Mr. Pat Lardner:

I thank the members for the opportunity to come before the committee this evening. We provided a comprehensive written statement in advance, and in the interest of time I will not go through all of it but I will note some of the salient points. First, as explained in the previous session, this package of measures is of significant concern given the potential impact on consumers, and on regulatory powers. While there are elements of the proposals that we welcome there are several areas that are of significant concern. Our association represents some 125 firms that collectively provide a range of services that enable savings. They do this by offering them through regulated services. In the process of providing these regulated services where we have investors using Irish funds from 70 countries, managers from 50 different countries providing expertise and the capital is being deployed around the world, there is an interaction and an interplay between local authorisation and supervision, which occurs by virtue of the Central Bank's activities. The committee heard from it earlier. It is also anchored in the European directives which facilitate EU market access, through passports and the ability to delegate activities and through equivalence and other requirements. This interplay between the national competent authorities and the European supervisory authorities, ESMA in our case, works very well because both entities have significant pre-existing powers and its own governance. This has all contributed to a long-standing ecosystem of regulatory and commercial activity.

It has been an outstanding success not only in an Irish and European context for over 25 years. The funds industry employs over 14,000 people and has very compelling proof of Ireland's ability to both develop and scale specialist international financial services. The ability to bring global expertise to investors is a topic that I will return to later in my comments.

Clearly, we are also very significant supporters of the Government's commitment, through the IFS 2020 strategy, to develop employment in the whole area of financial services. Separately, I have approached members of this committee to discuss the industry's long-standing request for legislative amendments in respect of the investment limited partnership legislation, which was agreed by the Government in July. I know the proposals need to come to this committee for pre-legislative scrutiny, as a matter of priority, because the opportunity for employment is being squandered. I wish to convey the good news that our clients want to do more business in Ireland. We are uncompetitive in the area of investment limited partnerships at this point in time. I apologise for my detour but given its key priority in my industry it would have been remiss of me to appear here this evening without mentioning the matter.

Both the Department of Finance and the Central Bank have talked about capital markets union and Brexit. Both of the topics are interesting backdrops. We, like others, are very strong supporters of the capital markets union. The union, as well as being linked to a single and strong supervisory network, focuses on fostering stronger connections with global capital, helping to attract investment and also makes sure that the EU is competitive. In that regard, we view some of the proposals in the ESA package as inconsistent and in sharp contrast with the idea of facilitating capital flow, particularly into the European Union, which badly needs same.

In addition, the disruption that may be brought about by Brexit is a topic that was discussed earlier today and I am sure will be the subject of many discussions here. It is worth noting, particularly around some of the potential for the relocation of activities and how activities are overseen, that the European Securities and Markets Authority has issued a number of opinions specifically on this area. It also created a supervisory convergence or co-ordination network earlier this year. All of those things are welcome and serve to emphasise its existing powers. Therefore, it is slightly surprising that just ten weeks after the opinions were supplied the Commission has made proposals that cover a lot of the same ground. We welcome some aspects of the proposals but there are some pieces that have the potential to disrupt.

We will confine our statements on the actual proposals to those aspects that are linked to the European Securities and Markets Authority, ESMA. We believe there are great benefits to be gained from bringing down barriers to things like cross-border distribution and ensuring consistency in the application of rules. When we consider these proposals overall we tend to consider them using the following three questions. What is the likely impact on consumers and clients? How do the proposals improve the functioning of the market? What is the evidence that supports the changes proposed? It is clear from each question that it is not in any way certain or obvious that there is anything other than potential risks to consumer choice, that there is scant evidence of anything that might compromise what is already a very well functioning, successful and globally recognised system for deploying capital through investment funds.

In terms of the additional powers that exist, the Central Bank and the Department of Finance referred to the areas of both delegation and outsourcing and the direct authorisation of investment funds. I will briefly deal with each of them. My industry delivers a wide range of regulated investment fund products, very much through the existence of delegation and outsourcing arrangements. That means we have different types of investment managers who employ various types of operating models and investment expertise. They are based in different parts of the world but submit themselves to EU regulation, authorisation and product rules in order to deliver those capabilities to the end customer. The fact that these types of arrangements are in place has been a key contributor to the success of undertakings for the collective investment in transferable securities, UCITS, and, more recently, alternative investment funds, that were referenced earlier. Delegation has worked extremely well historically and has been central in making UCITS, Europe and Ireland part of a very big global success story. It is a key to ensuring that EU investors can access the best international expertise and that capital can come into Europe.

