Oireachtas Joint and Select Committees
Wednesday, 15 July 2026
Joint Oireachtas Committee on Finance, Public Expenditure, Public Service Reform and Digitalisation, and Taoiseach
Engagement with the Central Bank of Ireland
2:00 am
Mairéad Farrell (Galway West, Sinn Fein)
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Tá leithscéal faighte ón Seanadóir Joe O'Reilly. We have received apologies from Senator Joe O'Reilly.
Is mian liom na riachtanais bhunreachtúla seo a leanas a mheabhrú do chomhaltaí agus páirt á glacadh acu i gcruinnithe poiblí. Caithfidh comhaltaí a bheith i láthair go fisiciúil laistigh de theorainneacha shuíomh Theach Laighean. Ní cheadóidh mé do chomhaltaí páirt a ghlacadh i gcruinnithe poiblí nuair nach bhfuil siad ag cloí leis an riachtanas bunreachtúil seo. Mar sin, má dhéanann aon chomhalta iarracht páirt a ghlacadh ó lasmuigh den suíomh, iarrfaidh mé orthu an cruinniú a fhágáil. Maidir leis seo, iarraim ar chomhaltaí a dheimhniú go bhfuil siad i láthair laistigh de phurlán Theach Laighean sula ndéanann siad aon ionchur sa chruinniú ar MS Teams.
Fiafraítear de chomhaltaí cleachtadh parlaiminte a urramú nár chóir, más féidir, daoine nó eintiteas a cháineadh ná líomhaintí a dhéanamh ina n-aghaidh ná tuairimí a thabhairt maidir leo ina ainm, ina hainm nó ina n-ainmneacha nó ar shlí a bhféadfaí iad a aithint. Chomh maith leis sin, fiafraítear díobh gan aon rud a rá a d’fhéadfaí breathnú air mar ábhar díobhálach do dhea-chlú aon duine nó eintiteas. Mar sin, dá bhféadfadh a ráitis a bheith clúmhillteach do dhuine nó d'eintiteas aitheanta, ordóidh mé dóibh éirí as an ráiteas láithreach. Tá sé ríthábhachtach go ngéillfidís don ordú sin láithreach.
I advise members of the constitutional requirement that members must be physically present within the confines of the Leinster House complex in order to participate in public meetings. I will not permit a member to participate where he or she is not adhering to this requirement. Therefore, a member who attempts to participate from outside the precincts will be asked to leave the meeting. In this regard, I ask any members partaking via MS Teams that prior to making their contribution to the meeting, they confirm that they are on the grounds of the Leinster House campus.
Members are reminded of the long-standing practice that they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable, or otherwise engage in speech that might be regarded as damaging to the good name of the person or entity. Therefore, if their statements are potentially defamatory in relation to an identifiable person or entity, they will be directed to discontinue their remarks. It is imperative that they comply with any such direction.
The context for today is that the Joint Committee on Finance, Public Expenditure, Public Service Reform and Digitalisation, and Taoiseach is meeting with representatives of the Central Bank of Ireland to discuss, in the first instance, the Israeli bond programme and the renewal of the prospectus. Following the committee's report last August, the Central Bank of Ireland no longer approves prospectuses for Israeli Government bonds. However, this was just on a rolling yearly basis. The decision to approve the prospectus now arises again. Following the exploration of the previous prospectus on 1 September 2025, Israel transferred its EU offering and regulatory filings to Luxembourg. The committee recommended in its report last August that the Government engage at EU level with a view to amending the EU prospectus regulation to permit each individual European central bank to refuse to act as a competent authority. This Central Bank engaged with other EU central banks to develop a mechanism whereby an individual central bank can refuse to process any new prospectus certification request. The Central Bank, as the competent authority, shall conduct an immediate internal review in advance of any renewal in September of the Israeli bond prospectus with the intention of determining whether it is in compliance with the prospectus regulation in terms of the required level of disclosure, accuracy and transparency. The committee is interested in hearing updates on these matters.
The members of the committee have also indicated that they would like to discuss Ireland's fitness and probity enforcement system. It has been criticised for procedural flaws, excessive delays and weak safeguards. We will also discuss proposed plans to cut costs and jobs at the Central Bank of Ireland.
The committee looks forward to engaging with the Central Bank of Ireland and welcomes Gabriel Makhlouf, Governor of the Central Bank of Ireland, to the meeting. I invite Mr. Makhlouf to make his opening statement.
Mr. Gabriel Makhlouf:
I wish committee members a good afternoon. I am joined by the deputy governor for monetary and financial stability, Mr. Vasileios Madouros, and the deputy governor for consumer and investor protection, Mr. Colm Kincaid.
I will say a few words about the economic outlook. The global economy continues to face challenges and heightened uncertainty. The Middle East conflict and the destruction in the Strait of Hormuz have implications for energy prices and global supply chains. For Ireland, modified domestic demand growth is projected to moderate due to higher energy prices weighing on real incomes and consumer spending. Multinational-led AI-related investment will provide support. Inflation forecasts have been revised upwards to 3.5% this year and 2.9% in 2027, with the outlook for international energy prices substantially higher than was assumed in our March bulletin.
Events in the Middle East remain uncertain, not least when the disruption to the Strait of Hormuz shipping lanes is likely to be fully alleviated and the extent to which trade normalises. Our most recent quarterly bulletin in June presented scenarios ranging from swift resolution, with lower inflation and stronger growth, to prolonged disruption, with higher inflation and weaker growth. Even in optimistic scenarios, inflation pressures persist.
More broadly, it is clear that we are living in a period where the frequency of large external shocks is increased. Ireland's and Europe's policy frameworks, and the policy decisions themselves, must adjust to this new reality to build long-term economic resilience in the economy. In my view, we need to prioritise and focus on a number of areas, including growing the supply side of the economy, particularly in housing, transport, energy and water infrastructure, strengthening the indigenous business sector to complement foreign direct investment, building fiscal buffers through prudent fiscal policy and rigorous expenditure control, supporting household resilience by enabling greater retail participation in financial markets and working with partners to strengthen Europe's economic infrastructure. Given externally driven price pressures and tighter monetary policy, I would also emphasise that a broadly neutral fiscal stance is appropriate to avoid contributing to inflationary pressures.
I will turn now to the issue of prospectuses. I appreciate how important the Israeli bond programme has been to this committee, and, indeed, the Irish public. As I have said before, the Central Bank is an institution established by law and empowered by law, and it must always act within and in line with the law. We must carry out the statutory tasks and functions that have been assigned to us in the manner they have been assigned to us. This is integral to our role as a public institution and an independent central bank in a modern economy and for the rule of law in Ireland and the European Union. The Central Bank has always sought to assist the committee in its work on this issue. I have discussed it with members on a number of occasions, and we have followed up with additional information in writing. As with all of our work, I value our engagement with the Oireachtas and we seek to provide as much assistance and information as possible within our mandate and without breaching confidentiality obligations.
I want to repeat what I have said before to this committee. I am appalled and saddened by the horrific loss of life and destruction we have seen in Gaza and the wider Middle East. I speak for everyone at the Central Bank when I say that we want to see an end to hostilities by all parties. However, I have also set out the Central Bank's role on the issue of prospectuses and how it is governed by EU law. Our role is very specific and is governed by the EU prospectus regulation, which is a disclosure regime. The role of the Central Bank is to ensure a prospectus has been drawn up in compliance with the disclosure requirements of the prospectus regulation. We are required to approve a prospectus if it meets the standards of completeness, comprehensibility and consistency imposed by the regulations. As such, the Central Bank does not endorse the issuer or the securities by way of the prospectus approval, but, rather, confirms that it meets these required standards. As I set out in my letter to the committee this week, due to professional secrecy obligations we cannot provide details regarding our discussions with individual issuers, including the nature and timing of any requests. The Central Bank is subject to confidentiality obligations pursuant to the EU prospectus regulation and section 33AK of the Central Bank Act 1942. This is the law. We must act within and in line with the law. I understand that can be difficult and frustrating for the committee in the current circumstances.
I note that there have been a number of statements to the effect that the Central Bank could refuse to approve a prospectus or indeed its transfer to another competent authority for approval on the basis of certain international law rulings and opinions, namely, on the basis of the International Court of Justice, ICJ, provisional rulings in the ongoing South Africa-Israel case and-or on the basis of the ICJ opinion on the occupied Palestinian territory.
While these cases could lead to EU sanctions being imposed upon Israel, as matters stand there are no EU sanctions imposed upon Israel restricting its ability to issue securities such as the sanctions which were imposed upon Russia following its invasion of Ukraine. The Central Bank continues to keep under review its compliance with the applicable international, legal and regulatory frameworks in discharging its role in relation to the Israeli bond prospectuses.
Turning to fitness and probity, the Central Bank Reform Act 2010 introduced a statutory fitness and probity regime for regulated financial services. It is one of the key legislative reforms in financial services following the financial crisis. The regime protects the public interest by requiring that individuals in key positions in regulated firms are competent, capable, honest, ethical, with active integrity and financially sound. Under the Act, individuals performing specified functions in regulated firms must comply with fitness and probity obligations on an ongoing basis. Individuals performing senior roles must have the approval of the Central Bank before being appointed. Last year, the Central Bank granted 2,684 such approvals and there are approximately 22,500 live approvals in our financial system. The Act also provides that the Central Bank may carry out an investigation where there is reason to suspect an individual’s fitness and probity to perform a controlled function role. If, following an investigation, an individual is found to lack the required fitness and probity, the Central Bank may prohibit them for a specified time or indefinitely from performing certain roles in a regulated firm. To date, the Central Bank has issued prohibition notices in 13 cases. Eleven of these prohibition notices were agreed with the relevant person and so did not require court confirmation. Two were not agreed and therefore required application to the High Court for confirmation.
