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SELECT COMMITTEE ON FINANCE AND THE PUBLIC SERVICE díospóireacht -
Friday, 18 Jun 2010

Central Bank Reform Bill 2010: Committee Stage

This meeting has been convened to consider the Central Bank Reform Bill 2010. It is proposed that we will take a sos of one hour at 1 p.m. and reconvene at 2 p.m. Is that agreed? Agreed. I welcome the Minister for Finance, Deputy Brian Lenihan.

Sections 1 to 3, inclusive, agreed to.
NEW SECTION

As amendments Nos. 1 to 3, inclusive, are related, they may be discussed together.

I move amendment No. 1:

In page 10, before section 4, but in Part 2, to insert the following new section:

"4.—The Governor of the Central Bank and the Head of Financial Regulation shall present to the Houses of the Oireachtas an appraisal of the Recommendations of the Statutory Commission of Investigation on the Banking system within 3 months of such Commission completing its work.".

This amendment relates to the statutory commission of inquiry that is being proposed by the Government. It provides that the "Governor of the Central Bank and the Head of Financial Regulation shall present to the Houses of the Oireachtas an appraisal of the Recommendations of the Statutory Commission of Investigation on the Banking system". I listened to the Governor of the Central Bank, Professor Honohan, when he appeared before the Joint Committee on Finance and the Public Service earlier this week. He is very interested in the work of the commission of investigation. He made a point about what it will achieve. If he was to undertake an appraisal of the work of the statutory commission of investigation, within three months of the completion of that work, it would be a very worthwhile exercise. Such a document could be presented to the Houses of the Oireachtas. I hope the Minister will consider this amendment in the spirit in which it has been proposed.

I do not really understand this amendment at all.

Amendments Nos. 2 and 3, in the name of the Minister, are being taken with it.

I will begin by dealing with Deputy O'Donnell's amendment in order to continue the narrative. It seems to me that it would be premature for me to place the provisions of amendment No. 1 on the Statute Book, given that the terms of reference of the commission of investigation are still under investigation. Therefore, I do not propose to accept amendment No. 1.

Amendments Nos. 2 and 3 provide for the current director general of the Central Bank to be confirmed in the position of first head of central banking for a period to be determined by the director general's current term of office. In its opinion on the draft heads of the Bill, the European Central Bank advised that the statute of the European system of central banks requires that senior office holders in national central banks should be afforded a minimum term of five years in their posts to ensure their independence in such posts. The current director general of the bank holds that office on a fixed-term contract. The effect of these amendments is to allow him to see out that contract. This places him on the same footing as the current Financial Regulator, who will also see out the duration of his contract with the regulatory authority.

The European Central Bank raised a number of concerns in its opinion on the draft heads of the Bill. The various elements of its opinion have been considered in detail. In a number of instances, the text of the Bill as published seeks to address the points raised by the ECB. On the key issue of the independence of the Central Bank, for example, a specific over-arching provision has been inserted into the Bill — Item 23 in Schedule 1 — which seeks to underline the independence of the bank, the commission and the Governor and to ensure none of them can be directed or required to do anything which would be inconsistent with the Rome treaty or the European Central Bank statute. Throughout the text of the Bill, there are specific provisions designed to safeguard or underline independence on European bank-related matters. The bank is considering the steps we have taken so far with regard to this opinion. I understand it will furnish a second opinion shortly. I do not expect the second opinion to raise any further issues which cannot be addressed. I remain anxious to ensure any possible concerns the ECB might continue to harbour will be dealt with to the satisfaction of all.

Will the Minister publish and give to the Opposition the advice or commentary of the ECB on this appointment? I do not think there will be a difficulty with doing that. If we had an opportunity to read exactly what the bank had to say when it intervened, it would help the debate. The Minister is aware that after this Bill is passed, the Governor of the Central Bank will be an extraordinarily powerful person in the Irish administration and governance landscape. He will be the ECB's man in Ireland, in effect, as he will be on the governing body of the ECB. Therefore, it is important that we see what the ECB has had to say. Its comments should be made available. The ECB's views are quite nuanced. Although it is holding a whip over countries like Ireland, fundamentally it wishes to respect the democratic institutions of countries with financial and fiscal difficulties. It is important, on behalf of the public, that Members of the Oireachtas and the general media should have access to the submissions that have been put to the Government. I would be pretty confident that the ECB will have anticipated that the submissions were likely to be brought into the public domain anyway. Given that we could probably get them eventually, perhaps through other sources, I do not think there should be any difficulty with publishing them.

I would like to make a point in the context of Deputy Bruton's amendment No. 1. I have made this point to the Minister during debates on parliamentary questions. I also made it to the Governor of the Central Bank when he appeared before the joint committee last week. The Governor has suggested that the committee should consider having a statutory commission of inquiry. The Honohan and Regling-Watson reports have drawn out a great deal of information. The Governor referred in his presentation to a number of areas, some of which are listed in the Government's draft terms of reference. He identified three specific areas that remain to be investigated. The first area is what went on in each of the banks, with specific reference to the covered institutions. I am not sure he was excluding other banks, which were not subsequently covered by the credit institutions guarantee but which were heavily involved in ramping up the property market and mad speculative lending. The Governor suggested that this inquiry should be done in private, using the model used in the two recent investigations. He further suggested that a report setting out the results of the investigations into each of the institutions should be furnished to this committee fairly rapidly. That, in turn, would allow a mechanism to be put in place whereby the people responsible for decision-making in these institutions — officials at executive, non-executive, director, board and senior management levels — would come to a meeting of the joint committee to discuss the findings of the inquiry. I am persuaded that there is considerable merit in such an approach. I proposed, when I was speaking——

The Deputy is moving away from the subject of these amendments.

No, I am expressing my opposition to amendment No. 1. I propose that we should listen to the suggestion made by Governor Honohan at a meeting of the joint committee the other day. When I spoke in the Dáil the other night in response to a Fine Gael Private Members' motion, I suggested that all parties on this committee, including the Government parties, would be well advised to meet the Governor of the Central Bank in private to get detailed or more considered advice from him about his views on the establishment of a statutory investigation committee. I am conscious that if we take a different road, we could save our taxpayers and our citizens an awful lot of money and an awful lot of frustration. I do not think this is irrelevant. It has been suggested that the commission will be done and dusted within six months, as intended by the Government. That is dependent on all of the parties to the banking debacle co-operating and declining to draw in various legal eagles to drag the investigation through the courts, as they will be fully entitled to do. The example of the Murphy commission, which is held up as a model of speed, took three years to complete and involved a number of trips to the courts. For how long has the Smithwick tribunal been in operation? It is a dedicated commission in a particular area which was, I understand, established almost five years ago. We still do not have any word on it and it is immensely costly. I will not even discuss the Moriarty and planning tribunals.

The Deputy has departed from the issue under discussion.

I am speaking to amendment No. 1 and offering a different remedy.

The amendment proposes to insert a new section which states, "The Governor of the Central Bank and the Head of Financial Regulation shall present to the Houses of the Oireachtas an appraisal of the Recommendations of the Statutory Commission of Investigation on the Banking system...".

I suggest the Fine Gael Party withdraw amendment No. 1 and ask the Minister to give an undertaking that, in such circumstances, Opposition spokespersons and the Minister will meet the Governor of the Central Bank in private to work out the mechanisms of what may be required.

Does the Deputy know to what amendment she is referring?

Yes, I will read it out.

Amendment No. 1 states the Governor shall make an appraisal within three months of the commission of investigation completing its work.

The assumption is that the commission of investigation will proceed. I suggest the commission does not proceed. This would save a bag of money and result in a more effective and rapid investigation.

We do not need to hear about the Moriarty or Flood tribunals. We all know about them.

I simply alluded to the length of the tribunals' deliberations, not their content. The Chairman should not be so scratchy this early in the morning.

Will the Deputy confine her contribution to the amendment?

I suggest the Fine Gael Party withdraw amendment No. 1. In the event that it does so, will the Minister consider my proposal that all parties have a private meeting, either collectively or singly, with the Governor of the Central Bank? Professor Honohan has identified three to four areas for inquiry and investigation using the model under which his report was produced. There is merit in doing this and I suggest the way to do so is to meet the Governor in private to discuss his proposals at length. I apologise if I offended the Chairman.

I do not consider the amendment and the Deputy's proposal to be mutually exclusive. We could hold an immediate meeting with the Governor of the Central Bank to discuss the Deputy's proposal, even if a commission of investigation were to proceed. The Deputy's proposal has much merit. When the Governor appeared before the committee last week he went to great lengths to state his views on the commission of investigation. He indicated he is not fully clear about the purpose of the investigation and would like to tease out the issue. A meeting between the Governor, the Minister and Opposition spokespersons would be beneficial. I ask the Minister for his view on Deputy Burton's proposal.

Sometimes we get into protracted rows over these matters when a short, collective discussion——

The Chairman never gets involved in rows.

No, of course not. Sometimes a short discussion of these matters is a much more constructive approach as it could help us find middle ground and satisfy all concerned.

I will try to be of some assistance in this matter. As we know from the Bill, the Governor of the Central Bank is independent and, therefore, I cannot procure his attendance to a private meeting. I found Deputy Burton's proposal interesting. The assumption of the Government has been in accordance with the Government decision that we will have a commission of inquiry. What I interpret the Deputy as saying is that there is scope for all-party discussion on whether we need to go as far as a commission of inquiry in light of what the Governor said to the committee. I referred to this issue in the House recently.

Before the meeting, I raised with the Chairman the terms of reference, rather than the issue raised by the Deputies. I do not know if my proposal would suit members but I suggested it may be possible on Tuesday, after the discussion of the Estimate for my Department, to discuss the issue of the terms of reference. Such a discussion would also give me an opportunity to report back to the committee on the Deputy's suggestion. If we were to commence our discussion on the terms of reference on Tuesday, rather than embarking on a full length discussion, that would be of value. It would also be of assistance to the Government.

While Deputy O'Donnell has full authority to deal with the Bill, I doubt if he has full authority to deal with the terms of reference today.

The matter of the terms of reference is for another day.

Perhaps the Deputy will speak to his party leader about Tuesday's discussion because whatever conclusion we draw on the matter, it is important that we come to a conclusion as quickly as possible. The one note of caution I have, and I accept virtually all of what Deputy Burton said, is that we are dealing with private parties here.

While I am aware of that, the private parties——

The difficulty of Oireachtas committees dealing with private parties is notorious.

The Governor of the Central Bank, Professor Honohan, and Mr. Regling and Mr. Watson stated on several occasions that the private parties who were interviewed for their respective reports all agreed to see them. While I do not know if these parties were accompanied by legal eagles, I tend to the view that they were not. If we could make progress without spending ten years on the issue and paying counsel daily fees of €3,000, we would do the Oireachtas and citizens a big favour.

As Mr. Regling has now been appointed as head of the European special facility, I doubt he will be available to assist us. I have, on a purely exploratory basis, been examining names of a number of individuals outside Ireland. While I do not wish to anticipate our discussion next Tuesday, the Government was very much of the view that a lawyer from Ireland was not the kind of person who should chair this commission of inquiry. This is not meant in any disrespect to lawyers or the Judiciary but some person from overseas with an intimate knowledge of banking and commercial matters would be ideal to examine the Irish banks. The Government has not been advised of any names in that regard and I have simply begun a preliminary exploratory examination of the names that could be available or obtained because the work the person would have to do would be much more detailed than the work Mr. Regling and Mr. Watson had to do. We will leave the matter until Tuesday if that is all right. I propose, therefore, that we address this issue on Tuesday.

The Minister's comments are welcome. Given that the group which did the investigation with Professor Honohan has done a preliminary scope of the territory, perhaps it will be available. That would depend on discussions with the Governor but it may be available to assist in some capacity or another. What one needs are line investigations to examine each institution, figure out what was the breakdown at the executive board and senior management levels and return to the committee with a report on what took place.

This discussion of amendment No. 1 has drifted into an analysis of what the Governor of the Central Bank spoke about the other day, with members expressing diverse views on the matter. I am a little surprised the Minister is still working on the terms of reference because the Governor was one of the first persons to suggest we have a banking inquiry. This issue evolved from his suggestions. At our recent meeting, however, Professor Honohan appeared to express the view that the work was done. When he was asked what else a commission of investigation could do he referred to three or four issues. He was, however, certainly of the view that the job was done, particularly in his own area of Central Bank regulation. He stated we should pull back and forget about it because anything else one would do would be——

He did not say that. He said there should be a commission of investigation.

I am summarising what I heard. He said there were two things——

I want to make a proposal.

On amendment No. 1, I just want to finish——-

Before the Deputy moves on to amendment No. 1, with regard to the terms of reference it was agreed that it should be done before the Estimates commence, if the Minister might be able to attend.

For what time are the Estimates scheduled?

At 10 o'clock.

I have a Cabinet meeting, which I am breaking to attend the Estimates meeting.

That is problematic for me as well, as I have a meeting.

We can talk about it.

How about after the Estimates meeting?

We will have to look at the timing. We shall move on to amendment No. 1.

We might have a brief ten to 15 minute discussion after the Estimates meeting.

We shall try to get the Estimates finished because there is another meeting after it. We have ten minutes or a quarter of an hour to go before we are due to finish and we can discuss it then.

What time is that meeting?

From 10.30 a.m. to 12.30 p.m. If we can finish at 12.15 p.m. we can do it for a quarter of an hour.

Will the Minister be present?

I am attending the Estimates meeting, and breaking from a Cabinet meeting. I want to see my colleagues, briefly, before I come down to the committee.

We shall return to amendment No. 1.

I want to finish on that point to the effect that I heard the Governor say we have had two reports which have been given consideration. Other work might need to be done, but currently that was more or less work in progress. The Governor indicated we should stop and reflect and perhaps in a few years time take stock from a more historical academic viewpoint at some of the other issues. However, he did not favour proceeding with the commission now because he believed what was needed to be done was done.

In response to Deputy Noel Ahern, that seems to be part of the direction with regard to what the Governor said. I do not want to get into an argument about what he meant, since I only had the opportunity of reading it. However, the Governor was asked to look at the regulatory system of the Central Bank and he advised me that he was doing this. He also looked at crisis management down to 28 September, I believe, and he maintains that his analysis of those areas is comprehensive.

Yes but what——

If the Chairman will bear with me a moment, I want to put an important point on the record. To that extent Professor Honohan said his work is complete and that he does not see the need for further investigation.

However, the more general question with regard to what should be investigated in the banks was actually a matter for Mr. Regling and Mr. Watson and they proposed terms of reference. Professor Honohan proposed how those terms of reference could be supplemented in regard to mortgage brokers and accountants. Therefore, while Professor Honohan expressed a view, there was also a very strong view expressed in the Regling and Watson report to the effect that there had to be closure in regard to the banking system and this would not take place without some form of comprehensive examination. We can have a discussion about how that comprehensive examination should take place, but I do not believe Messrs. Regling and Watson can be taken as saying that there can be no further investigation into the banks, or that the banks are only of academic interest for the future.

I did not say that.

I am not saying the Deputy said it, but that could be the implication.

I am pressing the amendment.

I should have indicated that we have just received the second opinion from the ECB yesterday. It will be published on the website, but we shall make copies available in the interim. A number of further changes are proposed, but we are satisfied we can make the necessary changes.

Amendment put and declared lost.

I move amendment No. 2:

In page 10, subsection (2), line 23, to delete "subsection (3)” and substitute “subsection (5)*”.

Amendment agreed to.

I move amendment No. 3:

In page 10, lines 27 to 30, to delete subsection (3) and substitute the following:

"(3) The person who held, on the cessation date, the office of Director General of the Bank shall be taken, on the following day, to be appointed as Head of Central Banking.

(4) Subject to subsection (5), the person referred to in subsection (3) holds the office of Head of Central Banking until the time at which his or her appointment as Director General of the Bank would have expired.

(5) A person referred to in subsection (1) or (3) may be removed from office for the same reasons, and in the same way, as a person appointed to hold office as a Head of Function under section 23B of the Act of 1942.”.

Amendment agreed to.
Section 4, as amended, agreed to.
SECTION 5

I move amendment No. 4:

In page 10, line 36, after "Bank" to insert the following:

"save as is deemed necessary to secure the more effective oversight of the financial sector".

This has to do with terms and conditions of employment. Nothing in this legislation affects the terms and conditions of employment. We are saying, "save as is deemed necessary to secure the more effective oversight of the financial sector". We want to ensure nothing compromises the actual effectiveness of the financial regulatory system, and that this is in keeping with the tone of the Bill. I should like to hear the Minister's comments in that regard.

The amendment proposes a sweeping power to disapply the employee protections in section 5 on very general grounds. Accepting the amendment would place a doubt over the security of employment terms and conditions of those currently working at the Central Bank and the regulator. I do not believe I can accept that.

In terms of general rights as they exist in law and in general constitutional terms as regards fair play and natural justice, I wonder whether such an amendment would be constitutional. It is an aside in a Bill and would carry enormous ramifications for the terms and conditions, in effect, of every employment in Ireland whether in the public or the private sector. It would, in fact, do away with the notion of employee rights where they exist, in the interests of oversight of the financial sector. I would be opposed to this, or else I should like to hear legal argument as to how it would affect employment rights in the public and the private sectors. This would change the basis, as I understand it, of employment law in Ireland.

If the amendment was carried there could be ramifications for social partnership, such as it is at the moment. The consequences go way beyond this Bill. It certainly warrants looking at, perhaps on Report Stage.

I take on board the points made. The general thrust of the amendment is to have an effective system. I will not be pressing the amendment and perhaps it might be looked at further on Report Stage.

Amendment, by leave, withdrawn.
Section 5 agreed to.
SECTION 6

Amendment No. 5 is in the name of the Minister. Amendments Nos. 5 to 9, inclusive, are related and may be discussed together by agreement.

I move amendment No. 5:

In page 10, subsection (1), to delete lines 38 and 39.

These amendments set a definitive deadline for staff choosing to transfer their employment to the National Consumer Agency. Section 6 currently provides that the deadline is dependent on the commencement of the provisions of the Bill. The new deadline, 29 February 2012, reflects the deadline in the agreement made between the bank, the National Consumer Agency and the staff concerned. It is included here at the request of those staff. That is the explanation of amendments Nos. 5, to 9, inclusive.

In the McCarthy report the National Consumer Agency and the Competition Authority were to have been merged but we never heard any more about that. The National Consumer Agency, along with the Competition Authority were identified by Professor McCarthy as costing a great deal and he was not necessarily persuaded that this justified the contribution they were making to the public interest. Does the Minister expect many employees of the Central Bank to willingly transfer to the National Consumer Agency, an agency that is due to be abolished? Would it not be better for the Government to indicate for the sake of the employees what it intends to do with the Competition Authority and the National Consumer Agency? The McCarthy report will have its first anniversary in a few weeks.

During the last discussion on financial regulation, when the original Bill was brought in, the argument was that it was seeking to err too much on the consumer side. There is now a risk, with a weakness of the structure——

The Deputy can discuss that on the section.

The wording of the amendment is to change the period of time over which an employee can opt to go from the Central Bank into the National Consumer Agency, up to 2012. I am asking the Minister for information about this. I find it hard to understand. The Government adopted the McCarthy report. When she was Minister with responsibility for the agency, the Tánaiste personally told me several times she was going to amalgamate the Competition Authority and the National Consumer Agency. Can the Minister tell us about this? I have my doubts about it.

The Deputy has outlined the position. The two agencies are being merged, but this particular proposal has come at the request of the staff and the period of time within which they can return to the Central Bank has been negotiated and agreed as reasonable. That is the position.

Are we into HSE territory here? This is unsatisfactory. Many people have run their own businesses and this seems to be a dog's dinner, because we have no clarity. The problem of the HSE was its fatal overstaffing at administrative level due to the merging of different organisations. In this case, we have three merging organisations, namely, the Central Bank, the National Consumer Agency and the Competition Authority. The Government was warned at the time of the creation of the HSE that the overhang would mean every agency kept its full complement of staff. As a consequence, we created a kind of doughnut of administrative staff. This does not seem defensible from a management point of view. Will everybody stay in every position? Even though there will be mergers, there will not necessarily be any effectiveness and if it does not work out, they can all go back to the Central Bank anyway. That is what happened in the HSE with the old health boards.

A clear deadline date is specified in this amendment, and it is the date up to which the employee can opt to be in the Central Bank or the National Consumer Agency. The National Consumer Agency will be merged with the Competition Authority. Between 20 and 25 staff have already moved and management in both agencies are satisfied with progress to date. That is far as I can assist the Deputy at this stage on the wider issues.

Here we go again.

It is not "here we go again". There is no issue of the type the Deputy has described. This will not be the same as the HSE. These are much smaller organisations.

Of course they are smaller, but the principle is the same.