The proposal, particularly as it relates to delegation and outsourcing, envisages an enhanced role for the ESMA. Specifically, all of the existing third country outsourcing, delegation and risk transfer arrangements, that might be pursued by member states, would need to be assessed and approved by the ESMA. It is important to note that there is an existing EU legislative framework that has robust standards in place for delegation and outsourcing whether it is internally or to third countries. Therefore, we believe that the proposals for delegation and outsourcing would lead to a more bureaucratic, costly and inefficient process and lengthen the time it takes to bring to market European fund products. There is lack of evidence of any market failure, which must be a key hurdle in terms of the proposals to introduce new measures. In addition, we believe there is less regulatory certainty under what is proposed. We also believe it would send a negative message across the globe about the openness of the European industry, particularly at a time when the Commission's capital markets union initiative seeks to attract global capital.

In addition to the burden, a centralised review of delegation and outsourcing arrangements could have a negative impact on the diversity of arrangements that have served investors and industry well for the past 25 years. The approaches taken to delegation and outsourcing, which operate within the associated EU and local rules, have developed over time via extensive consultation and scrutiny by the Central Bank of Ireland. We believe that has led to a robust system that has investor protection as a core principle. Earlier members here asked questions about investor protection. I can reassure them that investor protection is imbedded in many of our structures.

From our perspective, ensuring that the best funds expertise globally is available to investors and delivered via delegation and outsourcing arrangements has been key to the success of the European industry. From an Irish perspective, the European market access that we offer to global asset managers is a fundamental part of the success that has resulted in us employing 14,000 people in 15 different counties around the country.

In terms of powers that we would draw the committee's attention to, and that were commented about earlier, is the question about direct authorisation for certain types of fund products. I will name them and give the acronym. The European long-term investment fund, EULTIF, the European social entrepreneurship fund, EUSEF, and the European venture capital fund, EUVECA. The reason we have a particular concern about this matter is that it would move the direct authorisation and supervision of certain investment funds away from the model that is currently in place and operates with ease, efficiency and certainty.

The package proposed in terms of the authorisation of these products would set a precedent by creating a dual regulatory regime. For example, the ESMA would be the authorising entity for a European LTIF whereas the Central Bank of Ireland would be the authorising entity for the manager providing those services under the alternative investment fund manager's directive. Clearly, there is a consequential uncertainty as to which regulatory regime should prevail, particularly in the case of investor detriment. A dual regulatory regime for these types of investment funds would undoubtedly lead to a more complex, cumbersome and expensive fund authorisation and supervision process. Clearly, when one reflects on the 25 years that we have been involved in the authorisation and the supervision of funds, it would also require the ESMA centrally to accumulate all of the knowledge of local market prices and local conventions, and the investor protection mechanisms that exist nationally. It appears to us to be cumbersome and duplicative in terms of effort. We believe that the current system of supervision by national competent authorities, and in our case it would be the Central Bank of Ireland, are best suited to deal with these structures.

Much has been said about governance and accountability and we have commented on the subject in our written statements. We have always believed that while ESAs should be nimble and capable of efficient action, a balance must be struck between ESAs and the ability of the national competent authorities. NCAs are answerable to their national parliaments and local investors.

There is a legitimate concern, as expressed during the earlier questioning, around what is the nature of the representation. It is our view that some of the resistance and negative feedback on the proposals to date is around a concern about the lack of representational views by member states.

I will now move on to the funding question. It is absolutely the case that post the financial crisis there has been a build-up in financial services regulation and supervision. It created a real up-scaling in resources, including in the Central Bank of Ireland, over a number of years that was funded by consumers and industry. We have no issue with that. The proposals that are contained here suggest a recreating of this centrally in the ESMA, where we have already had significant ramping up. I also point to the fact that there is very little in the way of justification or detail regarding costs for these proposals. We would not endorse altering the current funding model. We believe that a reduction in EU funding potentially erodes the ESMA's accountability to the European institutions.

Much of what I have spoken about is concentrated on what we do not like about the proposals but - as I said earlier - there are elements we support. Clearly, the provision of information that would allow direct collection of information by the ESMA, which would incorporate the forwarding of data from the national competent authorities, would lay the foundations for common EU data reporting. With regard to some of the questions that were asked earlier, one of the methods by which one can assess what action might be needed from a regulatory or supervisory point of view is on the basis of the data that is actually available. The proposals would also support common data standards and comparability, and reduce costs also for all in the market. We also support greater use of open public consultations on guidelines and on recommendations. Ultimately, anything that enhances the practical use of the guidance that is available in the ESMA's existing opinions and in their questions and answers would be helpful. A national competent authority should be able to consult with stakeholders alongside the consultation that the ESMA does.

Well-meaning as the proposals are in terms of greater cohesion, we believe the package underestimates and ignores the fact that we have a very well-functioning market for cross-border funds. We have concerns about duplication of existing powers and the potential for confusion as to who exactly has the final ownership and responsibility in the existence of a problem.

I thank the Chairman for the opportunity to present to the committee. I am happy to take any questions that members may have.