It is in this context that I wish to address a recent decision by the High Court not to confirm a prohibition notice imposed by the Central Bank. The decision followed the Central Bank imposing a prohibition notice on the individual concerned on 2 February 2022 for a period of a year, that is, until February 2023. As the prohibition was not agreed by the individual, the Central Bank applied to the High Court on 28 March 2022 to confirm the prohibition notice. On 2 May 2025, the High Court notified the parties of its decision not to confirm the prohibition notice. The court delivered its written judgement on 31 March 2026, which was published on 17 April 2026. The High Court found that the individual's entitlement to natural and constitutional justice and basic fairness of procedures was not observed by the Central Bank in this case. I acknowledge that investigations and prohibitions carry serious implications for individuals and take the High Court's judgement very seriously. We are in the process of mapping the judgement against our current procedures to make the necessary changes to incorporate its findings. In fact, we have already made a number of changes since the prohibition decision in February 2022. For example, the Central Bank (Individual Accountability Framework) Act 2023 amended the 2010 Act to provide that a prohibition notice that has not been agreed by the individual does not now take effect until either agreed by the person under investigation or confirmed by the High Court. In other words, persons are no longer prohibited while the court confirmation process is ongoing.
In April 2023, following these amendments, we published revised regulations and guidance on fitness and probity investigations. These have strengthened procedural safeguards for individuals subject to investigation. Prohibition decision makers are also now appointed by the Central Bank from a panel appointed by the Minister for Finance to further safeguard their independence in making these decisions. In July 2024, we published an independent review of the fitness and probity regime, undertaken by Mr. Andrea Enria. While the review focused on the gatekeeper pillar of the regime, the specific recommendations around fairness, efficiency and transparency of process have been adopted by the Central Bank into the broader operation of the regime. Separately, earlier this year, we concluded a public consultation on guidance to provide further clarity and transparency on our current approach to prohibition decisions. We aim to publish this guidance later this year. The Central Bank is committed to implementing the statutory regime for fitness and probity in financial services and will continue to look to improve how we do so, including implementing fully the findings of the recent High Court judgement. My colleagues and I are happy to take any questions.
Mairéad Farrell (Galway West, Sinn Fein)
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Gabhaim buíochas le Mr. Makhlouf. Just to let everyone know we are expecting votes in both Houses over the course of this debate. I am aware that people are looking to come in for a second round. I am going to go on as I have, through indication.
Alice-Mary Higgins (Independent)
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I am going to come to Mr. Makhlouf first in relation to the Israeli bonds. There is something a little bit hard to take in the lines:
This is the law. We must act within and in line with the law. I understand that can be difficult and frustrating for the committee.
To be clear, what I think has been difficult and frustrating for the committee and the public has been the failure of the Central Bank to operate within the law. This is the piecemeal approach where a single regulation, which we have highlighted in our numerous reports that we do not believe is even being properly and correctly applied, is chosen by the Central Bank to be placed above international law. With absolute respect, on the idea of EU sanctions being imposed and so forth, this is not about sanctions or penalties. It is about compliance with international law. International law is not a motivational thing where, if EU countries choose to act upon it, that is great. It is an obligation. We are talking about obligations on both states and those who act for and on behalf of states and who are the competent authorities within states to comply with international law. It is sad to see the same somewhat dismissive approach to and a seemingly fundamental misunderstanding of international law that we have seen here.
Aside from the fact that we have very strong precedent and a clear imperative that, within even the European Union, it is recognised that international law takes precedence, within the very prospectus by which the Central Bank claims to be bound, paragraph 88 specifies the principles recognised by the Charter of Fundamental Rights of the European Union, including the application of international law, and that the regulation should be interpreted and applied in accordance with those rights and principles. That is a core requirement of the prospectus regulation. Not only does international law take precedence over the regulation, but the regulation itself specifies that it should be interpreted in line with international law, yet we have a return to the same language we saw previously, including language on completeness and comprehensibility.
The Governor will be aware that we looked for specific actions from the Central Bank in relation to that. We asked that, prior to any approval process, there would be, as the Central Bank is entitled to under the regulation, a demand for full and complete information. As I understand it, the information from 2024 to 2025 has slightly improved from saying there was an ICJ case taken by South Africa to specifying it was an ICJ case under the Genocide Convention, but it still failed to include the fact of the ICJ opinion of July 2024 which specified the obligation of states to take steps to prevent trade or investment relations that contribute to the maintenance of the illegal settlements on occupied Palestinian land. That is included in paragraph 278 of that ICJ opinion, an opinion the Irish Government claims to take so seriously that it is in the preamble to the Bill it is taking forward in relation to the occupied territories in the Seanad today and that I will have to go to shortly. This is established in international law; compliance is the question. I am wondering why Mr. Makhlouf feels compliance is not relevant.
I go specifically to what will happen in September. In September, as we understand it, the Central Bank will be asked one of two questions. It will be asked to approve the sale of Israeli bonds, bonds which very clearly and explicitly will go into an exchequer to be used to fund military activity and occupation, or it will approve the transfer of the approval process for those bonds to another country. This is not the confidential information the Central Bank is getting. What processes are in place for the Central Bank? If it is a matter of the Central Bank being asked to approve such bonds, will it take the actions set out in our report published a year ago in which we looked for proper due diligence in terms of compliance with international law and completeness of information on compliance with international law? Will those measures be in place if the Central Bank is asked to approve the transfer of the approval process to another country? I do not believe that country will be Luxembourg, given that Luxembourgish civil society and Luxembourgish parliamentarians are as disgusted and outraged as the public and parliamentarians here at having been involved in this process. What if there is a request by the issuer to have the transfer of the approval process go to another country? The Central Bank established in its previous hearing here, and this is in its own language, that it has "sole and absolute discretion" as to whether it approves that process. What has also been established is that if it does not either approve the bonds, approve the prospectus or agree to another country's authority approving the prospectus, the bonds cannot be sold in the European Union. This is, then, a really significant moment, and I want to know what the Central Bank will do in September in either of those scenarios, whether it is asked to directly approve or asked to agree to the transfer of approval. Where will international law and transparency be in that process? Where will the Central Bank step up to its responsibilities and, indeed, the powers it explicitly has within the regulation and within its own guidance in terms of "sole and absolute discretion"?
Mr. Gabriel Makhlouf:
I welcome the committee's report, which we have studied extremely carefully, and we are making sure that, where it is relevant to us, we are applying it appropriately.
The Senator said a number of things. I will come to the specific ones but I will make just a general point on international law first. I think I have said this before. Our committee has taken advice on this - I took advice last year and I have taken advice this year - and we are in no doubt that what we did previously has been in compliance with international law. Sometimes people have differences of view on law, but I have absolutely no doubt that the actions we took last year and the year before have been in line with international law.
What will happen this year? I am bound, as I said earlier, by confidentiality obligations but I can help by giving a more general picture. In fact, four things can happen, not two things. One is that the issuer could actually decide not to issue any more prospectuses. That is one option. Another option is that the issuer could decide that it will issue bonds of a value over €1,000. In those circumstances it can choose whichever jurisdiction in the EU it wants to seek approval of its prospectus without asking us. The final two scenarios are the ones the Senator has described. One is that we are asked for the transfer of the approval of the prospectus. I shall come to that. The final one is that we are just asked to approve a prospectus. There are therefore four potential scenarios. If we are asked, as happened last year, to approve a transfer to another jurisdiction, the only decision we have to make is on the transfer, not on the prospectus itself. That is a decision taken by whomever it goes to. In those circumstances, what we have to do, in particular, is look at the legal basis on which we can approve or not approve a transfer, and that is ultimately related very much to the connectivity between the issuer and the jurisdiction and the bond itself. As the Senator noted, last year these bonds were not marketed in Ireland at all. We checked that and, basically, we had no grounds to refuse the transfer of the approval process, as was requested. Obviously, if the issuer decides that it will issue securities of below €1,000, it will come to us. We will do what we did in 2024, that is, look at the prospectus and make sure that it meets the requirements of the legislation. If it does not, we will ask for greater information to be included in the prospectus. Just to be clear, this is a disclosure regime, so what we are looking to make sure is that investors have all the information they need to make an investment. That is what the regulations require us to do. We would make sure that the prospectus has that information. If it does, we will approve it, and if it does not, we will carry on having a conversation with the issuer until it either decides to include the information or decides then to just give up. Those are situations that could happen.
I assure the Senator that the sort of information the committee has been asking for and that it asked for in its report is the sort of stuff I would expect to be disclosed. Some of it has already been disclosed, incidentally, in the issuer's returns to the United States Securities and Exchange Commission, which, by extension, plays a role here. I would expect that sort of information to be included. The most important thing, perhaps, is to give the committee an assurance that we would be doing the job we are required to do and following the law and following the advice which we have had and which in the past has also confirmed that our actions have been in line with the law, domestic, European and international.
Alice-Mary Higgins (Independent)
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As my follow-up with-----
Mairéad Farrell (Galway West, Sinn Fein)
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Briefly and succinctly.
Alice-Mary Higgins (Independent)
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In relation to that question, it is not the case that connectivity is the only standard. It is clear that that is not an exhaustive list and that other criteria can be set in terms of the approval and that, indeed, there is sole and absolute discretion. That has been confirmed previously. Perhaps Mr. Makhlouf could clarify that other criteria may be applied, not solely connectivity, as he has mentioned.
Specifically, and going back to one of the Central Bank's earliest appearances, Mr. Makhlouf mentioned EU sanctions and so forth. If the Central Bank will not act to be consistent with the International Court of Justice opinion of July 2024, and if the Irish State were to take measures in respect not of Israel specifically but of a requirement that, as regards bonds which are issued and for which approval is sought, we do not approve bonds for countries which are the subject matter of cases at the International Court of Justice or where that is found to be incompatible and inconsistent with international law, would that signal be sufficient for the Central Bank to start applying the international law? By the way, that law exists. It is not simply the opinion of the court; it confirmed it. I am just asking what it will take for the Central Bank.
