a final report from the Central Bank, which I understand will be received today and if any changes are necessary I will bring them forward on Committee Stage.

As a precaution the Central Bank has formally written to all credit institutions within its remit to re-emphasise the need for compliance with best international standards of management and controls. Moreover, it has asked that there be independent verification that these controls are being operated.

As regards Enron, many of the issues in that case related to auditing. I have signalled already that the second Bill which I intend to bring forward later this year in relation to financial sector supervision will deal explicitly with audit issues and specifically with implementing the report of the Review Group on Auditing in relation to financial institutions. Once again, this is not an issue which should delay this Bill.

Turning to the consumer protection issue, Deputies questioned whether the regulatory authority will have a strong consumer focus. I refer the Deputies to page 27 of the Bill, section 33C(3), where it is stated explicitly that the mandate of the regulatory authority is to promote the best interests of users of financial services in a way that is consistent with the orderly and proper functioning of financial markets and with the orderly and prudent supervision of providers of those services.

The regulatory authority has a strong consumer mandate which derives from two main sources, the general mandate assigned to IFSRA and its consumer director under this legislation and consumer related functions transferred to IFSRA and its consumer director prior to this legislation. Taking these two together, the regulatory authority's consumer mandate encompasses monitoring the supervision of financial services to consumers; monitoring the extent to which competition exists among providers of financial services in so far as it affects consumers of those services; increasing public awareness of the availability, costs, risks and benefits of financial services; issuing and enforcing codes of conduct, regulations, directions etc. to financial services providers in relation to the conditions under which they provide services to customers, that is, advertising, information to customers, terms of contracts, cooling off periods etc.; control and monitoring of customer charges, other than interest rates, imposed by credit institutions and bureaux de change; licensing of moneylenders, including approval of the interest rates charged; compensation arrangements in respect of financial services providers who cannot meet their obligations to customers; and promoting in general the best interests of users of financial services. In addition, the second Bill will provide for an ombudsman to deal with consumer complaints against financial institutions and a consultative panel for consumers of financial services.

Deputies have referred to the need for the financial sector regulator to play a part in supporting the Revenue Commissioners' enforcement of tax law. It is true that sections 33AK and AL of the present Bill essentially repeat the existing legislative prohibition on regulatory authorities disclosing information that comes to their notice in the course of conducting their prudential over sight of financial institutions. Such confidentiality provisions are also contained in EU legislation which is binding on us as a member state.

I have been examining these legal provisions, notably in the light of the controversy generated by the revelations of non-compliance by certain financial institutions with their obligations under tax legislation. The general strengthening of corporate governance requirements under recent or planned company law legislation makes it less likely that we will see a repetition of the type of behaviour by financial institutions that led to the DIRT inquiry by the Committee of Public Accounts. Nevertheless, I hope to include – either in the second Bill or in a Committee Stage amendment to this Bill – provisions that would oblige IFSRA to take action if it came across evidence of wrongdoing by financial institutions under its supervision. I am exploring how this might be done without breaching our obligations under EU law. This would cover cases of tax evasion.

In conclusion, it is worth recalling the extensive process of preparation for this Bill. In October 1998, the Government agreed in principle to the establishment of a single regulatory authority for the financial services sector. An expert group was established in November 1998, under the chairmanship of Michael McDowell SC, to advise the Government on the establishment of the authority. The group reported in May 1999 setting out the role and functions of the SRA, the range of financial services providers to be covered by the SRA and the funding of the authority.

The Government announced in February 2001 the structure for the new authority. The Bill before us essentially implements the Government decision which broadly follows the recommendations contained in the report of the McDowell group. The Bill was published in April of this year and the provisions contained therein have been in the public domain in one form or another since early 1999.

While I agree with Deputies that it is a complex Bill I do not accept that its contents should come as a surprise to any one. The structures etc. which the Bill aims to establish have been public knowledge for quite a number of years. In the circumstances, I feel that there has been adequate time for all concerned to consider the implications of the proposed structures etc. provided for in the Bill.

As I said in my opening statement, it is my intention to introduce a number of amendments on Committee Stage, details of which will be made available to Deputies in advance. I would like to remind Deputies, however, that this Bill is essentially concerned with structures and is part of a package of measures, rather than a stand alone piece of legislation.

I would like to thank the interim board for agreeing to be involved in this important project for the financial services industry and consumers alike. As l stated previously, the board will be assisted by a steering committee and support group, drawn from officials of the Central Bank, the Department of Enterprise, Trade and Employment and my own Department, to make sure that the chairperson and the interim board have all the support required to enable them to perform the tasks which the interim board was set up to perform.

