Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach díospóireacht -
Tuesday, 12 Mar 2019

A Future Framework for Accountability in the Banking Sector: Discussion

Chairman

I welcome Mr. Maurice Crowley, chief executive of the Banking and Payments Federation of Ireland, and his two colleagues. By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the joint committee. However, if they are directed by it to cease giving evidence on a particular matter and continue to do so, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or entity, by name or in such a way as to make him, her or it identifiable.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official, either by name or in such a way as to make him or her identifiable.

I call Mr. Crowley to make his opening statement.

Mr. Maurice Crowley

I thank the Chairman and committee members. I would like to introduce my colleagues. I am accompanied by Mr. Felix O'Regan, the federation's director of public affairs, and Ms Bernice Evoy, head of its legal and regulatory division.

We very much appreciate the opportunity to address the joint committee on the issue of a future framework for accountability in the banking sector. We recognise clearly the importance and value of the work conducted by the Central Bank of Ireland last year in undertaking behaviour and culture assessments of each of the five main retail banks.

As a federation and a trade association, we are committed to working with our member banks and with the Central Bank in helping to drive further improvement in a consumer-focused culture for banking in Ireland. As the committee knows, the Central Bank’s report recommended the enhancement of the current fitness and probity regime by way of implementation of a new framework of individual accountability, to be known as the senior executive accountability regime, SEAR. We have advised both the Central Bank and the Minister of Finance of our support for this direction of travel. We see the opportunities to learn from similar developments elsewhere, not least in the UK, and we have also made it our business to draw from the experience of various parties to this end.

We were pleased to contribute to identifying the broad architecture of a new independent body on banking culture. We have since seen the establishment of the Irish Banking Culture Board and the appointment of its chairman, former Mr. Justice John Hedigan. We remain committed to working, as appropriate, with the board in the development of the highest standards of culture and conduct across the banking sector. We are also very active in facilitating consideration with member banks on how a customer-centric culture can best be embedded in banks here. This has involved our drawing on experiences in other countries, such as the UK, the Netherlands and elsewhere, engaging with relevant participants there and providing a platform for those experiences and learnings to be shared with our members.

In fully supporting the development of SEAR as envisaged by the Minister for Finance and the Central Bank, and particularly in the interests of delivering a fully effective SEAR, we would like to note some issues with the committee which we believe are worthy of further consideration. In particular, it will be important, as we work through the development of SEAR, to get the balance correct between a clear focus on driving a customer-centric culture and a potentially over-bureaucratic process and structure that might ensue. We also consider it important to ensure that SEAR is not introduced in a manner that hinders the attraction of talent to the sector but, equally, that it is no deterrent to mobility or diversity within member banks. We also think it will be important to clarify the distinction between the collective fiduciary responsibility of a bank's board and board members and the all-important individual accountability of board directors and senior executives. Finally, one of the requirements of SEAR would suggest the expectations around senior managers taking "all reasonable steps" - I emphasise that phrase - to mitigate risks, which is a contrast to the position in the UK, which requires just "reasonable steps" to be taken. We feel that interpretation, definition and guidance on this issue as SEAR is introduced will be critical for bank executives as they adjust to the new regime.

To conclude, I am grateful for the opportunity to discuss these issues with the committee and I look forward to hearing its views on this very important issue.

Chairman

I thank Mr. Crowley. I call Senator Conway-Walsh.

Senator Rose Conway-Walsh

I thank Mr. Crowley for his opening statement. The statement he submitted stated:

The primary focus should be on improving culture and there is a real risk that the focus on accountability could manifest in a culture of protection rather than of improvement. This could drive an unintended consequence including a focus on avoiding decisions to avoid accountability.

It concluded: "[W]e view the introduction of an individual accountability regime as part of a wider goal to develop the highest possible standards of conduct and culture across the banking sector."

These two quotes sum up what is a very disappointing approach, which I can only say, with regret, proves that bankers just do not get it. I do not think they get it that accountability for actions taken by individuals is the way forward. We have to remember that bankers cost the Irish people billions of euro and hundreds of thousands of people emigrated, whereas we can count on one hand the number of bankers who have faced any sort of a penalty, albeit they were pathetically weak penalties. Yet, ten years on, Mr. Crowley can come in and warn about too much accountability.

This surely is the key issue, not a side issue. Individual accountability must surely be implemented as a key reform. We cannot let the bankers away with blaming culture or collective responsibility. When everybody is responsible, nobody is responsible. I urge the Banking and Payments Federation of Ireland, BPFI, to rethink its approach and to engage in this process. The first thing the federation should do is stop resisting individual accountability and accept that this is the only acceptable way forward.

When we look at it, God knows, senior bankers are paid enough. A full-time worker on the minimum wage earns around €19,000 a year. A banker on a salary of €500,000 earns 257 times that figure, or the earnings in many lifetimes for a worker on the minimum wage. It is only fair that accountability would come with such obscene pay levels. Does Mr. Crowley agree, given that people are being paid enormous amounts of money? What I get in reading his statement is the sense that "We have to be careful we do not have too much accountability." He might tease out that issue.

Mr. Maurice Crowley

I thank the Senator for her questions. I should clarify from the outset that we are not in any way against having an individual accountability regime and nothing included in our submission should be read in that context. We fully accept the requirement for an individual accountability regime and fully intend to work positively with the Central Bank and the Department of Finance on the introduction of such a regime. There will not, as the Senator might suggest, be blanket resistance to the introduction of an individual accountability regime. What we are cautioning is that there is a need to tease through the manner in which will be introduced. There are two things we all want to achieve, namely, individuals taking responsibility and being accountable for their performance and, at the same time, embedding a customer-centric culture in the banks. The two are not mutually exclusive. Depending on how the individual accountability regime is introduced, the individual responsible may focus narrowly on the responsibilities defined for him or her and, in a sense, be held accountable for what has been assigned to him or her, but we also want him or her to do so in a way that he or she will take the wider interests of the institution into account. It is about getting the balance right. I do not accept that there is anything in the submission that suggests we are against having an individual accountability regime. We are not.

Senator Rose Conway-Walsh

It is about having accountability front and centre, not just explaining it away as part of the culture. I understand everything feeds into everything else, into the ethos of the bank, with everybody making a contribution. It is amazing in the way financial institutions have been run – perhaps that is why they have been run into the ground – that it has not been the practice for job descriptions to match each person's accountability, with everything fitting together. How can any organisation be run if it does not have very basic mechanics? We need to be careful. Mr. Crowley cites the experience in the United Kingdom in terms of how long it took to implement the regime. If there was the will to implement it, it should be implemented in an expedient and faster way. I understand it takes longer to change the culture, but on too many occasions we hide behind that word. Whether it be in the insurance industry, the financial industry or elsewhere, we say, "It is the culture," and tend to excuse things in that way. This is a real opportunity for us to have accountability front and centre in order that people can have trust in the institutions.

There is something else that concerns me. We have a bank-funded Irish Banking Culture Board. It reminds me a little of the old trick where, if something was found out, we put practices in place. When the pressure is suddenly on, we are great believers in oversight, as long as it is on our terms. Can Mr. Crowley reassure me in that regard? Given that the board is funded by the banking industry, how do we know that it will not be influenced by the paymasters?

Mr. Maurice Crowley

That is a fair question. In some ways it is necessarily bank funded because I am not sure anyone else is going to offer to fund it.

The chairman of the board of the banking culture board has been appointed, Mr. Justice Hedigan, and his first job, on which he is currently engaged, is the constitution and appointment of a board. Bankers will be in a minority on that board and the majority will be all other forms of stakeholders. That is front and central and the way it should be. It is the right way to do it and is critical in its own right. At the same time, in parallel, the board will be looking for a full time chief executive and I understand that will happen in the first half of this year. The board will have a majority of non-bank people involved in it and that is right.

Reference was made to expedited timelines in the context of SEAR but the banking culture board has not been standing idly by. It has, with help from the UK's banking standards board, conducted a survey of staff in the five main banks, to which it received 14,000 replies, seeking their views of the culture within their organisations and within the sector. Separately from that, it had extensive consultations with all forms of stakeholders, public and private, across the economy over the second half of last year. My understanding is that during the second quarter of this year, it will publish the outcomes, in aggregate terms, of the staff surveys and the engagement it has had with the various stakeholders. Ultimately, my understanding is that a number of the non-bank stakeholders with which it engaged will actually sit on the board of the banking culture board. Thereafter one would expect, although this is a decision for the board, that it would publish an annual report reflecting the findings of various engagements each year, just like the banking standards board in the UK. The findings of the banking culture board will not be a secret at the end of the day and the board will also make recommendations for action at an industry level.

Senator Rose Conway-Walsh

Accountability is my main concern and until we see how this unfolds, we cannot know whether it is working or whether there are impediments or opposition to it within the banking sector. I ask Mr. Crowley to remind us of the identity of the lay representatives on the board.

Mr. Maurice Crowley

They have not been announced as yet. My understanding is-----

Senator Rose Conway-Walsh

Where will they be coming from?

Mr. Maurice Crowley

A range of private and public sector bodies but we have not been told who they will be yet.

Mr. Felix O'Regan

I can elaborate to some extent. The chairman of the board of the banking culture board addressed our conference last week. We wanted to give the chairman the platform to state some very important messages, as we see it and to support him. He indicated, without giving any details, that the board members will represent consumer and business representative stakeholder groups to which the board has been talking. He also made specific reference to the older, vulnerable customer cohort and indicated that there would be a representative of that group. Ultimately, it is a matter for the Chairman to determine the make up of the board but he left us in no doubt at the conference last week that the majority view on the board will be independent of the banking sector. In the context of the research done among the public and staff, he also said that the messages coming through, particularly from the public, on dissatisfaction and mistrust would very much inform the board's thinking going forward.

Senator Rose Conway-Walsh

I would suggest that somebody like Mr. Padraic Kissane, though not necessarily him, would be ideal. One of the biggest scandals we have seen centred on the tracker mortgage issue. The board needs somebody with lived experiences who can bring something to the table.

Are there provisions for whistleblowers within the board itself? How do we make sure it is possible for somebody to stand up and say that something is not right or needs to be exposed? How will that be encouraged?

Mr. Maurice Crowley

Is the Senator referring to a board member?

Senator Rose Conway-Walsh

Yes.

Mr. Maurice Crowley

I do not know the answer to that. It would be for the board members themselves to decide what they want to do in that regard. If that was something that they wanted to do, it would absolutely be within their gift to do it.

Senator Rose Conway-Walsh

These issues need to be borne in mind because there is an enormous trust-building job to be done within the whole banking sector.

Deputy Michael McGrath

I welcome Mr. Crowley and his colleagues to the meeting. To pick up from where Senator Rose Conway-Walsh left off, we should acknowledge that we would not be here today having this discussion were it not for the tracker mortgage scandal. That was the catalyst for all of the various initiatives and events since then, not least the Central Bank's report into behaviour and culture at the Irish retail banks. The industry's own initiative with the banking culture board also stemmed from that scandal.

The reality is that tens of thousands of customers were wronged and while the industry and individual banks will argue that certain instances were down to interpretation of the contracts and so on, there were very clear, black and white instances of customers being wronged. I am not asking Mr. Crowley to get into that today but it is fair to say that is the background and it explains why we are here today. That was a very costly experience for many of the people we represent. It will end up being very costly in financial terms for the banks, with estimates now at more than €1 billion. We have dealt with many individual cases where lives have been turned upside down, where people have lost their homes and families have had to go through negative life changing experiences because of it. We look at these reports and they can seem to be very abstract and have little relevance to people but they all stem from the tracker episode. In itself, that was not the first episode in the history of Irish banking, by any means, where consumer interests were not protected. It was a very bruising affair and its effects continue today. We will have the banks in before us again in the next month or so to discuss it and other issues.