Mairéad Farrell (Galway West, Sinn Fein)
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Go raibh maith agat.
Alice-Mary Higgins (Independent)
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Then a very small-----
Mairéad Farrell (Galway West, Sinn Fein)
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Senator-----
Alice-Mary Higgins (Independent)
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Regarding that additional information that Mr. Makhlouf will be expecting, will it include the information in respect of the repayment of bond holders, including money that is taken from illegally occupied territories, which he previously stated was a priority?
Mairéad Farrell (Galway West, Sinn Fein)
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Gabhaim buíochas leis an Seanadóir. I will let Mr. Makhlouf respond and then we will move on. There will be a second round.
Alice-Mary Higgins (Independent)
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I am referring to national measures.
Mairéad Farrell (Galway West, Sinn Fein)
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I apologise. There is a vótáil. My suggestion is to continue with the meeting and allow the Senators to contribute while we go to vótáil. Does Deputy Doherty wish to briefly come in with his questions first? I will then allow the Senators to continue the meeting while Deputies leave to vótáil.
Pearse Doherty (Donegal, Sinn Fein)
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Just so that we are on clear ground, Ireland is currently still the home country for Israeli war bonds even though the approval process is now in a transfer to Luxembourg. Is that correct?
Pearse Doherty (Donegal, Sinn Fein)
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Yes, Ireland is still the home country. For September, does a request have to go in to transfer this again to Luxembourg, or can Luxembourg approve the prospectus again without coming back to the Central Bank?
Pearse Doherty (Donegal, Sinn Fein)
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They will still have to come to Ireland. If Israel is going to continue to issue the war bonds it is currently issuing, it will have to come to the Central Bank of Ireland. What timeframe will it have to work to in order to meet the September deadline?
Mr. Gabriel Makhlouf:
I am going to be careful about getting into anything specific but, basically, it must arrive before 1 September. The 2025 prospectus expires on 1 September. It very much depends on Israel. It must decide on the nature of the prospectus and the information it has already got-----
Pearse Doherty (Donegal, Sinn Fein)
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Let me put it this way-----
Pearse Doherty (Donegal, Sinn Fein)
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One or two weeks would be enough for the Central Bank to get it turned around for 1 September.
Pearse Doherty (Donegal, Sinn Fein)
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That is fine. Obviously, legal views have been carried out by academics from Kent and Maynooth universities, as well as by a former United Nations special rapporteur and current professor of law at Stanford Law School. They found that approving the bond prospectus would constitute a failure of a legal duty under the Genocide Convention. Has the Central Bank reviewed any of these legal analyses that contradict the position of the Central Bank? Does the Central Bank of Ireland still claim it does not fall under the Geneva Convention?
Pearse Doherty (Donegal, Sinn Fein)
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Let me just ask the question because-----
Pearse Doherty (Donegal, Sinn Fein)
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-----of the vote. Mr. Makhlouf has spoken at length previously about the legal advice on the prospectuses. However, I wish to ask him about his obligations under the Genocide Convention.
Pearse Doherty (Donegal, Sinn Fein)
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Does Mr. Makhlouf believe there is a genocide happening? Does he believe that by facilitating the processes of fundable proceeds from Israeli war bonds, the Central Bank is aiding and abetting according to the standards of facilitation? That is what the legal advice suggests.
Mr. Gabriel Makhlouf:
On the previous occasion, the Deputy asked me – I think it was him – whether I agreed there was a genocide. I made it clear that what is happening is awful, horrific and appalling, but a genocide is a legal term over which the International Court of Justice has jurisdiction. I leave it to the International Court of Justice to make its decision in that regard. As I said, it is awful and collective punishment. I am horrified by it, but genocide is a legal term. The issue with a genocide and all the proceedings around genocide at the moment that are ongoing, whether they are in ICJ or in the International Criminal Court-----
Pearse Doherty (Donegal, Sinn Fein)
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Mr. Makhlouf is familiar-----
Pearse Doherty (Donegal, Sinn Fein)
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It said there was a statable case. It is not just about when genocide happens. We must also ensure there is no risk of it happening.
Pearse Doherty (Donegal, Sinn Fein)
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Despite it having been stated that there is a statable case of genocide, the Central Bank will not take an action until the court actually hits the hammer and says, "Genocide is happening". Despite the fact-----
Mairéad Farrell (Galway West, Sinn Fein)
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There should only be one person speaking at a time.
Pearse Doherty (Donegal, Sinn Fein)
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-----that we can see it with our own eyes, the Central Bank will continue to do it. Is that the case? The bank will hide behind-----
Mairéad Farrell (Galway West, Sinn Fein)
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One person speaking at a time, please. Five minutes have elapsed since the bells started ringing.
Mairéad Farrell (Galway West, Sinn Fein)
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Five minutes have elapsed since the bells started ringing. Senator O'Reilly is going to take over and ask a number of questions. I know other Senators may be in and out depending on an amendment in the Seanad. Deputies will return as soon as possible.
Joe O'Reilly (Fine Gael)
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I am happy to keep the meeting going in the absence of our Dáil colleagues. I begin by joining in what I am sure were the Chair’s original words of welcome to the witnesses. It is good to have them here. Does Senator Murphy wish to start off? I can come in later.
Conor Murphy (Sinn Fein)
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I am happy to let the Chair to lead.
Joe O'Reilly (Fine Gael)
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Is the Senator sure?
Joe O'Reilly (Fine Gael)
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Okay. We should both have time to get in. I did not hear the witnesses’ remarks but I have all the material. We were caught with votes in the Seanad. In the witnesses’ remarks earlier, they spoke about the need for Ireland to build greater economic resilience in the face of global uncertainty. Looking ahead, what one policy change would have the greatest and longest impact on strengthening the Irish economy? What would build resilience the most? The witnesses may wish to talk around the topic.
Joe O'Reilly (Fine Gael)
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It is not housing as such, but the infrastructure to create it.
Mr. Gabriel Makhlouf:
Yes, particularly the process that speeds it up. In our view, infrastructure, or the lack of it, is acting as a bottleneck for the economy. Housing, transport, energy, water infrastructure and all of these areas need investment, but that investment must actually deliver. It is not a question of committing money. Rather, it is more a question of taking the commitments that have been made and making sure they are delivered quickly.
Mr. Vasileios Madouros:
I agree with Mr. Makhlouf. While the Senator asked for one thing, I will add some more suggestions and build on the Governor’s opening remarks. Of course, investment in infrastructure is absolutely critical, particularly how we do it. In addition, we must strengthen the role of indigenous businesses in Ireland and ensure they complement the activity that we have in the multinational sector. From a fiscal policy perspective, we should have sustainable fiscal policy frameworks. While not entirely in our control, another important aspect, particularly from a European perspective, is to take steps collectively in Europe to strengthen and integrate the Single Market. Ultimately, that will help with some of the above.
Joe O'Reilly (Fine Gael)
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I will ask a current controversial question.
Would Mr. Madouros see the creation of new data centres and the support of existing ones as part of the necessary infrastructure for economic prosperity and job retention?
Mr. Vasileios Madouros:
If we look structurally at what is happening and some of the long-term trends, the digitalisation of the economy, of everything we do is one of those key structural trends. It will happen over time. Data centres are one dimension to support that. Of course, that is one of several major long-term trends. The fact that we have a more fragmented geopolitical environment is another transition or structural change we are going through. We are going through climate change, and we have to transition to a low-carbon economy. The population in Ireland is ageing. There are a number of investments that we have to make in response to these big structural trends. The reason I mention this is that we have to think about the interaction between them. Data centres are critical in the context of digitalisation----
Joe O'Reilly (Fine Gael)
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Mr. Madouros would sustain the existing ones and develop more using carbon-free energy.
Mr. Vasileios Madouros:
That is the link I was going to make. Of course, they do consume quite a bit of electricity. We have to be thinking about how, overall, we transition to a low-carbon economy in order to reduce emissions. That will make us a more resilient economy and more ready for the future.
Joe O'Reilly (Fine Gael)
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The officials talked about housing, transport, energy and water infrastructure as priorities. I just brought in the data centres in view of their newsworthiness at the moment. Although they are all equally important, were these to be put in order of priority, what ranking would the officials suggest?
Mr. Gabriel Makhlouf:
It is quite difficult to have a black-and-white prioritisation. I would probably put the emphasis on deliverability. For example, you do not need to deliver all your water infrastructure improvement in one go. If you can do something in all of the areas we mentioned, I would focus on what can be delivered faster.
Joe O'Reilly (Fine Gael)
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That makes eminent sense.
Joe O'Reilly (Fine Gael)
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They are exercised with it.
Mr. Vasileios Madouros:
The delivery of housing depends on the availability of core infrastructure. To build new houses, you need electricity grid and water infrastructure to be there. Many of these core foundations are there to enable the supply of housing. Similar to what the governor was saying, in terms of prioritisation, those are big decisions for the Government. Some of the key principles would be, for example, things that only the public sector can deliver in areas where the public sector has a big value added in terms of delivery and of enabling the private sector. What are some of the areas of investment that would spur and encourage additional investment from the private sector? These are some of the factors one might consider in thinking about prioritisation.
Joe O'Reilly (Fine Gael)
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I have three more questions before I bring in my colleague, who has immense experience in this area. It was explained that the Central Bank's role in approving prospectuses is governed by EU law rather than by domestic political or other political considerations. How can the Central Bank better communicate that distinction to the public in general in order that confidence is either built more into its decisions or that understanding exists? Could it do more to explain that to the public?
Mr. Gabriel Makhlouf:
I am happy to take all advice on how to improve our communications and explanations to the public. We have tried in the correspondence we have written to the committee, which is always put up on our website, to be as clear as possible. I will go back and see whether we can do something better and clearer on this. Fundamentally, it is about explaining what our role is and what the limits of our role are. One of the examples I have used at meetings of this committee is the distinction in respect of what has happened in the case of Russia, which also used to have a prospectus in this jurisdiction or which applied for one to get approval. Russia was sanctioned by the EU, which effectively meant all of that stopped. There is nothing equivalent to that in existence as far as Israel is concerned. That could be a way of explaining to people why it has happened in one case and not the other.
