I move: "That the Bill be now read a Second Time."
I am pleased to present the Finance (Miscellaneous Provisions) Bill 2015 to the House. It should be noted that this Bill is very much of a technical nature and is designed primarily to address certain national and international obligations arising from a number of issues associated with the EU financial services legislative and transposition agenda. There is also a technical amendment to the National Treasury Management Agency (Amendment) Act 2014.
There are five parts to the Bill.
Part 1 is preliminary and general. This covers sections 1 and 2 which are provisions of a standard and general nature. Part 2 is the agreement on the transfer and mutualisation of contributions to the single resolution fund. This covers sections 3 to 5, inclusive, and is necessary to enable the ratification of this intergovernmental agreement which is required to allow the Single Resolution Mechanism, SRM, to operate.
Part 3 is the deposit guarantee scheme. This covers sections 6 to 14, inclusive, and involves a number of amendments to the Financial Services (Deposit Guarantee Scheme) Act 2009. These are necessary for two reasons, first, to put in place a transitional funding arrangement for the new deposit guarantee contributory scheme to underpin it while its accompanying fund is being built up, and second, to reduce the period within which the Exchequer should recoup the Central Bank where it contributes its own resources towards a deposit guarantee scheme compensation event. This is necessary to avoid the bank or the European Central Bank, ECB, engaging in monetary financing of the State.
Part 4 is the continuation of insurance regulations. This covers sections 15 to 20, inclusive, and the Schedule. This is necessary to ensure the continuation of insurance regulation for companies outside the scope of the solvency II directive which is due to come into force at the start of 2016. This will apply only to insurance entities below a certain premium threshold or in wind-down.
Part 5 is a technical amendment to the National Treasury Management Agency (Amendment) Act 2014. This covers section 21 and is necessary to remove any potential ambiguity with regard to whether a directed investment made by the National Pensions Reserve Fund commission and subsequently transferred to the Ireland Strategic Investment Fund pursuant to the National Treasury Management Agency (Amendment) Act 2014 remains a directed investment for the purposes of that Act.
I wish to inform the House that I will introduce an amendment on Committee Stage that will add an additional Part to this Bill. This will be a minor but important amendment that will alter section 851A of the Taxes Consolidation Act 1997 which contains provisions relating to the Revenue Commissioners' treatment of confidential taxpayer information. This section of the Taxes Consolidation Act 1997 provides reassurance to taxpayers that personal and commercial information revealed for tax purposes is protected against unauthorised disclosure. One of the circumstances in which it is permitted to disclose confidential taxpayer information is where a Revenue officer is satisfied that the work of a tax adviser or agent acting on behalf of a taxpayer does not meet the professional standards of the professional body of which the tax adviser or agent is a member. This amendment will allow Revenue disclose confidential taxpayer information to the Law Society of Ireland in such circumstances where the tax adviser or agent is a solicitor, ensuring equal treatment across the broad range of tax advisers.
I emphasise the importance of an early completion of the passage of this Bill to enable implementation of significant elements of the EU financial services legislative agenda. This will increase the stability of the financial system and increase protections for insurance policyholders, investors and depositors. In particular, I highlight the need to ratify the intergovernmental agreement before 30 November 2015 as failure to do so would almost certainly lead to a delay in the implementation of the Single Resolution Mechanism.
I will go into more detail about the main provisions of the Bill. Part 2 is the agreement on the transfer and mutualisation of contributions to the single resolution fund, sections 3 to 5, inclusive. The purpose of Part 2 is to enable the ratification of the intergovernmental agreement through the lodgment of the appropriate documentation with the general secretariat of the Council of the European Union. The intergovernmental agreement was negotiated to enable the single resolution fund, a key element of the Single Resolution Mechanism, to be operationalised with effect from 1 January 2016. Its primary purpose is to transfer the contributions raised at national level in accordance with the bank resolution and recovery directive and the Single Resolution Mechanism regulation to the single resolution fund and to facilitate a transition period of eight years to full mutualisation of the fund. It also prescribes how the single resolution fund will operate during the transition period. The agreement, which at 16 articles is relatively short, was negotiated to deal with a concern of certain member states that these changes could not be accommodated within the SRM regulation as, in their view, Article 114 of the Treaty on the Functioning of the European Union did not provide an appropriate legal basis to do so. Consequently, it was agreed that this issue should be dealt with through an intergovernmental agreement which would be formally ratified by each member state.