The Central Bank's report on behaviour and culture was completed in July 2018. It involved each bank being issued with a risk mitigation programme. I do not expect the witnesses to be aware of what each individual bank has done because the Central Bank issued institution-specific findings from its behaviour and culture reviews. To Mr. Crowley's knowledge, has the work on bringing forward a risk mitigation programme progressed since the publication of the Central Bank's report? What steps have the banks taken to address the institution-level measures that were recommended?

Mr. Maurice Crowley

Obviously, as the Deputy said, we would not be privy to the individual risk mitigation programmes. I know from my own experience and from discussions we have had that any risk mitigation programme that comes from the Central Bank is taken extremely seriously because there are sanctions associated with not fulfilling the requirements in a timely fashion. The only information I have is that the banks are actively engaged in working through the actions identified and agreed with the Central Bank with a view to completing them in a timely manner. I do not know any more than that at this stage but I do know it is being taken very seriously.

Deputy Michael McGrath

The Central Bank's report said that the banks would be required to devise action plans in response to the institution-specific findings of the behaviour and culture reviews. We assume that this work is progressing in the background but at the level of the individual bank.

Mr. Maurice Crowley

Yes, it is at the level of the individual bank and I think the Deputy's assumption is a fair one. As I said, any risk mitigation programme that comes from the Central Bank is taken extremely seriously because of the responsibilities to which the banks sign up and the sanctions that apply if they do not meet the requirements and timelines of those plans.

Deputy Michael McGrath

Moving on to the new banking culture board, as Senator Rose Conway-Walsh said, there is a lot of scepticism around what can be achieved by that entity. It is being funded by the industry. I am not suggesting that taxpayers should fund it and in that context, one might ask how else it would be funded. It is being funded by the industry and is an industry initiative. It is important that there would be a non-banking majority on the board. I and others have engaged with Mr. Justice Hedigan and his team at the various consultations and have given our tuppence worth. We will see, when the report is published in April, exactly what is being recommended.

Is it not a fact that banks are commercial organisations that are seeking to maximise profits? They are accountable to shareholders and looking for returns from dividends and capital appreciation by way of share prices increasing. Because of that mandate, at every turn they will seek to maximise returns and profits. Who within them is advocating for consumers? Who within the banks does the Banking and Payments Federation of Ireland expect to advocate on behalf of and in the best interests of consumers? I do not see that it is anyone's job within them to do so, nor would it be easy to do so, given their overall objective. It is fine to have a board and all of these strategy statements and plans in place, but is a bank not just going to seek to maximise profits because that is its job?

Mr. Maurice Crowley

The Deputy referred to the banking culture board. Even from where we are coming we recognise that it is inevitable there will be initial scepticism. As far as the industry is concerned, it is very much a reaction to what happened in the case of tracker mortgages and the scandal that ensued. Notwithstanding the fact that it is funded by the industry, it is intended to be completely independent of it, which is very important.

The Deputy raised a challenging question. On one level he is not wrong - a bank is answerable to a set of shareholders and subject to all of the commercial imperatives this imposes on any organisation, not just a bank. However, the world has moved on, for banks and others. There is recognition of a much broader set of stakeholders. Having said that, there is a need for more proof of the pudding that it is moving on in our own sector and I believe a banking culture board would be a single manifestation of it. Work is being done by individual banks to demonstrate how they are changing their stripes in the context of having a consumer focused culture. They each have different programmes in their own right.

The Deputy asked who advocated for the consumer and referred to boards, senior executives, strategies and plans. Fundamentally, advocacy on behalf of the consumer has to start with the senior leadership in a bank. If it is not shown by it, the best efforts of people throughout the business will be diminished, but it does not mean that there are no people throughout the business advocating for the consumer. In our view, if one talks to any of the banks, it has to come from the top down. There has to be clear leadership, not just statements. There must be actions, rather than words. There has to be a consumer-centric culture, but it is not easy. The Senator referred to the length of time it took to change and embed a new culture. Unfortunately, as a sector, we are not unique in trying to change and improve the culture.

Deputy Michael McGrath

I hear what Mr. Crowley is saying and understand why he is giving that response, but when it comes down to brass tacks and the reality of being a member of the executive leadership team within one of the main banks or on the board, a person's sole objective is to secure the best performance of the bank in maximising returns and profits. I am not sure there is anyone who is putting up his or her hand to say, "Actually, I think our consumers would be better served if we allowed more flexibility in the way they could move from one product to another, or, as certain life circumstances arise, we were to allow them to move from a fixed rate." I do not get the sense that that is the function of any particular person. It should be everyone's function, but there is the direct contradiction in that it would run contrary to the core objective of the bank.

Mr. Maurice Crowley

I do not believe that is particularly fair. I certainly do not accept that it is the sole objective of any organisation, not just banks, with their public shareholders, to maximise returns for shareholders. Historically, that may have been the case, but not anymore because I do not believe society or legislators would allow it. There could, for example, be a customer advocate in each bank. but that would just be seen as posturing.

It would be of greater value if the leadership was demonstrating by its actions that it was advocating for consumers. I assume that when it becomes part of SEAR, it will cover advocacy and a responsibility to treat the customer fairly and that this will be mapped for all senior executives.

Deputy Michael McGrath

Does Mr. Crowley believe consumers should be represented at the highest levels within banks?

Mr. Maurice Crowley

That is a difficult one. With regard to there being a consumer representative on the board, it has been tried before with public interest directors. Without getting too technical, one would then get into a situation where the issue would be whether the responsibility of these directors was concerned with the collective good of the company versus their individual interests as consumers. Because it would be only one voice, I am not convinced that providing for such representation is the answer, but banks have to be held to account for their behaviour. That goes back to the Senator's earlier questions. Clearly, the senior executive accountability regime, SEAR, will be an important avenue. From our conversations with the Central Bank, Bank of Ireland and the Department of Finance, they have been clear, rightly so, that they want to see accountability on the part of individuals. Part of the issue in the past was that many decisions were taken on a collective and participatory basis. In those circumstances how does one focus on the accountability of individuals? The SEAR will break that link. Tthere will be a much clearer focus on holding individual accountable. I assume it will be incumbent on the Central Bank to include the consumer as a key part of the responsibilities in that regard.

Mr. Felix O'Regan

To supplement that response, Mr. Crowley referred to the fact that so much of what was happening in Ireland with the Irish Banking Culture Board was going to be informed by what had happened in other jurisdictions. The Netherlands and the United Kingdom are very good examples. One of the messages coming back which clearly will inform the thinking is that rather than responsibility for advocating on behalf of consumers being situated within one part of an institution, it is about trying to have it permeate throughout the system. That is a major challenge and it will not happen overnight, but that seems to be the message that is coming back based on the experience in other jurisdictions. That is the journey on which they have embarked. It has been done in different ways in the Netherlands and the United Kingdom, but people involved with the banking board seem to be able to report and point to developments and progress in that regard. It will be a journey. Essentially, what we are trying to achieve is permeating responsibility for behaviour from the customer's perspective throughout the organisation, as distinct from lodging in one part of the organisation.

Deputy Michael McGrath

I have a final question for Mr. Crowley about SEAR which is another acronym for us. It stands for senior executive accountability regime. Mr. Crowley has made the point that we need to ensure it will not be introduced in a manner that will hinders the attraction of talent to the sector, or mobility and diversity within banks. I want to tease out this point while we are talking about the retail banks. There are other banks that focus on corporate banking, as well as internationally focused banks and asset management companies. There are also various strands of financial services and so on. Is Mr. Crowley saying that if the regime is overly burdensome, it will make it more difficult for the retail banking sector to attract and retain executives because they will have the option of moving elsewhere on the financial services landscape where the regime will not apply?

Mr. Maurice Crowley

I do not think it is peculiar to the retail banks. We have been consulting our own members and it is the intent of the Central Bank to cover all banking organisations licensed in Ireland, as well as third country branches. We will be the first port of call, for want of a better word, with asset managers and other actors active in this market.

Deputy Michael McGrath

It will apply across the board to all regulated entities.

Mr. Maurice Crowley

Yes.

Senator Gerry Horkan

I thank Mr. Crowley for his opening statement andinitial observations. A lot of points have been covered. For the benefit of those who may be watching the proceedings of the committee, will Mr. Crowley explain who exactly his organisation represents in the banking and payments industry?

I presume Mr. Crowley's organisation represents the five pillar banks but I do not know who else is involved with his organisation.

Mr. Maurice Crowley

That is a fair question. There are the five domestic retail banks, between 35 and 40 international banks, which would not all be pure banks but for the sake of simplicity let us call them banks, and also a number of payment institutions. We also represent or work very closely with Fintech through an organisation called Fintech & Payments Association of Ireland.

Senator Gerry Horkan

Would it be fair to say that this cultural report will stretch across all the organisation's banking members?

Mr. Maurice Crowley

Yes. It was directed first and foremost by the retail banks given the circumstances in which they found themselves. I would draw a distinction in that the Central Bank of Ireland's culture and behaviour report was focused on the retail banks but that has led us, driven by our international banking members, to have more than a conversation around the culture and conduct within their own institutions. Layered on top of that, the SEAR will capture, for want of a better word, everyone.

Senator Gerry Horkan

That was the point I was trying to get at, namely, that the SEAR and all the various regimes, the enhancements to the current fitness and probity regime, the unified enforcement process and all of that, will be taken on board by all these people which is a good thing.

Mr. Maurice Crowley

Yes.

Senator Gerry Horkan

Obviously the term "senior executive" has to start somewhere. How do we define what or where in that respect? Approximately 23,000 people are working in the banking industry in Ireland. Many of them are doing fairly ordinary jobs where they would be very much exposed to the customers but they would not be necessarily making the types of decisions that caused some of the problems we had during the past ten years in terms risk taking and so on. An official who would process a cheque that I would hand in over the counter would not be a senior executive. What percentage of the overall workforce is likely to be in the senior executive category?

Mr. Maurice Crowley

I would probably struggle with the percentage. There are two layers to this. Within each organisation already they are what are called pre-approved control functions and control functions. Nobody can operate in those functions without the approval of the Central Bank of Ireland. That would be a senior executive team but it would also come down to heads of department. The Senator's point is that it is at a fairly general level. The control functions would reach quite far down into the organisation and while they would not necessarily be caught, for want of a better word, by the SEAR they would be caught and captured by the fitness and probity regime. There will be a continuing annual assessment, in effect, of people's fitness to act in those roles. The more senior roles are signed off by the Central Bank while the more junior roles are signed off after assessment within the bank but the Central Bank of Ireland has oversight of those internal assessments as well. It is hard to quantify. The senior executives constitute a smaller cache but the overall regime reaches much further down into the organisation.

Senator Gerry Horkan

I thank Mr. Crowley for outlining that. We are discussing this, as Deputy Michael McGrath outlined, because of the bad behaviour what went wrong. We would not have set up a banking culture board if everything had worked fine, everybody was making lots of money and nobody had been affected by the banks' bad behaviour. It is in any bank's interest that its employees are fit and capable to do what they are doing.

Mr. Maurice Crowley

Yes.

Senator Gerry Horkan

However, in terms of people being fit and capable to do their jobs, the banks had a culture of lending money without making sure that it was available to come back in. They had a bonus culture at the time of rewarding people for the money that left an institution as opposed to the money that came back into it as a result of wise investments and so on. Much of that has changed but a breakdown in one of questionnaires completed by AIB indicated that 9% or 10% of AIB staff earn more than €100,000. That is not a huge percentage but nearly 1,000 people are still earning more than a €100,000 a year which, by any measure of the Irish workforce, is a reasonably significant amount of money. People see that many people working in the banks are still in good jobs and doing well and the banks are now back making money yet they are chasing people for their money. I know they have to do that but we have heard at this committee that sometimes people were being hounded and chased in an unfair manner.