I mentioned earlier that this is a disclosure regime. It applies not just to prospectuses issued by sovereigns but also to those issued by corporates. Its objective is to make sure that the investor knows all the risks and facts before they make an investment. We do not endorse the securities at all, whether it is a corporate or a sovereign. All we are required to do by law is make a decision on whether everything that needs to be disclosed is disclosed, that is it complete, comprehensible and consistent. Once we have done that, we have performed our functions under the law. There is the other issue we were discussing earlier about transferring jurisdiction to somebody else to make that assessment, which we can also do. The task we are given is not one which asks us to assess the value of the investment. We are not giving advice on whether to put your money into this. We are simply saying that this meets certain rules and that it is the investors' decision whether they want to put their money into it. We can try to explain that as much as possible. To be fair, this committee's report does a pretty good job of that. It would help if the report could be communicated to everybody in order to help everyone understand what our role is. I know there are committee members with whom we disagree on certain aspects of the law. Essentially, though, our role is set out in the committee's report from last year. Communicating how we play our role would perhaps better inform the public.
Mr. Colm Kincaid:
I would just add one point. It is an excellent question, and I and my colleagues are really grateful for the committee's interest in the matter. Part of the answer may also be for us to understand both our role in the EU and the EU as a concept. There is a reason the prospectus regulation is set at EU level. We spoke about the growth of Irish indigenous businesses. It is so an Irish business can take a prospectus to the Central Bank of Ireland and have it approved, which means that it is then entitled to offer those securities anywhere in the European Union. The reason for setting this at European Union level is in order that offers can be made across the Union. The quid pro quo is that we are all following the same rules and standards and that we do so consistently over time. As the governor said, although we did have quite a number of applications from Russia in the past, the decision was made to impose sanctions on Russia at EU level. There are benefits for the economy when things are done at EU level. That is also a component, especially during the Presidency, when it comes to getting people to understand what is involved.
Joe O'Reilly (Fine Gael)
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I can appreciate that. I have just two questions left.
The Governor discussed the recent High Court judgment on the fitness and probity regime and the changes that have followed that. How will these reforms improve fairness and transparency, while ensuring the Central Bank continues to protect the public finances and interest?
Mr. Colm Kincaid:
I thank the Senator for the question. As I said in the opening remarks, the fitness and probity regime has been described in the Enria report as a cornerstone of our framework, making sure the people who become entrusted with customers' money are fit and proper to hold those positions. A number of measures have been introduced that are outlined in the opening statement, as well as quite a list of reforms, particularly by the individual accountability framework Act.
To give a flavour, key among those reforms is that several steps in our investigation process have been formalised. There is a formalised approach to notifying the person we intend to commence an investigation into before we do so. They get an opportunity there because we recognise even commencing an investigation into an individual can have significant implications for that individual. That is an example. Where we believe through the course of the investigation that we may be about to reach adverse findings relating to the individual, we provide him or her with a statement of grounds and give the individual an opportunity to respond at an early stage with that. As the Governor has said, we give more transparency through the process as it proceeds.
The legislation and our guidance is also clearer now on the grounds for discontinuing an investigation, which we also do. Not every investigation runs its entire course. I do not see the provision of those kinds of rights and entitlements to the individuals we investigate as taking from our powers or ability to do our job. It is the legal framework in which we have to operate. Of course, that all predates this High Court judgment. As the Governor said, it somewhat confusingly relates to an investigation that was done under processes before all those reforms.
However, I would not have any concerns that the reforms we are talking about, or the High Court judgment, limit us in doing our job. It is just a set of rules we have to follow.
Joe O'Reilly (Fine Gael)
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My final question is one that would interest the general public and those people watching online.
The Governor noted that inflationary pressures remain, despite some positive economic indicators. What are the biggest risks to Ireland's economic outlook over the next year and how should policymakers prepare for these risks? That question would interest a lot of viewers.
Mr. Gabriel Makhlouf:
I will start. There are two things in particular at the top of my mind. I am sure anybody who is watching is very aware of this but the impact of the crisis in the Middle East is one. It is a symptom of wider geopolitical uncertainty and the fragmentation of the global economic system that has been going on now for more than 12 months. That crisis continuing will have a negative impact on a smaller open economy like Ireland, so we need to keep a very close eye on what happens there.
The Senator asked for two but maybe I will drift into three things, if I may. My colleague might also have some more. The next two things I will say are related, but first, it is important that fiscal policy - the Government's borrowing, spending and taxing - does not push against what we are trying to do in Frankfurt with monetary policy. It is important fiscal policy does not essentially add to the pressures on prices in the economy. For me, that is very important. Related to that is not a new risk, but the more it goes on, the more concerning it is, namely, the concentration risk we have in the State on corporation tax, which has become a big part of Government revenue. A significant proportion of it is paid from very few corporates. Where the activity is unrelated to what is happening domestically, it is a risk. As that source of revenue could disappear quickly, one has to be very careful about spending plans that assume that revenue is ongoing. It would be better for the system if we addressed that and had a change in the basis of the tax system whereby that concentration around corporation tax was less.
Those are two things that are top of mind for me in the time scale the Senator mentioned.
Mr. Vasileios Madouros:
Building on that, what I will say is similar or consistent with what the Governor was saying.
The main risks facing the Irish economy at present are largely external in nature, whether that is because of the ongoing war in the Middle East and the impact on inflation and supply chains, or because of the risks around global fragmentation of the international economy, sudden changes in trade policy or investment policy, which could then have an impact on Ireland, given how open the economy is, how highly globalised it is and how big the dependence is on the multinational sectors.
The Senator also asked about what could be done. The way we think about it is there are big external shocks. Some of these are not necessarily controllable, but the focus can be on what is within Ireland's control, which goes back to some of the issues the Governor has just mentioned and that were in his opening statement. We were discussing earlier whether this is about a sustainable fiscal framework, delivery of infrastructure or indigenous businesses. It is about controlling the controllables. Ultimately, one way to think about this is that while we live in a very uncertain world, there is also a window of opportunity to build strong foundations for the future in Ireland. It is important that opportunity is grasped.
Mairéad Farrell (Galway West, Sinn Fein)
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For clarity, as it seems there might be another vote in the next 30 minutes, people might be conscious of that. Senator Murphy may come in then. I call Deputy Brennan next.
Shay Brennan (Dublin Rathdown, Fianna Fail)
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I welcome the witnesses back before the committee. I have only one question on the Israeli bonds and then I will perhaps move onto some other stuff.
The last time we engaged on this, it was clear the Central Bank's hands were tied by the EU prospectus regulations. I believe one of the recommendations out of committee was that changes to those EU prospectus regulations be sought but that is a legislative matter and is not really for the Central Bank. However, have the witnesses had any discussions or engagement with the Department in that regard? Have they been approached by anyone from Government side to get their technical input into how changes are being made? Is there anything they can tell us about their knowledge of whether anything has been undertaken with respect to those regulations?
Mr. Gabriel Makhlouf:
They are European regulations, so they are ultimately for the European Commission to take the lead in changing them. I am aware the Tánaiste has spoken to the relevant European Commissioner. In fact, he told Deputy O'Callaghan about that. Those engagements have started, and I have been told he has written. I do not know if the other side has responded at all. In the end, it is at European Commission level that action needs to be initiated.
Shay Brennan (Dublin Rathdown, Fianna Fail)
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I appreciate that. Moving onto the cost-cutting side of things, I have one concern.
The Governor has stated that he is looking to take out €75 million between now and 2030 and it is probably worth noting that most of that is not staff related. However, the remit of the Central Bank has continuously expanded, including implementing the markets in crypto-assets regulation, MiCAR, and the consumer credit directive, CCD 2. The Central Bank has all sorts of stuff either on its plate, recently put on its plate or due to land on its plate in the not-too-distant future. I have a concern, given all of the additional responsibilities, that the cost base should be rising or there would be a case to see an increase in the cost base. Can the Governor confirm that the Central Bank is not putting itself in a position where the application of the regulations would be spread too thin, given that that is a growing area and the resources are not growing accordingly and, in fact, are going the other way?
Mr. Gabriel Makhlouf:
I thank the Deputy for observing the increase in our mandate and the various rules that we have to enforce. At the moment, we have two things. First, our plans are to reduce the trajectory of costs but not turn it into cost cutting. Our costs are still going to go up but what was said is that we want to try to take out €75 million of the projected costs by 2030 and reduce that. Our costs will still rise, however.
Second, and of course we cannot predict what new obligations we may be given, at the moment we feel that we can continue to deliver our mandate successfully by making and reducing these costs, by looking at the way we are organised and looking at implementing new technology to improve our processes. There is a number of different things, as the Deputy said. Most of the savings will not come from taking people out. As things stand, we are confident that we can continue to deliver the mandate and reduce the projected increase in our costs.
Shay Brennan (Dublin Rathdown, Fianna Fail)
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The national mint site is not on the agenda for today but I will ask a question on it on the off-chance that the Governor has some information. The site was scheduled to be developed into housing by the Land Development Agency. Recently I read that the project has been delayed by seven years because the future site of the mint will not be available. Is the Governor able to update us on that in any way?
Mr. Gabriel Makhlouf:
Only very briefly. The time horizon that we have been working to has always been around seven or eight years. We have purchased the land where we are going to build a new mint. At the moment we are going through a procurement exercise to select the people who will design the actual construction. There may be a slight delay but it is not delaying the overall timetable that we have had. If there had been an assumption that houses could be built quickly on the old site then that is a mistaken one because this was always going to take that sort of length of time. If I can, I will give more detail and more of an update. At the moment, because we are still going through the procurement exercise, I am not sure how much more information there is but we will certainly let the committee know where we are.