The decisive change is the change in the general economic and budgetary climate, which means management and staff are encouraged to rationalise numbers as much as possible. This is purely a provision that gives certain reasonable entitlements to staff so they can plan their future with certainty.

Amendment agreed to.

I move amendment No. 6:

In page 11, subsection (3), line 6, to delete "during the election period" and substitute "until 29 February 2012".

Amendment agreed to.

I move amendment No. 7:

In page 11, subsection (4), lines 8 and 9, to delete "the end of the election period" and substitute "29 February 2012".

Amendment agreed to.

I move amendment No. 8:

In page 11, subsection (5), line 12, to delete "At the end of the election period," and substitute "On 1 March 2012,".

Why is there a one day difference between the dates on amendment Nos. 6 and 7 and amendment No. 8?

The third subsection states that "A secondee may elect to become an employee of the Agency at any time during the election period." The election period ends on 29 February. The fifth subsection refers to the "end of the election period", but "On 1 March 2012" gives far more clarity. The drafting reflects the practical sequence of what is required, and I thank Deputy Flanagan for raising the issue.

Amendment agreed to.

I move amendment No. 9:

In page 11, subsection (6), line 18, to delete "Employment" and substitute "Innovation".

Amendment agreed to.

I move amendment No. 10:

In page 11, between lines 26 and 27, to insert the following subsection:

"(8) If a person's employment is transferred under this section, the person's previous service with the Bank is to be counted as service for the purposes of the following Acts:

(a) the Redundancy Payments Acts 1967 to 2007;

(b) the Protection of Employees (Part-Time Work) Act 2001;

(c) the Protection of Employees (Fixed-Term Work) Act 2003;

(d) the Organisation of Working Time Act 1997;

(e) the Terms of Employment (Information) Acts 1994 and 2001;

(f) the Minimum Notice and Terms of Employment Acts 1973 to 2005;

(g) the Unfair Dismissals Acts 1977 to 2007;

(h) the Maternity Protection Acts 1994 and 2004;

(i) the Parental Leave Acts 1998 and 2006;

(j) the Adoptive Leave Acts 1995 and 2005;

(k) the Carer’s Leave Act 2001.”.

For the staff transferring from the employment of the bank to the National Consumer Agency, this amendment provides security that their previous employment in the bank will count as service with their new employer for the various pieces of employment legislation listed. It is a standard provision in circumstances such as this and its omission was an oversight pointed out to the Department of Finance by representatives of the staff concerned.

Amendment agreed to.

I move amendment No. 11:

In page 11, between lines 26 and 27, to insert the following subsection:

"(8) Within one year of the enactment of this Act, and each year thereafter, the Agency shall publish an assessment of the performance of the Commission in protecting consumer interests through its regulations, orders, codes of practice and other activities.".

The protection of consumer interests will lie with the commission and we feel the National Consumer Agency should publish an assessment of the performance of the commission in protecting consumer interests. It is just an oversight amendment and I would like to hear the Minister's view.

Responsibility for providing consumers with financial information and education is being transferred to the National Consumer Agency. The Government has decided the National Consumer Agency is best fitted to support consumers of financial services and products by providing information and education in line with the agency's overall responsibilities for consumers. However, the supervision and regulation of products, markets and institutions from a consumer perspective remains with the bank. In my view it would be wholly inappropriate to assign to the NCA the role of reporting on the Central Bank's performance of its statutory functions, as these functions are outside the remit of the NCA.

How many people will be in all of the expanded agencies? The Minister said 25 will be moving from the Central Bank. How many people does the National Consumer Agency and the Competition Authority employ? Consumers of banking services are not always like ordinary consumers. Many consumers of banking services are businesses, particularly small and medium and larger Irish businesses. Multinational companies do not rely that much on Irish banks, but ordinary Irish businesses do. The banks regularly screw them by charging roll-over fees, introducing hidden fees and hidden costs.

In my experience, the National Consumer Agency has no remit to serve the interest of business customers. Credit is the lifeline for any business and if consumer supervision is taken away from the provision of banking services to businesses, we may end up in the situation in which we found ourselves when the original legislation was brought in. Businesses were being heavily ripped off by the recommitment fees, roll over fees, interest rates and the other charges associated with using financial services. I ask the Minister to tell me that business side is being looked after.

My experience of the NCA is that it responds quite well to consumer complaints, such as retail customers, but I am not aware that it has remit in regard to the business sector. The consumer banking services function is being dumped. The consequence of what happened is that the Regulator and the Central Bank took their eye off the prudential ball. We should remember that bankers like the Central Bank being in control and taking its eye off the regulation of the pricing of banking products, in particular for business, because they can then charge what they like. One of the problems of competitiveness in the Irish economy is business costs. Those who have been involved in small and medium businesses, as I have, will find that banking costs are enormous when one adds them up. They are significant for a small or medium innovative business. The banks charging the fees think of a number and keep travelling.

On Report Stage the Minister might ask his officials to give some consideration to how we make banking reasonably priced, not just for ordinary customers, but for business customers in particular.

The tenet of our amendment is simple. The commission still deals with protecting consumer interests. The Minister referred to it in terms of financial products. The promotion in that area is transferring to the NCA. There is a need to have an integrated process. There is dovetailing of a range of areas which involve consumers. There is merit in having, as we put it, an assessment of the performance. Some other process could be reviewed. The Minister would agree that the Central Bank and the Financial Regulator were split. In Professor Honohan's report, and in the report by Mr. Regling and Mr. Watson, it was clear that there was a lack of communication between the Central Bank and the Financial Regulator. It had an impact on the way regulation took place. If there had been better communication between the two bodies it would have had a major impact on where we are today. There is merit in a process which has an overall integrated approach to all areas concerning consumer interests.

As I made clear already, the supervision and regulation of products, markets and institutions from a consumer perspective remains with the bank. The bank is still there to protect small businesses to which Deputies Burton and O'Donnell referred, in terms of supervision and regulation of products, markets and institutions. The regulator announced in February that it is conducting a review of its approach on how overcharging is dealt with under the consumer protection code because it sees that it is clear from recent cases that change is needed in how charging and pricing issues are handled. The regulator is very concerned that financial institutions continue to experience control failures that result in customers being overcharged.

While the complexity of the cases vary, it is disappointing for consumers that resolving errors and providing restitution can be so protracted. It is also apparent that the current approach to enforcement falls short of what is required to provide a strong incentive for faster responses and better practice. The regulator is currently reviewing this and it will not change under this Bill.

Deputy O'Donnell raised the question of whether the fact that the information and education function is being transferred will lead to any disconnection between the Cental Bank. I am concerned about that and for that reason the Bill makes separate provision for a consumer advisory group. I have tabled amendment No. 54 which further develops the role of that group.

I understood that the reference to overcharging was a once-off incident which occurred with a specific customer, rather than a general issue of charges which are in excess of the EU average at all times. It is unclear to me that it is the general issue of overcharging.

I drew attention to a particular review which is ongoing but it is open to the regulator to raise the more general questions raised by the Deputy in the context of consumer protection.

What is the NCA for? Is it just a website with competing prices? That is crazy. A lot of time and money was spent on developing the website of the former regulator, much of which was very admirable. I am not convinced about what its outcome was, in terms of real value. A small business person——

The Commission is convinced that this should not be a function of the Central Bank commission and I agree.

It does not want to touch it with a barge pole because it involves ordinary customers and small businesses. It wants it to get out of the nice fancy building.

That is not correct. It is for information and education.

We know it does not want to touch this.

Is the Deputy pressing the amendment?

Amendment put and declared lost.
Section 6, as amended, agreed to.
Sections 7 to 14, inclusive, agreed to.
SECTION 15

I move amendment No. 12:

In page 14, between lines 23 and 24, to insert the following subsection:

"(15) (a) The First Schedule to the Freedom of Information Act 1997 is amended by inserting at the end of Part 2 “Central Bank Commission”.

(b) The Third Schedule to the Freedom of Information Act 1997 is amended by inserting at the end of Part 1 in column (2), “Central Bank Reform Act 2010”.”.

My amendment relates to the Freedom of Information Act 1997. In terms of proper disclosure, the Central Bank commission should come under the disclosure requirements and the terms of the Freedom of Information Act should apply. The logic behind that is buy-in from the public in terms of procedures and a general overview. There is no reason the Central Bank commission should not be part of the Freedom of Information Act. I would like to hear the Minister's views.

There are good reasons behind the exclusion of the Central Bank from the Freedom of Information Act. First, the sensitivity of the information it holds. Second, its independent role under the European statutes and the very restrictive information constraints which arise because of that. Third, the risks of an inadvertent disclosure of sensitive information. However, I am prepared to examine whether the level of information made available by the Central Bank could be improved within the legal and other constraints which apply. I will reflect further on this issue with a view to examining it again as part of a second Bill on financial regulatory reform which will be published this autumn. At this stage I propose to reject the amendment. I accept it raises issues which I am prepared to examine but they have to be considered in the context of the European as well as the national position of the bank.

The Minister's comments are helpful because there is a legal problem regarding the application of the Freedom of Information Act to the Bill. I intend to table an amendment on Report Stage on the areas where the Freedom of Information Act could apply. There could be all-party agreement on areas in which the Freedom of Information Act could be made to apply. For example, it could apply to terms and conditions of employment, salaries, expenses and the management and running of the institution.

Another issue is that under the Lisbon treaty, although I acknowledge the European Central Bank does not come directly under its remit, there is a move towards disclosure in European institutions on an appropriate basis. While I accept the Minister's point regarding sensitivity of information, the independent role and so on, he might assist the Opposition by giving members a copy of his speaking note and advice and perhaps they could return to this on Report Stage. However, it being subject to some degree of freedom of information legislation is a requirement and I believe this could be done on an agreed basis. It is wrong that the various institutions, such as the Financial Regulator and the Central Bank, both effectively and in law are excluded from freedom of information legislation. This has contributed to that lack of oversight and accountability of those institutions which in part led to the collapse. It is one thing to be independent but to have no oversight and no accountability means that such independence can turn into an imperial power that is not accountable to anyone.

The Minister certainly appears willing to examine the area. As Fine Gael may table an amendment on Report Stage, I will not press the amendment now.

I ask the Minister to provide a copy of his speaking notes.

Amendment, by leave, withdrawn.
Question proposed: "That section 15 stand part of the Bill."

I note that both Fine Gael and the Labour Party have tabled amendments to the Schedules in respect of the credit union issue. I have a speaking note on the credit unions that could be taken to arise under this section. May I refer to it when the Schedules arise, rather than on this section? It will be as well to group together the discussion.

To be helpful to the Minister, is this speaking note similar to the letter he supplied to members the other night?

It is similar but not identical.

If not, it might be helpful to members to have an advance copy of it. The Minister is aware this is an important issue and I certainly would like to be in a position to have some understanding of it. I received the Minister's letter the other night, which was helpful.

Yes, it is similar to that. However, the Deputy may have questions to put to me and I have supplementary material on it to give by way of a reply. May I deal with that issue when the Schedules are being considered?

The Minister may deal with the section pertaining to the credit unions now.

No, while I know I can deal with the section now, I ask to be allowed to leave it until it arises with the amendments.

If the Minister wishes to do that, it is fine.

As it all pertains to the same subject, it seems crazy to——

Members have no problem with so doing.

My understanding was that the Minister intended to bring it up at this stage.

I seek the committee's leave to postpone it until then.

Question put and agreed to.
SECTION 16

Amendments Nos. 13 and 99 to 102, inclusive, are related and will be discussed together.

I move amendment No. 13:

In page 14, between lines 27 and 28, to insert the following subsection:

"(2) The European Communities (Consumer Credit Agreements) Regulations 2010 (S.I. No. 281 of 2010) are amended as set out in Part 2* of Schedule 3.”.

Amendments Nos. 13 and 99 to 102, inclusive, are technical amendments to change references to the regulatory authority to refer to the Central Bank.

Amendment agreed to.

I move amendment No. 14:

In page 15, lines 26 to 29, to delete subsection (11) and substitute the following:

"(11) The amendment of a statutory instrument by this section does not prevent or restrict the subsequent amendment or revocation of the instrument by another statutory instrument.".

This is a purely technical amendment inserted on the advice of the Attorney General.

Amendment agreed to.
Section 16, as amended, agreed to.
Section 17 agreed to.
SECTION 18

I move amendment No. 15:

In page 16, between lines 13 and 14, to insert the following subsections:

"(2) This Part applies to and in relation to regulated financial service providers other than credit unions.

(3) On and from a date to be fixed by the Minister by order, this Part applies to and in relation to all regulated financial service providers, including credit unions.".

This amendment inserts two new subsections into section 18. The effect of these subsections is to provide that the fitness and probity powers introduced in the Bill will not initially apply to credit unions until an order is made by the Minister for Finance. This will allow the strategic review of the credit union sector to take place before the fitness and probity provisions are applied to that sector.

The Minister should explain. Does he expect the credit union review to be completed on schedule?

Yes. While the legislation provides for the commencement of the fitness and probity powers generally, that will not apply to credit unions pending a review.

Does the Minister now have a date on which he expects the review of the credit unions to be completed?

March 2011 is the anticipated completion date for the review.

Is it on schedule to be completed then?

It is on schedule to date.

Amendment agreed to.
Section 18, as amended, agreed to.
Section 19 agreed to.
SECTION 20

Amendments Nos. 16 and 17 are related and will be discussed together.

I move amendment No. 16:

In page 16, subsection (2)(a), line 25, to delete “or”.

This is a minor technical amendment to account for the new subparagraph inserted into subsection (2) by amendment No. 15. Amendment No. 16 is grouped with amendment No. 17, which inserts a new subparagraph into subsection (2) of section 20 that expands the scope of those functions which can be designated as controlled functions.

I seek clarity in respect of amendment No. 17 and the proposed new clauses at section 20(2)(c)(ii) and section 20(2)(c)(iii), which pertain to the financial service provider having control over the property of a customer or when the financial service provider may be dealing in or with the property of a customer. My reason for asking is related to the entire business of solicitors’ undertakings, resting on contract and various other legal aspects of dealing with property. One reads court cases every day that involve various parties within financial institutions, solicitors and so on. The Minister should clarify the provision’s intention because there is great concern among the public about a number of solicitors and people in financial services who appear to be in default. In addition, the former Financial Services Ombudsman, Mr. Meade, has explained to members how elderly people in their 80s, who had property in the form of large deposits in a bank, ended up being told to buy ten-year bonds at not very attractive rates. Financial services often control property both in the sense of land, buildings and so on and in the sense of lump sums that people receive and have on deposit, and then may give entirely inappropriate advice. Can the Minister explain this to us?

The new subparagraph expands the scope of functions that can be designated as controlled functions for the purposes of this part to include persons engaged in front-line services to customers or who deal with the property of customers. For the purpose of this section, the reference to persons means persons of the bank in question or the regulated entity. If there is a person in the entity engaged in front-line services to customers or who deals with the property of customers, he or she can be captured by the amendment.

In 2005 and 2006, I and others had debates with the former Minister for Finance, Deputy Brian Cowen, about the Irish form of sub-prime mortgages with Start Mortgages. In my constituency, Start Mortgages and similar institutions were knocking on doors in local authority estates and had agents offering to roll over loans and massively increase the mortgage on a house. They offered to give people money to use for other things. Will the sub-prime sellers of financial services and the solicitors who turned cartwheels be captured? Many people ended up out of pocket, badly abused by some of these people and up to their necks in negative equity.

Some of this turns on the character of the person providing the service. If the persons are agents trading on their own account they are separately regulated under the regulatory legislation as financial intermediaries or another designation. On the other hand, if the person is an employee or under a certain degree of control by the regulated entity——

This is the person in the bank office who advises an 80-year-old to purchase a 20-year bond.

That case is captured by this subsection.

Deputy Burton makes a fair point about those involved in the promotion of sub-prime mortgages, not least the agents who acted on behalf of some of these companies, solicitors' firms and accountancy firms. They were fraudulent in how they submitted documents and accounts on behalf of clients. I know a person who received a mortgage of almost €700,000 when his stated income was €85,000. The agent committed fraud in completing the forms yet he received €20,000 from the sub-prime company for his trouble in getting this person a mortgage, which will never be repaid. There must be some sanctions although I do not know this is the appropriate place to address them. There must be sanctions for solicitors' firms and accountancy firms that acted in a fraudulent manner in promoting some of the applications, as well as the agents who acted on behalf of the companies involved.

I should have drawn the attention of Deputies to sections 20(3) and 20(4), which provide that "A controlled function that is carried on by a person who, or a partnership or an entity that, is not a regulated financial service provider remains a controlled function." That is a valuable insertion by the draftsman. Section 20(4) provides further exclusions from the argument that one is not in a controlled function.

How does the Minister propose to enforce this? The regulated authorities will be regulated by the commission. How does the Minister propose to enforce the control function over unregulated authorities?

This moves into criminal law.

There is a defined oversight function of the Financial Regulator when this concerns a regulated entity.

The question arises as to what happens when someone tries without authorisation to carry out functions designated controlled by the Act.

Does the section deal with this? Perhaps this can be examined on Report Stage.

Can this be dealt with under intermediaries legislation?

I think it is. It is clearly a criminal matter if one carries on——

We accept that but I referred to making unregulated authorities aware of what is a controlled function. There is a defined method of oversight in the regulated authorities but unregulated authorities do not appear to be controlled by this legislation.

The kind of case referred to by Deputy Fahey has been deemed as fraud in the US. We can say that the person was vulnerable and was willing to be led but the person filling out forms knew the information to be false. It happens all over the place.

We have all come across the cases referred to by Deputies Fahey and Burton, particularly in the case of Start Mortgages. The heartbreak they have caused is unmerciful. I do not believe the case outlined by Deputy Fahey is covered by this legislation. Perhaps it requires an amendment to other legislation. I have provided other examples on Second Stage. Let us consider a small builder, who worked for himself with a part-time employee. He took out a mortgage of €680,000 on the strength of two monthly bank statements close together. He explained to the agent that these included payments made to him and that he did not have this kind of income all the time. He had finished some big jobs and money came in. At the time he knew it was crazy but he was encouraged by the agent to continue. He took a massive loan for a monstrosity of a house that he thought he could sell on eventually. There is no provision covering this. Everyone present has encountered cases like that.

Under the Act, they can be deemed to be controlled functions. That is the purpose of this legislation.

The problem of the current system is that there is no way of capturing this. I had two years of interaction with the predecessor of the Minister, Deputy Brian Cowen, and he could not recognise this for a long time. Eventually, on the eve of the 2007 election or after it, he referred the matter to the regulator. Start Mortgages and others were deemed not to be financial institutions in the full banking sense because they did not accept deposits and only sold mortgage products. The gap remains and perhaps the Minister can provide us with a note before Report Stage.

I understood that gap was plugged by this legislation.

There is a gap because Start Mortgages outlets that are not banks do not fall under the full rigour of regulation. At a certain point, after two or three years of discussion with me and other members of the committee at that time, including Deputy Ó Caoláin, the former Minister brought them under the regulatory ambit to a degree. I have never been convinced that the same thing could not happen again tomorrow. The only factor preventing it is the lack of credit.

Perhaps the Minister on Report Stage could give us——

We should revisit this on Report Stage. I should draw the Deputy's attention to the provisions of section 20 as they stand, which provide, in subsection (4)(b) “it is carried on at the office or location of another person, whether or not the other person is a regulated financial service provider.”

It seems clear that the new section allows controlled functions to capture the kind of activity Deputies have been describing. I will certainly check the matter for Report Stage but that is my understanding of section 20 of the Bill as it stands, and the ambit is wide enough to deem as a controlled function the type of matters described by the Deputies.

Does that include the agents operating either independently or on behalf of some of these mortgage companies?

I will make a helpful point. In the case of the bigger banks or the responsible institutions in banks, they are all now doing triple somersaults to set out for their credit and risk committees the guidelines on somebody who goes in for a mortgage or any kind of loan. The kind of example we are talking about is the person who comes knocking on a door or who otherwise acts as an agent touting for loan business. They do not have guidelines that look to verify the quality of the income or the application. That is where the gap exists.

They must obtain the loan and get the facilities from somewhere.

These people are selling the loans because they get a fee on the sale. It is passed on, wrapped up and bundled.

That is understood but the advance must come from a financial institution.

Financial institutions like Start Mortgages are securitising them and bundling them on.

The provider of the advance or loan is regulated.

That should be checked.

Section 20 is wide enough to capture persons of the type described by the Deputy who are exercising control functions, either as independent agents or employees of that regulated entity. That is the intention of section 20(4)(b).

The Minister has indicated he will clarify this for Report Stage.

I ask that the Minister take account of a particular sub-prime company operating from a Northern Ireland address. I will give details to the officials.

That is not regulated. It used to advertise on mid-afternoon television.

With regard to Deputy Fahey's query, section 20(4)(c) of the Bill “relates to a business of a regulated financial service provider established in the State conducted by that provider outside the State.” That issue is specifically addressed.