They were being rung at certain hours of the day and between ten and 12 times a day. All that feeds into the culture of the banks. As Deputy Michael McGrath outlined, the banks have a culture. Ultimately they are accountable. Corporate governance requires them to be accountable to their shareholders. They are working on behalf of their shareholders who want them to maximise returns subject to the laws of the land. Ultimately, their bonuses, assessments of performance and so on are based on how well the bottom line is performing. This culture board wants to make sure that the banks are consumer focused. It represents the banking institutions and, in theory, it is more likely to deal with the senior executives in all the banks than with the people on the ground at the counters. How do we get to a stage where banks never mis-sell a product? There is an incentive to sell people products. They may not need all the products they are being sold. There has been a culture in the banks, as we have seen with tracker mortgages and other issues, of not treating customers well. I am asking Mr. Crowley about this rather than the banking culture board but he has experience of banking and is dealing with bankers all the time. How do we get to a stage where the customer is at the centre of every decision, as opposed to the profits?

Mr. Maurice Crowley

It is a tough one. Some of my comments may relate to how I answered Deputy Michael McGrath's points. It is not just down to the banking culture board, to be fair. It will help in the setting of standards and in highlighting the issues that exist from a sectoral perspective. It comes back to what happens within each individual bank. I disagree with the notion that a bank's sole objective is to earn profits and maximise revenues. Having said that, I do not dispute there is an ongoing need for a change in culture to having a more customer-centric culture. That is why I drew a distinction in my response to the previous Senator between the individual accountability framework, which clearly and genuinely has a role to play in driving out and taking a greater level of responsibility regarding the customer and treating the customer fairly, and changing the culture, which is slightly different because the framework is a framework but we also want a mindset and a set of behaviours that thinks in favour of the customer. The banking culture board has an important role to play in that. Regulation to date is playing a role in that under the Central Bank's consumer protection codes. It has strict standards now on the introduction of new products, which is called product oversight and governance, so regulation has a role to play, but in the middle there is that kind of leadership and drive to change people's behaviour. Some of that, and it was there when I worked in one of the institutions, is down to how one reviews people's performance. If one is solely reviewing people's performance on the number of widgets they sell or the profit they make, one is not going to change the culture. Certainly in the institution in which I worked at the time, one's qualitative behaviour was as important as one's quantitative behaviour. There will have to be much more focus and emphasis on that to balance the quantitative emphasis at the end of the day.

Senator Gerry Horkan

There were people in jobs and high-profile cases where people were suing RTÉ for what it said about them. Effectively, those people were being incentivised in junior roles to do tasks that borderline met the regulations. They were very much focused on the bottom line at the time. That culture has significantly changed. It is not necessarily Mr. Crowley's job to change it but we have had Insurance Ireland before the committee as the face of the insurance industry and Mr. Crowley is before the committee effectively as the face of the entire financial services sector. From his industry's perspective, he will have a job selling it to the wider public that he is on their side and is there for, dare I say it, the little old lady who goes to the bank to lodge coins or present a cheque of a Tuesday morning. They comprise a significant number of people. They may not be the most important people in respect of a bank's profitability but in terms of the people that we all represent they are important and sometimes they feel excluded by some of the banks' activities, particularly the retail banks in the way they have changed how they operate. Equally, I take on board that many people are happy to be able to make payments online.

It is difficult for Mr. Crowley. On one side he is representing the banks and I do not doubt that he wants to work with the banking board, represent the industry and so on. Equally there is a certain reticence in his points about needing to get the balance correct between a clear focus on customers and potentially being over-bureaucratic. There is a need to ensure it does not hinder the attraction of talent.

I remember a famous interview with a former chief executive of Anglo Irish Bank who suggested regulation was a great idea but it should be light-touch regulation. I am sure it has been repeated many times on RTÉ at this stage. I am not suggesting Mr. Crowley is of the same demeanour, but there is a certain amount of proceeding slowly and teasing it all out. When will this take effect so that people can see somebody as being accountable?

Mr. Maurice Crowley

The Senator raised a number of points. In some ways I do not want to give the wrong impression. The Senator's Seanad colleague also picked me up on this. At the end of the day the sector and individual banks are fully committed to the introduction of the SEAR. Like any other sector or trade body we will certainly look to influence it, but in a positive way.

On timing, the Central Bank has indicated to us that it hopes to have enabling legislation certainly in the first half of this year. It would then plan on issuing a consultation paper later this year or early next year. I presume that consultation paper will have a set of draft regulations. The Central Bank will set the pace here. We will certainly make submissions in an attempt to influence the outcome. Depending on one's definition, I think this will happen in an expedited manner. There is momentum behind the SEAR politically, legislatively and from a policy-making point of view. I cannot put an exact date on it, but I expect us to see a serious outline in the first quarter or first half of next year indicating how it will work and how it will impact on banks.

Senator Gerry Horkan

Mr. Crowley made a point about the balance between executive and non-executive directors. I am not sure anyone else has covered it. Supposedly the purpose of non-executive directors is to challenge. Senior executives who are very much hands-on are there all the time. I am sure many people in business regard board meetings as something they have to get through and put up with. They feel they are doing their best to run the bank every day of the week and the last thing they need to be doing is spending a lot of time preparing for board meetings or Oireachtas committee meetings when they come in here. It is an important part of oversight that somebody takes an outside view. Mr. Crowley suggested that we will not look at it in the same way as the UK. What was his point there?

Mr. Maurice Crowley

I am not sure what the point was there. Obviously, as the Senator said, there is responsibility to the senior executives. Coming out of SEAR, there will also be accountability for non-executive directors. Nobody is resisting that at the end of the day. Notwithstanding the efforts one has to put into preparing for a board meeting, it is very clear now that the responsibilities of non-executive directors of a bank board without SEAR are much more significant than they used to be. The expectations of those non-executive directors from the Central Bank of Ireland, the European Central Bank, and the joint supervisory teams that come to Ireland to inspect these banks has significantly increased over what it would have been a number of years ago. They are expecting a level of expertise. They expect evidence of review and challenge of individual decisions made at board level. My point was slightly more technical. That clear and present requirement needs to be married with the legal collective fiduciary responsibility a board of directors has for the running of a company. They are not incompatible; it just needs to be managed and resolved.

Senator Gerry Horkan

Mr. Crowley talked about improvement and being protective. One of the points he made is that we could end up with people trying to avoid decisions. Members of these Houses, and certainly members of the Cabinet, might sometimes be accused of avoiding all decisions on the basis that if they make a decision they will get something wrong. To a certain extent, Mr. Crowley is saying that with decision-making comes accountability. People may avoid making decisions so that they avoid having to be accountable for any decisions because they have not made any. We may see that behaviour here from some of our own Opposition Members or Government colleagues in Cabinet who avoid making some decisions.

Mr. Maurice Crowley

It is not something one would like to see. I would not be entirely clear how long a person would survive in an organisation without making decisions.

Senator Gerry Horkan

It might be slightly easier in here than in the banks.

Senator Kieran O'Donnell

I welcome Mr. Crowley. Things have changed considerably in Banking and Payments Federation Ireland. One of Mr. Crowley's predecessors, Pat Farrell, was probably one of the best known people on the airwaves for a number of years because there were such issues. I was a member of the Joint Committee of Inquiry into the Banking Crisis. When it came down to it, it was all about risk. The banks and particularly their chief executive officers, CEOs, took too much risk.

Has the federation had any new members in recent years? Are any new banks entering the Irish market? Are we getting a more competitive market? There is a sense that the market has become less competitive.

Mr. Crowley said that it is not all about return for the banks. I believe it is and I have no problem with that. Banks have shareholders. People invest in banks to get a return. It has to be about money. Does Mr. Crowley believe the current accountability regime for CEOs and top officials in banks is sufficient? Is there a need for a senior executive accountability regime as proposed? People working down the line in banks were put under pressure to sell products by top management in the boards. I distinguish between the CEOs and the board, and people working in banks who are on the front line. We have spoken to many of them who were put under terrible pressure to meet targets and make returns.

Has the federation had many new members? What is its role? Is the current accountability regime sufficient? If it is not sufficient, what issues should be addressed? Under the current set-up, can CEOs and top management on boards take risks that put the banks in jeopardy given that we still have a significant level of taxpayers' money invested in many of those institutions?

Mr. Maurice Crowley

The Senator asked about new members and additional competition. Certainly in my five years there have been a number of new members. I am focusing largely on the retail side, I suppose. They have been largely entrants on the mortgage side of the business. There is Dilosk. There was a second competitor, called Pepper, but Dilosk has bought Pepper.

Senator Kieran O'Donnell

Is Pepper a member of the federation?

Mr. Maurice Crowley

Dilosk, Pepper and Finance Ireland are all members of our federation. They are small, but they are all new players on the mortgage market, which I think everybody would welcome at the end of the day. Most of the additional competition emerging on the Irish market is virtual. By and large I believe that any new competition will come in on a digital platform rather than on a bank-branch platform at the end of the day.

Senator Kieran O'Donnell

It is a Fintech model really.

Mr. Maurice Crowley

It is Fintech in a market. The Senator reads the statistics as much as I do. N26 is capturing a number of customers in this market.

Starling Bank from the UK, whose CEO we met a couple of weeks ago, is planning a launch in Ireland later this year. Starling Bank is run by Anne Boden who used to be the chief operating officer of AIB a number of years ago. She spoke at a function in Dublin and made it clear that the bank would launch in Ireland later this year and would also use the country as a platform to sell into Europe.

Senator Kieran O'Donnell

What products will the bank offer?

Mr. Maurice Crowley

I understand it will be a full suite of personal and business banking.

Mr. Felix O'Regan

It will be personal banking initially but it wants to branch into the SME sector. Like a lot of new players, the bank also provides a platform for the provision of other services from third parties such as insurance and ancillary services.

Senator Kieran O'Donnell

Will the bank have an office in Ireland?

Mr. Felix O'Regan

Yes.

Senator Kieran O'Donnell

But not a branch network.

Mr. Felix O'Regan

No.

Senator Kieran O'Donnell

It will be online.

Mr. Maurice Crowley

It is a demographic the bank is pursuing successfully. It will be incumbent on the main retail banks here to respond to that competition. The Senator asked about today's accountability regime versus what is proposed. I do not know if the word "regime" is the right one. There is a level of accountability within each bank, as there should be, and each bank operates that in its own fashion. However, there are advantages to SEAR because it makes clear each individual senior executive's function, role and responsibilities. The point was made earlier that it is about mapping across an organisation to ensure there are no gaps in the responsibility map. Everything is covered at the end of the day. It will bring a welcome level of formality and framework to the whole process but if one talks to an individual bank, there are performance review and assessment processes involving senior executives all the way up to the board. However, this gives us a lot more visibility within a bank and more visibility to the supervisor, namely the Central Bank or Ireland or the ECB. That is important and that is why we welcome it. Given what has happened in the past, we need to be able to demonstrate more clearly as a sector and as individual banks that we are taking responsibility for a wide range of issues, not just for the return of equity and profitability in the institution. The Senator referred to pressure to sell products and meet targets. There has been a great deal of change in the regulation in that regard over the past number of years, and rightly so, largely through the good work of the Central Bank of Ireland. I mentioned the consumer protection code. Between the Central Bank and Europe, a great deal of work has been done on product oversight and governance as to the initial design of a product, its performance, who buys it, who does not and what the outcomes are. That is all necessary change given what happened.

Senator Kieran O'Donnell

Is it correct that the federation's role is to represent the banks?

Mr. Maurice Crowley

Yes.

Senator Kieran O'Donnell

Let us call a spade a spade. The federation's role is to represent the interests of the banks. Mr. Crowley has covered all of the technical stuff but I use the opportunity to ask the following: what is the federation's view on caps on salaries and bonuses in banks?