Shay Brennan (Dublin Rathdown, Fianna Fail)
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Yes, that would be appreciated. The Governor made some comments around savings and investment and the sheer amount of savings available within the Irish economy that are not necessarily getting a reasonable return. Some of the highest paying interest products in the Irish market are the likes of Revolut and Klarna, which have 700,000 people saving with them. In fact, we had Klarna in here last week. These are not guaranteed by the Irish deposit scheme. They are guaranteed by Lithuania and Sweden, respectively. Does the Central Bank have concerns in the event of, albeit very unlikely, a systematic banking failure that Irish savers would be at the bottom of the priority list for these other countries? I mean in the same way that, potentially, if we were guaranteeing a scheme for another country, potentially Irish savers, in the situation of limited resources, would have first call on those limited resources. I have mentioned two schemes but there are others. Is there sufficient awareness among the public that these schemes are not guaranteed by the Irish authorities but by Sweden, Lithuania and others?
Mr. Gabriel Makhlouf:
I will invite Mr. Kincaid to comment and perhaps Mr. Madouros wants to say something. First, I will make the very general point that we have spent the last decade and a bit strengthening the system to make sure that the banking system is as secure as it can be in this economy that we have. In my view, the economy is in a much better place than it was in 2008 and that is an important context to keep in mind. A lot has happened to strengthen the system, not just in Ireland but across the EU and the world. We are at a particular moment in the regulatory cycle where there is a push to reduce these rules. Some people call it "simplification" while other people call it "deregulation". I am very supportive of simplifying and making things work more smoothly, efficiently and effectively. I am basically not supportive of moves to weaken the system so as that consumers are put at greater risk. I am on one particular side of this fence. Does Mr. Kincaid wish to comment?
Mr. Colm Kincaid:
Briefly, yes. First, part of the strengthening the Governor has spoken about has been to make the EU framework of financial supervision actually work, whether that is through the Single Supervisory Mechanism or otherwise. I would have a high level of confidence in how that is working. We have seen practical examples with individual institutions, including of the nature that has been mentioned, where we have had concerns. We have raised our concerns through that system, including with the home state regulator, and seen them dealt with. As we have spoken about at meetings of this committee, the facility for competition to come in from other EU jurisdictions is to be welcomed. On balance, it is a net positive that that is happening and I do not have any concerns for how that regime is working.
Second, I do not have a concern that an Irish consumer, in a regime for EU consumers, would be disadvantaged compared to a consumer from another jurisdiction but there are variations in the protections available across Europe for different types of institution, so I would widen the lens a little of the Deputy's question to not just banks but also if a person is putting his or her money into an investment that is not a bank, for example, and there are different arrangements.
That brings me to my third point, which is I do think that there is a role in financial literacy and education for people to be aware of their rights and entitlements, and to factor those sorts of issues into their thinking. That would also go, of course, to the term. A person might be willing to take slightly more of a risk with a shorter term or less consequential investment for yourself than you might for a long-term investment. That is the framing I would have of the question asked by the Deputy.
Mr. Vasileios Madouros:
To complete, both the Governor and Mr. Kincaid talked about the different dimensions of the strengthening of the framework over the past 15 years or so. The other dimension of that strengthening around something bad happening is the resolution framework, that is, the deposit guarantee framework that was mentioned. Now, in Europe, there are common standards for deposit guarantee schemes across all of Europe. They all have to meet a certain level relative to the deposits that they guarantee and that is consistent across Europe.
I would add, and my observations are linked to one of the points that we talked about earlier, that there has been a lot of progress in the move towards the banking union. We have had a move towards clinical supervision, which was mentioned by Mr. Kincaid. We have also had a move towards single resolution. Where we have not fully completed the framework in Europe is towards having a common European deposit insurance scheme.
As we are talking about completing and strengthening the Single Market and completing elements of the banking union, including by means of moving towards a Europe-wide deposit insurance scheme, which is an important dimension of that, those questions would not even arise.
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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I want to ask about fitness and probity and the Central Bank of Ireland v. CD case. On Israeli bonds, full compliance with international law and our obligations under the Genocide Convention oblige the Central Bank to act in circumstances where there is a risk of genocide. That is where the threshold lies. Surely the governor does not dispute that the threshold has been met.
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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That is about a final determination. The fact that the litigation is happening indicates that there clearly is a risk of genocide, which then obliges the Central Bank to act. That is the point I am making.
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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I take a very different view on that. In the context of the Central Bank of Ireland v. CD, Mr. Makhlouf stated, "The High Court found that the individual's entitlement to natural and constitutional justice and basic fairness of procedures was not observed by the Central Bank". That is a very clear and strong statement. He went on to state, "I acknowledge that investigations and prohibitions carry serious implications for individuals and take the High Court's judgment very seriously." In light of the judgment in that case and Mr. Makhlouf's comments earlier, why has the Central Bank not undertaken an independent review, as was done in respect of the judgment in the AB case?
Mr. Gabriel Makhlouf:
I decided to do the previous independent review. In this case, I decided that we understood enough from the case. The independent review carried out by Andrea Enria is not irrelevant to this case, so we have partly done a review. We are doing an internal lessons learnt review and we are taking legal advice on that. I am satisfied that as far as this particular case in concerned, we are doing the right things.
Separately, I have already announced internally that we are going to do a much broader review of our enforcement activities across the bank, not fitness and probity specifically but on how the whole system works at the enforcement end of us doing our job. The system we have, which has been in place for a decade or so, has had lots of changes happen to it. Some of those were the result of judicial decisions but most were due to changes in legislation, technology and internal processes. I am going to take the opportunity to have an external review done of the enforcement activity across the bank. I have taken this opportunity to tell the committee about it, but it is separate from that specific case.
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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Is it going to include fitness and probity and look at the judgment in the Central Bank of Ireland v. CD case?
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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Will it include a review of that case? Mr. Makhlouf outlined his acceptance of the fact that the High Court found that the individual's entitlement to natural and constitutional justice and basic fairness of procedures was not observed by the Central Bank, the entity of which he is Governor? In light of that, would he not want an external review or an independent review of the High Court's finding?
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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Mr. Makhlouf made reference to the Enria review. He stated that it looked at something different-----
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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-----but that it is relevant. Of the 12 recommendations resulting from the Enria review, how many specifically address fitness and probity investigations, prohibitions, decision-making and enforcement?
Mr. Colm Kincaid:
The focus of that review was, as the Deputy identified, on the gatekeeper pillar, but there were some overarching findings about fairness, transparency, etc., which have translated, as outlined in the opening statement, into, for example, much more transparency now in the end-to-end process for individuals. It is an overarching point that in looking at the findings in that review, we have also read across to whether that has implications for how we do fitness and probity investigations.
I might supplement the Governor's answer in terms of the earlier exchange. One of the big external reviews of our fitness and probity investigation regime has, of course, been the work that went into informing the changes in the Central Bank (Individual Accountability Framework) Act 2023. That included specific amendments to change the process of fitness and probity investigations in light of various High Court judgments, not specific to financial services but more generally, and that would obviously involved the independent input of the Attorney General.
Part of our thinking in acting as we have in relation to the CD judgment specifically - because, I imagine, at the heart of the Deputy's question is getting an assurance that we are changing how we do things - is that the investigation in the case preceded all of the reforms in the Central Bank (Individual Accountability Framework) Act 2023, which, specifically, was a legislative review of the fairness of our processes.
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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I will turn to the 2023 Act and the changes in a second-----
Mr. Colm Kincaid:
We then had the Enria review. What we are doing now, including with the benefit of legal advice in order to ensure we get it right, is to see - and notwithstanding that the processes that we have today are different from the processes in that case, which dates back to prior to 2022 - what further changes we need to make. We will make those changes. In the context of applying what is an explicit, helpfully detailed and critical judgment of our processes, I would be satisfied that there is a lot for us to work on in the context of getting legal advice and making the changes we need to make.
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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In the context of the judgment in the case of the Central Bank of Ireland v. CD, the internal review that the bank is undertaking as a result of that judgment and the lessons learnt review to which the Governor referred, has the bank sought the input of the individual involved in the case?
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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Why not? As the Governor indicated, this individual's entitlement to natural and constitutional justice and basic fairness of procedures was not observed by the Central Bank. Those are the Governor's words.
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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Given that the Central Bank-----
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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-----has failed, as per the High Court's judgment, it is now doing a lessons learnt review. It now agreed to-----
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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It is a fair point. I thank Mr. Makhlouf for acknowledging that. In terms of the 2023 legislative changes, do the witnesses accept that those reforms by themselves do not address the financial and professional consequences fitness and probity investigation that took some time before any final outcome was reached. We are talking here about people who, potentially, if there are no findings against them, could have their livelihoods ruined.
Mr. Colm Kincaid:
We fully understand the seriousness and the significance of the Central Bank of Ireland commencing an investigation into an individual or a firm. It is a matter we take very seriously. To add to the numbers provided by the Governor in his opening statement, we have granted approximately 40,000 approvals over the years since the beginning of the regime. We have commenced and concluded 13 fitness and probity investigations. This is something we do after very careful consideration.
As I was saying in the earlier exchange when the Deputy was not here, on foot of the individual accountability framework Act and changes we made to our processes, we are putting a lot more thought and care into the decision to actually commence an investigation in the first place, recognising that even the existence of an investigation is significant for individuals. We have to weigh that against the fact that the regime, to go back to the Honohan report, was introduced recognising that, to use the words of the former Governor, Mr. Honohan, the people who run financial institutions are the first line of defence for customers. We have to make sure we take the investigations we believe we need to take. In that particular case, we believed we needed to take an investigation and we took it. The court has found that the process we went through was wrong and we accept that. From our perspective, it is important and we are heavily incentivised to make sure we fully implement the findings of that High Court judgment so that we can be successful in taking these cases forward.