The Minister refers to section 20(4). Some parties in the subsections are regulated. Section 20(4) states:

A controlled function remains a controlled function even if—

(a) it is carried on at an office or location outside the State,

(b) it is carried on at the office or location of another person, whether or not the other person is a regulated financial 35

service provider, or

The parties are regulated. Section 20(3) is relevant as it states "A controlled function that is carried on by a person who, or a partnership or an entity that, is not a regulated financial service provider remains a controlled function." We should look to follow up that area. Subsection (4) relates to regulated entities.

I do not accept that because of the first words of subsection (4).

That states:

(4) A controlled function remains a controlled function even if—

(a) it is carried on at an office or location outside the State,

The service provider carrying this out is regulated.

The definition of a controlled function in section 18 is a function prescribed in regulations made under section 20. It is not linked, as the Deputy suggested.

This is worth looking at afresh in view of the measures raised by Deputies. I will undertake to have that done.

Amendment agreed to.

I move amendment No. 17:

In page 16, subsection (2)(b), line 28, to delete “obligations.” and substitute the following:

"obligations, or

(c) is likely to involve the person responsible for its performance in the provision of a financial service by a regulated financial service provider in one or more of the following ways:

(i) the giving of advice or assistance to a customer of the regulated financial service provider in the course of providing, or in relation to the provision of, the financial service;

(ii) dealing in or having control over property of a customer of the regulated financial service provider to whom a financial service is provided or to be provided, whether that property is held in the name of the customer or some other person;

(iii) dealing in or with property on behalf of the regulated financial service provider, or providing instructions or directions in relation to such dealing.".

Amendment agreed to.

I move amendment No. 18:

In page 17, between lines 4 and 5, to insert the following subsection:

"(6) Regulations under this section shall be laid before each House of the Oireachtas and shall come into force after 21 sitting days, during which time a motion may be tabled in either House to amend or annul the regulations.".

Our view is that the regulations made under this section should because of oversight be laid before the Houses of the Oireachtas and be allowed time in which people can amend them in either House. They would not come into being until 21 sitting days have passed. It is an oversight function bringing the role of the Oireachtas into play. It is something we feel would add to the legislation.

I can appreciate why this amendment was tabled as all Bills are scanned with the view to ensure the Oireachtas has a greater function with subordinate legislation. It is important that the Central Bank be in a position to act promptly in designating controlled functions in order to ensure the full rigour of the fitness and probity provisions can be applied. I am not persuaded about a 21-day delay caused by this amendment.

It is important to note that once the Central Bank is assigned this function, it should be able to act independently and at arm's length from the political system. It is not desirable to provide for the annulment or amendment of the regulations by the Oireachtas so I am not disposed to accepting the amendment.

I support the amendment. I understand the Minister has a problem with the provision for 21 days and he might regard that as a long time, which is fair enough. The concept of involving Oireachtas scrutiny in these matters is helpful. We can look at it from the following perspective: if none of us seeks to propose a motion for amendment, we are at least equally culpable if anything goes wrong with the regulations. The blame would be spread in the event of any issues arising, which is what we are supposed to be here for.

Deputy Morgan makes a valid point on the number of days. We are putting forward an idea and the number of days can be reduced. We are here to legislate and regulations are being introduced. This control function has wide-ranging implications and in terms of understanding what is being provided in the regulatory system, it would make sense to allow the Dáil or Seanad to put down amendments, perhaps over a very short period that would not in any way curb the enforcement powers of the commission.

I remain unpersuaded. It is important that the Central Bank be able to deal with this matter. Sufficient statutory guidance is given in the sections before us and it can exercise its powers within the powers we confer upon the bank. It is important it act on this vigorously. I remain to be persuaded that it is wise to create a power in the Oireachtas to allow all of us to in effect review a regulatory determination by the Central Bank.

Amendment put and declared lost.
Section 20, as amended, agreed to.
SECTION 21
Question proposed: "That section 21 stand part of the Bill."

I have some questions on the code of fitness and probity to be issued. When will that happen and will the Oireachtas have any input into the code? Will the process be completed outside the Oireachtas? Will there be any provision for a review process of the code after a year or two of operation, for example? I do not mind how long it takes as long as it is a reasonable time, and there will be an opportunity to see how it actually functions in the event of appointments and so on. It is worth considering a period for review, perhaps 12 months after the enactment of the Bill. The most important issues are a date of publication and an input from the Oireachtas. I need to address this.

The issue raised by Deputy Morgan really arises under section 47, which provides for a code. There is an amendment in the name of Deputy Bruton.

That is fair enough. I just have to raise it so I can introduce an amendment on Report Stage. I am happy enough.

What implications, if any, does this have for the IFSC? Could the Minister perhaps give us a note on how it applies to financial institutions that fall within the broad terms of the IFSC?

I will arrange for a note for the Deputy but, broadly speaking, differentiation can be drawn up between different institutions. The legislation is flexible enough to allow that.

Is the Minister saying he sees this applying rather differently to institutions in the IFSC than to what one might call ordinary domestic Irish institutions?

It is open to the Central Bank to take that view. I am not expressing a particular view, but the legislation is flexible enough to allow it.

Under this Bill the Central Bank no longer has the role of promoting the IFSC.

Yes. That issue has been raised in discussions on the Bill before its publication. My view on that issue, and that of the Government, was that it is inappropriate to have a Central Bank which has a promotional function. That should not be the function of the Central Bank. The Government is of course committed to the promotion of the Irish Financial Services Centre. The former Taoiseach, John Bruton, has been engaged, as members know, as a special representative in this regard. I took the view, with which the Governor of the Central Bank agreed strongly, that it was undesirable to have a separate statutory objective written into the Central Bank legislation to promote banking as an industry, because that is not the function of the Central Bank.

It was until recently.

It was under the old Act.

I ask the Minister to clarify one thing about which I am a bit at sea. What is the position of the IFSC now? I accept what the Minister is saying and I have read the statements that the Central Bank no longer has a function to promote the IFSC. Could the Minister clarify the relationship between this new Bill and the IFSC? Are the controls on the power of the Central Bank with regard to officers of financial institutions — which this part of the Bill deals with — now the same for domestic financial institutions as for the IFSC, or does the Bill differentiate between the two? Is the differentiation set out clearly in legislation or is it an option on the part of the new governance of the Central Bank?

This brings me to my next point, which is to do with accountability. It is related to our discussion on the freedom of information provisions. How can we find out how the two wings of banking in Ireland — the domestic banking institutions and the IFSC banking institutions — are regulated?

Are we speaking on section 21?

Section 21 provides that: "A regulated financial service provider shall not permit a person to perform a controlled function unless [it] is satisfied [...] that the person complies with any standard of fitness and probity in a code issued under section 47, and [...] the person has agreed to abide by any such standard.” What about an unregulated financial provider? There is an unregulated group whose members fall outside the powers of this Bill, which deals with regulated bodies. How can the Minister ensure that the quality of people working in the unregulated area is sufficient?

There cannot be an unregulated entity providing financial services. Such bodies must be regulated, that is the whole purpose of the legislation.

Section 20 states: "A controlled function that is carried on by a person who, or a partnership or an entity that, is not a regulated financial service provider remains a controlled function."

Black marketeers.

Deputy Burton asked about the role of the Central Bank. Differentiation is an option the Central Bank has. There is sufficient flexibility in the legislation to allow it to differentiate between institutions in the IFSC and other institutions. That degree of flexibility is written into the legislation. However, there is no automatic differentiation on the face of the legislation.

Yes, but I am asking a further question related to our previous discussion of the freedom of information provisions. Will we be told about the approach the Central Bank is taking? The companies in the IFSC want gold-plated regulation from Ireland with a stamp that allows them to go back to their home countries and say they are regulated in Ireland and have fulfilled all the requirements. That is part of the reason they have located here. In view of our responsibility to ensure that regulation is real, can the Minister tell us whether, down the road, if we ask the Central Bank about its regulation of such companies, we will be told the answer? I do not get the feeling from the Bill that this is the case, although I am not a lawyer. It is opaque when it comes to the amount of information that may be required to be given.

In the long run, in a European and international context, there needs to be a certain level of accountability and degree of transparency about this type of operation. In the end, it will strengthen Ireland's hand with regard to being a service location for properly regulated, international banking services and related services.

After the enactment of this legislation, any such differentiation will require disclosure through the publication of relevant codes. However, it must be pointed out that the legislation due to be published in the autumn will contain further material with regard to differentiation. In a sense, we are at an interim stage. With regard to this legislation, if there is any differentiation by the Central Bank upon or after the enactment of this legislation, it will be apparent in the codes published by the Central Bank.

That is on the subject of fitness and probity.

This is the point about regulation and the independence and integrity of board members. We are leaving a large amount of power in the hands of an independent Central Bank structure which is now reporting to the ECB which, in the context of Ireland and our economic difficulties, is very powerful. There is an important argument that the Dáil should have a grip on what exactly is being done in our name under the legislation. We do not want to find out, sadly, in another seven or ten years. Everybody is playing ball with regulations at the moment, for obvious reasons, but the recession will end in two or three years and things will change. The Oireachtas needs to have a grip on the meaning of the provisions in the legislation. The Minister is just saying it is full of possibility.

Not quite. I am also saying, on these fitness and probity provisions, that the Central Bank, were it to differentiate between different banking institutions, would be required to disclose that via the codes required under this legislation. In addition, there is provision for an annual performance statement and for accountability to this committee, which would supplement and clarify the provisions made in any code which established a differentiation. If the bank wishes to differentiate, it would have to become apparent through a code provision, and this House can monitor that through the annual performance statements and the accountability of the Governor to this committee.

If we should ever hear about it.

If one reads the codes one sees it.

Institutions have taken issue with how the codes apply. We had mountains of paper concerning the codes in the previous Bill but they did not matter a damn because integrity was absent, not codes.

In the first place, the Bill provides for greater accountability to the Oireachtas through the annual regulatory performance statement. That is apart from the actual accountability to the committee.

In regard to the code the Minister is providing, if there were a very strong regulator, that would be fine but if the regulator is not so strong it would be important that the Minister approves the code and that it should come before the Houses of the Oireachtas for approval. The problem here is that a code is issued which does not even go before the Minister for Finance. There is the eternal issue — we had the legislation but it was never enforced. We need to see how strong the code is. There is merit in it coming to the Minister and then before the Houses of the Oireachtas for approval.

I realise we are dealing with section 47.

I cannot see how there is merit in it coming back to the Minister for Finance because that would only excite suspicion that the Minister has a lever in the system in regard to regulation. Concerning the House, the requirement that an annual regulatory performance statement is written into the legislation is valuable. It puts the House in a position where it can evaluate the regulator.

That is post introduction.

In his report, Professor Honohan has up to ten pages in which he describes an episode involving the former Minister for Finance, the Minister's predecessor, the present Taoiseach, and proposals about codes of compliance in regard to directors. What happened was classic, a textbook example of Irish regulation. The regulator, whenever he was not playing golf, got the codes together and they were produced. There was lobbying by the industry, as stated in Professor Honohan's report. The Department of Finance then stepped in to say this could be damaging to investment and Ireland's attractiveness and competitiveness from an investment location point of view. Subsequently, in a later paragraph of the report, Professor Honohan indicates that the then Minister, Deputy Cowen, put on record somewhere that he was concerned about the competitiveness elements of this. The whole thing died.

In regard to codes of compliance by directors, everyone present knows directors who would sign anything and other people who sit down and really think the matter through and do it properly. It is not that a code is protection against sin but in a system with some integrity, where the people involved in the system buy into the code, it is a tremendous self-policing mechanism. Professor Honohan has a specific chapter on the Department of Finance's intervention in regard to those codes of compliance and directors' compliance statement and in regard to the former Minister for Finance, the Taoiseach, Deputy Cowen's intervention.

The Minister tells us he would never do that and we accept that but——

I am not saying that at all. Ministers for Finance have to intervene and make their views known which, presumably, is why they occupy the position. The issue is somewhat complex and is summarised in the report. There is at present a consultation paper on this whole issue awaiting a response which I understand will come this autumn when the regulator will bring forward proposals in the area. What is contained in the Governor's report on this subject is a snapshot of how the issue had been progressed over a particular period. There was reference, for example, to the consolidation of legislation envisaged by the company law review group which was one of the factors mentioned in considering whether the proposal should be advanced at that point, along with the question of its possible severe impact on our attractiveness to overseas investment and international financial services, which I understand was raised by the then Minister and the Department.

I do not think this issue can be cited as typical because the key point in its regard is that legislation was required. It was not just a matter internal to the regulatory system but was one of legislative review. In any matter of legislative review, however worthy the opinion of the regulator, the Oireachtas must come to a conclusion. The Department is entitled to its view. The political system of the Government is also so entitled.

Let us be fair about this. The Deputy is using——

I am using Professor Honohan's report which we all have said to be the greatest thing since sliced bread. Come on.

We might be talking about this for the next couple of days.

I accept it but am contextualising the example.

Question put and agreed to.
Section 22 agreed to.
SECTION 23

Amendments Nos. 19 to 23, inclusive, are related and may be discussed together.

I move amendment No.19:

In page 19, lines 3 to 6, to delete subsection (1) and substitute the following:

"23.—(1) A regulated financial service provider shall not offer to appoint a person to perform a pre-approval controlled function unless the Bank has approved in writing the appointment of the person to perform the function. An offer made in contravention of this subsection does not create any contractual obligation.".

This amendment enhances the existing section 23(1) so that it not only provides that a person shall not be appointed to a pre-approval controlled function without the appropriate prior approval but also provides that a binding contract to so appoint the person cannot be made. Amendment No. 22 substitutes a new subsection so that the test for refusing to approve an appointment shifts the burden of satisfying the bank that a person has sufficient fitness and probity to the regulated financial service provider concerned. This means the regulated financial service provider or the person seeking approval will need to provide sufficient information to the bank to enable it to satisfy itself that the person is of sufficient fitness and probity. It changes section 23(6) (a) so that the bank can refuse to approve a person’s appointment where the person concerned or an officer or employee concerned has failed to provide information requested under subsection (2).

This change is consistent with the shifting of the burden contained in amendment No. 17. It is important to bear in mind that this provision enables the bank to refuse approval on the basis set out in the amendment but does not require the bank to so refuse approval. There may well be occasions where a failure by another person to respond adequately to a request for information does not result in the bank being unable to approve an appointment.

The net effect of the amendments would be to restrict the scope of functions. I take it this refers to the Opposition amendment. Amendment No. 21 is my amendment, is it not?

No, it is Deputy Burton's. Amendments Nos. 22 and 23 are the Minister's.

Amendment No. 22 provides that the Central Bank cannot grant pre-approval unless it is satisfied that the person is of sufficient fitness, which extends to the persons to perform the function and probity. That will address the substance of the points raised by Deputy Burton.

Amendment No. 23 is next.

I dealt with amendment No. 23 at the start, when speaking on amendment No. 22.

Who else plans to speak?

Are we on amendment No. 20?

We are on all of them.

I shall speak to amendment No. 20.

We are looking to ensure there is completeness and that in getting pre-approval from the head of financial regulation, the Minister would ensure to maintain any person already in such a post beyond a period of six months. It deals with people who are already in situ and ensures they are approved by financial regulation. The amendment seeks to capture all people to which this matter applies who work with financially regulated providers.

Does anyone else wish to speak?

My amendment No. 21 would strengthen the Minister's powers according to his proposal. The amendment suggests that a bank shall not approve a person under this action unless it is satisfied that the person has supplied sufficient evidence of such qualifications and experience as are appropriate in the opinion of the bank. That has a more concrete element in that it touches on the areas of qualifications and experience. The Minister has referred to fitness and probity in overall terms, which I accept. However, at a senior level in a banking institution there must be evidence of qualifications and experience. It is appropriate to include experience and qualifications, which are normally emphasised as being of importance. In the banking and financial systems, experience is as important as qualifications. This could also address the concerns of some people that the emphasis would be solely on qualifications with no acknowledgment or recognition of experience. A balance of the two requirements is necessary. The person who drew up this amendment did so with due consideration. To some degree, amendment No. 22 seeks to respond to the Labour Party's amendment. However, I maintain the wording of amendment No. 21 provides a stronger hand to the Governor and the regulator in the event of any dispute which may arise. Financial institutions might wish to promote the cause of people that the Governor and, in particular, the regulator have good reason to be nervous about.

I refer to Deputy Burton's amendments. I am satisfied amendment No. 22 covers all the points she has raised in respect of amendment No. 21. Let us examine the amendment in my name. It refers to the bank holding the opinion that the person is not of such fitness and probity. The expression "fitness" covers the concept of experience referred to by Deputy Burton. Section 23(5)(b) makes reference to where the bank is unable to decide on the basis of the information available to it. There is a clear implication in this subsection that the bank can require information to be furnished. While there are differences in the drafting of amendment Nos. 21 and 22, the substance of what is sought in amendment No. 21 is encompassed in amendment No. 22. I thank Deputy Burton for raising the issue.

I refer to the matter of experience. Let us suppose someone is going for a senior appointment in a major financial institution. Let us further suppose the regulator or Governor remain dissatisfied about an episode in that person's past, whereby he or she was involved in something in an institution from which he or she may have emerged but perhaps left people unhappy in some way. I believe the direct language in our amendment captures that situation in a better way. Perhaps the Minister could include a third subsection that could submit that the person or the Governor could examine the evidence in respect of qualifications and experience. These are very subtle changes to address cases where something feels wrong about a particular appointment but it may be difficult to pin down.

I will consider the issue of whether we should expressly refer to whether the Governor can interview persons but I am unsure whether the legislation should expressly provide that he can review these matters. I am open to examining the point.

I realise the Minister was responding with amendment No. 22 and it is a strong amendment. However, I am probing whether it could be stronger. I refer to the IFSC in particular. Sometimes, we come across international adventurers, for the want of a better expression, of which there have been a number here. People came from Australia who had adverse findings against them by Australian royal commissions. Some of those people were involved in the reinsurance scandals that did a great deal of damage to the IFSC. While, on paper, they probably had fabulous CVs, no one appeared to know what had been said about them in Australia except one journalist in Ireland. I am sure the Minister's officials are aware of that particular escapade.

Will the Minister reply to my amendment No. 20?

The effect of this amendment would be to restrict the scope of functions which can be prescribed as controlled functions requiring approval. The prescription of pre-approval controlled functions will be rolled out on an incremental basis. If it were the case that each time a new type of pre-approval control function were proscribed, the bank would have to consider every person currently performing such a role and approve the continuation of their appointment in writing within a period of six months. This would have a negative impact on the flexibility of the bank to prescribe new pre-approval control functions.

At issue is the matter of coming into being. At a practical level, if certain people are with a regulated service provider, the activity in which they are involved would now fall under a pre-approved control function. Is there a requirement for the financial service provider to go to the commission to get approval for the role such a person is now carrying out? Is there consistency of treatment? If a firm takes on someone new from the enactment of the legislation——

Let us suppose a person is in an existing role which, I understand, is the situation to which the Deputy is referring.

That is correct — a case where it is a controlled function.

Let us suppose it is a controlled function.

That is the relevance of the amendment.

Let us suppose the person in question is not a fit and proper person to perform that role. What is the statutory scheme for such an eventuality? There must be a mechanism to remove that person. The mechanism is available by means of the prohibition and suspension notice procedures set out in the legislation and that is how one deals with such a situation.

The question I am asking is——

Let me explain. The procedures contain the safeguards and protections which the Attorney General considers appropriate to remove a person from an existing position. We cannot use the pre-approval mechanism to do that. We must use the prohibition and suspension notice procedures because there are existing rights and the legislation is drafted accordingly.

Does that mean if someone is currently in a role and the legislation is regarded as requiring pre-approval, there is no requirement for such a person to have pre-approval? However, if a person is required to be removed——

Yes, that is correct. It relates to future appointments only. There must be a removal of the pre-existing persons.

Yes. Does the Minister not believe it would enhance the legislation for those in existing posts to be required to be subject to some form of approval by the commission at this point?

We must have a removal mechanism for cases where a person is not fit and proper. We have done as much in the legislation and we have been advised this is the safest way, constitutionally, to do so.

The greater majority of people involved——

I realise the point the Deputy is making. However, my point is such people have rights and one cannot simply remove them by saying certain provisions now apply. One must remove them following the procedure set out in the Act under the prohibition and suspension notice procedures because we have factored their rights into that proceeding.

Is that based on advice from the Attorney General?

Amendment agreed to.
Amendments No. 20 not moved.

I move amendment No. 21:

In page 19, between lines 6 and 7, to insert the following subsection:

"(2) The Bank shall not approve a person under this section unless it is satisfied that the person has provided sufficient evidence of such qualifications and experience as are appropriate, in the opinion of the Bank.".

Amendment put and declared lost.