Mr. Maurice Crowley

At one level, we are waiting to see what the Korn Ferry report produces. It is a challenging topic because if one looks at the sector in general, the domestic retail banks are competing to retain or attract talent. I am speaking not only about senior executive level. They are competing with other banks domestically and internationally with respect to specialist roles. Given the way banking is going, they are competing for talent as much with the technology companies. If one looks at the vast body of a bank's IT staff, quantitative analysts, risk and compliance people, they are in demand across the sector and not just within the retail banks. Remuneration in whatever form is part of the retention process and part of the attraction process. I am not sure exactly what is appropriate in banking terms given what has happened, but one must recognise at the same time that one is competing with companies with share schemes, bonus schemes and variable pay schemes, however constructed. If we are not to weaken the underlying fabric of the banks in respect of the talent we get or seek to attract, we have to look at what is in the mix. That is the general comment I make. Whatever happens on the remuneration side must be reflected as well-----

Senator Kieran O'Donnell

Are the federation's members calling for the cap to be lifted and for bonuses? Are they asking the federation to make representations to allow caps to be lifted and bonuses to be reintroduced as the norm in the industry?

Mr. Maurice Crowley

No, they are not. However, they are keenly interested in what emerges from the Korn Ferry report and what the Department of Finance and Government more generally decide to do with it.

They have a genuine concern that they are losing talent and not attracting talent they could otherwise be getting. They are competing with a lot of people for that talent now. That is a genuine underlying concern. However the report turns out, banks feel they are at risk in their ability to remunerate people across their institutions, not just at senior level.

Senator Kieran O'Donnell

Is there anything that should be done to attract more traditional players to the Irish market to provide banking competition?

Mr. Maurice Crowley

I go back to the point I made about the digital players. Ireland is too small a market for someone to build out a branch network. The rewards will not be there. A simile I use every so often is that Ireland is the size of greater Manchester.

Senator Kieran O'Donnell

As we stand on the cusp of yet another vote in Westminster, is Brexit providing, ironically, opportunities for Ireland to attract UK-based banks? Is the federation getting many inquiries in that regard?

Mr. Maurice Crowley

The only ones that are visible are Bank of America and Barclays, which are growing their operations here significantly. The IDA's success has largely been with asset managers and specialist functions like prime brokerage. By and large, the banks have dispersed their activities across Europe. While we have seen a certain amount and are very pleased that Bank of America and Barclays are reaching the scale they are aiming for in terms of employment, there has yet to be a mass exodus of pure banking from the UK to Ireland.

Mr. Felix O'Regan

The main pattern or trend is banking services and other support services moving in significant volumes to Dublin with a view to passporting into other markets. It is more in the international banking sphere. Brexit does not look like offering additional solutions in the retail banking space for the very reasons Mr. Crowley outlined.

Chairman

Mr. Crowley's organisation represents five domestic banks, 30 or 40 other banking entities and then the Fintechs. What does it do for its members?

Mr. Maurice Crowley

We do a couple of things really. We represent their interests but our bread and butter business is, fundamentally, to influence legislation domestically and in Europe, particularly in the latter in more recent years, as so much new legislation and regulation of the banking sector has come from the EU. We now have an office in Brussels to which a permanent staff member is posted. We look to influence the legislative process and what comes out in those circumstances.

Chairman

In favour of the banks.

Mr. Maurice Crowley

Yes, in what people will hopefully perceive as a balanced way. We are trying to influence legislation to land in a way that is sensible and which does not disrupt the financial stability of the banks and allows them to do their business in an appropriate manner. A great deal of the legislation which has emerged in recent years has been highly technical, in particular around capital requirements, liquidity and so on. As much as anything else, one is looking to influence the technicalities of legislation rather than its overall thrust.

Chairman

Does the federation do more than that for its members? That is a lobbying process.

Mr. Maurice Crowley

Yes. I suppose it goes to a question-----

Chairman

How often does the federation engage with the banks?

Mr. Maurice Crowley

We engage at all levels at a level of frequency from senior executives down to working groups. A classic example is that to the extent that there is a significant policy development or legislative proposal from Europe, we engage with a working group of member representatives who are experts in the particular field. If it is a question of capital requirements, we gather a group of experts from the banks to look at the legislation.

To clarify, this engagement relates to influencing the legislation, as the Chairman has said, but it also relates to the fairly significant process associated with the implementation of any kind of legislation. We work with members to help them to interpret the legislation and to see what kind of processes they need to put in place to implement it appropriately.

Chairman

Banking and Payments Federation Ireland lobbies and interfaces with Government officials and so on in the context of the technicalities of legislation. When the legislation is passed, it translates it into something which is easy for the senior executives and staff below them to understand and which explains how the legislation influences their businesses.

Mr. Maurice Crowley

It is more that the banks make assessments of the legislation but that they then work together collectively to ensure that they have it interpreted it correctly. This is non-competitive stuff. The banks work together to ensure they are putting the correct processes in place to implement the legislation appropriately.

Chairman

I presume the federation charges membership fees.

Mr. Maurice Crowley

We do.

Chairman

What are those fees?

Mr. Maurice Crowley

We do not disclose that information. We are a not-for-profit organisation. The members fund us to the extent needed to keep the place functioning, but no more than that.

Chairman

It is a not-for-profit organisation.

Mr. Maurice Crowley

Yes. We have approximately 27 employees. On another question the Chairman asked, we also look to drive a lot of evidence-based research. We do an awful lot of work on how the Irish mortgage market is developing and on identifying the leading indicators in the SME market. We do a certain amount of work-----

Chairman

The federation does analysis.

Mr. Maurice Crowley

We do analysis and then publicise it to share with all the stakeholders. The emphasis is on mortgages in particular at the moment. It is a very hot topic in this market. We also look at the development of the SME market and at payments. There is a big move away from traditional methods of payment to cards, digital services and so on. We use the data we get from the banks and from the Central Bank to share the trends that are out there.

Chairman

I would say that it is not the usual €50 a head membership fee. Is it substantial?

Mr. Maurice Crowley

I am not going to be drawn on that issue.

Chairman

Is the membership fee based on the size of the entity, is it tiered or is it there a single fee for all?

Mr. Maurice Crowley

It is not appropriate for me to share that information with the committee. I do not believe anyone else who was invited before the committee would either.

Chairman

The federation is paid by the banks. I deduce that it is paid a significant amount, given that it employs 27 people and that it does all of the work that it does. I will leave that question to one side because Mr. Crowley does not wish to answer it. What did his organisation do during the crisis in the context of its work in representing and interacting with the banks?

Mr. Maurice Crowley

I find it hard to comment in that regard because I was not working for the federation during the crisis. It is a question I cannot answer. I do not know. I was a bystander in all of that.

Chairman

Would Mr. Crowley's two colleagues like to comment?

Mr. Felix O'Regan

We did nothing different then from what we do today. It was far more challenging and complex. To answer the Chairman's original question, we are a representative body for the banks. We do for the banks what the IFA does for farmers and what IBEC does for industry. Referencing much of what we have been saying here, we have recognised over recent years that we can do that job best by aligning, insofar as possible, the interests of the banking sector with the interests of our stakeholders. Included in those stakeholders are the business representative groups. We have regular engagement with these groups, especially those in the SME and consumer sectors. It is not always possible to align these interests 100% but it is increasingly possible to find common interest around different issues. There is no getting away from the fact that we are primarily a representative body to promote and protect the interests of the banking sector but there is recognition - and there has been such recognition since the financial crisis - that this job can best be done by seeking to identify common interests with stakeholders and by aligning those interests wherever possible.

Chairman

To separate out the IFA and the bodies that represent various businesses at national level, the IFA lobbies. We have all been lobbied by the IFA from time to time.

It generally delivers for its members at national and European level in its members' best interests. That is the way it operates. Mr. O'Regan is saying that his organisation delivers in the best interests of its members, which are the banks. There is therefore as much of a need to change the culture in his organisation as there is to change the culture in the banks. If I pay a group to represent me and it decides to represent me in a way that curtails my ability to increase profitability, I would get very upset with that group. I would not pay my membership fee again. How does Banking and Payments Federation Ireland deal with that?

Mr. Maurice Crowley

The Chairman has described the activities of the IFA and, in ways, we are not different from that group.

Chairman

I believe the federation is very different.

Mr. Maurice Crowley

We operate in different sectors but it is the ultimate intent of both organisations to represent the interests of their members both domestically and at an EU level. We are no different in terms of our raison d'être at that level. Things are changing for us as a federation. The demands our members make of us are changing. They want us to continue to represent their interests domestically and at EU level, but they are also keen to work with us and for us to work with them on more consumer-centric areas, for want of a better word, and on initiatives relating to wider society. A microcosm of that is the huge amount of work on vulnerable customers and how banks manage them that we, as a sector, have done in recent times, although it is still early days in that regard. There is new legislation coming in around assisted decision-making capacity. We are actively engaged with the HSE's safeguarding committee on that legislation. That is being done at the request of the banks. To the Chairman's point, the banks recognise the difficulties and the damage done over the years of the crisis.

Chairman

The banks caused the damage.

Mr. Maurice Crowley

The banks want us engaged on their behalf in those kinds of initiatives, and they also participate themselves. Another area in which we are heavily involved, although it is again early days, is that of sustainable finance and climate change. We are doing an awful lot of work with Sustainable Nation Ireland with regard to what banks need to do in a changing world in which the banks and others have a clear role to play in moving us to a greener and more sustainable Ireland.

Chairman

We will go back a little bit before Mr. Crowley starts painting-----

Mr. Maurice Crowley

I just wanted to give the Chairman the spread.

Chairman

I will give Mr. Crowley a spread. The federation said nothing during the crisis. I looked over the things that were said during the crisis and the banking federation said nothing. No one within the banking sector cried stop. No one said that, although the banks were paying their membership fees, they were going off the rails a bit. I did not hear that. We will put that to one side because Mr. Crowley does not know. He was not there.

Let us look at what is happening now. I spoke to a woman today who has two or three kids. She is locked in her home because one of the banks is going to repossess. I have spoken to business people who cannot get loans. I have spoken to individuals who have lost their properties. I have read in the newspapers about banks and repossessions and the heavy-handed approach taken to these things. I did not hear the federation say a word to them. I know it is not there to police the banks but surely there is a moral obligation on it to tell the banks that we are trying to change the culture and that the right time to start is not in two years' time when the legislation or this or that review is done, but now. In a period when the banks are not being taxed and are making massive profits, they just might find some sort of moral compass. Would Mr. Crowley encourage them to search for that moral compass?

Mr. Maurice Crowley

The Chairman remarked on a couple of things. At one level, as the Chairman said, given our role as a trade association we are not, at the end of the day, the keeper of our members.

I will not comment on the cases or individual points that the Deputy raises because those are for individual banks to deal with and I am sure they have dealt with that before the committee. I feel that the conversation is drifting away from what we came here to talk about, which is the individual accountability framework and the future framework for accountability, which we very much support, and we have clear support from our members to drive that forward with the Central Bank of Ireland and Department of Finance.

Chairman

These may be uncomfortable facts. I am not putting any onus on Mr. Crowley or saying that it is his fault. I am asking him if, within that tough banking sector, someone would introduce a conversation about those involved conducting themselves properly, whether in the courts, directly in repossessions, or in a one-to-one with individual customers. We are talking about changing the banking culture to centre attention on the customer. My background is very small business. My customer was king. I think it is incredible that we have Mr. Crowley's organisation, the Central Bank and this new body under a judge to tell a business that it should think of its customers and to change the culture of how it treats its customers. That tells me that the behaviour of businesses up to now was obnoxious in many cases. Maybe, as a representative body, the Banking and Payments Federation might say to the banks that they had a good shot at it, are getting good profits and are not being taxed, and as part of this changing culture, they should not wait for two years. He might ask the banks if they will do something that will send a clear signal to everyone that, while they are interested in making a profit and there is no issue with that, they are going to treat things a little differently with regard to correcting the system or customers' issues from the collapse.