In terms of timelines, we look to be as prompt as we can. There is a facility in the legislation for us to suspend an individual while they are being investigated. We use that very sparingly. We did not use it in this case. As was said in the opening statement, once we had made the prohibition decision in February, we made an application to court for confirmation within a number of weeks which was a decent turnaround by any standards. The prohibition was for a period of one year up to February 2023. We look to be as prompt as we can.
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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The prohibition remained in place for period of four years. It was not confirmed by the High Court when it went to the High Court. The High Court found, in Mr. Makhlouf's words, that natural justice and fair procedure were not followed.
Has the Central Bank looked at the financial and practical implications on someone when there is a prohibition notice, but there are no findings made against them, with regard to their ability to retain or remain in controlled function role? Has the Central Bank had any engagement with industry? This potentially affects other people's livelihoods. Has the Central Bank had engagements to talk about protection of livelihoods, income protection and so forth and how those issues could be addressed?
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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I understand that.
Mr. Colm Kincaid:
That has now changed; the prohibition notice would not come into force now unless and until there was a court order. That is a key reform of the 2023 Act.
As I said, we look to take these cases sparingly, progress them as quickly as we can and make decisions on prohibition notices that are proportionate and fair. We have concluded a consultation on our guidance to decision-makers on when we will and will not prohibit people. That is an opportunity for industry to respond to that, which it has done.
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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That was done before the High Court judgment was published.
Mr. Colm Kincaid:
It was, but we will also take the High Court judgment into account now in what we land on and publish, I hope, later this year in relation to that. When an individual in a regulated institution is under investigation by the Central Bank of Ireland, that in itself is not a finding by the Central Bank of Ireland. While that investigation continues-----
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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It prevents them from getting work.
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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They are not able to in practice.
Mairéad Farrell (Galway West, Sinn Fein)
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We just need to wrap up. There will be a second round.
Mr. Colm Kincaid:
It is not correct to say they are not able to in practice. We see them in practice. We have ongoing investigations all the time. Our contribution, to the Deputy's question, is to make sure we are as professional, diligent and prompt in taking and concluding those investigations as we can be.
Mairéad Farrell (Galway West, Sinn Fein)
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Go raibh maith agat. I am conscious that there will be another vote in the next 15 minutes, apparently. We will begin with an Teachta Timmins and see how we get on.
Edward Timmins (Wicklow, Fine Gael)
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I thank the Chair. I thank the Central Bank for the opening statement. One of the five or six things the Central Bank listed that this country should be focusing on - I agree with a whole lot of them - is rigorous expenditure control, which is close to my own heart. I am impressed by the projected €75 million in savings, although that is actually a reduction, I think, from 6% to 3% growth over the next four years, from articles I have read.
Mairéad Farrell (Galway West, Sinn Fein)
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Apologies; will the Deputy move his laptop? It is blocking the audio. I will let him start again.
Edward Timmins (Wicklow, Fine Gael)
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I will repeat briefly. In the opening statement. Mr. Makhlouf talked about rigorous spending control, which is close to my heart. The Central Bank also has an impressive projection of taking €75 million out of costs over the next four years. Will the Central Bank share its plans with the Department of public expenditure? The areas referred to are efficiencies and so on.
The Department of public expenditure was before the budget committee. Coincidentally, the projection for the next four years up to 2030 is 6% growth. The Central Bank is trimming that back to 3%. I know we are not comparing like with like; they are completely different. Will the Central Bank share any findings about cost control measures with the Department of public expenditure so it can share them with other Departments? What is the Central Bank's view of the 6% growth projected to 2030? Does it think it is too high?
Mr. Vasileios Madouros:
On the issue the Deputy raised around fiscal policy and projected Government spending, in our latest quarterly bulletin we published some analysis which supported the Governor's pre-budget letter to the Minister which was published this week. Part of that was around some principles that could underpin the fiscal framework. One principle was linking net spending growth to the underlying potential growth rate of the economy and ultimately the State's sustainable revenue-raising capacity in order to have resilient public finances and to smooth the economic cycle rather than amplify it.
In the medium-term plan, as the Deputy mentioned, the average net spending growth is about 6.4%, I think, up until 2030 which is above our estimate of the sustainable growth rate of the economy in nominal terms which is closer to 5%. In the analysis we did, one factor we looked at was what would the growth rate of spending need to be to both deliver the needed infrastructure in the national development plan and to maintain the existing level of services, taking account of the growth in population and the fact that prices are rising over time. In our estimate, that was around 5%.
An additional risk is that these might be current plans but at least if we look at recent history, the outturns have exceeded some of the plans. This is why in the Governor's pre-budget letter but also in his opening statement he spoke about-----
Edward Timmins (Wicklow, Fine Gael)
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I understand. That is a good answer. I am glad to see the Central Bank's opinion is it will be a little less than 6%.
In his opening statement, Mr. Makhlouf said the country should focus on a number of areas including strengthening the indigenous business sector. This has become a regular topic in recent committee discussions about developing indigenous companies both at this committee and at the budgetary committee, in particular with the likes of Enterprise Ireland.
I know the Central Bank does not have a competitiveness mandate but are there areas of Central Bank regulation that impede the competitiveness of Irish companies vis-à-vis companies in other jurisdictions? Will the Central Bank take cognisance of that when putting together its recommendations?
Edward Timmins (Wicklow, Fine Gael)
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Financial services, for example.
Mr. Gabriel Makhlouf:
There is a statutory requirement that we need to make sure our regulation-making is consistent with an orderly and effective market.
In other words, we take into account the impact our regulations will make on the functioning of the market but we do not take into account the point about the competitiveness of the market. That is a word, incidentally, I do not like very much because we should be focusing on the productivity of our economy as a European economy as opposed to the competitiveness of the economy. It may sound like semantics but as an economist that is where I put my focus. We take into account in our regulation-making the impact our regulations have on the workings of markets and we are satisfied we are allowing a market to operate effectively and, importantly, sustainably but we are not going beyond that.
Mr. Colm Kincaid:
It might be interesting to note the regulatory regime we are overseeing and supervising is EU-led, so increasingly the rules are being made at an EU level. The other thing I take comfort from, in terms of the Deputy's question, is that in an EU framework firms have a choice about what jurisdictions they want to establish in. We are noticing, and continue to notice, a steady increase in the number of firms applying to the Central Bank of Ireland to set up in Ireland and be authorised in Ireland to provide financial services around Europe. That would tell me we are seen as a jurisdiction that regulates properly but appropriately. We are always open to suggestions if there are specific instances or experiences that firms or small- to medium-sized enterprises, for example, have had with the regulated system to understand if there are things we are doing that are having implications for the customers of those services. We are one of the few national competent authorities that have decided not just to support the EU simplification agenda but to announce our own simplification roadmap. We are well on track to deliver those rules and we will continue to do that where we can.
Edward Timmins (Wicklow, Fine Gael)
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On a separate matter, the area of precious metals and gold does not come under the bank's regulatory responsibility. Do the officials have any comment on how that should be dealt with from a regulatory point of view? Should it be within the bank's remit?
Edward Timmins (Wicklow, Fine Gael)
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Okay. Another thing has come to my attention. Let us say someone is buying shares from a broker and they order 1,000 shares for X amount of money. If, because of market liquidity, only 100 of those are filled initially, the broker treats that partial fill as a completed trade, triggering the minimum commission which is typically €25 to €50. This seems unfair. Should it be regulated so they cannot charge the minimum commission in the event the full share request is not fulfilled?
Mr. Colm Kincaid:
-----it is something we oversee and we have specific rules about the disclosure of costs, fees and charges. We have done work on that, including with the ESMA recently. The first question I have is whether these things were made clear to the customer at the outset. Also, going to the Deputy's basic question about fairness, it is a scenario we might follow up with him separately if that is okay, just to understand.
Edward Timmins (Wicklow, Fine Gael)
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Absolutely. If someone made a request to the broker and picked this up I believe the broker may respond but it does not happen automatically. A person who is not well informed may end up paying a very high minimum commission. On a related matter, if an order spans two trading days, each day's fill is treated as a separate trade and triggers a separate minimum commission. A person could be charged double in that case. In the first example the charge is a lot more than double but where two trading days are triggered a person could end up being charged double commission.
Mr. Colm Kincaid:
I thank the Deputy. I will follow up with him on that scenario as well. As I said, the first thought in my mind in those situations is always the clarity of this for customers and whether they have this information in advance. I also understand the Deputy's concerns about the fairness of the that practice so I am happy to follow up on it for him.
Mairéad Farrell (Galway West, Sinn Fein)
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Go raibh maith agaibh. I am conscious a vote could be called at any moment so I am going to start with my questioning. That may be interrupted by a vote and at that point I will ask Senator O'Reilly to chair and have another Senator come in rather than suspend.
As the officials are aware we published a report on the Israeli bonds programme last year. I want to ask a few follow-up questions about it. In the committee's report we recommended "... that the Central Bank engage with other EU Central Banks to develop a mechanism whereby an individual Central Bank can refuse to process any new prospectus certification request". What work has been done on that?
Mairéad Farrell (Galway West, Sinn Fein)
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What exact legislative change would be required?
Mairéad Farrell (Galway West, Sinn Fein)
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But has the bank spoken to the other central banks? From that, we are asking-----
Mr. Gabriel Makhlouf:
It is for the European Commission. Earlier, Deputy O'Callaghan or Deputy Brennan referenced changes to the regulation which the Tánaiste and Minister for Finance has written to the European Commission about and discussed with it. It is in that context that any changes with respect to that particular recommendation would need to be implemented. We as central banks do not have-----
Mairéad Farrell (Galway West, Sinn Fein)
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We had two things. We obviously had questions for Government and that is a whole different thing and I absolutely think the Government should be doing more about Israeli bonds. However, it was a recommendation in our report that the bank engage with other EU central banks. Maybe I am wrong but I cannot imagine the prospectus regulation stops the bank speaking to other EU central banks about this.