The legislation covers just the core points of the function of the Minister and the power to spend. The remaining commitments, like the agreement, are binding on the State at state level and therefore do not require domestic legislation to give effect to them. The Attorney General has advised that as the agreement constitutes an international agreement under Article 29.5.2° of the Constitution, and as it deals with funding, Dáil approval is required. Consequently, I intend moving a motion seeking its approval in parallel with this legislation.
I would like to say a few words about the Single Resolution Mechanism to give Members a sense of the importance of this intergovernmental agreement. In this regard, the Single Resolution Mechanism is the second pillar of the banking union and will ensure that if a bank subject to the Single Supervisory Mechanism, SSM, faces serious difficulties, its resolution will be managed efficiently with minimal costs to the taxpayers and the real economy through a single resolution board and a single resolution fund, financed by levies imposed on the banking sector. What this means in practice is that should any of our three major banks get into financial trouble, the decision about putting it into resolution will be made by the single resolution board rather than our domestic resolution authority. In addition, where bail-in of shareholders, capital instruments and eligible liabilities is insufficient to cover losses of the bank in question, there will be access to funds from the single resolution fund. This will contribute to breaking the link between the banks and the sovereign and should help avoid a repeat of many of the issues faced by countries during the recent financial crisis.
Part 3 is the deposit guarantee scheme, and this covers sections 6 to 14, inclusive. As mentioned at the outset, the purpose of this Part is twofold, first, to put in place a transitional funding arrangement to underpin the new deposit guarantee scheme while its accompanying fund is being built up, and second, to reduce the period within which the Exchequer should recoup the Central Bank where it contributes its own resources towards a deposit guarantee scheme compensation event. The transitional funding arrangement is covered by sections 6 to 11, inclusive. Their primary purpose is to create a new legacy fund into which an amount equal to 0.2% of covered deposits of credit institutions will be transferred from the existing deposit guarantee fund, known as the deposit protection account, and to establish under what circumstances money can be paid out from this new legacy fund.
The background to this proposal is the transposition of the deposit guarantee schemes directive which is proceeding parallel to this legislation. The directive will change the nature of our deposit guarantee funding arrangements from what is currently a ring-fenced deposit held by credit institutions in the Central Bank to a contributory fund. The difference in approach is significant and without this legislation we would be required to return all the deposits in the deposit protection account to credit institutions. The legacy fund is necessary therefore to ensure we continue to have access to an adequate level of alternative funding during the period the new contributory fund is being built up.
The key sections for the transitional funding arrangement are as follows. Section 8 amends section 3 of the Financial Services (Deposit Guarantee Scheme) Act 2009 by providing for the establishment by the Central Bank of a new legacy fund consisting of funds transferred from the deposit protection account to the amount of 0.2% of covered deposits.
It also provides that the balance of the funds in the deposit protection account should be returned to credit institutions, and specifies when the legacy fund shall cease to operate.
Section 9 relates to the amount to be maintained in deposit protection account. This section amends the Financial Services (Deposit Guarantee Scheme) Act 2009, by replacing the existing section 4. It provides that a credit institution shall not carry out the business of such a body unless it has transferred 0.2% of covered deposits from the deposit protection account to the legacy fund on a date determined by the Central Bank.
Section 10 relates to order of payments. It provides for the insertion of two new sections, sections 5A and 5B, into the Financial Services (Deposit Guarantee Scheme) Act 2009. The purpose of the proposed section 5A is to set out the order of payments in the event of a deposit guarantee scheme compensation event arising to ensure a level playing field between existing credit institutions and new entrants to the market, and to provide that the amount a credit institution holds in the legacy fund is reduced on a yearly basis by its annual contribution to the contributory fund. The purpose of the proposed section 5B is to provide a basis for the return of legacy fund deposits - where there is any remaining - after three years to a credit institution which has ceased to carry on business.