I move amendment No. 22:

In page 19, lines 32 to 35, to delete subsection (5) and substitute the following:

"(5) The Bank may refuse to approve the appointment of a person for the purposes of subsection (1)* where—

(a) the Bank is of the opinion that the person is not of such fitness and probity as is appropriate to perform the function for which he or she is proposed to be appointed, or

(b) the Bank is unable to decide, on the basis of the information available to it, whether the person is of such fitness and probity.”.

Amendment agreed to.

I move amendment No. 23:

In page 19, subsection (6), lines 39 and 40, to delete paragraph (a) and

substitute the following:

"(a) the person, or an officer or employee of the regulated financial service provider concerned, has failed to comply with a request under subsection(2), or”.

Amendment agreed to.
Question proposed: "That section 23, as amended, stand part of the Bill."

On the section, I am still not satisfied that what happened regarding reinsurance in the IFSC cannot happen again. On that occasion The Wall Street Journal described Ireland as the “wild west” of regulation and so on. It happened some time in 2006 when the Minister’s predecessor, the current Taoiseach, was Minister for Finance. The point was that a number of people came in and were involved in operating reinsurance which is now a very important part of financial services in Ireland and an important part of the financial services sector. One of the people who was an operator was somebody who had previous history in Australia. We have not yet had an inquiry. I spoke to the former Governor of the Central Bank about the issue because The Wall Street Journal telephoned me, along with other members of the committee at the time, to ask if we knew anything about the matter. One of the companies involved was bought by Bircher Hathaway. In due course, it seemed to have been able to persuade one of the officers of one of the institutions to accept liability regarding charges which were brought by some authoress in the United States. The matter was sorted. Was there ever a private inquiry in the Department of Finance——

The Deputy should table a parliamentary question. The Minister is dealing with the Bill.

No, the Minister has promised to reconsider a further amendment to amendment No. 22 because the case to which I referred was a clear example of the whole system not knowing, from somebody's experience, that it had a particular mention in a commission in another country——

The Deputy has made that point on a couple of occasions.

Australia has not had a financial crisis because it has good regulation. It is a viable question.

Question put and agreed to.
Sitting suspended at 1 p.m. and resumed at 2 p.m.
Section 24 agreed to.
NEW SECTIONS

I move amendment No. 24:

In page 20, before section 25, to insert the following new section:

25.—(1) If in relation to a person to whom subsection (2) applies, the Head of Financial Regulation is of the opinion that—

(a) there is reason to suspect the person’s fitness and probity to perform the relevant controlled function, and

(b) in the circumstances an investigation is warranted into the person’s fitness and probity,the Head of Financial Services may conduct an investigation, in accordance with this Chapter, in relation to the fitness and probity of the person to perform the controlled function.

(2) This subsection applies to a person—

(a) if the person performs a controlled function in relation to a regulated financial service provider,

(b) if, to the knowledge of the Head of Financial Regulation, a regulated financial service provider proposes to appoint the person to carry out a controlled function (other than a pre-approval controlled function), or

(c) if the Head of Financial Regulation has reason to believe that a regulated financial service provider is considering the appointment of the person to perform a controlled function (other than a pre-approval controlled function).

(3) Without prejudice to the generality of subsection (1), the Head of Financial Regulation may form the opinion referred to in that subsection if there is reason to suspect that—

(a) the person does not have the experience, qualifications or skills necessary to perform properly and effectively the controlled function, the part of a controlled function or any controlled function, as the case may be,

(b) the person does not satisfy an applicable standard of fitness and probity in a code issued pursuant to section 47,

(c) the person has participated in serious misconduct in relation to the business of a regulated financial service provider,

(d) the person has directly or indirectly provided information to the Bank, the Governor or the Head of Financial Regulation (whether pursuant to this Part or otherwise) that the person knew or ought to have known was false or misleading,

(e) the person has directly or indirectly provided information that the person knew or ought to have known was false or misleading to another person in order for it to be provided to the Bank, the Governor or the Head of Financial Regulation,

(f) the person has caused or sought to cause information requested by the Head of Financial Regulation by evidentiary notice from a regulated financial service provider or a person who is carrying out a controlled function not to be provided by the due date,

(g) the person has failed to comply with an evidentiary notice, or

(h) the person has been convicted of an offence (whether in the State or outside the State) of money laundering or terrorist financing or an offence involving fraud, dishonesty or breach of trust.”.

This amendment replaces the current section 25 with the new section set out in the amendment. The existing section 25 is to be broken up into two sections, which will be sections 25 and 26. The new section 25 makes it clear that an investigation into a person's fitness and probity can take place regardless of whether that person is suspended. The suspension powers are to be set out separately in the new section 26.

Is this amendment designed so there can be an investigation in all circumstances?

The suspension powers are set out separately in the new section 26. The test for investigating an investigation is modified. The test can now be met where the head of financial regulation has reason to believe that any of the criteria set out in section 25(3)(a) to (g) are met. The previous test about commencing an investigation was that the head of regulation had to be satisfied on this, now he or she must only have reason to believe rather than be satisfied. Additionally, the criteria set out in this subsection now mirror the criteria set out in section 42(2), which set out criteria for issuing a prohibition notice. An equivalent amendment is also being made to that section to ensure that the criteria in each case mirror each other.

Amendment agreed to.

Amendments Nos. 25 to 30, inclusive are related and will be discussed together.

I move amendment No. 25:

In page 20, before section 25, to insert the following new section:

26.—(1) If a person's fitness and probity is or has been the subject of an investigation under section 25*, and the Head of Financial Regulation is satisfied that it is necessary in the interests of the proper regulation of a regulated financial service provider concerned that the person not perform the relevant controlled function, or any controlled function, while the Head of Financial Regulation, the Bank or the Governor, as the case may be, is carrying out any function in relation to the person under this Chapter or Chapter 4, the Head of Financial Regulation may issue a notice (in this Part called a “suspension notice”) in relation to the person.

(2) When considering whether to issue a suspension notice, the Head of Financial Regulation shall have particular regard, where appropriate, to—

(a) the need to prevent potential serious damage to the financial system in the State and ensure the continued stability of that system, and

(b) the need to protect users of financial services.

(3) Before issuing a suspension notice in the circumstances referred to in section 25(2)(c)*, the Head of Financial Regulation shall ask the regulated financial service provider concerned in writing whether it is actually considering the appointment of the person concerned to perform the relevant controlled function. If the regulated financial service provider confirms in writing that it is not considering such an appointment, the Head of Financial Regulation shall not issue the notice unless there is reason to believe that such an appointment will nevertheless be made, or has been made.

(4) A suspension notice—

(a) is required to be in writing,

(b) shall set out the grounds on which the Head of Financial Regulation holds

the opinion referred to in section 25(1)*,

(c) shall specify whether the suspended person is suspended from performing

(i) a particular specified controlled function,

(ii) a specified part of a particular specified controlled function, or

(iii) all controlled functions,

(d) shall require the suspended person and the regulated financial service provider concerned to show cause, in writing, within 5 days after service of the notice, why the suspension order should not be confirmed, and

(e) shall set out any condition imposed under subsection (8) on the regulated financial service provider.

(5) The Head of Financial Regulation shall serve a copy of a suspension notice on each of the following:

(a) the suspended person;

(b) each regulated financial service provider for whom, to the knowledge of the Head of Financial Regulation, the suspended person performs the specified controlled function, the specified part of a controlled function, or any controlled function, as the case requires;

(c) any regulated financial service provider that—

(i) to the knowledge of the Head of Financial Regulation, proposes to appoint the suspended person to perform the specified controlled function, the specified part of a controlled function, or any controlled function, as the case requires, or

(ii) the Head of Financial Regulation believes to be considering appointing the suspended person to perform the specified controlled function, the specified part of a controlled function, or any controlled function, as the case requires.

(6) A suspension notice may be served on a person (including a regulated financial service provider)—

(a) by delivering it to the person,

(b) by leaving it at the address at which the person ordinarily resides or, in a case in which an address for service has been furnished, at that address,

(c) by sending it by post in a prepaid letter to the address at which the person ordinarily resides or, in a case in which an address for service has been furnished, to that address, or

(d) electronically (by electronic mail to an email address, or by facsimile to a facsimile number, furnished by the person to, or otherwise known to, the Head of Financial Regulation).

(7) A regulated financial service provider on which a suspension notice is served shall immediately—

(a) give a copy of the notice to the suspended person (unless it is impracticable to do so), and

(b) after it has done so, certify in writing to the Head of Financial Regulation that it has done so.

(8) In a suspension notice the Head of Financial Regulation may impose on any regulated financial service provider concerned any terms and conditions relating to the enforcement of, or compliance with, the notice that the Head of Financial Regulation thinks fit (including any condition as to the cessation, restriction or conduct of all or part of the business of the regulated financial service provider concerned until the regulated financial service provider complies with the notice).

(9) A suspended person, and a regulated financial service provider on which a suspension notice is served, may, within the period mentioned in subsection (4)(d), make a written submission to the Head of Financial Regulation in relation to the fitness and probity of the suspended person concerned or any terms or conditions imposed.

(10) Where a person on whom a suspension notice has been served asks the Head of Financial Regulation to decide, before the end of the period provided by section 27(b)(i)**, whether or not to confirm the suspension notice, and provides material that the Head of Financial Regulation is satisfied allows him or her to make a proper and fair decision, the Head of Financial Regulation shall make all reasonable efforts to make that decision as soon as reasonably practicable.”.

This amendment inserts section 26, which governs the issue of a suspension notice by the head of financial regulation. This is a consequence of providing that an investigation can take place without the person being suspended. However, once the criteria in this section are met a suspension notice can be served at any point at which functions are being carried out under this part, effectively at any point until a prohibition notice is issued at which point a suspension notice would be redundant. The test remains essentially the same as that set out in the Bill as published. The criteria set out in section 25 apply because the person must be, or have been, the subject of an investigation under that section. The additional test is that the head of financial regulation is satisfied that it is desirable in the interests of the proper regulation of the financial services provider that the person not perform the controlled function.

Amendment No. 26 means that the obligation to cease performing the controlled function applies to a person who is given a copy of the suspension notice.

Amendment No. 27 replaces the existing section 27. The section is repeated with two significant changes. It takes effect when it is served on the regulated financial service provider concerned rather than when it is served on the suspended person, and it ensures that a suspension notice can be revoked prior to the expiration of the ten-day period after which it will expire automatically unless confirmed.

The reason the taking effect and the ten-day period are commenced on the date of service on the regulated service provider rather than the suspended person is because it will always be possible to serve the regulated service provider by post to the registered office. It might not always be possible to serve a suspended person as quickly. However, the regulated financial service provider will be required to give a copy to that person after it has been served with a suspension notice.

Amendment No. 28 removes any doubt that a suspension notice can be confirmed even if no submission is made by one of the parties entitled to make such a submission. If there is a good reason no such submission was made at the relevant time, a submission can be made subsequently and the head of financial regulation must consider the submission and whether he or she should revoke the suspension.

This amendment deals with the position which might arise if a regulated service provider were served with a suspension notice but the individual could not be served. In that event, the suspended person might not have an opportunity or obligation to show cause as to the reason he or she should not be suspended during the initial ten-day window.

Amendment No. 30 is consequential to the new subsection (5) which is to be inserted into this section. It accommodates the possibility that a suspension notice might be revoked prior to its expiration. It provides an equivalent power to that set out in section 28. This power applies after a suspension notice has been confirmed under this section and the power in section 28 applies prior to such confirmation. Those are the various amendments proposed.

Amendment agreed to.
Section 25 deleted.
SECTION 26

I move amendment No. 26:

In page 22, subsection (3), line 46, after "person" to insert the following:

"on whom a suspension notice in relation to him or her is served, or who has been given a copy of such a notice by a regulated financial service provider".

Amendment agreed to.
Section 26, as amended, agreed to.
NEW SECTION

I move amendment No. 27:

In page 23, before section 27, to insert the following new section:

27.—A suspension notice that has not been confirmed by the Head of Financial Regulation pursuant to section 28

(a) takes effect on its service on the regulated financial service provider for whom the suspended person performs the relevant controlled function, and

(b) ceases to have effect—

(i) at the end of the 10th day after that service, unless within that period it is confirmed in accordance with section 28, or

(ii) if before the end of that day the Head of Financial Regulation revokes the notice, when the notice is revoked.".

Amendment agreed to.
Section 27 deleted.
SECTION 28

I move amendment No. 28:

In page 23, between lines 28 and 29, to insert the following subsections:

"(2) To avoid any doubt, the Head of Financial Regulation may confirm a suspension notice at the end of the period mentioned in section 26(4)(d)* even if no submission has been made in relation to it by either or both of the suspended person and any regulated financial service provider concerned.

(3) If a suspended person makes a submission in relation to a suspension notice after the end of the period mentioned in section 26(4)(d)*, and the Head of Financial Regulation is satisfied that there was good reason why the submission could not have been made within that period, or that it is necessary to do so in the interests of justice, the Head of Financial Regulation shall—

(a) consider the submission, and

(b) if after doing so he or she is satisfied that any condition in paragraph (a), (b) or (c) of subsection (1) is no longer satisfied, revoke the notice.”.

Amendment agreed to.

I move amendment No. 29:

In page 23, subsection (2), line 30, after "months" to insert "(unless sooner revoked)".

Amendment agreed to.

I move amendment No. 30:

In page 23, between lines 35 and 36, to insert the following subsection:

"(4) The Head of Financial Regulation may revoke a suspension notice at any time if he or she considers that—

(a) there is no longer any reason to suspect the person’s fitness and probity to perform the relevant controlled function, or

(b) although the investigation continues, it is no longer necessary in the interests of the proper regulation of the regulated financial service provider concerned that the person not perform the relevant controlled function, or any controlled function, during the investigation.”.

Amendment agreed to.
Section 28, as amended, agreed to.
Sections 29 to 32, inclusive, agreed to.
SECTION 33
Question proposed: "That section 33 stand part of the Bill."

The Minister wishes to make an intervention.

I wish to flag that I intend to introduce a technical amendment to section 33 of the Central Bank Act 1971 on Report Stage.

Question put and agreed to.
Sections 34 to 39, inclusive, agreed to.
NEW SECTION

I move amendment No. 31:

In page 28, before section 40, to insert the following new section:

40.—(1) After carrying out an investigation under this Chapter, the Head of Financial Regulation shall prepare a report for consideration by the Bank and the Governor.

(2) The Head of Financial Regulation shall serve a copy of a report prepared in accordance with subsection (1) on each of—

(a) the person whose fitness and probity was the subject of the relevant investigation, and

(b) any regulated financial service provider concerned.

(3) A copy of a report may be served in any of the ways that a suspension notice may be served.

(4) A person (including a regulated financial service provider) on whom a copy of a report is served pursuant to subsection (2) may make, within the period specified in accordance with subsection (5), a submission in writing to the Head of Financial Regulation in relation to any matter in the report.

(5) When the Head of Financial Regulation serves a copy of a report on a person (including a regulated financial service provider) pursuant to subsection (2), the Head of Financial Regulation shall inform the person in writing of the person’s right under subsection (4) to make a submission in relation to any matter in the report, and shall specify the period within which the person may do so. The period specified shall be reasonable in all the circumstances.”.

This amendment expands on section 40 in the Bill as published. It ensures that in addition to preparing a report, the head of financial regulation will serve it on the relevant persons and inform them that they have a right to make a submission, within a reasonable period, on the contents of the report. Any such submission will be considered with the report by the bank or the Governor in determining whether to issue a prohibition notice.

The Minister referred to a reasonable period of time. Is the period of time specified?

No. It is determined when they issue it.

It could conceivably drag on, for example, if the recipient of the report and the subject of the investigation did not respond for some time. That is the concern. Is there any——

The amendment provides that the period specified shall be reasonable in all the circumstances. That allows for misconduct on the part of a person who is served with it to be taken into account.

Should a normal period be specified and then it would depend on the circumstances? It is very open-ended, and files have been known to go missing for a year or two if the case is not followed up.

There is an immense variation in terms of the circumstances of misconduct.

If a position arose where there was an investigation into a fairly serious matter in terms of fitness and probity the person could simply not reply to the report and the position might drag on for a period of a year. If that person is the subject of an investigation into a very serious matter, that is a concern.

Do the Deputies want me to examine it for Report Stage?

With a view to imposing some limitation. Even if that guideline period——

They will follow the guideline period.

Amendment agreed to.
Section 40 deleted.
Section 41 agreed to.
SECTION 42

Amendment No. 32 is in the name of the Minister. Amendments Nos. 33 to 37, inclusive, are related and may be discussed with amendment No. 32.

I move amendment No. 32:

In page 29, subsection (1), to delete lines 1 to 3 and substitute the following:

"notice in writing (in this Part called a "prohibition notice") forbidding the person—

(a) to carry out the controlled function, the specified part of a controlled function or any controlled function, as the case requires, or

(b) to carry out the controlled function, the specified part of such a function or any controlled function, as the case requires, otherwise than in accordance with a specified condition or conditions, either for a specified period or indefinitely.”.

There are six amendments in this group and they all relate to the prohibition notice procedure to which I referred earlier. Deputy O'Donnell raised an issue about that procedure earlier because it would apply to existing bank staff.

Amendment No. 32 provides for greater flexibility in the type of prohibition notice which can be served. It permits a prohibition notice to require a person to carry out a controlled function to be performed in accordance with specific conditions rather than prohibiting the person outright from carrying out the function concerned.

Amendment No. 33 ensures that the criteria set out in the third subsection mirror the criteria which govern the issue of a suspension notice. That is in addition to the existing provisions.

Amendment No. 34 changes the test for the issue of a prohibition notice to take account of other amendments made. It requires that the persons concerned have been given a copy of the report made by the head of financial regulation and that they have been informed of their opportunity to make submissions on that report. It also requires that any submission they have made has been considered.

The requirement that the person and any regulated financial service provider have been afforded such a hearing as is necessary to do justice in the circumstances is no longer confined to those cases where a person has not been the subject of a suspension notice. I am no longer satisfied that the opportunities suspended persons have to show cause why they should not be suspended are sufficient to meet the requirements of justice in respect of the issue of whether they should be prohibited.

There is an additional test introduced by subparagraph (c) which requires that the bank or the Governor be satisfied that prohibition is necessary in the interests of the regulated financial service provider concerned. The requirements of each subparagraph (a), (b) and (c) must be met before a suspension notice can be issued. Amendment No. 35 ensures that a prohibition notice can be served by any of the mechanisms by which a suspension notice can be served. Those mechanisms are set out in subsection (6) of the new section 26.

Amendment No. 36 is a minor technical amendment. The section permits the possibility of a prohibition notice persisting without the requirement for confirmation by the High Court, if that is agreed in writing between the bank or the Governor, the prohibited person and any regulated financial service provider concerned.

The Minister said that people on whom a notice is served can appeal that decision and make a submission on it. Is there a timeframe within which a person can make such a submission?

The time limits are advised when the report is made and at that stage a fixed framework is laid down.

Is there a guideline for the timeframe?

It is exactly as provided for in a previous amendment, namely, in reasonable circumstances.

In reasonable circumstances.

Yes. I would be very reluctant to tie that down more in this context.

Will the Minister consider it in the overall context——

We will consider it.

——as he considers the first section?

Yes. I appreciate the Deputy's point.

The need for a specific timeframe in this case is not as onerous as it was in the previous amendment referred to but, nevertheless, I agree with Deputy O'Donnell.

Amendment agreed to.

I move amendment No. 33:

In page 29, subsection (2), between lines 20 and 21, to insert the following:

"(e) the person has directly or indirectly provided information that the person knew or ought to have known was false or misleading to another person in order for it to be provided to the Bank, the Governor or the Head of Financial Regulation,”.

Amendment agreed to.

I move amendment No. 34:

In page 29, subsection (3), lines 34 to 47 and in page 30, lines 1 to 16, to delete paragraphs (a) and (b) and substitute the following:

"(a) either—

(i) all of the following requirements have been satisfied:

(I) the Head of Financial Regulation has conducted an investigation into the person's fitness and probity in accordance with this Chapter;

(II) section 40 has been complied with in relation to that investigation and the report of it;

(III) the Bank or the Governor, as the case may be, has considered the report and any submissions made (within the period specified pursuant to section 40(4) to the Head of Financial Regulation in relation to any matter in the report,

or

(ii) there are undisputed facts that in the reasonable opinion of the Bank or the Governor render an investigation unnecessary, and the person and any regulated financial service provider concerned have been afforded a reasonable opportunity to make a submission in relation to the matter,

(b) the person and the regulated financial service provider have been afforded such a hearing in relation to the proposed issue of the prohibition notice as is necessary to do justice in the circumstances, and

(c) the Bank or the Governor, as the case may be, is satisfied that, in the interests of the proper regulation of the regulated financial service provider concerned, the issue of a prohibition notice is necessary in the circumstances.”.

Amendment agreed to.