Mairéad Farrell (Galway West, Sinn Fein)
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That is what I am asking.
Mairéad Farrell (Galway West, Sinn Fein)
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The prospectus regulation or Israeli bonds?
Mairéad Farrell (Galway West, Sinn Fein)
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Okay, but what about those who do?
Mairéad Farrell (Galway West, Sinn Fein)
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All right. For our understanding, given we dealt with this in quite a lot of detail when preparing the report, we asked that the bank formally engage. I understand that the Governor has, in an informal manner, engaged, but that is what we were requesting. I can make that fully clear now and perhaps that is something the officials can fully understand going forward that we wish it to formally engage with other EU central banks to understand what their views are on whether there is a possibility of-----
Mairéad Farrell (Galway West, Sinn Fein)
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We do not need to - we are asking formally.
Mairéad Farrell (Galway West, Sinn Fein)
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And we have asked Government-----
Mairéad Farrell (Galway West, Sinn Fein)
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I think we have heard you very strongly on that but we have published a report that we spent quite a bit of time working on and we would expect that actioning some of the recommendations would at least be looked at. Similarly, we recommended-----
Mr. Gabriel Makhlouf:
I am sorry, Chair, you probably were not in the room when I said that I really welcomed the report. We have looked at it extremely carefully and we are making sure that where we can we are implementing the recommendations.
Some of them are not for us, as you said. I have seen that recommendation implemented by the fact that the Minister of the Department has open discussions with the European Commission.
Mairéad Farrell (Galway West, Sinn Fein)
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We had a separate recommendation for Government. Regarding the other recommendation for an immediate internal review, this was published in August in advance of any renewal in September. What is happening in relation to that? I assume that internal review has happened.
Mairéad Farrell (Galway West, Sinn Fein)
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Was an internal review done in August?
Mairéad Farrell (Galway West, Sinn Fein)
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When?
Mairéad Farrell (Galway West, Sinn Fein)
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However, we had asked then as well-----
Mairéad Farrell (Galway West, Sinn Fein)
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However, that was not actioned.
Mr. Gabriel Makhlouf:
It has been actioned. If you take the letters I wrote to the committee in December 2024 and in November 2025 together, they basically show the work we have been doing to make sure our processes and procedures are in line with the legislation and what we are required to do. This year, since I wrote that letter in November 2025, we have also taken fresh legal advice to ensure we are still up to date.
Mairéad Farrell (Galway West, Sinn Fein)
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When was that legal advice published?
Mairéad Farrell (Galway West, Sinn Fein)
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Okay, when did you receive that legal advice?
Mairéad Farrell (Galway West, Sinn Fein)
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Can you indicate what quarter?
Mairéad Farrell (Galway West, Sinn Fein)
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I am conscious of time. I will open a second round. We will be here until 6 p.m. Regarding fees, the last time the Governor was before the committee to discuss these bonds, he said that the Central Bank had taken nearly €40,000 in fees. Obviously, we remain the home state. Have we received fees for being the home state?
Mairéad Farrell (Galway West, Sinn Fein)
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We do not receive any fees in terms of the home state. It is only when the prospectus is renewed in the place. Okay. I will go back to questions that were asked by Deputies Doherty and O'Callaghan in relation to genocide in Gaza. I am thinking which question to ask because I do not have much time. Is it the Governor's understanding that if a state sells bonds and then uses that money to commit genocide, it is in violation of international law? Let us take it as a hypothetical.
Mairéad Farrell (Galway West, Sinn Fein)
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Yes, but say it makes the determination.
Mairéad Farrell (Galway West, Sinn Fein)
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I understand, but I am asking because Mr. Makhlouf has not been willing to come at it specifically on Israel. I am asking in a hypothetical situation, if a state were selling bonds and was using those proceeds to fund a genocide, would-----
Mr. Gabriel Makhlouf:
In other words, there has been an International Court of Justice determination. There has been a Security Council determination. There has been a recommendation to states. States have decided - for example, in the case of Russia; it is not genocide so much - to take particular action. If that then carries on, then something will have contravened international law in those circumstances. I agree.
Mairéad Farrell (Galway West, Sinn Fein)
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Okay. I fully believe that Israel is committing genocide and has been in Gaza. If things, as the Governor has outlined, come to pass, does he accept that the Central Bank's decision to approve the sale of Israeli bonds amounts then to having a role in Israel's committing of genocide?
Mairéad Farrell (Galway West, Sinn Fein)
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Okay. Shahd Hammouri, an academic and international lawyer has said in the context of Luxembourg's approval of the Israeli bonds "those who made the decision to approve the prospectus are indeed at personal criminal responsibility for facilitating acts of genocide". Has the Central Bank of Ireland done any work to see if there is any personal criminal liability associated with approving Israeli bonds?
Mairéad Farrell (Galway West, Sinn Fein)
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Would that legal advice have looked at that personal liability?
Mr. Gabriel Makhlouf:
I am not sure what the legal advice looked at but I am completely confident that the actions we have taken, whether they were to approve the prospectuses in 2024, 2023 and in previous years, and the decision we took to approve the transfer of the prospectus in 2025 are within the bounds of the legislation we have to work within.
Mairéad Farrell (Galway West, Sinn Fein)
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I am out of time but I will say I do not feel that the Central Bank has looked strongly enough at the recommendations from the report because I am not hearing clear actions it has taken from that. I am happy if the Governor can pinpoint exact actions it has taken on foot of the recommendations from the report. I am deeply concerned that we will face a situation in September where this comes to pass again. It could be a situation that Luxembourg agrees to approve the prospectus. Whether it does or not, I have a strong view on us remaining the home state for Israeli bonds that it will not be looked at favourably in history, nor should it, but also that it will have implications for us in the long term. I really do. I am happy for the Governor to come in on that but it is important it be said. Sometimes things happen in history and in our current time that need to be called out and need to be stopped. I really do believe that this Government, the EU in its entirety but also the Central Bank itself needs to try to do everything in their power to stop this. I really strongly believe that. I will let the Governor come in because it is only fair and then I will allow a second round.
Mr. Gabriel Makhlouf:
I agree that having Ireland as the home state when these securities are not marketed in Ireland at all is sort of bizarre. For that to change, the EU needs to change its regulations. The bank is required to follow the law. I have been told that if I do something differently, I am acting against the law. As long as I lead this institution, we are going to follow the law, end of story.
Mairéad Farrell (Galway West, Sinn Fein)
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Briefly then, does the Governor feel that if he went against the law, there is personal liability for himself in that instance?
Mairéad Farrell (Galway West, Sinn Fein)
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Gabhaim buíochas leis na finnéithe. I am conscious that we have a number of people who want to come in on the second round. I am also conscious there will be a vote. I will allow the TD in first and then the Senator, given the fact that there is a chance that only Senators will be left here. Does that make sense?
Alice-Mary Higgins (Independent)
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Yes. I will have to go to the Chamber soon enough, but that is fine.
Mairéad Farrell (Galway West, Sinn Fein)
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To maximise our time it makes more sense.
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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Briefly, what the Governor is saying rests on the legal advice he has received. That is the foundation of his defence here for not taking the actions we are asking him to take.
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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It is his explanation. I would use the word "defence" but explanation is fine. Either word is fine. Will the Governor publish and share that legal advice with this committee?
Mr. Gabriel Makhlouf:
We have discussed this before. I do not share legal advice. I am very happy to set out the legal rationale and thinking. If the Deputy looks at the letter that I wrote to the Chair of this committee on, I think, 21 November 2025, that sets out the legal rationale that underpins our decision-making.
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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But legal advice can be interpreted, explained and used in different ways. Why will Mr. Makhlouf not, in this instance-----
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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We have explained the legal rationale as to why Mr. Makhlouf needs to act now in compliance with international law on the Genocide Convention.
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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We cannot see the legal advice if Mr. Makhlouf will not share that with us.
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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In other instances I have certainly seen legal advice quoted as the reason something cannot be done, and then when we actually see the legal advice we see that there were more options in it and that the information was not shared. The only way to remove the doubt in this situation is to share and publish the legal advice. Is Mr. Makhlouf very clear that there were no other options outlined or explained in the legal advice he was given?
Mr. Gabriel Makhlouf:
That is correct. Essentially, as I have described in this particular process, if it is to do with approving a prospectus, we are tasked with asking some very basic questions and making sure that the comprehensibility and consistency of the prospectus exists, because the key decision in making an investment is for the investor to have all the facts. That is the task we are given. When it comes to transferring the approval of a prospectus to another jurisdiction, again, the point I am trying to make is that the rules we are following are set out in the prospectus regulation, in the delegated regulation. I know the committee quite rightly feels that action should be taken and that international law is pointing in this direction. Unfortunately, the international law processes are ongoing. There is no decision which enables the State or the European Union to take some other action that would override the prospectus regulation.
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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The Genocide Convention is very clear that there is an obligation on states and state bodies to act to prevent genocide. It does not say to wait around for a few years while genocide is taking place until there is a final determination in the international court. It says there is a very clear obligation to act to prevent genocide taking place.
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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That even applies to the Central Bank as well as the rest of us.
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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On the CD versus Central Bank case, we were told earlier that people can continue in their roles while an investigation is under way but, in reality, individuals are subject to annual fitness and probity reviews and would have to resign their position as they cannot tick the box if they are under statutory investigation. In that instance, the company would have to replace an individual while an investigation is ongoing. That is the reality for people working in the industry. Does the Central Bank accept and recognise that where there is a lengthy fitness and probity investigation, even where, ultimately, the case is discontinued and where there are not adverse findings or a prohibition notice is not confirmed by the High Court, there are real issues in terms of the need for income protection, compensation or other financial redress? Has there been any engagement on those issues with people working in the industry or with the Department of Finance?
