This Bill is complementary to the Central Bank and Financial Services Authority of Ireland Act 2003 which, as Senators will be aware, was signed into law last year. That Act established the Irish Financial Services Regulatory Authority to oversee the activities of financial institutions, including their treatment of customers.
This Bill provides for the establishment of a financial services ombudsman to deal with consumer complaints about financial institutions; the establishment of consumer and industry consultative panels to advise the financial services regulator; new reporting and auditing obligations for financial institutions; power for the financial services regulator to impose penalties on financial institutions for failure to comply with regulatory requirements; a right of appeal to the appeals tribunal in the matter of certain supervisory decisions of the authority; new regulatory requirements for money transmission and bureau de change businesses; and miscellaneous amendments to financial services legislation.
The greater part of the Bill is based on the recommendations of the report of the implementation advisory group on the establishment of a single regulatory authority for the financial services sector. This report, known as the McDowell report, recommended a new architecture for financial services regulation in this country. The Act passed last year put in place a key component of that architecture, the new financial services regulator. This second piece of legislation provides the remaining pieces of the architecture recommended by the McDowell report.
The new reporting and auditing obligations for financial institutions arise from the report of the review group on auditing. The main recommendations of the group have been implemented in the Companies (Auditing and Accounting) Act, which was enacted at the end of last year. The group's recommendations that related specifically to financial institutions are being implemented in this Bill. The new regulatory requirements for money transmission and bureau de change businesses implement recommendations of the financial action task force, an OECD-related body, on the prevention of money laundering and the financing of terrorism.
The miscellaneous amendments are mainly technical in nature, correcting flaws and errors in existing financial services legislation that have emerged in the course of practice. They are further pointers to the need for a consolidation of financial services legislation, something that was also recommended by the McDowell group. I am happy to tell Senators that a consolidation Bill is now included in the Government's legislative programme.
The drafting of the Bill has benefited greatly from the public consultation process on its contents. The consultation process has led to significant changes, especially in the part dealing with the financial services ombudsman. I thank the many organisations and individuals who took the trouble to comment on the original draft heads.
The Bill as presented to the House has also benefited from detailed scrutiny in the Dáil and has been significantly amended in its passage through that House. Many helpful and constructive amendments were put forward by Opposition Deputies, some of which the Minister was happy to accept. I mention in particular significant improvements made to the provisions of the Bill dealing with sanctions, the ombudsman and the Consumer Credit Act. The result of this is a more considered set of legislative proposals.
The financial services ombudsman will deal with complaints from consumers about their individual dealings with financial institutions. Broader issues of consumer protection are the responsibility of the financial services regulator and specifically of its statutory Director of Consumer Affairs. The Bill provides for close co-operation between them and with the pensions ombudsman. This will allow the financial services ombudsman to bring patterns of complaint to the attention of the financial services regulator so that the consumer director can consider whether regulatory action is necessary to deal with the issues highlighted.
Codes of conduct issued by the financial services regulator will form one of the important criteria against which the ombudsman will assess complaints. There is also provision for close co-operation with the Registrar of Credit Unions within the financial services regulator when dealing with complaints involving credit unions. Some amendments to the Credit Union Act are also provided for so that members of a credit union will have the same right of access to the ombudsman as customers of other financial institutions.
In terms of how the ombudsman will deal with complaints, the intention is that a customer should first make her or his complaint to the financial institution concerned. It is in everyone's interest that financial institutions deal with their customers in a fair way and treat their complaints seriously. If a customer is not satisfied with the response of the financial institution, he or she can refer the complaint to the ombudsman. The ombudsman will try to reach an agreed solution between the customer and the financial institution. If this fails, the ombudsman will make a formal determination on the complaint. The ombudsman's determination will be binding on both parties, subject to their right to appeal to the High Court. The overall intention is to provide a simple means for aggrieved consumers to have their complaints dealt with fairly and quickly by an independent person.
The Bill provides for the ombudsman's office to be overseen by a council. The Minister will appoint the members of the council after consultation with his colleague, the Minister for Enterprise, Trade and Employment. The council will consist of up to ten people and people from both consumer and industry backgrounds must be included. The council will be responsible for appointing the ombudsman and any deputy ombudsmen. It will also be responsible for laying down the detailed rules governing the scheme, including the levying of charges on financial institutions to fund its operation.
There are strong accountability arrangements built into the Bill's provisions. There is a requirement for the ombudsman to produce an annual report as well as an annual strategy statement, both of which will be laid before the Houses of the Oireachtas. Both the chairman of the council and the ombudsman are obliged to appear on request before a joint committee of the Houses of the Oireachtas.
The structure set out in the Bill differs from that originally proposed. This reflects the comments received during the consultation process and subsequent contact with the present ombudsman schemes for the insurance and banking sectors. The existing ombudsman schemes have agreed in principle to amalgamate with the new statutory scheme, with their staffs transferring to the statutory scheme. This should prove a highly advantageous arrangement for all concerned, not least the consumer. The statutory scheme will be able to build on the track record and expertise of the existing schemes and their staffs, avoiding what would otherwise be a loss of continuity and expertise. Specific provisions are included in the Bill to facilitate the amalgamation. The Bill also provides for investigations commenced under the existing schemes to be continued under the new scheme.
I now turn to the provisions for the appointment of consumer and industry panels to advise the financial services regulator. The establishment of such panels was recommended in the McDowell report. It is desirable that the financial services regulator pays close attention to the views of those whose interests it is mandated to promote, namely the consumers of financial services, and the providers of those services, the financial institutions.