I move amendment No. 35:

In page 30, between lines 31 and 32, to insert the following subsection:

"(6) A prohibition notice may be served in any of the ways that a suspension notice may be served.".

Amendment agreed to.

I move amendment No. 36:

In page 30, subsection (6), line 39, to delete "A prohibition notice" and substitute "Subject to section 45, a prohibition notice”.

Amendment agreed to.
Section 42, as amended, agreed to.
SECTION 43

I call the Minister to move amendment No. 37.

Are we now dealing with section 43?

I must flag the possibility of a technical amendment to section 42.

I note that.

We are now dealing with section 43.

We are dealing with amendment No. 37 to section 43.

I move amendment No. 37:

In page 31, subsection (1)(b), line 20, to delete “suspended” and substitute “prohibited”.

Amendment agreed to.
Section 43, as amended, agreed to.
SECTION 44

Amendments Nos. 39 to 41, inclusive, are related to amendment No. 38. Therefore, amendments Nos. 38 to 41, inclusive, may be discussed together.

I move amendment No. 38:

In page 31, subsection (1), line 29, after "notice." to insert the following:

"Where such an application is made with the consent of the prohibited person concerned, the Court may make an order under this section ex parte.”

These amendments relate to the applications to the court to confirm prohibition notices. Amendment No. 38 permits an ex parte application to confirm a prohibition notice in circumstances where the application is made with the consent of the prohibited person. This will enable a prohibition notice to be confirmed in an efficient manner in circumstances where there is no dispute as to whether it should be confirmed. It will also be possible to obviate the need to have a prohibition notice confirmed at all, by agreement in writing, under the new section 46 which I propose to insert into the Bill by means of another amendment.

Amendment No. 39 is a minor technical amendment amending the words "exceptional circumstances" to "cogent reasons" in section 44(4)(a). It may be that there are good reasons the evidence or argument were not proffered to the Governor or the bank which would not amount to “exceptional circumstances” and this should be accommodated.

Amendment No. 40 replaces the test for confirmation of a prohibition notice. The new test is similar to the previous one but the new subsection (6) clarifies what is to be regarded as a reasonable basis for the bank or the Governor to form the requisite opinion that the person concerned is not a fit and proper person to perform the controlled function in question. The new subsection (6) clarifies that the court will consider the opinion to have been formed on a reasonable basis unless it is vitiated by a significant or serious error or series of such errors, a mistake of law or evidence that does not support the finding. This amendment divides the orders which can be made by the court into those appropriate where the court is satisfied that the opinion was formed on a reasonable basis, and those where it is not so satisfied.

Amendment 41 is a minor technical amendment which takes account of a change to the relevant cross-reference.

Amendment agreed to.

I move amendment No. 39:

In page 31, subsection (4)(a), line 44, to delete “exceptional circumstances” and substitute “cogent reasons”.

Amendment agreed to.

I move amendment No. 40:

In page 32, lines 3 to 22, to delete subsection (5) and substitute the following:

"(5) On an application under this section—

(a) if the Court is satisfied that there is a reasonable basis (as set out in subsection (6)*) for the opinion of the Bank or the Governor, as the case may be, that the prohibited person concerned is not of such fitness and probity as is appropriate to perform the relevant controlled function or part of a controlled function, or any controlled function (as the case may be), the Court may make—

(i) an order confirming the relevant prohibition notice,

(ii) if the Court considers that it is necessary in the interests of justice, or for any other good reason, to vary the prohibition notice, an order varying or limiting it (including by imposing a condition or conditions on the prohibited person or a regulated financial institution concerned), and

(iii) any other additional or ancillary order it thinks fit,

and

(b) if the Court is not satisfied as provided for in paragraph (a), the Court may make—

(i) an order setting aside the notice,

(ii) an order remitting the matter to the Bank or the Governor for reconsideration in accordance with any directions by the Court (whether or not the Court also sets aside the notice), or

(iii) any other order it thinks fit.

(6) For the purposes of subsection (5)(a), there is a reasonable basis for an opinion if, taking into account the expertise and specialist knowledge possessed by the Bank or the Governor, as the case requires, the opinion (and the process that led to its formation) was not vitiated by—

(a) any significant and serious error or series of such errors,

(b) a mistake of law, or

(c) the evidence, taken as a whole, not supporting the finding.”.

Amendment agreed to.

I move amendment No. 41:

In page 32, subsection (9), lines 38 and 39, to delete "subsection (5)(a)(iv)” and substitute “subsection (5)(b)(ii)””.

Amendment agreed to.
Section 44, as amended, agreed to.
NEW SECTIONS

I move amendment No. 42:

In page 32, before section 45, but in Chapter 4, to insert the following new section:

45.—(1) Where the Bank or the Governor has issued a prohibition notice in relation to a person, the person (and, where at the time of issue of the prohibition notice, the person is performing a controlled function, the regulated financial service provider concerned) may agree in writing with the Bank or the Governor that the person and, where applicable, the regulated financial service provider shall continue to comply with the prohibition notice for such period as is agreed.

(2) Where a person and the Bank or the Governor have agreed as set out in subsection (1), then—

(a) nothing in section 44 requires the Bank or the Governor to apply for an order under that section,

(b) subject to subsection (3), and notwithstanding subsection 42(6), the prohibition notice shall continue in effect in accordance with its terms, and

(c) in the event of a contravention of the agreement—

(i) the Bank may apply to the Court for an order under section 43, and

(ii) the prohibition notice shall continue in effect in accordance with its terms.

(3) If the Bank or the Governor, as the case may be, considers that there is no further need to continue a prohibition notice that is the subject of an agreement under subsection (1), the Bank or the Governor, as the case may be, may terminate the agreement by written notice to that effect to the prohibited person and any regulated financial service provider concerned. On the giving of such a notice the prohibition notice ceases to have effect.”.

Amendment No. 42 inserts a new section which permits a prohibition notice to be continued indefinitely, without requiring a High Court order, if this is agreed to in writing by the prohibited person and any relevant regulated financial service provider, with the bank or the Governor. Were the agreement to be breached, and the person performs a controlled function in breach of the prohibition notice, an application can be made ex parte under section 43, as amended. This will avoid the need for court applications in circumstances where there is no dispute.

Amendment agreed to.

I move amendment No. 43:

In page 33, before section 45, but in Chapter 5, to insert the following new section:

46.—The Bank may make use of—

(a) information and evidence gathered by the Head of Financial Regulation in the course of an investigation under Chapter 3,

(b) anything in any submission made to the Head of Financial Regulation pursuant to section 40*, and

(c) anything in any document or evidence placed before the Court in the course of proceedings under Chapter 3 or 4,

for the purposes of any statutory function of the Bank (including, in particular, an inquiry pursuant to Part IIIC of the Act of 1942 and the imposition of sanctions as a result of such an inquiry).".

This is an amendment to section 45, the section in the miscellaneous part, which provides for an offence of providing false or misleading information.

The amendment inserts a new section into the Bill which ensures that the bank will be able to make use of information obtained during the course of an investigation into a person's fitness and probity for the purposes of the bank's other statutory functions. If, for example, an individual investigated was not responsible for the misbehaviour that prompted the investigation, but rather it was the financial service provider, the bank itself which was responsible, the Central Bank commission could use that information in order to initiate administrative sanctions against the financial service provider concerned or to initiate an investigation into another person's fitness and probity. Any alternative use to which the information concerned would be put would be subject to the relevant rules and procedures in relation to that alternative use, but the purpose of this amendment is to ensure that the bank would not be frustrated in its intention to commence another investigation just because it came by way of the information in the course of a fitness and probity investigation. The concern arises partly because of the provision set out in section 37 of the current Bill, which provides that information given in accordance with the chapter is absolutely privileged. That provision is necessary in order to ensure that the best quality of information is available to the bank but it is important to avoid that provision preventing legitimate subsequent investigations.

Amendment agreed to.
Section 45 agreed to.
Section 46 agreed to.
SECTION 47

I move amendment No. 44:

In page 33, between lines 32 and 33, to insert the following subsection:

"(2) The code shall not come into force until it has been submitted to the Minister for Finance who shall submit it for consideration and approval by the Houses of the Oireachtas or a Committee of the Houses of the Oireachtas designated to deal with such matters.".

I referred to this amendment in our earlier discussions. Section 47 is short. It states: "The Bank may issue a code setting out standards of fitness and probity for the purposes of this Part". There are two elements to this. The code should be submitted to the Minister for Finance and then submitted for consideration and approval by the Houses of the Oireachtas or an appropriate committee, such as the Joint Committee on Finance and the Public Service, to deal with such matters. If we have a strong regulator, which is very much on the job, it will both develop and implement the codes. If the regulator is not as vigilant in its duties or did not have as high an understanding, it might lead to a code that is weak in orientation and implementation. What we have put forward would strengthen the provision. It is effectively a mechanism to bring it before the Houses of the Oireachtas, in keeping with the legislation that is initially introduced.

I am not disposed to accept the amendment because I do not have a statutory function in preparing and publishing the codes of practice. The newly reorganised Central Bank of Ireland commission has independence in these matters and has been delegated the responsibility for setting fitness and probity standards by the Oireachtas. It should be enabled to do that free from any political supervision.

This is the provision I should have referred to earlier when I said I favoured an Oireachtas input into the code of fitness and probity. There should also be a time for it because the sooner this comes into effect the better, subject to proper scrutiny. My third point related to a review of the code after a reasonable period, perhaps even two years after it beds down and we see how it is working out. It could be road tested for a while in case some amendments were necessary. There should be Oireachtas input into that given its importance. I consider it particularly important in light of events in recent years.

Will the Minister respond on the timeframe for the introduction of the code?

There is no timeframe fixed in the legislation. It is probable that the bank will bring in different codes for different areas at different times.

What about Deputy Morgan's point about a review of the codes? Could a stipulation be put in legislation to provide for an annual or bi-annual review of the codes, by way of a control measure?

It is with a view to ensuring that they do what we, and proper governance, would like them to do.

The regulatory statement and the accountability to the Oireachtas would allow the general provisions of the codes, which I would expect to endure for a long time, to be brought under review in that way. If specific abuses were raised, the revision of the codes could be raised in that context.

Amendment put and declared lost.
Section 47 agreed to.
Sections 48 to 50, inclusive, agreed to.
SCHEDULE 1

I move amendment No. 45:

In page 37, column 3, to delete lines 4 and 5 and substitute the following:

" "(2A) Commission Regulations (EC) No. 1287/2006 and (EC) No. 924/2009 shall be taken to be designated enactments.".".

This is a technical amendment. It inserts a new subsection into section 2 of the Central Bank Act 1942 providing that Commission Regulation (EC) No. 1287/2006 shall be taken as a designated enactment under which the Central Bank performs its functions. This is the regulation relating to record keeping obligations for investment firms, transaction reporting, market transparency and the admission of financial instruments to trading.

The Minister is empowered to appoint at least six members of the commission without reference to, consultation with or agreement from the Houses of the Oireachtas. If the Minister were to reflect on this from the perspective of a position he might have to suffer or enjoy in the not too distant future on the Opposition benches, he might welcome a consultation process to ensure that the people being appointed by the Minister of the day are at least subject to some level of scrutiny by the Oireachtas.

This is just a technical amendment.

I am not talking about the amendment. I must address an item so I can table an amendment on Report Stage seeking consultation with the Oireachtas.

The Deputy is referring to item No. 28 in the Schedule.

I see the Deputy is indicating that I will be a Member of Dáil Éireann after the next general.

I was not being hard on the Minister. I was only relegating him to the Opposition benches.

That is a foregone conclusion, Minister.

Is the Deputy referring to item No. 28?

It relates to membership of the commission.

Yes. I should have elaborated on that at the outset.

I presume there are amendments tabled on this, regarding the appointment of the members of the commission. We will deal with that later as well as the issue of Oireachtas input into these matters.

We have tabled an amendment that will satisfy Deputy Morgan.

I am just too enthusiastic.

Yes, you are ahead of the posse.

Amendment agreed to.

Amendments Nos. 47 and 48 are related to amendment No. 46. Is it agreed that amendments Nos. 46 to 48, inclusive, be discussed together? Agreed.

I move amendment No. 46:

In page 37, column 3, between lines 31 and 32, to insert the following:

"(b) to intervene in the affairs of a provider of banking services where those affairs are being conducted in such a way that there is a significant risk of the failure of such provider,”.

The purpose of this amendment is to give the regulator the power to intervene in one troubled institution to prevent one troubled financial service provider from threatening the entire system. Such power is lacking in the Bill. I do not know if the Minister appreciates that.

This amendment is, to a significant degree, drawn from the experience we have learned from the crisis. It is set out at great length in the Regling and Honohan reports. It is clear that from an early stage, certainly the beginning of 2008 and earlier, that there were severe concerns about liquidity in Irish Nationwide Building Society and Anglo Irish Bank. The Minister at the time was Deputy Brian Cowen. Two things are very clear. The Irish Nationwide Building Society, although it is small, was obviously very troubled. As the footnote says, the individual who headed that building society was politically well connected and things were allowed to drift, probably because of the political connections. While what the Governor refers to as the domestic standing group and others were aware of the situation, it is hard to believe the Department of Finance was not. The implication is that it was. Everybody allowed everything to drift and the regulator had no power, even if that regulator was not inclined to exercise the power. Reading between the lines of the report, that is the picture one gets. There is no doubt that if action had been taken in respect of the two rogue institutions much earlier, it would not have stopped a considerable financial banking crisis in Ireland but it would have enormously lessened the severity of the crisis and it might have drawn up AIB, in particular, in its tracks, because AIB stepped into the vacuum left by Anglo Irish Bank when it pulled out at the top of the bubble.

Professor Honohan said that if one went back 18 months——

To Lehman Brothers.

No. He goes back further to Northern Rock. He goes back 18 months. I have been advised legally——

That is late 2006 then. We are talking about 2006.

If one takes Northern Rock as——

Yes. In a way what Honohan says happened is that because everything drifted, by the autumn of 2008, the decision-makers felt it was all in and, therefore, all the institutions were in.

The purpose of this amendment is to give a regulator in the future very clear and specific powers to take action against an institution which is failing and to make that an express provision. The Minister may argue there are implied provisions throughout the Bill to take action against an institution which is in severe difficulties.

The regulator has been able to do that in regard to licensing in the IFSC but those institutions tend to be small beer. We are talking about an institution which is important to the domestic market. I recommend this to the Minister because we all know that hindsight does mean 20:20 vision.

Elsewhere in his report, Professor Honohan talks about walking softly and carrying a big stick versus walking softly and carrying no stick. This would be a stick with which a regulator could walk softly and could call in an institution in difficulty and say it is limiting it. I remember in the United States, Ronald Reagan exercised such powers during his term in office in regard to the savings and loan issue and the Resolution Trust Corporation. If the Minister reads the debates, he will see I drew attention to that at the time of the guarantee. I commend the amendment.

I wish to add an addendum to that. The two banking reports, in particular Professor Honohan's report, stated that this issue of solvency was not really looked at by the regulator but the issue of liquidity was. The issue of solvency did not appear to be on the radar. Furthermore, he stated in regard to the whole risk analysis, it was too slow in taking action. Deputy Burton proposes a very welcome amendment but it will only work if there are procedures in place where solvency as well as liquidity comes up on the radar and it is watched. Professor Honohan's report was extremely critical in that area. I welcome the amendment.

I support the amendment and would like to hear the Minister's response.

I do not disagree with the general direction of the discussion. I do not want to get into an argument about what Professor Honohan did or did not say but I agree with the general direction of the discussion. The particular legal format of this amendment is that one simply sets out a very broad objective in regard to what is described in the amendment as "the significant risk of the failure of a financial provider".

If one is to deal with a matter such as that in this legislation, it would have to be fleshed out in far more detail. That is why the Government and I have made it clear that I am examining options for the introduction of a legislative regime to deal in a systematic way with distressed financial institutions to ensure the State has in place a range of tools to address problem institutions in the interests of maintaining financial stability, minimising reliance on public moneys and ensuring the continuity of key banking activities.

In view of the central role performed by central banks in resolution frameworks, my Department is in consultation with the Central Bank and the regulator to develop draft legislative proposals. Analogous work is under way in the European Union and the Commission is expected to bring forward legislative proposals on the use of resolution frameworks for cross-border institutions early in 2011. Included in the Commission's proposal for discussion are additional powers for supervisors to require the preparation by systemically important institutions of firm, specific contingency and resolution plans. Ireland is working fully at EU level as well as with the arrangements that are in place in discussions with the Central Bank.

Given that this issue has been given consideration outside the context of this Bill, I do not propose to accept amendment No. 46 because it essentially imposes an obligation on the bank without providing the necessary tool kit to carry out the performance of the obligation. I do not say that in criticism of the spirit behind the tabling of the amendment which I accept is motivated by the need to address the issue in question.

I understand what the Minister said. To go back to Deputy O'Donnell's point on solvency, looking back at Honohan's report, presumably the focus on and obsession with solvency — he does not really go into this — meant that there was a big tent——

It is with funding and liquidity.

Yes, with liquidity. The non-focus on solvency meant that there was a big tent approach. It reinforced the view that in Ireland, the alternative to the "too big to fail" became the doctrine of the Department of Finance, that is, that no institution could fail. This needs to be teased out.

We will tease it out.

The problem with no institution failing meant that it was not possible to take action against Irish Nationwide Building Society or Anglo Irish Bank and to tell them to slow down. Had Anglo Irish Bank and Irish Nationwide Building Society been looked at separately in regard to the solvency issue, one might have said that this bubble could not continue.

I presume the reason solvency was missed — the Minister's officials can tell us — was that it was said these are part of the whole, the whole is solvent and, therefore, the solvency issue does not arise. Perhaps that was the internal argument, if it ever arose.

The Minister might want to come back to us on Report Stage and I will get some advice about this. In the interim, before the legislation is introduced, which will be welcome, would it not be better to give that big stick to the regulator and the Governor? Remember we are in a post-crash period when we have a strong Governor and regulator. Everybody acknowledges that and welcomes both of them. Let us say that situation does not last too long and we go back to normal, the subsequent——

It depends on how one defines "normal".

The point is that the Minister is relying in his legislation, as Deputy O'Donnell said earlier, on the strong character, qualifications, etc., of the current officeholders post the crash. This legislation may have to last for a lot longer.

Deputy Burton has expanded on it very well. The fact that the National Treasury Management Agency was reluctant to give deposits to Anglo Irish Bank over a significant period of time — its former chief executive officer, Michael Somers, is on record stating that——

Substantial deposits.

It gave it the minimum deposits. The NTMA was reluctant to give Anglo Irish Bank any deposits but it gave it the minimum it could. Did that not set off alarm bells in the regulator and the Department of Finance? Is the essence of Deputy Burton's amendment to intervene? One will intervene only if one knows the problems within the various institutions——

At an early stage.

——at an early stage. The point is that Anglo Irish Bank's loan book was growing at such a phenomenal rate, as was Irish Nationwide Building Society's, and as with any business that begins to over trade or expand at a phenomenal rate, the issue of solvency always comes into the mix and one looks at the current asset ratio and at the assets. The question an ordinary man would ask is: why did it not happen? If we know these symptoms were in bright lights, why are we in the position where the Government has put €14 billion into Anglo Irish Bank, a red cent of which the taxpayer will not see, and €2.7 billion into Irish Nationwide Building Society?

We will deal with the amendments, unless the Minister wants to comment.

It is clear from Professor Honohan's report, and from Messrs. Regling and Watson's report, that the difficulties that were stored up in the banking system were in that system by at the latest 2006,——

Eighteen months before the guarantee.

——as we discussed.

Before Lehman Brothers collapsed.

Well in advance of that.

Eighteen months prior.

It would coincide with the peak of the property bubble in Ireland. Once the bubble started to explode——

I would say that was a little later. Characterised by the interventions of the former Tánaiste on stamp duty, I would characterise it as late in 2006. In any event, in that period. I do not think there is substantial disagreement. I do not think it actually reached 2007. By late 2006, it was clear we had passed a peak——

——and the consequential political agitations about stamp duties were a reflection of the fact. I am not trying to make a political point. There was awareness that the market was suddenly declining from peak by the time those political interventions took place.

Given all of that, Deputy O'Donnell asked why did this happen. That is outlined in part, where the regulatory and supervisory system is concerned, by the Honohan report.

The solvency issue.

It is outlined in part, where the Government is concerned, in both the Regling and Watson and the Honohan reports. It is fairly stated that the details of how it came about — we are going back to the terms of reference here in a sense — in the institutions, and especially in the two most distressed institutions, is something that requires further exploration. We will discuss this next week and I do not want to go over the ground. It is difficult to see how one cannot have a detailed statutory inquiry into what happened at Anglo Irish Bank and Irish Nationwide Building Society, for example, given the exposure of the taxpayer in these institutions.

