Dáil Éireann Debate, Tuesday - 18 May 2010
163 Deputy Caoimhghín Ó Caoláin asked the Minister for Finance his plans to introduce new regulatory rules for the banking sector concerning risk management, compliance, liquidity management and general control processes; and if he will make a statement on the matter. [20536/10]
Amharc ar fhreagraMost aspects of banking regulation are governed by the relevant EU directives, in particular the Capital Requirements Directive (CRD), which implements the Basel II capital adequacy framework in the European Union. A wide-ranging programme of reform has been mandated at international level by the G20, arising from analysis which highlighted areas where the existing Basel II framework was insufficiently prescriptive, including liquidity requirements; capital quality and capital buffers; large exposures; securitisation; supervisory coordination; and leverage ratios. These reforms are being addressed in the EU through a series of amendments to the CRD, which will have to be transposed into national legislation.
At a pan-European level, we are also seeing a change in the regulatory architecture through the implementation of the De Larosiere report which seeks to address structural "systemic and inter-connected vulnerabilities" highlighted in recent years. Under proposals which are currently being finalised, a new EU function called the European Systemic Risk Board (ESRB) will be established under the ECB. The ESRB's role will be to gather information on all macro-prudential risks in the EU. At a micro level, a new European System of Financial Supervision (ESFS) will also be established. The current Level 3 Committees — CEBS (banking), CEIOPS (insurance), CESR (securities) — will be transformed into three new European Supervisory Authorities which will have a considerably expanded role compared to their current powers including issuing binding technical standards and having a strong coordinating role in crisis situations. There will be binding cooperation with the ESRB to provide adequate prudential supervision. Ireland will be playing an active role at both a macro and micro level within this new framework.
At national level, the Government is in the process of putting in place a domestic regulatory framework for financial services, including the banking sector, that: meets the Government's objective of maintaining the stability of the financial system; provides for the effective and efficient supervision of financial institutions and markets; and safeguards the interests of consumers and investors.
The Central Bank Reform Bill 2010, which has just completed second stage in Dáil Éireann, is the first of a three-stage legislative process to create a new fully-integrated structure for financial regulation. It provides a statutory basis for a new structure which will replace the existing Central Bank and Financial Services Regulatory Authority.
A second bill, to be brought before the House in the autumn, will enhance the powers and functions of the restructured Central Bank in relation to the: prudential supervision of individual financial institutions; conduct of business, including the protection of consumer interest; and overall stability of the financial system.
Having regard to international developments, particularly at EU level, the second bill will provide an opportunity to consider what further provision might be made at that time with respect to financial institutions in national legislation in the areas mentioned in the Deputy's question.
A third bill will consolidate the statutory arrangements for the Central Bank and financial regulation in the State.
I also understand that the Financial Regulator is developing an assertive risk-based system of regulation underpinned by the credible threat of enforcement. This involves calibrating the intensity of its regulatory standards and day-to-day supervisory approach to the risk profile of the firms and sectors that are supervised. In doing this, the Regulator will focus on risk mitigation, assessing business risk, and developing and using the risk model to assess firms systematically and to set the supervisory agenda.
Where matters are not prescribed by EU legislation, the Financial Regulator will propose national standards. The Financial Regulator has already published a package of proposals covering corporate governance standards and a consultation paper on Lending to Related Parties. The proposals in both documents are expected to be implemented in autumn 2010. The Financial Regulator also intends to issue further requirements, including tougher fitness and probity requirements and guidelines on remuneration and risk taking. Many of these initiatives will extend beyond the banking sector to other categories of financial services firms but will be developed in a proportionate manner, in line with the Regulator's risk-based approach.