Section 11 deals with charges etc. on the deposit protection account. This section amends the Financial Services (Deposit Guarantee Scheme) Act 2009, by replacing the existing section 6. It provides that any deposits by credit institutions in the legacy fund are protected from charges being placed upon them other than by the Central Bank. The reduction in the period within which the Central Bank is recouped by the Exchequer in the event that it contributes its resources towards a deposit guarantee scheme compensation event is covered by section 12. This section amends section 8 of the Financial Services (Deposit Guarantee Scheme) Act 2009, by reducing the period for recoupment from three months to two weeks. Such a provision is necessary to prevent the bank or the European Central Bank engaging in monetary financing of the State. The Central Bank has advised that the ECB believes the existing three month recoupment period is too long and that to ensure the prohibition on monetary financing is maintained a far shorter period is required. This explains why we are proposing to reduce this period to two weeks. Colleagues should also be aware that I am in the process of consulting with the ECB on this provision. Therefore, I should have greater insight into the ECB position on Committee Stage.
As a final comment on Part 3, Deputies should note that section 13 provides for the insertion of a new section 8E into the Financial Services (Deposit Guarantee Scheme) Act 2009. Its purpose is to enable, after the coming into force of this Bill, the return of any money recovered by the deposit protection account to credit institutions which results from a successful claim by the Central Bank against credit institutions or their liquidators which had commenced prior to its enactment. This provision is necessary because at this stage credit institutions will be holding their requisite balance of 0.2% of covered deposits in the newly established legacy fund and will, therefore, not owe it any more money.
Part 4 relates to the continuation of insurance regulations and covers sections 15 to 20, inclusive. The purpose of this part is to establish a regulatory regime for insurance undertakings that will be outside of the scope of the Solvency II directive. The directive excludes certain undertakings based either on size, for example, small insurance undertakings below a certain insurance premium threshold, or on the basis that they will have wound down their operation in advance of 1 January 2019. It is essential that we maintain the current regulatory regime for such undertakings to ensure there are no unregulated insurance undertakings in the State from 1 January 2016, when the Solvency II regime comes into effect. As the current regulatory regime is governed by EU directives that are to be repealed by Solvency II, continuation of that regime can only be done by primary legislation.
I will set out the key sections covering these changes. Section 16 covers the continuation of certain regulations. The Solvency II directive repeals a number of EU directives relating to insurance and reinsurance. Section 16 continues in force the regulations transposing those repealed directives in respect of the undertakings excluded from the scope of Solvency II. Section 17 deals with portfolio transfers. To ensure continuity and ease of reference, the provisions in the Solvency II directive governing portfolio transfers will also apply to the relevant undertakings covered by this Bill. I expect to table some technical Committee Stage amendments to this section.
The Schedule lists all the revocations to be carried out in terms of the current regulations as all or parts of those regulations are no longer necessary. Part 5 contains technical amendments to the National Treasury Management Agency (Amendment) Act 2014. These are contained in section 21. This is a technical amendment to the definition of a "directed investment" at section 37 of the National Treasury Management Agency (Amendment) Act 2014. Paragraph 21 of Part 6 of Schedule 4 of the National Treasury Management Agency (Amendment) Act 2014 provides that any direction given to the National Pensions Reserve Fund Commission under section 19A, 19AA or 19B of the National Pensions Reserve Fund Act 2000 before the Ireland Strategic Investment Fund constitution date shall have effect on or after that date, until revoked, as if given to the National Treasury Management Agency under sections 42, 47(4)(b), 47(4)(c) or 43 of the National Treasury Management Agency (Amendment) Act 2014, respectively.
Section 37(a) of the National Treasury Management Agency (Amendment) Act 2014 provides, inter alia, that a "directed investment" means an investment made by the National Treasury Management Agency pursuant to a direction under section 42 or 47(4)(b) or the proceeds held by the National Treasury Management Agency pursuant to a direction under section 47(4)(c). A potential ambiguity has been identified in respect of whether investments of the National Pensions Reserve Fund Commission, which were "directed investments" at the time they were made and at the time of their transfer into the Ireland Strategic Investment Fund, are captured by the definition of "directed investments" in section 37 of the National Treasury Management Agency (Amendment) Act 2014. The amendment clarifies that "directed investments" made by the National Pensions Reserve Fund Commission and subsequently transferred to the Irish Strategic Investment Fund by the National Treasury Management Agency (Amendment) Act 2014 are "directed investments" for the purposes of the Act.
In conclusion, I reiterate the importance of the swift passage of this Bill to ensure the implementation of a significant portion of the EU financial services legislative agenda. It will result in increased protections for insurance policyholders, depositors and investors. I am particularly keen that we ratify the intergovernmental agreement as soon as possible. This is an issue which Europe and the markets are watching closely, and failure to ratify it would have a negative impact on the wider banking union project. I commend the Bill to the House.