Deputy Burton referred to whether my Department — this is a matter on which, perhaps, I have a better recollection to speak because it relates to my period as Minister — subscribed to a view that no bank was too big to fail. It is fair to say that the Department and I, the then Governor, and the Governor since in looking back at that period, took the view that Anglo Irish Bank was too big to fail.

There was the matter, which I outlined to this committee last February 12 months, that Irish Nationwide Building Society did not have a funding problem on the night of the guarantee because it was a small institution and it was funded up to a certain period. Unlike larger institutions, it did not require a continuous funding base. That said, there were concerns in my Department about Irish Nationwide Building Society by that time and we were satisfied about the degree of influence that we were able to exert on, and confidence we could repose in, certain crucial members of the board following the appointment of directors on foot of the guarantee, and that was an important issue for us at the Department in the case of Irish Nationwide Building Society.

It is worth stating that in the course of a recent visit to Dublin, the president of the German Central Bank, Alex Weber, expressed the view that even on the night of 29 September Irish Nationwide Building Society was too big to fail and that they could not afford to risk any institution on that night. The issue did not arise that night for Irish Nationwide Building Society.

Was the Governor's point valid, that if mechanisms were in place——

The Minister rolled back the clock.

The argument about mechanisms is something——

The discussion has been interesting but we will move on with the amendments.

I will look at it and re-introduce a version of it on Report Stage. I strongly suggest the Minister might do so as well.

It seems to me it might be worth looking at the issue of solvency rather than the issue of resolution regimes. Clearly, if we start talking about resolution regimes we must paint the picture of what the resolution regime is whereas the more general question of solvency is something we should review.

In simple layman's terms, if the Minister had a mechanism in place which saw that the loan book in an institution was growing at a rapid rate in one particular period, he could have brought in measures to increase their capital ratio requirements overnight. He could have had a situation where we would have slowed down its loan book and such institutions might still be solvent. The one point that came across in the Honohan report was that in the procedures, whether due to lack of staff, lack of expertise or lack of clarity, the issue of solvency was completely off the table virtually right up until the very end.

I did not complete my response to the amendments. I did not deal with amendments Nos. 47 and 48, which in a sense deal with the solvency issue because they talk about the public interest and the interests of consumers. We have not come to those yet. In a way, are we not anticipating that discussion?

The amendments are grouped.

I will withdraw my amendment but I may reintroduce it on Report Stage.

They are grouped.

I did not move them.

They are being discussed together.

While amendment No. 46 is somewhat incoherent in its drafting in that there are issues of corporate governance and resolutions procedures written into it, I agree with the thrust of amendments Nos. 47 and 48 which relate more narrowly to the solvency issue. I want the opportunity of seeking the view of the Office of the Parliamentary Counsel on the drafting of these. I propose not to accept the amendments as proposed but to undertake to bring forward a Report Stage amendment along the lines of the wording used, subject to the advice of the Office of the Attorney General.

I thank the Minister for that reply. I will withdraw the three amendments but I may reintroduce them on Report Stage. I await the Minister's amendments.

Amendment, by leave, withdrawn.
Amendments Nos. 47 and 48 not moved.

Amendment No. 50 is related to amendment No. 49. Amendments Nos. 49 and 50 will be discussed together.

I move amendment No. 49:

In page 40, column 3, line 47, to delete "institutions" and substitute "service providers".

Amendment No. 49 is a technical amendment to correct an incorrect reference to financial institutions in subsection (2)(b) setting out the objectives of the bank. Then there is an amendment in Deputy Bruton’s name linked with it.

Where the Bill provides that the bank should have the following objectives, there should be two additional items included, first, to report to the Oireachtas on how Ireland rates against benchmarking of banking development and oversight compared to relevant international comparator companies, and, second, the long-term competitiveness of the Irish economy as a member of the eurozone.

The context is the financial stability reports produced by the Central Bank. The former Governor of the Central Bank, Mr. John Hurley, and the former CEO of the Financial Regulator, Mr. Patrick Neary, were before various committees, and what struck me was the disconnect between the Financial Regulator and the Central Bank.

What we are looking at here is the need to address the issue of banking and development oversight. The Minister will be aware that the general oversight area is extremely important. There are developments in other eurozone countries. Without being political in respect of this matter, between 2003 and 2007 or 2008 our lack of competitiveness was a major factor in causing our exports to become uncompetitive. These are two key elements, one of which raced ahead while the other moved in the opposite direction. In the context of the financial system and the macro-economic position, I hope the Minister will take these elements into consideration. The amendment is reasonable in nature and its acceptance would add to the section.

The Central Bank has a role in respect of Ireland's competitiveness and often comments on it in its quarterly reviews. However, the amendment would assign the objective of achieving long-term competitiveness to the Central Bank. I agree that the Central Bank should remain attuned to competitiveness objectives and, in light of my experience of reading its reports, I have every confidence that it will remain so attuned. The amendment overstates the scope for the Central Bank to deliver on that objective.

When we discuss competitiveness, it is important to recognise that the central point made in the two recent reports, particularly that compiled by Regling and Watson, is that we were uncompetitive because we did not work through our system the implications of a common currency zone.

That was an element——

It was a huge element of the problem. We increased expenditure and levels of remuneration — I refer here to all such levels, not merely those relating to salaries — to a point that was way beyond the actual level of inflation that obtained throughout the common currency zone. That was a crucial weakness in our economic performance in that era. The suggestion relating to international benchmarks is already covered by the requirement for a regulatory performance statement, which includes the targets and criteria for assessing the performance of the bank. In addition, there is a provision for an international peer review at four-yearly intervals.

I will withdraw the amendment. We will probably retable it for Report Stage, with the aspect relating to competitiveness slightly changed. The Minister referred to our joining the common currency. When we did so, we entered a low-interest rate environment and we lost the ability to devalue our currency, which is a control component. This fuelled the property bubble, particularly in the context of interest rates. There was a strong case at that time, circa 2003, in favour of the Central Bank examining the capital ratio requirements of the banks and their stress testing mechanisms.

We had to find other ways to devalue our currency and competitiveness was the key. There was enormous wage inflation during the period in question. On the banking side, a ten-point plan in respect of the areas to be covered must be put in place. This would involve the establishment of very simple mechanisms. In the period to which I refer, the property bubble got out of control and, effectively, all the regulator was interested in was liquidity. Once a bank had sufficient liquidity, the fact its loan book was going out of control did not enter the equation.

I agree with the Deputy. Prior to 1979, we did not have the power to use the exchange rate to influence economic policy. Our capacity to do so after that date was somewhat, though not greatly, constrained by our membership of the European monetary system, EMS. In the context of changes to regulation we are introducing, I have consistently raised with my colleagues in Europe the powers national central banks should be given in order to control excessive lending or impose quantitative limitations on lending in the absence of interest rate controls.

Is that not a function of the Central Bank in any event?

Due to the fact that central banks have traditionally relied heavily on the interest rate mechanism, the other mechanisms are not as developed in the context of the euro, where a common currency is operating across a mosaic of economies and banking systems. This is tacitly acknowledged in the Regling and Watson report which indicates that the greatest risk of events similar to those which occurred in Ireland happening elsewhere would be in a country which has just acceded to the euro system. I take the Deputy's point. I am of the view that we are going to be obliged to continue to debate this issue at this committee.

Amendment agreed to.
Amendment No. 50 not moved.

Amendments Nos. 51 and 52 are related and will be taken together.

I move amendment No. 51:

In page 43, column 3, line 7, after "Minister" to insert the following:

"with the prior approval of a Committee of Dáil Éireann nominated by Dáil Éireann for that purpose".

This amendment suggests that the approval of a committee of Dáil Éireann should be required in respect of nominations to the membership of the Central Bank commission. This is a matter about which we have argued with the Minister previously. Under the Bill, the Minister alone has power to appoint people to the commission and its board. While the legislation specifies that certain qualifications will be required, we are of the view that it would be a significant improvement of democratic accountability in this country if appointments to boards were not seen as simply being in the gift of the Minister of Finance of the day or any other Minister. There should be a system whereby those to be appointed should be subject to some degree of vetting, either in public or in private, in respect of their suitability for appointment, as is the case in many other countries, particularly the United States and the UK.

I share the concerns of Senator Shane Ross regarding recent appointments to the board of Anglo Irish Bank. One of those appointed is a former Senator who was nominated to the Seanad by the late former Taoiseach, Charles J. Haughey. The other person appointed was a risk manager at AIB in the period leading up to the crisis. Effectively, the same circle of connected individuals is being appointed all over again. Valuable work has been done by TASC in revealing the interconnections among the people on the boards of the leading banks and on the boards of the Central Bank and the Financial Regulator.

In light of the crash we have experienced and the degree of economic sacrifice that has been inflicted upon people, it seems a small price to pay that those who serve on these boards should be obliged to submit to some level of public scrutiny and should have their qualifications examined. We must end the golden circle relating to appointments. The activities of the golden circle involving Fianna Fáil, the developers and the bankers were brought to a shuddering halt as a consequence of the crash.

I appeal to the Minister to consider the establishment of a process that would provide for an Oireachtas committee to scrutinise potential appointees. The process in this regard could take place in private or there could be a public element to it. The Minister is probably going to state that it is awfully difficult to encourage people to serve on boards. I accept that a problem exists in this regard. However, the same people — with the same qualifications and political affiliations — who will not rock the boat continue to be appointed. That is what has brought the banks to ruin. I strongly appeal to the Minister to consider laying down a marker to the effect that we intend to move away from a business as usual approach in respect of Irish financial institutions and banks. Specifically, the commission is the first opportunity to make that statement clearly.

I echo everything Deputy Burton has said. When the Minister is appointing a commission, its members should appear before an Oireachtas committee to get a flavour of the issues for Oireachtas Members, who reflect what the people think. The commission is effectively the board of the Central Bank and it is important to have an interaction. Clearly the members would be appointed by the Minister. In the interest of probity and openness, it would be healthy for democracy for them to appear before a committee and outline their role on the commission. It would give credibility to the board in its task over the period of time.

A few issues have arisen, not all of which relate to the Bill. I cannot let the point about recent appointments to the board of Anglo Irish Bank pass. The three appointees were cleared by the Regulator, which has considerably tightened the procedures on appointing directors to banks. Directors of Anglo Irish Bank, as with all other banks, must obtain regulatory clearance. It is not given lightly or speedily — quite the contrary, which is as it should be.

Regarding the three appointees in question, specific skill sets were identified by the board of Anglo Irish Bank in respect of which it believed it required expertise and the appointments were made in that context. Deputy Burton referred to the appointment of a former Member of the Oireachtas. The person in question was a solicitor with commercial experience. When I surveyed the field of lawyers available, there was a serious danger of another particular golden circle to which, in fairness, Deputy Burton has referred, namely, the top professional firms in Dublin having the giving of this particular appointment. In the circumstances I believed it was better in the public interest that a person who had the necessary skill sets and did not hail from one of the larger offices should sit on the board of the bank. He is also a person in whom I have confidence. I do not believe past membership of the Oireachtas should disqualify a person from exercising the position of a director. The other appointments reflected various skill sets. These matters and a number of names were discussed with both the current and former chairmen.

I shall move on to the substance of this amendment. It is understandable that it should be tabled. Those serving on the Central Bank commission would be capable persons with relevant knowledge and experience. Some of that has been written into this legislation. The Bill is far more detailed on the pool of expertise from which commission members may be drawn. I shall move an amendment later to add further to that list of qualifications. Furthermore, the Bill spells out in great detail the powers and functions of the commission and the principles which must guide its members. I do not believe it has been suggested here that the appointees are compromised by virtue of their appointment by a Minister for Finance in respect of their expertise, integrity or independence. I understand the case has been made here this afternoon on the basis of accountability.

I note that the issue was raised with the Governor of the Central Bank earlier in the week and his view was that the problems that have occurred in other countries with political appointments to central bank boards have not happened in this country over the years. On that basis the Governor saw no urgent need for what is now being suggested. When the matter is brought into a parliamentary committee format, it increases the danger of political appointments. It increases the possibility of a political trade-off among the political class in those appointments. It is not an easy issue on which to devise a perfect procedure. Ministers need to be accountable for these appointments.

I accept that in the contemporary circumstances where what has happened has happened, the public would have general confidence in the Minister for Finance, not, I hasten to add, because it is me in particular, but because of the position in which the country finds itself, to ensure that those appointed to the Central Bank commission are beyond reproach and are persons of the highest competence, integrity and ability. The question that can be raised is whether in quieter times we can rest assured that that will continue to be the case. That is a matter that causes me some concern. However, it is difficult to envisage what procedure could be devised. I come back to the problem that if we were to decide to politicise the process further, which would be done by bringing it into a parliamentary committee, I am not satisfied we would get a better Central Bank commission as a result. Therefore, I am not disposed to accept this amendment.

What was the process for appointing the recent appointees to the board of Anglo Irish Bank?

We are going around in circles. The Deputy should take this matter up at another opportunity. It is not appropriate to discuss it in the context of these amendments.

Specifically on the commission, what is the procedure? Are people interviewed?

I shall put the amendment.

Amendment put and declared lost.

I move amendment No. 52:

In page 43, column 3, line 7, after "Minister" to insert the following:

"after they have presented themselves before an Oireachtas Committee, constituted for the purpose, to answer relevant questions about their relevant knowledge and general suitability for the role".

Amendment put and declared lost.

Amendments Nos. 53, 54 and 84 are related and may be discussed together.

I move amendment No. 53:

In page 43, column 3, line 39, to delete "Any advisory group" and substitute the following:

"The advisory group (in this section called 'the consumer advisory group')".

As I pointed out on Second Stage, the consumer function will be integral to the bank itself. Consumer issues will need to be planned and reported on in the regulatory performance statement and the bank's performance in this area will be subject to Oireachtas scrutiny and oversight. In the course of the Second Stage debate, a significant number of speakers queried the rationale for the elimination of the consumer panel. In the course of consultations on the Bill with key stakeholders, officials of my Department met representatives of the consumer panel. The panel made representations seeking to flesh out the role of the consumer advisory group in circumstances where the primary role in the oversight of the bank's conduct of its regulatory functions has passed to the Oireachtas.

Having considered the comments of Deputies in the course of the debate and the suggestions proposed by the consumer panel and the bank's observations, I believe that this amendment responds to those concerns. The consumer advisory group will take over from the panel in providing the bank with a consumer perspective generally while allowing the Oireachtas the pre-eminent role in commenting on the bank's performance. The amendment also seeks to ensure that administrative support is available to the group as required for it to carry out its functions. The level of support is to be as the bank believes necessary. That restriction might be seen as giving the bank a degree of control over the activities of the group. However, subsection (8) imposes an imperative on the bank to fund as is necessary and I do not believe that under the wording of the amendment the bank would act otherwise than in good faith in this regard.

Amendment No. 89 is a technical amendment consequential on this amendment and amendment No. 54 was covered in what I said.

Amendment agreed to.

I move amendment No. 54:

In page 43, column 3, between lines 43 and 44, to insert the following:

"(5) The consumer advisory group shall advise the Bank on the exercise of the Bank's powers and the performance of the Bank's functions in relation to the consumers of financial services and in particular in relation to—

(a) the effects of the Bank’s Strategic Plans on consumers of financial services,

(b) initiatives aimed at further enhancing the protection of consumers of financial services, and

(c) if the Bank so requests, documents, consultation papers or other materials prepared by the Bank.

(6) The period for which a member of the consumer advisory group is appointed may be up to 3 years. A member is eligible for re-appointment.

(7) The Bank shall determine the manner in which, and the reasons for which, a member of an advisory group may be removed from membership of the advisory group.

(8) The Bank shall provide an advisory group with such administrative services and funds as the Bank believes necessary to carry out its functions.".

I may come back to this point on Report stage. Will this new group have any powers of publication or is it entirely subservient to the bank?

It will not be able to report separately or otherwise than to the banks. The Deputy might wish to raise the issue again on Report Stage.

I will come back to it on Report Stage. While this is an improvement, I still think this group is entirely a creature of the Governor of the Central Bank. It does not have any independence. If we encounter the problems we have had in recent times, it will not be able to act as a watchdog or whistleblower in the sense of being able to draw attention to matters of concern.

I will examine how it might be integrated in the Oireachtas supervision system.

I thank the Minister.

That might be a way around the issue.

It might well be.

If such reports were incorporated in the annual regulatory reviews, we would have a regular audit of the group's performance outside the bank.

Amendment agreed to.

I move amendment No. 55:

In page 45, column 3, line 39, after "inappropriate" to insert "and this is confirmed by order by the Minister for Finance".

I do not have a difficulty with the thrust of this amendment to the proposed section 23B. However, I would like to seek the view of the Office of the Parliamentary Counsel on the tightness of the drafting. It is unlikely that such an important position at the Central Bank would be filled without an open competition, unless there was an opportunity to headhunt someone of exceptional ability. I will propose a Report Stage amendment along the lines of the wording of this amendment.

I welcome the Minister's comments. Will he introduce an amendment in this regard on Report Stage?

I will withdraw this amendment on that basis.

Amendment, by leave, withdrawn.

As amendments Nos. 56 to 59, inclusive, are related, they may be discussed together.

I move amendment No. 56:

In page 47, column 3, to delete lines 22 to 30 and substitute the following:

"(a) accountancy,

(b) actuarial science,

(c) banking,

(d) consumer interests,

(e) corporate governance,

(f) economics,

(g) financial control,

(h) financial regulation,

(i) financial services,

(j) insurance,

(k) law,

(l) social policy, or

(m) systems control.”.

I do not intend to pursue amendment No. 57, in my name, because my concerns have been addressed by the Minister in amendment No. 56. I wanted a specific mention of "insurance" to be included in the Bill and that is now to be done.

Amendment No. 59 mentions "credit union affairs" as well. I will comment on amendment No. 56, in my name, before dealing with the other amendments. I am proposing the insertion of references to "insurance", "actuarial science", "financial control" and "systems control" in the list of criteria to be applied when appointing members of the commission. These additions are being made at the suggestion of various stakeholders who were consulted following the publication of the Bill. This amendment incorporates the change proposed by Deputy Burton in amendment No. 57 to include "insurance" as one of the criteria. Amendment No. 59 proposes to add knowledge of "credit union affairs" to the list.

That is the Fine Gael amendment.

That suggestion did not come up in the course of the extensive discussions my officials and I had with the credit union sector. While I am mindful of the importance of the sector, I am satisfied that the inclusion of "financial services" in the original provision encompasses the credit union sector. Accordingly, I do not propose to accept amendments Nos. 58 and 59. The provisions of amendment No. 57 are catered for in amendment No. 56, in effect.

There have been protracted discussions on who should regulate credit unions. It was initially suggested that they should be regulated by the then Department of Enterprise, Trade and Employment, as has historically been the case. The credit unions form a key element of this sector. They have a specific type of financial structure. It is extremely important that one of the members of the commission should have specific knowledge of the specific requirements of credit unions. There are over 440 credit unions, of varying shapes and sizes, in Ireland. Each of them has its own ongoing requirements. It has been proposed that a member of the commission should have knowledge of "financial services", which is a very broad remit. Someone who has an in-depth knowledge of the way the credit unions operate should be on the actual board. Given that "at least 6, but no more than 8" members of the commission will be "appointed by the Minister", it should be possible for one of those people to have practical knowledge of the financial structure of credit unions.

I would like to speak about qualifications, in general, in the context of this amendment. We have had a discussion on the consumer panel. It appears that the Minister has reached a view about credit union regulation. We will discuss this matter briefly at a later stage. Will the Minister consider establishing a panel on credit unions? I do not suggest that it should be entirely composed of the same people. Will the Minister consider the role of the Registrar of Credit Unions, who is subject to the Regulator, in the context of a panel on credit unions in Ireland? Credit unions are an important force in the provision of credit, particularly for people who may have no other means of accessing credit. They are a source of significant savings of between €11 billion and €13 billion. I do not know what the exact figure is at present. There are small credit unions and very large industrial and public service credit unions.

I would like to mention an issue relating to their governance. I agree with Deputy O'Donnell that part of the reason they have not been included is that this is a specialist area. I do not know what the Minister's officials think about this matter. Having listened to the various lobbies, it seems to me that there may be a case for a panel relating to the credit unions to be included in the structure of panels that is being proposed under this Bill. It is a specialist area. Such a panel would benefit from the presence of experts in credit unions of all sizes, including rural, urban and industrial unions. People with a general banking or financial services background, who might not previously have been involved in credit unions, might also be prepared to lend their expertise to such an initiative. Such cross-fertilisation might be useful. We all want credit unions to survive and prosper forever. They have never fitted in completely since they came over from the Department of Enterprise, Trade and Employment. Is the Minister prepared to ask his officials to consider and examine this proposal? We need to put the relationship between the credit unions and the supervisory and regulatory structure on a more solid footing.