Mr. Maurice Crowley

Some of the Chairman's comments are unfair. When one looks at the behaviour and culture report and assessment that the Central Bank did, with much help from the Dutch Central Bank, which has expertise in this area, there were two sides to the stories told. It stated that all of the banks had already made a certain amount of progress to developing a customer-centred culture. It was recognised by the Central Bank and the banks themselves that there was more to do. I think the individual accountability framework is an important aid or catalyst to all of that, but just as important is the work that the banks will do in responding to those risk mitigation plans, RMPs, that the Central Bank has demanded of them, and what they do as an entity over the next couple of years. I do not believe that they are waiting for the senior executive accountability regime, SEAR, to arrive. I think that there is already pressure internally and from the regulator to change the culture. That is as important, if not more important, than what is coming from the SEAR.

Chairman

I am asking Mr. Crowley to take into consideration that, from my experience with the banks, and more recently with the very public experience that we had on the tracker mortgage issue, that the old culture in the bank is alive and well. Dogs resemble their masters, as they say. In any business, the master should be telling the next person down that this has to change. That seeps out to their legal representatives and so on in the attitudes that they express on behalf of their banks. It is time to call out the banks again and to say that enough is enough, since they are continuing in the same vein that they were in.

As far as Mr. Crowley's organisation is concerned, he might disagree with some of the comments I have made, but he should take on board that some of them are true and borne out in the media daily. I wish him well in changing the culture in the banks. It is extraordinary that so many organisations have to be put in place to tell a business that the customer is king. It would frighten me to think they would ever get back to normality, given what they did in or previous to 2008. That is all I am saying and I would love to hear a voice from Mr. Crowley's organisation ticking off its members when it deems them to be out of line and far away from a basic moral compass that one would expect a business of that size to have, while understanding what has to be done in the marketplace to retain staff.

I will only say this in the context of corporate social responsibility and Mr. Crowley can pass on my comments. Banks do all sorts of things in local communities, on which they are to be congratulated, as well as on the manner in which they bring information to small and medium enterprises, SMEs. I would love to see all of it being made clear. They need to emphasise the downside in taking out a loan, as well as the upside, in order that the enthusiastic entrepreneur knows fully what the issues are and that the person seeking a loan understands what all of the small print means. The tracker mortgage issue exposed the fact that, in many cases, people did not understand what they were signing, did not have an opportunity to test it with a solicitor and were encouraged along the way. That happened during the crash. Banks understand banking language and, as much as Mr. Crowley translates legislation for bankers, they should translate their language for the basic consumer or customer.

Now that the banks will not be paying taxes for a long time, they might have a unit to look at their corporate social responsibilities and be a lot more generous in funding initiatives related to health and dealing with marginalised individuals and families. That would tell me that they were thinking about society and their effect on it. They have had a very negative effect on society, families and individuals. There are many cases in which people died by suicide and so on and their stories have been told. The banks should respond in a positive way by acknowledging all of this. I am not taking issue with what Mr. Crowley said.

Mr. Maurice Crowley

The points have been well made.

Chairman

I ask Mr. Crowley not to be afraid to kick the asses of the federation's members if they are not doing things right. Brian Cody does it all the time in the case of the Kilkenny team. I thank Mr. Crowley for his appearance.

Sitting suspended at 3.45 p.m. and resumed at 3.50 p.m.

Chairman

I welcome Mr. Tobin, Mr. Dorgan, Ms Cotter and Ms Curtin to the meeting. I have already read out the notice on privilege and I am sure the witnesses have heard it before. We take note of that.

Mr. Gary Tobin

In order to maximise the time for questions my opening statement will I hope be suitably short.

I thank the committee for inviting the Department to address it on the matter of the future framework for accountability in the banking sector. I am accompanied by my colleagues Eoin Dorgan, Fidelma Cotter, and Clementine Curtin. We very much see today as a useful listening opportunity and look forward to hearing the views of the committee on this matter so that they can be considered as part of the forthcoming Central Bank (amendment) Bill.

There has been a complete transformation in the regulatory environment since the financial crisis. The approach to banking supervision now is more assertive, risk-based, and challenging, and one which is underpinned by new legislation, including the Central Bank Reform Act 2010; the Central Bank (Supervision and Enforcement) Act 2013; and the creation of the European Single Supervisory Mechanism in 2014. These have changed regulation and supervision of the banking sector almost beyond recognition.

The European banking union, EBU, provides for a single prudential supervisor through the Single Supervisory Mechanism, a single regulatory rulebook, and a Single Resolution Mechanism for resolving failing institutions. This aims to improve co-ordination and militate against negative spillover in the future. However, even the best systems in the world cannot guarantee that there will never be issues. We acknowledge the work of the committee in bringing to light the seriousness of the tracker mortgage scandal in late 2017. On foot of that, the Minister for Finance, wrote to the Governor of the Central Bank, under section 6A of the Central Bank Act 1942, requesting a review of the culture and behaviour within the retail banking sector in Ireland. At the same time, officials in the Department submitted to the Minister proposals for responding to the tracker mortgage examination. This work included considering the introduction of a regime similar to the UK senior manager regime. The section 6A consultation was completed when the Central Bank published the report, entitled Behaviour and Culture of the Irish Retail Banks, in July of last year. The report outlined possible remedies for some of the cultural failings in the banking sector. The proposals independently brought forward by the Central Bank were very much in line with the proposals developed by the Department at the instruction of the Minister, as both institutions were looking at international best practice.

The Central Bank co-operated extensively with the Dutch Central Bank on its report as it is one of the leaders in the field of financial services culture. The Department focused on the implementation and lessons from the UK's senior managers' regime and conduct standards given the close relationship between the two financial sectors, which will see significant institutions move from the UK to Ireland post Brexit; and their similar common law legal system, although our constitutional protections create more complex challenges. The international evidence, as set out in the Central Bank's report, illustrates that improvements in banking culture, through increased individual accountability, lead to better consumer protection and financial stability outcomes.

These are the two core objectives of our Central Bank and therefore, the Minister for Finance has committed to increasing individual accountability in the financial sector. To implement this, the Department has been working with the Central Bank to bring forward these proposals to legislative change. These proposals encompass conduct standards for all regulated financial services providers and the individuals working within them; a senior executive accountability regime, SEAR; and enhancements to the current fitness and probity and enforcement regimes. The proposals will also encompass key aspects of Deputy Pearse Doherty's Private Member's Bill.

We all know that the new legislation must be robust enough to withstand challenge, because we have no doubt that it will be challenged, as the existing administrative sanctions regime has been. Ireland will be among the vanguard of a number of other countries now advancing national legislative change to improve banking culture. We intend to bring the heads of a Bill to Government for approval in the near future, and once agreed, we will be engaging with the committee. We welcome today as an opportunity to hear the ideas and expectations of the committee for the forthcoming legislative changes.

Deputy Joan Burton

I welcome the witnesses. I cannot quite grasp what Mr. Tobin means by "culture". It sounds very nice but my experience is that a financial institution is usually a very powerful one and individual customers, whether a single person taking out his or her first mortgage or a couple buying a house, are very much at a disadvantage.

Years ago, the culture was such that a person could barely get an application form from institutions. It is still very difficult. I would like to see a customer champion in banks, somebody who is on the customer's side, in respect of communication and ease of comprehension. People are making the biggest investment of their lives for a significant part of their adult life, that is, for 25 to 35 years or more. When I meet people for whom things have gone wrong, I often wonder whether somebody in the bank at the time should perhaps have advised the person that the burden they were taking on was going to be significant for them and their family. That does not seem to happen. Back in the 2000s I argued that people with a consumer debt background should be appointed to the panels in the regulatory structure. Have the officials formed a view on how to address this?

A culture of financial numeracy could be brought into schools to give children some knowledge of the framework. Some schools do it but many do not. As banking moves increasingly online, the visible presence of familiar banking institutions is on the wane in towns or suburbs as most banking is done remotely. Have the officials thought about how that might be addressed to try to balance the scale between the bank and the customer? This would be very much in the interests of the financial institution because it wants successful borrowers who enter into a loan arrangement they are likely to be able to maintain and will want to maintain because they understand what the relationship is about. It is a commercial relationship. There is a significant return to the bank if the lenders are successful, if it has chosen its lenders properly.

I was very involved in promoting the Rebuilding Ireland home loans initiative. I do not know if the Department was involved in that. My local council, Fingal County Council, has stopped taking any more loans. There is enormous population growth in its area, that is, the north of Dublin county and Dublin 15, and house prices there have rocketed.

I worry that the drift to professional landlords buying the bulk of available properties off the drawing board affects the supply of feasible mortgages for the traditional mortgagees who could be two civil servants, at executive officer or assistant principal officer level, committing to 25 years. Has the Department considered the long-term implications of that in terms of culture, given the inflation in houses and how banks may be funding big commercial landlords rather than individuals?

Has the Department considered what the long-term cultural implications of that are? Does it still see banks as being likely to provide mortgage lending to individual customers on middle and lower incomes? I have in mind two civil servants who have been the public service for between eight and ten years, who have earned a few increments and may have been promoted once or twice. The way everything is going, it will be increasingly difficult for such people to buy as they are being squeezed out by the banks' other customers. In cultural terms, these matters have profound implications for people.

Mr. Gary Tobin

The Deputy raised a lot of interesting issues. She asked an interesting question about banking culture. It is a strange phrase, in a way. I am reminded of what the head of the International Monetary Fund, Ms Christine Lagarde, said recently to the effect that those working in the financial sector must be as serious about values as they are about valuations, and just as passionate about culture as they are about capital. A lot of this derives from the fact that an unacceptable culture operated during the financial crisis. In 2011, the Commission of Investigation into the Banking Sector in Ireland stated that cultural failings within the banking sector were a significant contributory factor to the financial crisis.

Mr. David Needle, an academic at King's College London, has focused on banking culture. He says banking culture represents the collective values, beliefs and principles of its members and is a product of management style and the organisation's vision, norms, environment and habits. The best definition of culture which I have come across is one that describes it as what people do when nobody is watching. We need to be mindful of what bank employees are doing when, for whatever reason, the regulator is not watching.

Senator Kieran O'Donnell

That is where there is light-touch regulation.

Mr. Gary Tobin

If we can imbue the many thousands of people who work in the banking sector with a good set of behaviours, it will be of benefit to customers.

The Deputy mentioned individuals applying for their first mortgage and she is right. There is an asymmetric information relationship because the bank representative has all the information and knowledge, which the customer does not have. It is a somewhat unequal relationship, which is why it is important to have the right regulatory framework in place and culture is part of that. She also hit the nail on the head by referring to financial literacy, which is increasingly referred to as "financial capability". There is an issue in many countries, arguably including Ireland, in that our populations may not be as financial literate or capable as they need to be. This is going to be a real challenge going forward and the Competition and Consumer Protection Commission has recently done a study on the issue of financial capability. It has put forward some interesting suggestions for how financial literacy in Ireland could be improved.

It is a bit like health promotion. Rather than addressing an issue when somebody falls ill, we want to get people to act in a healthy way so that they do not get ill in the first place. In the same way, we want people to make good financial decisions so that they do not get themselves into financial difficulty.

The Deputy asked about the home loan scheme under Rebuilding Ireland. It is a programme of the Departments of Housing, Planning and Local Government and Public Expenditure and Reform, and the Department of Finance is not involved.

On the question of appointing consumer champions to banks, the Minister for Finance has recently made two significant appointments to the Central Bank Commission. One is Mr. John Trethowan, who is the credit reviewer and who deals with small and medium-sized businesses, SMEs, on a weekly and daily basis which are having difficulties with banks. He has a wealth of experience in understanding the difficulties that SMEs have with banks. The other is Niamh Moloney, a renowned academic who is head of law at the London School of Economics and was the head of the consumer panel on the Central Bank.