An efficient and effective financial services sector is a vital pillar of the economy. I have no doubt that the integrated structure proposed in this Bill, coupled with a continuation of the existing high standards, will be a positive factor in attracting new services and additional investment to Ireland. The objective of our strategy must be to maintain a vibrant and growing financial services industry in Ireland.

I commend the Bill to the House.

Question put: "That the words proposed to be deleted stand part of the main question."

Tá

Ahern, Dermot.Ahern, Michael.Ahern, Noel.Andrews, Barry.Ardagh, Seán.Aylward, Liam.Brady, Johnny.Brady, Martin.Brennan, Séamus.Browne, John.Callanan, Joe.Callely, Ivor.Carey, Pat.Carty, John.Cassidy, Donie.Collins, Michael.Cooper-Flynn, Beverley.Coughlan, Mary.Cregan, John.Curran, John.Davern, Noel.

de Valera, Síle.Dempsey, Noel.Dempsey, Tony.Dennehy, John.Devins, Jimmy.Ellis, John.Fahey, Frank.Finneran, Michael.Fitzpatrick, Dermot.Fleming, Seán.Fox, Mildred.Gallagher, Pat The Cope.Glennon, Jim.Grealish, Noel.Hanafin, Mary.Haughey, Seán.Healy-Rae, Jackie.Hoctor, Máire.Jacob, Joe.Keaveney, Cecilia. Kelleher, Billy.

Tá–continued

Kelly, Peter.Killeen, Tony.Kirk, Seamus.Kitt, Tom.Lenihan, Brian.Lenihan, Conor.McCreevy, Charlie.McDowell, Michael.McEllistrim, Thomas.McGuinness, John.Martin, Micheál.Moloney, John.Moynihan, Donal.Moynihan, Michael.Mulcahy, Michael.Nolan, M. J.Ó Cuív, Éamon.Ó Feargháil, Seán.O'Connor, Charlie.O'Dea, Willie.O'Donnell, Liz.

O'Donoghue, John.O'Donovan, Denis.O'Flynn, Noel.O'Keeffe, Batt.O'Keeffe, Ned.O'Malley, Fiona.O'Malley, Tim.Parlon, Tom.Power, Peter.Power, Seán.Roche, Dick.Ryan, Eoin.Sexton, Mae.Smith, Brendan.Smith, Michael.Treacy, Noel.Wallace, Dan.Walsh, Joe.Wilkinson, Ollie.Woods, Michael.Wright, G.V.

Níl

Allen, Bernard.Breen, Pat.Broughan, Thomas P.Bruton, Richard.Burton, Joan.Connaughton, Paul.Costello, Joe.Coveney, Simon.Crawford, Seymour.Crowe, Seán.Deasy, John.Deenihan, Jimmy.Durkan, Bernard J.English, Damien.Enright, Olwyn.Ferris, Martin.Hayes, Tom.Healy, Seamus.Higgins, Joe.Higgins, Michael D.Howlin, Brendan.Kehoe, Paul.Lynch, Kathleen.McCormack, Pádraic.McGinley, Dinny.McGrath, Finian.McGrath, Paul.

McManus, Liz.Mitchell, Gay.Morgan, Arthur.Moynihan-Cronin, Breeda.Murphy, Gerard.Naughten, Denis.Ó Caoláin, Caoimhghín.O'Dowd, Fergus.O'Keeffe, Jim.O'Shea, Brian.Ó Snodaigh, Aengus.O'Sullivan, Jan.Pattison, Seamus.Penrose, Willie.Perry, John.Rabbitte, Pat.Ring, Michael.Ryan, Eamon.Ryan, Seán.Sargent, Trevor.Sherlock, Joe.Shortall, Róisín.Stagg, Emmet.Stanton, David.Timmins, Billy.Wall, Jack.

Tellers: Tá, Deputies Hanafin and S. Power; Níl, Deputies Durkan and Stagg.

Question declared carried.

Amendment declared lost.

An Ceann Comhairle

When is it proposed to take Committee Stage?

Mr. McCreevy

Next Tuesday, subject to the agreement of the Whips.

Mr. R. Bruton

Does the Minister intend to have this taken in committee over the summer?

Mr. McCreevy

I do not think the Dáil will be in a position to formalise the committees until during the summer recess. It is likely that there will be a committee in place for July and September. I am afraid the political reality is that this will not be taken in committee for some time because there is no committee. The Deputy's colleague, Deputy Durkan, will have greater knowledge about these matters.

Sitting suspended at 1.35 p.m. and resumed at 2.30 p.m.