I agree with Deputy Burton on this matter. The credit union movement needs to be acknowledged within the banking commission as a specialist area in its own right. There may be some merit in the idea of a panel. The key thing is that the commission should have a link with the credit union movement, so that there is full cognisance of the issues at local credit union level.

A credit union advisory committee advises me directly on credit union matters. It has to be said that the advisory committee does not always see eye to eye with the credit union movement.

I am not suggesting that the panel should be the same as the credit union movement.

The question of an advisory group is dealt with in page 43 of the current Bill. Section 18E(1) states: "Subject to subsection (2), the Bank may establish an advisory group or groups to advise it on the performance of its functions and the exercise of its powers and shall in particular establish such a group to advise it on the performance of its functions and the exercise of its powers in relation to consumers of financial services." The legislation specifically refers to a consumer group, as I noted. It is, therefore, open to the Central Bank to establish such a group. Clearly, were it to do so, and that is a matter for the bank to decide, it would have the selection of who was on the group.

Perhaps the Minister's officials will consider the proposed amendment as the current wording is not sufficiently comprehensive. The issue for the credit unions is that they have between €11 billion and €13 billion in deposits. They were given some bad advice from the providers of financial services on bonds and so forth. If credit unions are to survive and prosper and move into this era of highly complex financial products, they need to be more integrated into the current structures to ensure they are not, as it were, outside the door being regulated in a top down manner by the registrar.

The panel I propose would not be composed solely of credit union participants. While they would be involved, it could include academics and, more specifically, individuals with expertise in financial services provision. Such a panel would be of benefit. As with all financial services structures, the credit union movement is experiencing change and we are not clear about where this change will lead. I ask that my proposal be considered. I will do some work on it but it merits some consideration.

A strategic review is under way and could examine this issue. At the same time, while I agree with much of what has been said, it is important to stress that the guarantee legislation enacted by the Oireachtas and which provides, if one likes, for a permanent peacetime guarantee, extended to the credit unions the guarantee of up to €100,000. The vast bulk of credit union members' sums are less than this threshold.

Does the Minister know what proportion of credit union members are not covered by the guarantee?

It is very small. I do not have the information to hand but I checked it out at the time.

Deputies are correct that the general strategic direction of the sector becomes very important, especially in a position where the mutual model has demonstrably failed in this country. We have one mutual, Irish Nationwide Building Society which, as Professor Honohan points out, is a failed institution. While the price tag attaching to that failure may be more ascertained than in the case of our other failed institution, it is a substantial cost for the taxpayer. The other mutual institution, while not in as parlous a condition, requires extensive State capitalisation. From a taxpayer point of view, it may be that a disposal of this institution to a private entity may be a better outcome in terms of saving whatever is due on it.

Reflecting on what has happened, it appears that one of the core difficulties with the building society model was that the system of accountability through depositor control was not sustainable of the entity itself in terms of its core objectives and mission. As Deputy Burton stated, we have to view the credit union as a model that can be developed to meet the requirements in place for smaller scale banking operations with a strong community focus. That said, if one takes that route, one must ensure a robust system of regulation, supervision and resolution is in place in case of difficulties. One of the difficulties with the sector is that the split between credit unions in terms of organisations reflects a conflicting view about resolution and stability issues in itself, as I am sure Deputies will be aware.

I will certainly reflect on the proposal that has been made, namely, that we should consider whether the Central Bank would benefit from an advisory group. It would certainly be in ease of Members of the Oireachtas were that the case. I hear Deputy Burton regularly making political charges about what banks influence whom. However, where banking issues are concerned I do not see any lobby as powerful as the credit union movement in the political system. There may be a strong case for establishing an advisory group of this type which may allow more constructive engagement between the Central Bank and the entity concerned.

With respect, credit unions are parish based and do fantastic work in urban and rural areas. Some are large while others are small. When the Minister referred to the possibility of one of the mutual societies being bought privately was he speaking about EBS?

Does he see EBS as——

What I see is the need to minimise the exposure to the taxpayer in all the relevant institutions. The NTMA is in charge of all expressions of interest in this matter. If expressions of interest are forthcoming and realistic, clearly we will have to examine them.

Have such expressions of interest been forthcoming?

I understand there have been some but I am not fully aware of the details.

They did not have enough money.

Amendment agreed to.
Amendments Nos. 57 to 59, inclusive, not moved.

I move amendment No. 60:

In page 47, column 3, between lines 44 and 45, to insert the following:

"(3) On their appointment, the Minister shall present them with a letter of appointment outlining their role and responsibilities.".

It would be appropriate that the Minister for Finance present appointees to the Central Bank commission with a letter outlining their roles and responsibilities. This proposal links into the proposal in amendment No. 52 that proposed members of the commission present themselves to the Committee on Finance and the Public Service to answer relevant questions on their knowledge and general suitability for the role. The amendment is another element in creating accountability and ensuring members of the Central Bank commission are fully aware of their roles and responsibilities. I ask the Minister to comment.

The powers and functions of the Central Bank commission are set out in great detail in the Bill. It would not be appropriate to set out the roles and responsibilities of the commission members as a rival set of imperatives. To do so could create conflict between ministerial priorities and legislative requirements and would compromise the independence and effectiveness of the commission. It is not for me to tell members what are their roles and responsibilities. They should be capable of reading the Act and performing their role under the Act, as would any board member. Work is being done on corporate governance in the Department to ensure members of boards conform to requirements. While this important area needs attention, the specific formulation in the amendment is not appropriate.

The Central Bank commission has set down particular requirements and so forth. Members of the commission are appointed by the Minister. Would it not make sense for them, as the Minister's appointees, to be made aware of what the Minister regards as their responsibilities?

They are independent in the performance of their functions. The idea is that they will examine the statute and make up their minds accordingly. It would not be for me to direct them in the manner prescribed. It would be akin to the Minister for Justice, Equality and Law Reform telling a judge at the time of appointment how he or she should impose sentences. Perhaps that would not be a bad idea. We have appointed Senators who have ended up in other parties.

I will put the amendment.

Is there anyone else left in the building?

The old French communist party used to insist that every deputy submit a pre-signed letter of resignation before he was nominated for election.

Certain Trotskyites used to wait until everyone else had left meetings before they moved amendments.

Amendment put and declared lost.

I move amendment No. 61:

In page 48, column 3, between lines 12 and 13, to insert the following:

"(4) No person shall be appointed for more than two terms.".

We believe the appointment should be for no more than two terms to ensure there is fresh talent coming in. From a corporate governance viewpoint it makes much sense, and that is the practice in a range of areas now. I should like to hear the Minister's views on this, and I believe it is a very reasonable amendment.

That is a good idea. We shall have to look at it with the draftsman. There may be an issue as regards the persons who are deemed to be members, for example, because their periods of appointment might extend over two years.

Is the Minister talking about the head of the Financial Regulator's office?

Yes, and the Secretary General of the Department, or whatever. In terms of the ordinary members, however, it seems to be a very sensible proposal and I undertake to come back to that issue on Report Stage.

I withdraw the amendment on that basis.

Some of the earlier Governors had a very long period in office.

Is it not seven years?

They held office for a very long period, I believe.

Is it not currently seven years?

Yes, that is correct.

Two terms equates to 14 years, then.

Amendment, by leave, withdrawn.

Amendment No. 62 is in the name of Deputy Burton. Amendments Nos. 62 and 64 are related and may be discussed together.

I move amendment No. 62:

In page 49, column 3, line 14, to delete "Chapter 1A" and substitute "Chapter 1"

These are technical amendments.

This is about the numbering of the chapters.

Yes, that is correct.

It would be possible to number them as Chapter 1 and Chapter 2, since the existing Chapter 1 has been substituted. However, I am informed by the Parliamentary Counsel that the decision not to do so was a deliberate one. This was done because, had the existing number been reused, any existing references to Chapter 1 and other Acts might become misleading. The consolidation Act, which it is intended to publish near the end of this year, will address the numbering in this provision as well as elsewhere in the Bill.

Our expert adviser advised us, so I shall yield to the Minister's superior technical knowledge.

I am not claiming any superior technical knowledge. I believe the Deputy's technical adviser is right, but technically he is better waiting for the consolidation of the Bill for the matter to be addressed.

I believe he is right.

Amendment, by leave, withdrawn.

I move amendment No. 63:

In page 50, column 3, between lines 16 and 17, to insert the following:

"(f) the benchmarks of domestic and/or international comparison against which the Oireachtas should assess the success of its strategic plan.”.

This is in the context of the strategic plan being produced by the commission. We believe that in addition to (a) and (e), the Bill should also specify the benchmarks of domestic and international comparison against which the Oireachtas should assess the success of its strategic plan. We are getting to the area of benchmarking in terms of international and domestic comparisons. That is something that would improve the quality of the strategic plan.

I thought benchmarking had fallen out of favour. The issue is already covered adequately under section 32(3)(d) on page 50, which requires the Central Bank in its strategic plan to specify the targets and criteria for assessing its performance. The international peer review provided under section 32L on page 55, also assists this process and will help inform the development of appropriate international standards over time.

Amendment put and declared lost.

I move amendment No. 64:

In page 50, column 3, line 28, to delete "Chapter 2A" and substitute "Chapter 2".

This is a technical amendment and I yield to the Minister's higher legal knowledge.

Amendment, by leave, withdrawn.

Amendment No. 65 is in the name of the Minister. Amendments Nos. 65 and 91 are related and may be discussed together.

I move amendment No. 65:

In page 50, column 3, line 31, to delete "2 months" and substitute "one month"

Amendment No. 65 is a technical amendment to allow the bank an additional month to prepare its annual statement of income and expenditure on financial regulation. The bank asked for this to allow it more time to finalise its plans for the following year and by doing so later in the previous year allow time for greater accuracy in its projections. Amendment No. 91, which is being taken with this, provides a similar additional period to the National Consumer Agency for the submission to the Minister for Finance of its expected expenditure on the functions. The effect of this change will be minimal and I have been advised by both the bank and the agency that it will not affect the timing of the issue of levy notices in respect of either financial or consumer information.

Amendment agreed to.

Amendment No. 66 is in the name of Deputy Bruton. Amendments Nos. 66 and 92 are related and may be discussed together.

I move amendment No. 66:

In page 50, column 3, between lines 47 and 48, to insert the following:

"(2) In publishing its proposed levies, it shall publish an impact assessment of the proposed levies including relevant comparisons of cost effectiveness of its operations with comparator countries.".

This relates to the power of the commission to impose levies. We believe that it is appropriate that it should publish an impact assessment of the proposed levies, including the relative comparison of cost effectiveness. Obviously we are looking at benchmarking with comparator countries. It is a reasonable assessment. Before anything is imposed we need to see the impact it will have so that we do not have levies being imposed which will eventually end up being passed on to the small person, the end consumer. We need to see the impact, precisely, how it is to be implemented and the cost.

I have asked my officials to undertake a process of consultation with the Central Bank and representatives of the financial services industry to see how a move towards 100% funding of regulation by the industry might come about. The Governor, in a statement to the financial services industry in December last, signalled his expectation as regards an increased degree of industry funding for financial regulation.

My understanding is at the moment the Office of the Financial Regulator is financed 50:50 by the State and the industry. Am I right in saying that the current costs are about €58 million, split between the two?

Approximately, but I cannot say for definite. I will confirm that.

That is just roughly. It seems to me that half of that being borne by the taxpayer is quite a heavy burden. Therefore, I support the view that the industry should move towards financing the cost of the regulator's office. Equally, I accept the industry is correct in having a concern that this should be done efficiently and that it is not a blank cheque in terms of the costs to be imposed. A balance needs to be struck between the two, but in the current climate, there is a €29 million cost or thereabouts on the public purse for the regulator, and that is a considerable amount of money at the moment.

It is a little more. I have the figures. If one takes the three-year period 2007-09, approximately 50% of the total cost was met by the imposition of levies on the industry. In 2009 the imposition of the levies amounted to €34.5 million. The corresponding figure for 2010 is estimated to be in the region of €42.2 million, an increase of €7.7 million on the 2009 figure, a reflection of the increased regulation that is taking place. Therefore, there is a very important issue here that is required to be addressed.

The regulator is proposing a large increase in the staffing complement as being necessary.

This is a pre-budget adjustment that we can all agree on.

I assume the plan of the Governor is to phase in the levies over time.

That is my reaction to the Deputy's pre-budget proposal, so I will not get the full amount immediately, but it can be done over time. Shoestring regulation will not work. We know what is said in the report, so there has to be an upgrading of the capacity in the system. The Bill makes provision to ensure that the Central Bank seeks value for money, and the bank will be subject to audit by the Comptroller and Auditor General. The levy provision set out an open regime whereby the Central Bank must make a transparent statement of its requirements and seek to match revenue to expenditure on an ongoing basis.

I believe there is a proportionate balance between resourcing the bank without giving it a blank cheque. I do not want the effective resourcing to be subject to an industry impact analysis that fails to take account of the wider economic and social cost of regulatory failure. It would take many years of Central Bank levies to cover the costs of rescuing the banking system, for example. I have a note as regards the National Consumer Agency, but it is primarily in relation to the Central Bank that the Deputy has raised this issue.

The Bill strikes a proportional balance, resourcing the bank without giving it a blank cheque.

If the Minister is imposing levies and we arrive at a situation where 100% of the funding of regulation is done by the institutions themselves, how do we know that the banks will absorb that cost rather than passing it on to consumers?

That is difficult. It is a matter for the Central Bank.

The amendment we are tabling is purely an impact assessment. It is a reasonable amendment.

It will be used by the banking sector to wriggle out of making levy payments. I do not want to open up another political argument, but if we accept that some banks should not be allowed to fail, then there is an obligation on the banks to fund the regulatory system.

We all agree with that, but I am talking about the impact.

Why should we ask the taxpayer to fund the system?

I am not asking that the taxpayer fund the system.

Once we have a regulatory impact assessment for the banking system, it will simply be used by the banks to argue that they should not be funding the regulatory system.

Amendment put and declared lost.

Amendments Nos. 67, 67a, 68 to 73, inclusive, 75 to 77, inclusive, and 93 to 95, inclusive, are related and may be discussed together.

I move amendment No. 67:

In page 51, column 3, to delete lines 52 to 57 and in page 52, to delete lines 3 to 18.

The effect of amendments Nos. 67, 67a, 68, 69, 70, 71, 72, 73, 75, 77, 93 and 94 is to ensure that both the Central Bank and the National Consumer Agency can manage their incomes and expenditures from levies and fees so that over a two-year cycle one may balance them together. This is necessary if we are to move to 100% funding of the cost of financial regulation and consumer information by the industry itself and end the subvention made from other Central Bank income to those costs. While legislation is not necessary to achieve 100% industry funding, these changes will facilitate the bank and the agency to move to that position if required. I have asked officials in my Department to undertake a process of consultation with the Central Bank and Financial Services Regulatory Authority and representatives of the financial services industry, with a view to examining how that might come about. In a statement to the financial services industry in December 2009, the Governor of the bank also signalled his expectation on the issue.

I do not propose to accept amendment No. 76. The purpose of section 32K is to allow for the assessment of the regulatory performance of the Central Bank. The amendment seeks an automatic requirement to publish information that may be highly sensitive, even where to do so could seriously compromise the commercial position of financial service providers or could compromise the Central Bank in its attempts to regulate the sector effectively and stabilise the system overall.

In discussing amendment No. 12, I have already shown a willingness to explore whether information could be made more easily available from the Central Bank, but I feel that the amendment proposed is too far reaching and takes insufficient account of the genuine public interest reasons for the protection of sensitive information.

Amendment No. 76 deals with the performance statement. We feel that the performance statement is related to matters that the Minister directs, but should not relate to the exercise by the Governor of his functions under the ESCB statute. It should include any advice tendered to the Minister, or directions received from the Minister, in respect of its responsibilities. We need a full view of the advice and the "toing" and "froing" between the Minister and the commission.

I set out my views on amendment No. 76 a moment ago.

Amendment agreed to.

I move amendment No. 67a :

In page 52, line 19, to delete "(10) An amendment" and substitute "(8) An amendment".

Amendment agreed to.

I move amendment No. 68:

In page 52, column 3, between lines 35 and 36, to insert the following:

"Surplus or deficiency in income of Bank during financial year.

32G.—(1) If the total sum received by the Bank on account of levies and fees prescribed under sections 32D and 32E during a financial year is greater than the Bank's expenditure on the performance of its functions and the exercise of its powers during that financial year, the Bank—

(a) shall apply the surplus to the performance of those functions and the exercise of those powers in the following financial year, and

(b) shall reduce the levies and fees prescribed in relation to the latter financial year accordingly.

(2) If the sum received by the Bank on account of levies and fees prescribed under sections 32D and 32E during a financial year is less than the Bank's expenditure on the performance of its functions and the exercise of its powers during that financial year, the Bank may prescribe levies and fees in relation to the following financial year sufficient to—

(a) make good the deficiency, and

(b) ensure that the sum received by the Bank on account of such levies and fees during the following financial year fully covers the performance of its functions and the exercise of its powers during both those financial years.”.

Amendment agreed to.

I move amendment No. 69:

In page 52, column 3, line 37, to delete "32G.—(1) The Bank" and substitute "32H.—(1) The Bank".

Amendment agreed to.

I move amendment No. 70:

In page 52, column 3, line 58, to delete "32H.—(1) If at any" and substitute "32I.—(1) If at any".

Amendment agreed to.

I move amendment No. 71:

In page 53, column 3, line 21, to delete "32I.—(1) The Bank" and substitute "32J.—(1) The Bank".

Amendment agreed to.

I move amendment No. 72:

In page 54, column 3, line 6, to delete "32J.—(1) Within 6 months" and substitute "32K.—(1) Within 6 months".

Amendment agreed to.

I move amendment No. 73:

In page 54, column 3, line 24, to delete "32K.—(1) No later than" and substitute "32L.—(1) No later than".

Amendment agreed to.

I move amendment No. 74:

In page 54, column 3, between lines 36 and 37, to insert the following:

"(c) the benchmarks or domestic and/or international comparison against which its regulatory performance should be viewed,”.

I would like to hear the Minister's views on this amendment.

This issue must be viewed together with the provisions under section 32(3)(d), which were discussed under amendment No. 63. This provision requires that the Central Bank specifies the targets and criteria for assessing its performance in its strategic plan. This will inform the regulatory performance plan and provide for the assessment of regulatory performance against relevant international benchmarks. The international peer review provided under section 32L will also assist this process and will help inform the development of appropriate international benchmarks over time. I do not propose to accept the amendment. We had this discussion on a previous amendment.

Amendment put and declared lost.

I move amendment No. 75:

In page 54, column 3, line 39, to delete "section 32L" and substitute "section 32M".

Amendment agreed to.

I move amendment No. 76:

In page 54, column 3, line 49, after "Statute" to insert the following:

"but shall include any advice tendered to the Minister or directions received from the Minister in relation to its responsibilities".

Amendment put and declared lost.

I move amendment No. 77:

In page 55, column 3, line 16, to delete "32L.—At least" and substitute "32M. —At least".

Amendment agreed to.

I move amendment No. 78:

In page 55, column 3, line 16, to delete "4 years" and substitute "2 years".

I am moving this amendment on behalf of Deputy Burton. The Minister might give a response.

The international peer review is likely to be an onerous exercise which will be resource intensive from the Central Bank's point of view. A two-year interval creates little time for the Central Bank to take on board comments and criticisms and to have effective change in the organisation, so I do not propose to accept the amendment.

Four years is a significant period. The recent financial crisis evolved over an 18-month period.

It was a four-year period if we date back to 2006.

The house came down on 29 September 2008. Let us date back 18 months from that point. At issue for the banks is a two-year period during which things really went off the rails between 2005 and 2007.

We do not argue with the banking reports.

Amendment put and declared lost.

I move amendment No. 79:

In page 58, between lines 42 and 43, to insert the following:

"

65

Section33AK(5)

After paragraph (ah), insert:“(aha) to any Commission of Investigation established under the Commissions of Investigation Act 2004, or”.

66

Section33AK(5)(al)

Delete “functions.”, substitute “functions, or”.

67

Section33AK(5)

Insert at the end:“(am) to a body or authority that is a competent authority for the purposes of a Regulation of the European Union or European Communities that imposes restrictive measures within the framework of the EU Common Foreign and Security Policy.”.

".

This amendment adds commissions of investigation and the list of gateway bodies to which the bank may release confidential information provided to do so is not a breach of European law. The purpose of the insertion of amendment No. 67 is to remove any doubt about the legal power of the Central Bank acting as a competent authority under EU regulations to impose financial sanctions and to disclose information to other authorities under those EU regulations. Such information would typically involve the operations of bank accounts by persons or entities named as suspected terrorists under certain EU regulations. Section 33 prohibits the Central Bank from disclosing confidential information in certain circumstances.

Amendment agreed to.

I move amendment No. 80:

In page 58, column 3, line 44, to delete "section 32H" and substitute "section 32I".