There was a suggestion that large corporate landlords were buying up properties. The economic research team in the Department of Finance has recently published an interesting analysis on this issue. I do not claim to be an expert but the research is available on our website and we can make it available to the committee. Its general conclusion is that, to date, such investment is relatively modest in the overall scheme of things. It tends to be quite high profile because it is often in high-profile areas, particularly in Dublin. It is small in scale relative to all the new building that is going on.

Deputy Burton also made an interesting point about the move to digitalisation and online banking. As consumers decide to move to online and phone banking, leaving fewer and fewer bricks-and-mortar bank branches, we need to avoid creating a new set of consumers who are left behind in the process of digitalisation. There are particular concerns for older citizens, who should be able to access digital banking in a convenient way.

Deputy Joan Burton

I do not know if the Department has done any research into this, but professional landlords are driving rents very high and this is a significant economic factor. While the numbers in this market are small compared to more traditional investors, such as mortgage holders who buy residential property for a family, they are driving rents up to much higher levels, which means a three-bedroomed house which was available two years ago for between €1,600 and €1,800 is now heading for €3,000 or more. The banks are agents of this because they fund such investment.

This is causing many problems, especially in Dublin, where it is at of its most extreme. The pressure on wages is enormous because unless one is earning a high salary, people such as those employed in the public sector and others will not be able to afford either to rent or buy. The properties are being bought up by investors who are reaching out into all the Dublin suburbs. If the Department is following markets, has that trend come to the attention and crossed the radar of the officials? I am sure everybody is talking about it at the water cooler, because those entering the labour market as a graduate or postgraduate and earning €30,000 plus are finding it difficult to compete for accommodation with these other entrants. In terms of culture, do the officials involved in regulation and setting law have a view on this?

Mr. Gary Tobin

I thank the Deputy for the question. The housing market is incredibly complex. What we saw in the run up to the crash was unsustainable lending to the construction sector, in large measure driven by the banks. We do not want to repeat that overlending. The Deputy referred to the commercial landlords, and essentially a new model - build to rent, is becoming apparent. What has tended to happen is that the banks are far more reluctant to lend to the construction sector for obvious reasons in that they have had their fingers badly burned and the construction sector is looking increasingly to non-bank finance to fund apartment construction. The build to rent model tends to be used for apartment blocks. Some of the investment funds were financing the construction of these apartment buildings. Now, not only are they financing the construction of the apartments, they have also in certain instances decided to buy the apartment blocks themselves and rent them out as they see that as a stream of income. Ultimately it is a policy decision whether the Government of the day thinks this is good or a bad. These investors are supplying additional supply into the market and obviously the market is not homogenous and there are different types of submarket segments and they tend to be supplying the upper end of the market.

The ultimate solution is supply, supply, supply. Supply will be the solution to the rental situation. The Department of Finance is following the housing market closely. We have a particular subgroup of our executive board which meets regularly and only looks at the housing market and we have published a number of recent papers on the housing market, including quite detailed statistics, which are all available on our website. We are quite happy to make some of that available to the committee members if it would be of interest to them.

Senator Gerry Horkan

I thank Mr. Tobin for his opening remarks. I note his comment that he sees this as a listening exercise. No doubt the Chairman and I will have a few comments to make. Mr. Tobin acknowledges that this report was as a result of the work of this committee on the tracker mortgages. We would not be having a discussion on banking culture, were it not so blatantly shown to be toxic in terms of how every single major bank managed to do exactly the same thing in exactly the same way, entirely independently of each other.

It is difficult to believe that they all did the same thing separately in the same way.

It is slightly self-congratulatory to highlight the complete transformation of the regulatory environment. I acknowledge the Central Bank Reform Act 2010, the Central Bank (Supervision and Enforcement) Act 2013 and the Single Supervisory Mechanism, SSM, have made a change, but if the officials had been listening to the contributions of the representatives from the BPFI, there are many who are not convinced, let alone fully convinced that the banks have changed in how they view customers. I know plenty of people who are using post offices more than they use the banks, in spite of the fact that the money might end up in the banks anyway. People feel that the banks do not want walk-in customers. That may be true. There are plenty of bank customers who never want to go near a bank, and I accept that but now bank queues are particularly long, they have different days for coin services and there are branches that do not have human interaction for cash where customers must use a machine. Many people feel that the banks have not learned many of the lessons that the public would like them to have learned, in terms of how they should regard the customer as their main focus. For the banks, it is about return. There will always be a challenge between looking for return for shareholders and so on.

Mr. Tobin said that the outcome he wants is better consumer protection and financial stability and that will be achieved through individual accountability through SEAR, and enhancement to the current fitness and probity and enforcement regimes. I have a number of other questions. I am looking for a timeline. What is the timeline for this regime? How long will the consultation period be? When will this regime be put in place?

Mr. Gary Tobin

I thank the Senator for his questions. I refer to the move to cashless branches and cashless banking. He is absolutely right that this phenomenon is happening. When we talk to the main banks, they tell us - and he may well say that they would tell us this but we are certainly not uncritical of what the banks tell us - that in certain instances they may have fewer than ten people walking into a branch every day and, in some cases, every week. People have voted with their feet or their fingertips and they are now doing 99% of their banking online or on their phone. That is a reality. The banking landscape in five or ten years will be fascinating because increasingly what we are seeing is the emergence of digital challengers, be it Revolut or N26. Starling Bank, which is an online bank that has indicated that it will enter the Irish market. The landscape of banking is changing absolutely.

The Senator asked about the timeline for the new regime. We are bringing forward the Central Bank (amendment) Bill 2018. We have been considering the Central Bank of Ireland's behaviour and culture report and discussing its recommendations with the bank. We have been discussing it with the Minister for Finance and we have his agreement to have discussions with the Office of the Attorney General, which are now ongoing on drafting the heads of the Bill. The aim of the Bill is to legislate for the provisions in the culture report, including senior executive accountability regime, conduct standards, and enhancements of the fitness and probity regimes, and the key elements of Deputy Pearse Doherty's Private Members' Bill. We very much want to bring those heads of the Bill to the committee for pre-legislative scrutiny as soon as we can. To some extent we are dependent on the Office of the Attorney General regarding how fast that happens.

Members will appreciate that the Office of the Attorney General has been fully engaged in the omnibus legislation for Brexit that I know Deputies in this House are all too familiar with.

Senator Gerry Horkan

That is set to be done today.

Mr. Gary Tobin

Indeed. The scale of the omnibus legislation is having something of a knock-on impact but we hope to be, unfortunately, back in to see the committee relatively quickly, assuming that the Office of the Attorney General can turn its full attention to the Bill. That office is already dealing with the Bill but we hope to be back in relatively soon.

Senator Gerry Horkan

I do not know why Mr. Tobin has said "unfortunately". Surely he delights in the fact that he is coming in here to myself, the Chairman and the other members of the committee.

Mr. Gary Tobin

I meant unfortunately for the committee.

Senator Gerry Horkan

Fair enough. I will take that. I do acknowledge that the world is moving on in terms of going cashless, tapping and all the rest. I know of owners of pubs and restaurants who are talking about going fully cashless and a lot of places are similar. The banks need to bring some customers on a journey in terms of technology because these people are less comfortable with debit or credit cards, still like the feel of notes and view the technology as a black hole. In ten or 20 years time those people will not exist in the same way that most people do not write cheques very often anymore and use other ways of paying such as electronic funds transfer, EFT, or whatever. I know of a school that opened a post office account because its bank did not deal with cash except on a Friday. The school took such action because when it got cash between Monday and Wednesday it had nowhere to go with the money. The banks may say that customers have voted with their feet but customers have felt compelled to vote with their feet because banks have made accessing banking services fairly difficult. If one finds that there are 40 or 50 people queuing in a bank when one wants to make a transaction then one will not queue too often and will find other ways to bank. There is a bit of a carrot and stick approach. Many of the people that I have met, who are perfectly reasonable and ordinary, do not feel welcome in their branch but that is probably the way it is going to go. In terms of what we did for the banks as a State and nation, and the hit we are still taking in terms of paying out, sometimes people are surprised to realise, as I mentioned in the earlier session, that there are almost 1,000 people working in AIB who earn over €100,000 each. We got those figures. They may only be 9% of 10,000 people or whatever but it is still a lot of people earning a lot of money for a bank that cost the State a fair bit of money. Maybe in the end it will not cost too much but certainly we took a lot of hit for it at the time, and certainly other banks did too.

The Department of Finance still has a stake in a number of the banks. It has a very significant stake in PTSB and AIB, and a smaller stake in the Bank of Ireland. In terms of the relationship between the valuation of the banks, which ultimately is to all of our benefit as a nation, and the culture, the Department has a role to make sure that the banks do what they do. The Department probably has a role to protect the shareholding on behalf of the Minister, who is the shareholder, on behalf of all of us who benefit if the bank shareholding increases in value and will have lesser resources if it does not. What relationship does Mr. Tobin see between the valuation of the banks and their culture?

Mr. Gary Tobin

I thank the Senator for his questions. In terms of cash, I would not want to give the impression that we, as in the Department, necessarily want to move to a completely cashless society. We recently published a study entitled Benchmarking Payments in Ireland that assessed where Ireland is in terms of moving towards a cashless society. The main finding is that we are moving there relatively quickly. A lot of that is positive but one of the potential negatives is that we are going to become ever more reliant on technology. The one thing one can be sure about technology is that it is great when it works but it is not so great when it does not work. One of the takeaways for us in terms of the review is that we still feel that cash needs to remain as an option for people to use. We are also very conscious that there may be certain members of society, for a variety of reasons, who may want to use cash and not go completely digital.

In terms of the question about the role of the Department as shareholder versus legislating for regulation, we are mindful that it is really important that we, as a Department, do not become captured by the sector. That is why we have very deliberately split responsibility for the shareholder function away from the banking policy function. My colleagues and I work on banking policy. We have responsibility for working on the regulatory framework for the banks and working on issues such as the banking culture. We have a completely separate unit led by my colleague, Mr. Des Carville, who looks after the shareholding function. We have Chinese walls because there are different divisions within the Department with different responsibilities. We think it is important that those two functions are separate so that we, on the policy side, and please excuse the expression, are not contaminated by the role of shareholder.

Senator Gerry Horkan

This is not a new concept. In the old days we had a Minister for transport who on one hand was the Minister for transport and tourism but was the 100% shareholder in Aer Lingus on the other. A balance had to be struck between protecting the airline, which was a big deal back then, and promoting tourism and fostering new airlines, which Ryanair was at the time. Chinese walls are fine but the guy at the top, the Minister for Finance and for Public Expenditure and Reform, must try and split his head into two or three different components and compartments. We can bring in Mr. Carville on a different day and ask him the following question. Is there a way from a banking policy perspective that we can use our State shareholding to influence the culture in the banks and get them to perform in the way we would like? I am not talking about their behaviour in everything but their culture, how they perform and how they put consumers first. Is there a way for us to use what I believe to be the 75% shareholding in AIB, the more than 74% shareholding in the Permanent TSB and, to a lesser extent, the shareholding in Bank of Ireland?

Mr. Gary Tobin

I personally think it is important that the functions should be separate. From the perspective of the taxpayer, our primary responsibility as shareholder is to get our money back as quickly as possible and, hopefully, make a little profit. It is important that the shareholding team has a commercial mandate to realise as much of a return for the taxpayer as possible. I totally understand the point that has been made about us using the influence we now have as shareholder.

Senator Gerry Horkan

I mean leverage, influence or whatever one wants to call it.

Mr. Gary Tobin

Yes. There could be a danger of a slippery slope. Were we to start influencing for certain reasons, then inevitably we would start doing other things.

Mr. Eoin Dorgan

To expand on that, a lot of the banking culture is looking at the long-term value of banks. It is a regulated entity so, increasingly, one is seeing at the forefront of this, particularly in the UK and the Netherlands, that the logic of this is the long-term sustainable value for the shareholder and fostering a customer-centric approach. As Mr. Tobin mentioned, our colleagues in the shareholding advisory division meet the banks, and we will expect them to be saying that. The banks get it from both sides because when they meet our division we emphasise what we want, which is a competitive banking environment that supports customers, because that is in the long-term interest of the wider economy. It is also in the longer-term interests of the banks themselves in that they are competing in competitive environments. If they do not do so, they will be undercut with the growth of banking union and, as has been said, banking is more international because Internet banks are being offered across the European Union.