The provisions in the Bill have been altered significantly in light of the comments made in the course of the public consultation process. The Minister will appoint the panels only after consulting the Minister for Enterprise, Trade and Employment and, in the case of the industry panel, the Taoiseach. The financial services regulator will be obliged to consult the panels on all general policy matters. The Minister for Finance is also obliged to consult both panels before approving the annual budget of the financial services regulator. Reports and opinions of the panels will be published.
The financial services regulator can be obliged to state its reasons publicly if it does not agree with a recommendation from a panel. The regulator is obliged to provide appropriate support to the activities of both panels. Either or both panels can appoint specialist advisory groups on specific issues. The consultative panels will provide a useful reality check for the financial regulator on how its activities are affecting consumers and financial institutions. Again, the public consultation process has provided the impetus for change in the proposals set out in the Bill, which should further enhance the effectiveness of the panels.
The general recommendations of the review group on auditing have been given legislative expression through the provisions of the Companies (Auditing and Accounting) Act, which passed into law at the end of last year. Apart from establishing the new Irish Auditing and Accounting Supervisory Authority, the Act also contributes a further important chapter to the strengthening of corporate governance standards in Irish companies. Of particular importance are the provisions for an annual statement from directors, covering the company's compliance with company, tax and other laws that are material to the company's financial position. The compliance statement must be reviewed by a company's auditor who is obliged to give a view on its reasonableness or otherwise.
The provisions in this Bill cover the add-ons recommended by the review group regarding financial institutions. It provides that the Financial Services Regulatory Authority can require financial institutions to provide it, or another statutory authority, with reports on compliance with obligations under financial services and other legislation. It provides that auditors must make an annual positive statement that they have not come across anything in their examination of a company's finances that would trigger a duty to report to the financial services regulator under various existing statutory provisions. It also gives the regulator the power to require an auditor to provide it with information relevant to its statutory duties. The provisions in this part should be viewed in the context of the Government's determination that we must do all we can to promote the highest standards of corporate compliance in the financial sector.
The McDowell report recommended that the financial services regulator should have the power to impose penalties directly on financial institutions, subject to a right of appeal. At present, the financial services regulator can generally only do so through the courts. The Bill provides for penalties that may be imposed on a financial institution if it breaches a requirement of an Act, regulation or code of conduct. The penalty can take the form of a reprimand, a fine or both. The regulator is also given the power to direct the refund of a charge incorrectly applied. There is also provision for managers to be disqualified from employment in the financial services sector. There is a right of appeal to the appeals tribunal already provided for in the Act passed last year.
The McDowell report also concluded that the appeals tribunal provided a suitable mechanism for review of the financial services regulator's supervisory decisions. The Minister has therefore provided in the Bill for amendments to existing financial services legislation to provide, in general, for a right of appeal to the tribunal rather than to the High Court.
The system of authorisation that at present applies to bureaux de change is being extended to persons engaged in money transmission business. The main purpose of the authorisation system is to facilitate the effective implementation of the anti-money laundering and anti-terrorist funding provisions of the Criminal Justice Acts. The present authorisation regime that applies to bureaux de change is also being amended to encompass the objective of preventing the financing of terrorism. The new provisions address international concern at the possible use of such businesses as conduits for the financing of terrorism.
The Bill includes a wide range of mainly technical amendments to various pieces of financial services legislation. A small number of these amendments are more substantive in nature, as I will now describe.
Some of the amendments to insurance legislation go beyond the purely technical. I refer in particular to the amendments designed to restore the right of an administrator appointed to an insurance company in difficulty to have access to the insurance compensation fund. While we have not had a failure of an Irish insurance company for almost 20 years, it is important that we have in place a range of options to deal with such a situation. The amendments restore the option that was availed of by the then Government when PMPA and ICI got into difficulties in the early 1980s.
I also draw attention to the proposed amendment to section 77 of the Central Bank Act 1989 on mergers and acquisitions in the banking sector. The heads of the Bill provided for the removal of the role of the Minister for Finance in this area, as recommended in the banking sector strategic issues report published in August 2000. While the Minister respects the arguments put forward by the distinguished members of that working group, he has decided, with Government approval, that it would be going too far to remove totally the element of political judgment and accountability that the current arrangement provides. The proposed revision to the 1989 Act sets out the criteria that the Minister for Finance must use when exercising her or his judgment.
I should also draw attention to five proposed amendments to the Consumer Credit Act 1995. One amendment provides that the Minister may extend the provisions of the Act to cover business consumers. This arises from a McDowell report recommendation that non-consumer money-lending should be treated in the same way as consumer lending. The Minister would only intend to exercise this power after consultation with the financial services regulator and careful consideration of the arguments for and against.
Another amendment arising from the McDowell report provides that all institutions who lend on the security of a borrower's principal home be made subject to Part IX of the Consumer Credit Act. Part IX provides protection to a borrower by imposing various obligations on housing loan lenders — for example, to warn the borrower explicitly about the danger of losing the family home if repayment conditions are not met.
The third amendment to the Consumer Credit Act extends the definition of mortgage intermediary to cover so-called introducers. This amendment is being made on foot of a recommendation from the Director of Consumer Affairs.
The fourth amendment gives the regulatory authority the discretion to issue multi-annual authorisations to mortgage intermediaries, as is the case with other types of intermediaries. Finally, it is being made an offence for a financial institution to charge a customer in excess of rates notified to the regulator.
With the passage of this Bill, we will have put in place the essential building blocks of a modern, consumer-focused regulatory system for the financial services sector in Ireland. We will also have contributed significantly to the objective of maintaining Ireland's reputation as a business-friendly, but well regulated, domicile for international financial services activity.
I should add that recent events in the banking sector have highlighted the significance of the provisions of the Bill relating to compliance, consumer complaints and the power to impose sanctions.
I commend the Bill to the House.