This is a consequential change or a change in numbering reference. I am sorry I did not explain it.

Amendment agreed to.

I move amendment No. 81:

In page 62, column 3, line 20, to delete "subparagraph (4)" and substitute "subparagraph (5)(b)”.

This is a renumbering technical amendment.

Amendment agreed to.

Amendments Nos. 82 and 83 are related and may be discussed together.

I move amendment No. 82:

In page 64, column 5, lines 66 and 67, to delete "No. — of 2010" and substitute "No. 6 of 2010".

These are technical amendments that insert the correct number of the Criminal Justice (Money Laundering Terrorist Financing) Act 2010. The correct number was not available when the Bill was published and it adds European Communities (Cross Border Payments) Regulations 2010 and the European Communities (Consumer Credit Agreements) Regulations 2010 to the list of legislated enactments.

Amendment agreed to.

I move amendment No. 83:

In page 69, between lines 20 and 21, to insert the following:

"

49

S.I. No. 183 of 2010

European Communities (Cross Border Payments in the Community) Regulations 2010

The whole instrument

50

S.I. No. 281 of 2010

European Communities (Consumer Credit Agreements) Regulations 2010

The whole instrument

".

Amendment agreed to.

I move amendment No. 84:

In page 69, to delete line 25.

This is a technical amendment.

Amendment put and declared lost.
Schedule 1, as amended, agreed to.
SCHEDULE 2

Amendment No. 85 is in the name of Deputy Joan Burton.

I move amendment No. 85:

In page 72, column 3, between lines 45 and 46, to insert the following:

"(i) ensuring consumers are protected from inappropriate or unduly dangerous financial products,".

I am interested to hear the response of the Minister.

This is Deputy Burton's amendment. We discussed amendment No. 84 earlier. What is the position on amendment No. 85?

Have we already voted on it?

Is it accepted or rejected?

It has been moved.

I suggest a ten-minute break if members so wish.

Where are we at exactly?

We are discussing amendment No. 85 to Schedule 2.

Have we dealt with amendment No. 87 yet?

No. Amendments Nos. 88, 89 and 90 have not been dealt with yet.

There are only a few remaining. Should the committee rise for a while?

Does the Minister wish to break for a while?

It is important that Deputy Burton is here when we are dealing with the credit unions. Perhaps if we went as far as the credit unions and then took a break, but it is at the discretion of the Chair.

By the time we get to the credit unions we will have practically dealt with the entire Committee Stage as I understand it.

Then we will tear our way through it.

It seems to be a sensible idea.

Amendment No. 85 was moved by Deputy O'Donnell on behalf of Deputy Burton.

Deputy Burton is looking for——

She wishes to ensure consumers are protected.

Consumers are protected from inappropriate or unduly dangerous financial products. I am keen to ensure we that we focus on wider macro prudential issues but we must not lose sight of the need to guard against weakness in the system which have created problems for consumers. Given the reorganisation of functions under the Bill and the emphasis on providing information and education, the protection of consumers from toxic products is more appropriate to the Central Bank, which is its responsibility. Therefore, the matter should rest there and for this reason I do not accept the amendment.

Does the Minister not believe this should be covered by all bodies not only the Central Bank? Effectively, the Minister is stating this is purely for the Central Bank.

There will be a memorandum of understanding between the consumer agency and the Central Bank. It is important that one body takes responsibility for a particular problem.

Amendment put and declared lost.

Amendments Nos. 86 and 88 to 90, inclusive, are related and may be discussed together.

I move amendment No. 86:

In page 73, column 3, to delete lines 28 to 32.

Amendments Nos. 86, 88 and 90 delete section 8A as inserted in the Consumer Protection Act 2007. That section provided that the bank could compel the National Consumer Agency to provide it with information gathered in the course of carrying out its new consumer information functions. As a result of discussions within my Department, the bank and the Department of Enterprise, Trade and Innovation, I have agreed to propose an amendment to remove this provision for now and examine the operation of section 33AK of the Central Bank Act 1942 with a view to reforming the exchange of information between the bank and other parties in the forthcoming second Central Bank Bill. There will be a consequential renumbering of sections.

What stage are we at?

We were about to reach the credit unions. Deputy O'Donnell has loyally moved all the Deputy's amendments and voted for her in respect of them.

I thank the Deputy.

I cannot guarantee that I had much success.

Amendment agreed to.

I move amendment No. 87:

In page 73, column 3, between lines 32 and 33, to insert the following:

"(4) Where the Bank is proposing to exercise its powers in respect of the approval of charges made on consumers by financial institutions, it shall consult the Agency in advance.".

I believe this has already been discussed.

Amendment put and declared lost.

Molaim leasú Uimh. 88:

In page 73, column 3, line 33, to delete "(4) A person" and substitute "(3) A person".

Amendment agreed to.

I move amendment No. 89:

In page 73, column 3, line 47, to delete "(5) A person" and substitute "(4) A person".

Amendment agreed to.

I move amendment No. 90:

In page 73, column 3, line 55, to delete "(6) Summary proceedings" and substitute "(5) Summary proceedings".

Amendment agreed to.

I move amendment No. 91:

In page 74, column 3, line 8, to delete "2 months" and substitute "one month".

Amendment agreed to.

I move amendment No. 92:

In page 74, column 3, between lines 18 and 19, to insert the following:

"(2) In publishing its proposed levies, it shall publish an impact assessment of the proposed levies including relevant comparisons of cost effectiveness of its operations with comparator countries.".

Amendment put and declared lost.

I move amendment No. 93:

In page 74, column 3, between lines 48 and 49, to insert the following:

"(9) The Agency may, by proceedings in a court of competent jurisdiction, recover as a debt an amount of levy payable under regulations in force under this section.

Surplus or deficiency in certain income of Agency during financial year.

24C.—(1) If the total sum received by the Agency on account of levies prescribed under section 24B during a financial year is greater than the Agency's expenditure on the performance of its functions referred to in section 8(3)(ha) during that financial year, the Agency—

(a) shall apply the surplus to the performance of those functions and the exercise of those powers in the following financial year, and

(b) shall reduce the levies prescribed in relation to the latter financial year accordingly.

(2) If the sum received by the Agency on account of levies prescribed under section 24B during a financial year is less than the Agency's expenditure on the performance of its functions referred to in section 8(3)(ha) during that financial year, the Agency may prescribe levies in relation to the following financial year sufficient to—

(a) make good the deficiency, and

(b) ensure that the sum received by the Agency on account of such levies during the following financial year fully covers the performance of those functions during both those financial years.”.

Amendment agreed to.

I move amendment No. 94:

In page 74, column 3, line 50, to delete "24C.—(1) The Agency" and substitute "24D.—(1) The Agency".

Amendment agreed to.

I move amendment No. 95:

In page 75, column 3, line 19, to delete "24D.—In its annual" and substitute "24E.—In its annual".

Amendment agreed to.

Amendment No. 96 is out of order.

Amendment No. 96 not moved.

I move amendment No. 97:

In page 76, to delete lines 36 to 54 and in page 77, to delete lines 1 to 16 and substitute the following:

" "Voluntary mergers of credit unions.

35A.—The Bank shall make regulations and take such steps as, from time to time, it considers appropriate in order to facilitate the voluntary merger of credit unions in the State in the interests of improved financial stability and management of the credit union sector.".".

The purpose of this amendment is to provide and make available a resolution mechanism, if necessary, in the case of credit unions. While I do not wish to pre-empt the Minister's commentary on credit unions, the Registrar of Credit Unions and another official from the Financial Regulator have provided the Joint Committee on Finance and the Public Service with the results of analysis on credit unions to the effect that a small number of them may have some difficulties as a consequence of the economic situation. I wish to draw to the Minister's attention the point that in the past, resolution mechanisms have been used in Ireland. Most notably, an example pertaining to the voluntary mergers of trade unions has been drawn to my attention in which the State facilitated and provided mechanisms for such a resolution.

I believe there is all-party agreement on the importance of the credit union movement and its future. I seek the Minister's opinions on the availability of a resolution mechanism in the event this becomes either necessary or desirable. Ireland has some very small credit unions and it may be that they may wish to enter a form of federation or framework, whereby a very small credit union could develop a partnership with another credit union.

I support this amendment. The voluntary issue is very important for credit unions and regardless of their size, viable credit unions should be allowed to continue. However, if situations arise in which mergers are merited or in which credit unions wish to merge, a process should be facilitated whereby this can happen. However, a one-size-fits-all approach in which credit unions that are below a certain size must merge should be adopted. Credit unions that are viable in their own right should be entitled to exist. Credit unions are scattered throughout the four corners of Ireland and provide phenomenal benefits to the community. I acknowledge that some credit unions have got into difficulty but the basic point is that a mechanism must be found to enable voluntary mergers to take place. Regardless of their size, viable stand-alone credit unions should be entitled to continue as stand-alone and viable entities.

Deputy Burton's amendment proposes the deletion of various lines and their substitution with a voluntary merger arrangement. I wish to deal with this proposal first before dealing with the wider issues that have been raised in the public debate. Consequently, I intend to address the merits of the amendment first. If one deletes lines 36 to 54, as proposed, in effect one is deleting the proposed new sections 35A and 35B in their entirety, while retaining the amendment to section 35(2). Consequently, this would allow an extension of the limit in respect of loans over five years from 20% to 30% of the loan book but would not include any balancing provision or prudential safeguard into that arrangement.

While, this only comprises part of the amendment, the question of resolution, amalgamations and transfers of engagements already is dealt with in Part IX of the Credit Union Act 1997. Section 128 of the aforementioned Act provides that "any two or more credit unions may amalgamate by forming a credit union as their successor". Each must agree with the rules of the new credit union and approval is necessary from the Central Bank. Section 129 provides for a transfer of engagements between credit unions in a similar fashion. Sections 130 to 132, inclusive, deal with the notification to members, the confirmation by the Central Bank and the distribution to members, if relevant. Consequently, legislation already is in place to facilitate the voluntary merger of credit unions. It is not proposed in this legislation by way of further amendment and it is not my intention to address the more general issue Deputy Burton has raised regarding resolution mechanisms. I intend to review this issue in the context of the forthcoming resolution Bill generally and the strategic review also may have a view to express on that issue.

The manner in which this issue will be approached is important. Because the organisations in question are voluntary in nature in all respects, great difficulties arise in respect of any compulsory resolution mechanism. As members discussed previously, part of the dispute within the credit union movement concerns the issue——

—— of stability and resolution. That is all I propose to state about the amendment at this point. However, I wish to say a few more words about the general scope of what I propose. I believe I have circulated my speaking note to members and after having gone through that, I wish to make a number of other points.

I wish to explain the amendments to the Credit Union Act 1997 provided for in section 15(7), which refers to Schedule 2 of the Bill. The effect of the current amendments to section 35 of the Credit Union Act 1997, as set out in this Bill, is to increase from 20% to 30% the limits on the proportion of a credit union loan book comprising loans over five years. This constitutes a significant weakening of an important asset and liability tool that has protected the financial stability of credit unions over many years to enable an increased capacity for credit unions to reschedule loans. This is an important issue because as members are aware, credit unions need to reschedule loans, given the difficulties some of their customers are experiencing at present. This must be balanced by a framework for implementation by the registrar, which will include balancing requirements in respect of liquidity, provisioning and accounting transparency.

Since consideration of the Bill on Second Stage, I met credit union representative bodies and some Deputies who had expressed concern about the implications of the balancing provisions proposed in sections 35A and 35B. I have reflected on these representations and now wish to inform the committee that I intend to bring forward amendments to the relevant provisions in the Bill on Report Stage. Discussions between my Department and the Office of the Parliamentary Counsel and the Attorney General are now at an advanced stage although I regret I was not in a position to finalise a formal text for today's meeting of the committee.

While these changes will preserve the core benefits of the Bill as published, my aim is to ensure that the amendments form a cohesive framework with one another and are implemented under that framework in a prudent, balanced and proportionate manner in line with reasonable conditions and generous transitional arrangements.

The changes I will make provide for the following. I propose to delete the separate sections 35A and 35B from the Bill, with new provisions integrated into the existing section 35 similar but not identical to those in the deleted sections. A new clause will state explicitly that the changes are part of the framework required to implement the amendment of section 35 arising from the Bill. I propose dropping the wider powers originally intended to be given to the registrar regarding loans or specified classes or types of loans at section 35A(1)(e), dropping a wider provision empowering the registrar to impose requirements otherwise than by making rules — for example, by giving directions — under section 35A(3), and confining specifically to matters set out in the amendments — such as liquidity, provisioning and reporting — the systems, controls and reporting arrangements that would have had wider application in the Bill as published. The registrar is considering refining the proposed provisioning requirement so that it is reduced to 10% from the date of commencement until 30 September 2010.

Even with these changes, it remains the case that the registrar may impose requirements on credit unions in respect of liquidity, provision and reporting on loans. Indeed, the registrar and the Financial Regulator made clear in statements to me and to the Oireachtas Joint Committee on Economic Regulatory Affairs that the balancing provisions are required for effective regulation of the sector. However, I am satisfied that the changes I am bringing forward on Report Stage will ensure the requirements will be implemented through the new framework in a prudent, balanced and proportionate manner. There is a balance between the extension from 20% to 30% and the exercise of powers by the registrar. That is as far as I will go on this compromise. There are core regulatory requirements that must be respected in this context. If the rescheduling can be facilitated, it requires an increase from 20% to 30% on the proportion of a credit union loan book comprising loans over five years. This has implications for the regulatory framework but I am anxious to ensure, and I am satisfied from my discussions with the parliamentary draftsman, that I can secure an arrangement ensuring the registrar can only exercise these powers in a proportionate way and having regard to the degree of exposure of any particular institution.

The funding of credit unions is predominantly provided on a short-term basis in the form of on-demand savings and, consequently, the section 35 limits are necessary for the protection of the financial stability of credit unions. The current legislation strikes an appropriate balance between the development needs of credit unions and the protection of members' savings from undue risk. I could not contemplate changing the present position with regard to the limits contained in section 35, especially in the current financial and economic environment, unless the changes are accompanied by balancing provisions that have comprehensive prudential safeguards equivalent to the existing section 35 limits but without restricting the flexibility credit unions need to reschedule loans of borrowers experiencing difficulties. The Bill after Report Stage amendments——

We only received one page of this text of the Minister's comments.

Can we have the rest of the Minister's note?

I am going through the supplementary material. The Bill after Report Stage amendments will do that and no more. The changes are balanced, proportionate and necessary.

The Minister has reached a level of agreement with the credit union movement following its representations to him. What the Minister set out is quite technical. Does the Minister intend to table Report Stage amendments to reflect what he has stated? I would like to have the whole of the Minister's note and return to this discussion on Report Stage.

Regarding the Labour Party amendment, the Minister appreciates this is a technical area and it is difficult to find a technical mechanism to reflect the balance between ensuring credit unions are properly regulated and prudentially regarded while at the same time providing a sound basis for allowing the important contribution they make to continue. It is a question of striking the proper balance between providing for continued expansion and development of the important service of the credit unions and bearing in mind that we have advice from the registrar of two areas of difficulty. One concerns loans that have difficulties partly related to construction and the property crash but also that some credit unions have had difficulties in respect of advice they received from brokers about the investment of their funds. These cases have been before the courts. These are two issues about which there is legitimate concern. I endorse the principle that the primary purpose must be to protect the savings of the depositors throughout the country in credit unions, who have between €11 billion and €13 billion in savings. It seems that progress is being made but how this is reflected in amendments is the question. I do not know when the Minister intends to hold the debate on Report Stage. I presume it will be within the next three weeks.

It will be before the end of the session.

Perhaps we can have the information on the new amendments as early as possible. I am happy to withdraw amendment No. 97, concerning voluntary mergers in credit unions, but it must be reflected in the legislation. I take the Minister's point that, in the original legislation in 1997, provision was made for this. However, the realpolitik is that we are coming from a major financial emergency, which we are still going through to some extent, and the registrar has raised concerns about 20 credit unions being on watch and four or five small credit unions about which there are real concerns. It would be appropriate for this legislation to reiterate that if there are to be voluntary mergers, the new structures would be making regulations and giving consideration to the actions necessary to facilitate voluntary mergers. On that basis, a reference to this in the amendments on Report Stage is appropriate.

There is need for clarity in section 33(3)AA on page 55 about the position of the Registrar of Credit Unions relative to the head of financial regulation. This is an old chestnut from the credit unions coming from what is now the Department of Enterprise, Trade and Innovation. It should be specified that through direct reporting and instruction, the registrar still has a significant individual position. It needs to be spelled out more clearly. We have made progress today and we can return to this matter.

I will circulate supplementary notes.

What is the position in respect of discussions with the credit union bodies?

I met the representative organisations on two occasions. Deputy Burton suggests that I have come to an agreement but I do not quite agree. I addressed their concerns but there is a point beyond which I cannot go because of the prudential matters Deputy Burton outlined.

What is the up-to-date position on discussions with the credit union movement?

They are finalised at this stage and there was a good exchange of views. I explained my general intentions on an amendment to the section. They have the right, as any citizen or group has, to comment on the legislation when published.

We are discussing two particular sections in the credit unions Act, with section 35(2) on page 75 and 76 of the Bill left as it is. Will the Minister clarify what happens to section 35A of that Act, as detailed on line 35 of page 76? Is the section in its entirety being deleted?

As I understand the matter it is being assimilated into section 35 of that Act. It would be better to await the final text because parts will emerge within section 35 and parts will disappear in accordance with what I have already outlined in the note which the Deputy has, as supplemented by the note I will supply. The note contains points for supplementaries but I felt it would help the discussion.

On a general point regarding credit unions, the greater majority of credit unions have gone about their business in a prudent fashion. There are certain credit unions that have financial difficulties and these are very small in number. The Minister has made reference to the resolution regime in the context of the credit union movement. In reply he might give an update on the replies to questions I asked recently on the resolution regime. Professor Honohan spoke about this in committee last week with regard to complications.

It is extremely important that we find a mechanism within the credit union movement whereby it can be allowed to reschedule loans. The Minister is facilitating that. We must find a position where credit unions can operate in a viable way into the future while taking account of the circumstances of their members.

The Deputy's comments are correct. We are working with the EU on cross-border resolutions and seeing what we can learn in that respect. We have a domestic exercise in progress and we are also examining whether credit unions can be included in the domestic process.

What is the timeframe?

There are three strands to this. The timeframe is early next year as I understand it.

That is the resolution issue.

Is Deputy Burton pressing the amendment?

I will withdraw it but I hope the Minister might reflect on the issue. I would like to see the Minister's overall package and I would like the opportunity to study the note.

We might have the timeframe for Report Stage. The Minister has mentioned before the end of term but we do not have specifics.

Amendment, by leave, withdrawn.

I move amendment No. 98:

In page 81, after line 34, to insert the following:

"33. Criminal Justice (Money Laundering and Terrorist Financing) Act 2010, sections 25(3)(b), 40(1)(a)(vi), 60(2)(a) and 62(1)(a)”.

This is a technical amendment.

Amendment agreed to.
Schedule 2, as amended, agreed to.
SCHEDULE 3

I move amendment No. 99:

In page 82, between lines 16 and 17, to insert the following:

PART 2

AMENDMENTS OF EUROPEAN COMMUNITIES (CONSUMER CREDIT AGREEMENTS) REGULATIONS 2010

Item

Provision affected

Amendment

1

Regulation 25(5)

Delete “and Financial Services Authority”.

2

Regulation 26

Delete “Irish Financial Services Regulatory Authority”, substitute “Central Bank of Ireland”.

".

Amendment agreed to.

I move amendment No. 100:

In page 83, column 2, lines 38 and 39, to delete "Regulation 28(4)(e)” and substitute “Regulation 28(4)(d)”.

Amendment agreed to.

I move amendment No. 101:

In page 86, lines 10 to 15, to delete paragraphs 26 and 27.

Amendment agreed to.

I move amendment No. 102:

In page 87, after line 21, to insert the following:

"46. European Communities (Republic of Guinea) (Financial Sanctions) Regulations 2010 (S.I. No. 221 of 2010), Regulation 5

47. Financial Transfers (Republic of Guinea) (Prohibition) Order 2010 (S.I. No. 222 of 2010), Article 5

48. European Communities (Slobodan Milosevic and Associated Persons) (Financial Sanctions) Regulations 2010 (S.I. No. 224 of 2010), Regulation 5

49. Financial Transfers (Slobodan Milosevic and Associated Persons) (Prohibition) Order 2010 (S.I. No. 225 of 2010), Article 5

50. European Communities (Credit Rating Agencies) Regulations 2010 (S.I. No. 247 of 2010), Regulation 3(1) (definition of "Bank").".

Amendment agreed to.
Schedule 3, as amended, agreed to.
Title agreed to.

I thank the Minister and his officials for attending and all the members of the committee for their input today.

Bill reported with amendments.
Barr
Roinn