Senator Gerry Horkan

How important is culture to an external investor?

Mr. Gary Tobin

Increasingly, culture is very important for a variety of reasons.

To pick up on an issue Deputy Burton raised, one thing to have emerged from the culture report is the need for Irish banks to increase their diversity in their decision-making. While there is a gender element to that, it is not just a matter of gender. It is also about diversity of experience and diversity of thought. Part of the problem in the financial crisis was that there was not enough diversity of thought in our banks and there tended to be an element of groupthink. We also tended to have overconfidence within our banks in the run-up to the financial crisis. Perhaps because there were too many individuals with the same background, there was not enough internal challenge within the banks. Investors will increasingly look for diversity of opinion and diversity of thought in banks because they want to ensure that there is not that same groupthink mentality or that overconfidence we previously had.

Senator Gerry Horkan

The Minister for Finance commissioned a Korn Ferry review of the remuneration available. When is it likely to be published?

Mr. Gary Tobin

That review is ongoing and I do not have an exact timeline for when it is due to be published. The background is that certain banks wished to reward their staff by way of bonus at their annual general meetings but the Minister decided to vote against that in certain cases. His view was that, rather than taking an ad hoc approach to the issue, a more considered and critical analysis needed to be carried out on the need for variable pay. One issue which concerns me is that there are relatively low-paid staff in banks who provide front-line customer service but who cannot currently receive any type of performance-related pay. One could argue that it would be positive for customers-----

Senator Gerry Horkan

That was going to be my final question. It is obvious that people who do well should be rewarded and I refer to staff at the customer service level as much as anything else. Currently, bonuses are effectively banned and, therefore, positive performance cannot be rewarded. On the other hand, people who are not performing cannot be punished. Does remuneration have a role in this regard? It does not have to be significant. If someone earns €25,000, for example, and is paid an extra 10%, it will not severely damage the bank's profits or lead to widespread decision-making of a dangerous nature. Is there a role for remuneration in promoting better culture?

Mr. Gary Tobin

There potentially is-----

Senator Gerry Horkan

Within limits.

Mr. Gary Tobin

Within limits. In the case of front-line staff, it could be relatively small amounts but they could have a positive impact on the customer experience. While regulation is important to ensure good behaviour, there could also be a carrot, albeit a small one, as well as a stick.

Senator Kieran O'Donnell

I welcome the officials. Mr. Tobin quoted Christine Lagarde, and I have no doubt that many of us will ourselves use the quote about the two Vs and the two Cs hereafter. He referred to people doing things when no one is watching and I made the comment that it was like light-touch regulation. Given that the subject is within the remit of the Department, how would the officials categorise the current regulation over banks and their activities in Ireland, and is it sufficient? What are the risks of people still being able to do things without anybody watching?

How do the officials regard the current level of lending in the economy? Is there enough competition among the banks? I refer to areas that fall within the remit of the Department.

As an aside, Mr. Dorgan and Ms Cotter appeared before another committee in respect of treasures in the vaults of the Irish banks, but it is incumbent on us, as members of this committee, to do further work on the matter. Is it possible to bring in legislation to ensure that such treasures in various vaults of the banks can be used for the national good if they are not claimed? The matter is a variation on dormant accounts. Mr. Tobin might address my first questions before Mr. Dorgan or Ms Cotter responds to the latter set of questions.

Mr. Gary Tobin

Thankfully, I can honestly say I know nothing about safety deposit boxes and, therefore, I will leave those questions to my colleagues who were involved in that issue.

On the current regulation, we consider the Central Bank, as it is now, as an assertive and robust regulator. While people may disagree with that and have different views, and while they may think the tracker mortgage investigation has taken too long and so on, the tracker mortgage investigation is one of the most complex investigations that has ever taken place in the State. It involves probably well over 1 million mortgage contracts and a vast amount has been paid as redress to affected customers. On an objective basis, the investigation would be seen as robust.

Senator Kieran O'Donnell

We did a great deal of probing and work in that area. To provide value for money for the public, we did work on tracker mortgages that contributed enormously to highlighting the problem and speeding up the process. I wonder if the speed of activity would have been as pronounced if we had not carried out significant due diligence in the area. Although I take the point that when the investigation got going, a large body of work was done, my comment on the subject is fair.

Mr. Gary Tobin

In my opening remarks, I referred to the role that the committee has played in the tracker mortgage investigation, and I agree that it was important. If the Senator is asking me how I would characterise the current state of financial regulation, I think it is robust and assertive.

Senator Kieran O'Donnell

Does Mr. Tobin regard the regulation as still being light touch or, if not, how would he characterise it?

Mr. Gary Tobin

No, I certainly would not regard it as light touch. Two substantial Acts, namely, the Central Bank Reform Act 2010 and the Central Bank (Supervision and Enforcement) Act 2013, have been passed and they are overlaid by the new role for the SSM. Lessons have been learned over the past eight years, approximately, since the Central Bank Reform Act 2010.

Senator Kieran O'Donnell

What difference will SEAR make in enhancing the robustness of regulation?

Mr. Gary Tobin

What is important about the senior executive accountability regime, SEAR, is that it will provide clarity to the Central Bank as to which individuals within a financial institution are explicitly responsible for what. It will also make it clear how decisions are made within firms in order to encourage individuals to take on greater responsibility for their actions. Throughout the financial crisis there may have been a perception that either everybody was at fault or that nobody was and, therefore, nobody was at fault. As witnessed with the senior managers regime in the UK, the move to SEAR has made who is responsible for what far more explicit. If one wants to put sanctions against individuals in place and if one wants those sanctions to stick and to be legally robust, it must be very clear who is responsible for what.

Senator Kieran O'Donnell

How does Mr. Tobin feel about the level of lending across all areas of the Irish economy?

Mr. Gary Tobin

To take the small and medium-sized enterprise sector for a start, we regularly do credit demand surveys in respect of SMEs. What we have found in general is that the level of supply is relatively robust. There is a supply of credit to SMEs. That is what is coming back to us from these independent credit demand surveys.

Senator Kieran O'Donnell

Who is the sample for those surveys?

Mr. Eoin Dorgan

Some 1,500 SMEs are used for each survey. We can get the Senator the most recent survey. It has always been independent.

Senator Kieran O'Donnell

That is fine.

Mr. Gary Tobin

What we have found-----

Senator Kieran O'Donnell

How regularly are those surveys done?

Mr. Gary Tobin

They are done either quarterly or twice a year. What we have found over the last 12 months is that there is something of a chilling effect on the demand side. The SME sector is not borrowing as much as we would expect.

Senator Kieran O'Donnell

To what does Mr. Tobin put that down? Is it a result of Brexit?

Mr. Gary Tobin

We certainly believe Brexit could be having an effect and that SMEs may be postponing investment decisions until-----

Senator Kieran O'Donnell

Is that quite evident from the figures?

Mr. Gary Tobin

There is certainly an element of that. It is not only Brexit. Obviously the economy has been performing very well in recent years. Cashflow in SMEs is relatively high, therefore SMEs are, to some extent, sourcing their own funds from their own cashflow.

Senator Kieran O'Donnell

They are pulling back on working capital funding because cash is doing that job.

Mr. Gary Tobin

Yes, but it would be surprising if SMEs were not taking account of Brexit. With regard to the demand for and supply of credit in the consumer market, that is now driven by the macroprudential rules to a large extent. The Department of Finance is very supportive of these rules. These are rules which the Central Bank has put in place, the purpose of which is to prevent excess lending into the market. We occasionally hear commentators say that these rules should be relaxed. That concerns me because, while I quite understand why people would want to take out mortgages four, five, or six times their income, it would be incredibly unwise in terms of their own financial capability, about which we talked earlier. While those macroprudential rules are difficult in terms of the requirements they put on consumers in respect of deposits and so forth, if we are not to repeat the same mistakes we made the last time, we have to do things differently.

Senator Kieran O'Donnell

I would like to discuss an issue that is being raised repeatedly and would not have been an issue heretofore. There is a generation of people who have been renting for the last ten years and paying very high rents. Depending on the area of the country they are living in, they could be paying €900 to €1,500 per month, as is the case in my own area of Limerick. If they are paying that level of rent over time, it reduces their ability to save but it shows their capacity to pay. Could ability to pay be factored into a relaxation of the rules in the case of, say, a person approximately 30 years old who has a well paid and secure job but is finding it difficult to save a particular amount because of the high cost of rent? A person of similar age and circumstance who is living at home might be able to save for a deposit but it is possible he or she would be on a lesser gross income. I ask Mr. Tobin to comment.

Mr. Gary Tobin

The situation the Senator describes is one with which everyone would have a lot of sympathy. In the past couple of days, the Department of Finance, in conjunction with the ESRI, published new economic research around the potential impact of interest rate increases, including the possibility of people going into mortgage arrears. The reason we carried out that research is because interest rates are at historically low levels right now but inevitably in the medium to long-term they will normalise and increase.

Senator Kieran O'Donnell

To what level does Mr. Tobin anticipate they will rise? I hope the response will not be that it is a policy matter.

Mr. Gary Tobin

I have learned not to comment on interest rates. Obviously, that is a matter for the European Central Bank, which is independent.

Senator Kieran O'Donnell

Will Mr. Tobin give a broad overview on where he sees interest rates going in the short to medium term?

Mr. Gary Tobin

It was reported in the Irish Independent yesterday, or a couple of days ago, that the ECB has indicated that interest rates are unlikely to rise until 2020. That is how things currently stand but as the committee knows it could be a different picture next month.

Senator Kieran O'Donnell

I thank Mr. Tobin. Will Mr. Dorgan address the question on the treasures in the banks and on whether legislation could be brought forward to treat them in the same way as Dormant Account Funds for the public good?

Mr. Eoin Dorgan

In terms of the interest rate environment, the NTMA does foresee a normalisation of interest rates and it has been locking in the existing low rates over recent years.

Senator Kieran O'Donnell

Will Mr. Dorgan elaborate on the timeframe? Is it from 2020 onwards?

Mr. Eoin Dorgan

To be honest, all of the commentators say it is stretching out.

Senator Kieran O'Donnell

Does the Department monitor the purchasing of the NTMA?

Mr. Eoin Dorgan

It has made a very conscious policy decision over the past four or five years to lock in rates, which have largely remained pretty much at the same level for the last three or four years. It is illustrative of where the state and the wider market sees interest rates as at an all-time low. The research to which Mr. Tobin referred seeks to bring to public attention that people need to make individual decisions to protect themselves from changes in interest rates.

On the banks and safety deposit boxes, essentially this issue arose during our appearance with officials of the Department of Community and Rural Development at the Joint Committee on Community and Rural Development.

Senator Kieran O'Donnell

Will Mr. Dorgan elaborate on the finance dimension of the proposal?

Mr. Eoin Dorgan

Obviously, there is a cost implication either for the State or for banks and most likely their everyday customers who are paying interest rates.

That is the first issue that has to be considered. The second issue is one that was raised during the passage of the Dormant Accounts Act 2001. Essentially, it would be very difficult to take control of private property assets without having a strong common good rationale for legislating to deliver it. For us, these remain the two main issues. As we mentioned to the committee at that time, there may be an argument around the common good in regard to artefacts of national and historic importance. That might be a good way of trying to address the common good argument. It becomes much more difficult to justify it on the basis that one person would be rewarded with an asset of which he or she had no knowledge or awareness but at a cost to the wider public.

Senator Kieran O'Donnell

It could be structured in a way that the cost of the due diligence would be met from the value of the artefacts or unclaimed deposits. It could be self-financing.

Mr. Eoin Dorgan

The problem is that the asset would have to be sold.

Senator Kieran O'Donnell

Yes.

Mr. Eoin Dorgan

In the case of a family heirloom, that may be very difficult.

Senator Kieran O'Donnell

I accept that.

Mr. Eoin Dorgan

Also, the State would have borne the cost and the person would then know that he or she had an entitlement to an asset.

Senator Kieran O'Donnell

It is extraordinary that we have invested heavily in the banks and there are effectively dormant accounts by a different name within the vaults of those banks. I would have thought the Department could request or encourage the banks to undertake due diligence of such vaults. If there is nothing therein of substance, so be it, but if assets are found that could be used for the public good surely it is incumbent on us and on the banks to do the work in this area without incurring significant costs. It is a reasonable proposition that has captured the public imagination for a variety of reasons. It would be remiss of this committee to not seek further clarity in this regard.

Mr. Eoin Dorgan

From our initial analysis, the strongest rationale would be the historic argument.

Senator Kieran O'Donnell

Is there any possibility of the Department engaging with the banks to encourage them to do this work in the public interest? We have all heard the banks speak about a social dividend.

Mr. Eoin Dorgan

We would be opening up real legal risk without a legislative statutory support for that action.

Senator Kieran O'Donnell

Is Mr. Dorgan of the view that legislation is needed?

Mr. Eoin Dorgan

It was so difficult to provide for this in the Dormant Accounts Act it was decided to proceed with the core element of that Act, which was the dormant accounts element, because it was seen as the priority at the time.

Senator Kieran O'Donnell

Could the dormant accounts legislation be amended to provide for an initial trawl by the banks?

Mr. Eoin Dorgan

We would have to seek the advice of the Attorney General. The point I am making is that from an uninformed legal position the national monuments legislation would be mechanism for doing that.

Senator Kieran O'Donnell

Is that the route the Department would have to go?

Mr. Eoin Dorgan

That is our initial take on it.

Senator Kieran O'Donnell

It is not something that can be left in abeyance. We must see what-----

Chairman

The Senator will need to have a chat with the Minister for Finance.

Mr. Eoin Dorgan

The other committee is-----

Senator Kieran O'Donnell

Pursuing it.

Mr. Eoin Dorgan

Yes.

Ms Fidelma Cotter

Further analysis is being undertaken. In order to get guidance, the committee is also examining what has happened in other jurisdictions.

Senator Kieran O'Donnell

I thank the witnesses.

Chairman

I have a few questions on the proposed Central Bank (amendment) Bill. Has the Department been lobbied on it by any organisation? How does lobbying occur? Is it through the Minister's office or officials? Banking and Payments Federation Ireland, BPFI, has said that it has lobbied.

Mr. Gary Tobin

In general with lobbying, anyone can seek a meeting with us. People seeking a meeting with me are obliged to declare that on the lobbying register.

Chairman

But the Department has had no-----

Mr. Eoin Dorgan

Ms Cotter, Ms Curtin and I met the BPFI. To be honest, its position was no different than what it laid out to this committee. We have been surprised by the number of UK firms that view the UK's equivalent of the senior managers regime as a positive. Our analysis, and I believe it is also the committee's analysis, is that what has been proposed is what one would expect in any corporate setting. The feedback from the industry, in particular from management and board levels, is that it is reassuring to have mapped out who is doing what in the bank.

Chairman

Mr. Tobin stated in his opening remarks that it was about regulated services. Is there any way of ensuring that those that are not regulated meet some standard? The Central Bank (amendment) Bill is an opportunity to deal with the many issues that have arisen. One of the major issues is the behaviour of vulture funds and non-regulated entities. Can protocols on what sorts of practice are expected be set out in the Bill so that such entities can operate in the market but know from the outset that we are watching them?

Mr. Gary Tobin

As the Chairman will be aware, those loan owners are now regulated by the Central Bank under Deputy Michael McGrath's credit owners legislation from last year.

Chairman

They are covered by these regulations.

Mr. Gary Tobin

My understanding is that they should be.

Mr. Eoin Dorgan

In its section 6A culture report, the Central Bank advocated that certain elements should apply to those industries that had a heavy interaction with consumers. It is being done on the basis of consumer protection and individual accountability. As we go through the Bill, we will explore which industries will be captured.

Chairman

Due to Deputy Michael McGrath's legislation, the regulated services under that heading will be considered as regulated entities as far as this Bill is concerned.

Mr. Gary Tobin

I do not like using the term "vulture funds", but loan owners or vulture funds are regulated-----

Chairman

Mr. Tobin can use the term "charities" if he wishes, since some of them have charities. I doubt that many people would believe him, but go on.

Mr. Gary Tobin

Those investment funds are now regulated.

Chairman

It was mentioned that some aspects of Deputy Pearse Doherty's Bill would be taken on board.

Mr. Gary Tobin

The Deputy has introduced a Private Members' Bill, called the Central Bank (Amendment) Bill 2018, that seeks to provide powers to the Central Bank to conduct inquiries into the suspected provision of false or misleading information to the Central Bank, to impose sanctions in respect of same and to create an offence of providing false or misleading information to the Central Bank.

Chairman

The Department will be taking on aspects of it.

Mr. Gary Tobin

That is what we hope to do. For the record, the Government did not oppose Deputy Doherty's Private Members' Bill.

Chairman

The matter of whistleblowers was mentioned. When Mr. Jonathan Sugarman appeared before us, he told a compelling story and outlined what he did. When we questioned the Central Bank, it told us that it could not tell us whether a sanction had been applied to the bank in question or whether there had been any fine. Under legislation it was not permitted to say. However, when credit unions have a problem and are fined, it is all over the newspapers. Where is the level playing field between the banks and credit unions?

Mr. Eoin Dorgan

Publication is allowed for under the administrative sanctions regime under Part IIIC.

Chairman

In respect of credit unions.

Mr. Eoin Dorgan

And banks. Since 2006, €69 million in fines have been imposed, with the vast majority being imposed on banks.

Chairman

Then why is it that the Central Bank could not state whether it had sanctioned or fined banks?

Mr. Eoin Dorgan

We are also prohibited from having information on individual cases under section 33AK of the Central Bank Act.

Chairman

Is it possible that the Department would reconsider that stance in the proposed Central Bank (Amendment) Bill and include a name and shame section?

Mr. Eoin Dorgan

The Central Bank has been strong in stating one of the key enforcement tools it uses is naming and shaming and publicising all settled administrative sanction cases, which it has done under Part IIIC.

Mr. Gary Tobin

I am open to correction, but the case to which the Chairman referred was pre-2013.

Chairman

Yes.

Mr. Gary Tobin

As such, the Central Bank (Supervision and Enforcement) Act 2013 would not apply. However, we can take the issue away with us and look at it.

Chairman

The delegates should. I do not see why there should be an exemption or any sanction should be a secret. If a bank has done wrong-----

Mr. Eoin Dorgan

If it is a sanction under Part IIIC of the Act, it is published. We can take the Chairman's point about the level of disclosure away with us.

Chairman

The public needs to know.

Mr. Eoin Dorgan

There is an element of interaction between the regulator and a regulated entity under capital requirements directive IV. There are clear gateways through which information can be passed. One of the issues we will deal with in the forthcoming Central Bank Bill is the recommendation made by the Oireachtas banking inquiry committee that information be allowed to flow from the Central Bank to any future Oireachtas committee, using a High Court judge to vet the information to be passed.

Chairman

I want the legislation the Department is proposing to allow for greater exposure of wrongdoing, if necessary, without the matter being complicated in any way.

That brings me to the comment on regulation being beyond recognition. Perhaps that is so, but the banks' behaviour is still the same. They have not changed beyond recognition. I bring that matter to the attention of the officials as they work on the Central Bank (Amendment) Bill. From the committee's discussion on individual cases and the behaviour of banks, it is clear that they still do not give a damn about how and why they pursue people. They do not make sufficient effort to seek a resolution in each case. Now they are taking steps to offload loans without drilling down into them. We have heard regular complaints from individual customers that, rather than it being a case of them not contacting their bank, it is the banks that are not engaging with them.

That is truly amazing given all the concentration that this committee and others have applied to bringing about resolutions. The regulation is there and it is the working of that regulation that will count.

Mr. Gary Tobin

I do not want to comment on individual cases but the Dutch Central Bank is seen as an international leader in this area. It reviewed the Dutch financial crisis and found "that one of the causes was not so much that governance structures were inadequate but that the board and management behaviour was below standard". That goes to the Chairman's point, the regulations were not wrong but the behaviour of individuals was the problem.

Chairman

Mr. Tobin is saying in effect that the Department, the ECB, the Central Bank, and maybe more, were like blind mice running around the place and ignored what was happening.

Mr. Gary Tobin

I do not think I said that.

Chairman

I did not say that Mr. Tobin said it but I am saying there were too many blind mice around not paying attention to what was going on. We may have had the regulation but not the implementation of that regulation and that is as essential today as it was back then.

Mr. Gary Tobin

There is always a risk. We can have the best regulation in the world but if individuals are not following that regulation we are in serious trouble. That is why the proposed legislation that we will bring back to this committee is trying to emphasise individual responsibility and accountability to help ensure that people not only talk the talk but walk the walk.

Chairman

Was it Mr. Tobin who referred to mitigating against negative spillover in the future?

Mr. Gary Tobin

We are all trying to learn lessons from the past. One of the issues that the European Banking Union is examining is the resolution of failing institutions. We want to try to learn some of the lessons from the previous financial crisis so that we do not have taxpayer-driven bailouts in the future.

Chairman

Mr. Tobin referred to diversity of thought within the banks. I would have thought there was loads of diversity of thought, that they had all sorts of ways and means to think outside the box to ensure they put as much money into the public domain and into businesses as they possibly could. They probably had too much freedom of thought. I understand what Mr. Tobin meant but when we look back we can learn a lot from it.

He mentioned the SMEs which I am greatly concerned about because the ones I see are family-run businesses employing people in a parish or community and might be the only employer. They have been affected by the downturn, they are on the credit bureau and will not get loans. Maybe part of the reason for borrowing not being at the level we would expect is that there is a huge restriction within the banks in respect of those SMEs that maybe went beyond what they would normally be involved in and got caught. The banks were saved and flexibility is needed now within the banks such that rather than condemning a whole generation of entrepreneurs who could bounce back and be productive again, there is some incentive. They should measure the risk.

Mr. Gary Tobin

From our perspective, SMEs are essential to the healthy functioning of the Irish economy. They employ most people in Ireland in the private sector. We want and need them to thrive.

Through the crisis some SMEs probably did have a very bad experience with some of their banks and that probably has discouraged them from going back to those banks to get further credit. Perhaps that is one of the reasons they use their own cashflow. Through initiatives such as the Strategic Banking Corporation of Ireland and the schemes such as the Brexit loan scheme, the new long-term loan fund, we are trying to encourage the availability of medium-term and long-term loans to SMEs because we absolutely agree that Ireland needs those SMEs to be successful.

Chairman

The banks need to do more. They understand full well what happened and would also understand that many of those SMEs are not the type of risk now that they were back then, created in part by the banks. I am concerned about communities and parishes where there might be one big employer who is now struggling, not because their idea is wrong but because they cannot get the working capital they want and require. There are many other operators providing loans that we would not like to see in the market. We might like to see a more regulated market place for loans.

Mr. Gary Tobin

There certainly is an increase in non-bank finance available in particular sectors, for example, construction. Some of the banks have told us they would like to do more SME lending than they are doing but they feel that some of the SMEs are deliberately holding back, as I mentioned to Senator O'Donnell, because of the current uncertainty particularly around Brexit.

Chairman

We will leave it at that. I thank Mr. Tobin and his colleagues for being with us today.

The joint committee adjourned at 5.12 p.m. until 2 p.m. on Tuesday, 26 March 2019.