Mr. Colm Kincaid:
I thank Deputy O'Callaghan. Just so I fully understand his question, it is what income protection is available to people while they are under investigation and-or what compensation or other things might be available to them in the event that the investigation concluded without a finding or they were not prohibited. Is that the scenario?
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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Yes, where there are no adverse findings and they have their livelihood ruined and they cannot get employment.
Mr. Colm Kincaid:
There is no provision in the Central Bank Reform Act for compensation or income protection for people who are under investigation. That would require an amendment to the legislation, which would be a policy matter for the Oireachtas to consider. I imagine the consideration of that would have to look beyond specifically the Central Bank's enforcement agency. It strikes me that it is something that would potentially be wider in import. The practical questions that would arise would be how it would be paid for and what the compensation would be for, etc. There is no provision for that compensation or income protection in the legislation at the moment. What regulated institutions themselves do in relation to any member of their staff who is under investigation by the Central Bank or by anybody else is a matter for those firms to do themselves.
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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Some of us will have to go for a vote shortly, but I want to ask about the complaints procedure. In October 2025, the Central Bank published a revised complaints handling procedure. There was no provision within it for independent complaint routes for a person alleging serious procedural failings in fitness and probity investigations or prohibition processes, so why is there no mechanism for complaints, especially in light of this judgment?
Mr. Colm Kincaid:
There is a number of avenues for an individual. In relation to suspension notices, for example, there is an avenue to the Irish Financial Services Appeals Tribunal, IFSAT. There are applications to court. There is a complaints procedure we have. It does not make specific reference to fitness and probity investigations but it is a process through which someone can make a complaint to the Central Bank in relation to the performance of any of our statutory functions. There is a recommendation in the regulatory impact assessment, RIA, report on fitness and probity gatekeeping work. To be clear, the complaints procedure for the Central Bank on the performance of statutory probity would include-----
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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I am going for a vote shortly. One cannot make a complaint on this. Paragraph 2.2 specifically excludes "complaints relating to the implementation of the Central Bank's regulatory functions or complaints relating to the manner in which entities are regulated and supervised by the Central Bank, including via the Central Bank's enforcement processes". Enforcement processes are ruled out.
Mr. Colm Kincaid:
I think, if I understood correctly, it would depend on the nature of the complaint. My understanding of the Deputy's question is that the nature of the complaint would be that the individual is being mistreated by the Central Bank in its engagement. I would not see that as a complaint that is excluded from our complaints process.
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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I thank Mr. Kincaid for that clarification.
Mairéad Farrell (Galway West, Sinn Fein)
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I am conscious that we have to go to vote. Senator O'Reilly will chair the remainder of the meeting. I will bring in Senator Higgins now to begin her questioning. The issue with votes is that there can end up being lots of votes when we are in there so I do not know if I will be back. If not, Senator O'Reilly can bring the meeting to a conclusion, but it has to be finished by 6 p.m.
Alice-Mary Higgins (Independent)
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I am just coming in on the piece around the legal advice. I am a little concerned about the language. Mr. Makhlouf mentioned that the legal advice was on the operation of the legislation. Was the legal advice really just looking at the operation of the prospectus regulation, the legislation, or was it looking at the wider issues of international law that we have explicitly been asking about?
I am also a little concerned because Mr. Makhlouf said he is not sure what the legal advice looked at. He should be sure about what it looked at. One thing I will explicitly ask him is whether his legal advice looked at paragraph 88 of the regulation in respect of obligations under the European Charter of Fundamental Rights and the international law component of that. I want to know if that was explicitly looked at. It does frighten me that he said that any issue with the bonds would have legal recourse.
If the Central Bank had this concern in relation to these issues, it would be looking to ask how it applies international law using that justification that is there under paragraph 88. If that is to be challenged, let that be challenged. That would be a useful exercise.
There is language constantly of looking within the law. I do not have confidence in it and confidence in the legal advice based on the frankly ropey description of how the Genocide Convention operates that we have just heard today. The fact is explicitly clear. It was said that there has not been a determination. There are two. One is that there are interim measures that determine there is a risk of genocide. A risk of genocide under the convention already requires action. That is explicitly clear. There has been a determination regarding international law. There has also been a determination on the opinion of the International Court of Justice from July 2024 in paragraph 278, which calls on the obligation of states. This is not a request. It is confirming by the highest level of interpretation that exists, which is the International Court of Justice, that international law already requires states to take steps to prevent trade or investment relations that contribute to the maintenance of the illegal occupation of illegal settlements in occupied Palestinian land. In that context, I am not sure where that paragraph was. Was that obligation part of the remit? Were they looking at paragraph 88? Were they looking at the review? I would like-----
Joe O'Reilly (Fine Gael)
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Does the Senator wish to get that answer first?
Alice-Mary Higgins (Independent)
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I have another question. I will come back. One other specific question I asked was about the further information the Central Bank said it would be seeking in the case that it is asked to approve. Will that further information include information in relation to that International Court of Justice opinion and its implications around international law? Will it also include information in relation to the repayment to bondholders and that the money comes from the general Israeli exchequer, which contains moneys taken from illegally occupied territories?
Mr. Gabriel Makhlouf:
On the answer to the Senator's question about what information we will be looking for, it will be information that enables us to be satisfied that there is a full disclosure in the report around the assets, liabilities, profits, losses and risks that the issuer has. That is the sort of information we would be looking to obtain. We are focused, under the regulation, around the financial risk the investor would be taking by investing in these bonds.
Alice-Mary Higgins (Independent)
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Would that include the risk that the moneys from which they may be repaid may be illegally obtained moneys? We have mentioned before the question of the money laundering directives and that is what the Central Bank has responsibility for.
Alice-Mary Higgins (Independent)
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It is not a hypothetical.
Mr. Gabriel Makhlouf:
-----substantive point about our legal advice, I will write to the Chair and the committee again being as comprehensive as possible. It might look a little bit like my letter of 21 November last year. I will set out exactly our view of the legal position. The advice that I have been given does cover paragraph 88 of the regulation, which was part of the recital. I have explained this before, but the recital is not part of the regulation itself. It explains the context for the making the regulation, but it did look at that. It looked at the obligations that we have under international law that the Senator is interested in. I will try to write all of that as comprehensively as I can, so that we have all the advice put together in a letter for the Senator, all the committee members and the public to have a look at.
Alice-Mary Higgins (Independent)
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Mr. Kincaid was due to come in.
Mr. Colm Kincaid:
I will speak to the money laundering aspect of it. To begin with the regime, it is another EU regime that we implement. We are the competent authority under the EU anti-money laundering framework in the State. Our role is making sure that the financial system we regulate is not used to launder the proceeds of a crime. We do not investigate the laundering of money per se. That is An Garda Síochána, but we report to it and work very closely with it. It is an aspect of our mandate that we take extremely seriously. Some of the highest fines that we have imposed on the firms we regulate have been for failures by those firms to have appropriate systems to make sure that their firms are not being used to launder money. Any suspicion we have that the system is being used to launder money and the proceeds of crime, we investigate and pursue. We take it very seriously.
In the scenarios the Senator described, and speaking to the international law developments that she has spoken to, we also have got advice regarding those cases and how they apply in this context. That advice is, from what we have seen to date, that we have not seen anything which would trigger an action by us in terms of our anti-money laundering role. To be very clear, we will look into every suspicion and suggestion and everything that we get in the door in terms of telling us someone has a suspicion that our financial system is being used to launder the proceeds of a criminal offence or to finance terrorism. We will pursue that. To date, in relation to the very specific scenarios the Senator outlined, the advice we have had is that it does not trigger an action for us under our anti-money laundering mandate.
Alice-Mary Higgins (Independent)
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On the request in terms of the information, the facts that we know are that the repayment of bondholders takes place or lines in the general budget of Israel. They draw on the moneys within the general exchequer and the general exchequer contains moneys extracted from illegal settlements in the illegally occupied territories. Again, it is a known fact that it was illegally gotten moneys within the Israeli general exchequer and that is the mechanism by which bondholders are repaid. What I am looking for is not a money laundering investigation by the Central Bank per se, but the risks associated with the mechanisms of repayment, and the source of the repayment for bondholders, are very important for bondholders to be aware of. Is that getting flagged?
Alice-Mary Higgins (Independent)
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Those points were certainly missing in terms of certain aspects of the others, the concerns in relation to that and the ICJ opinion of July 2024.
I wish to come to another point and go back to the letter Mr. Makhlouf wrote to us back in December 2024 when we began this discussion. At that time, he was clear and specified that in a situation where the Central Bank will not or cannot act according to its prospectus, he mentioned that a legal basis for refusal would be either an EU measure or national restrictive measures to the same extent. On national restrictive measures, Mr. Makhlouf gave a very extreme example that suggested Ireland would say it would not process bonds from Israel just because it is Israel. That would not be something that any state would do. I will raise a situation where, if there were national restrictive measures in respect of the issuing of bonds, there are questions of breaches of international law, a call for interim measures under the Genocide Convention, and a relevant ruling or opinion of the International Court of Justice, such as the one the Government clearly considers relevant enough that it is has made it the preamble to the Bill that is going through the Seanad as we speak. In a context such as that, is it not the case that the State could bring national restrictive measures, which may have the effect of allowing for the preclusion and allowing a legal basis for the Central Bank to refuse the approval of the prospectus?
Can Mr. Makhlouf comment on that?
Alice-Mary Higgins (Independent)
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In his letter in 2024, Mr. Makhlouf indicated that an example of a legal basis for refusal would be national restrictive measures.
Mr. Gabriel Makhlouf:
In the letter, I was talking in general terms. That is a possibility, but we would have to make sure that those measures were consistent with EU law, which is why we would have to look very carefully at whatever legislation is introduced in order to make sure that is the case. As I said earlier, we just follow the law. If the law is clear, consistent and requires that we do X, then we will do X.
Alice-Mary Higgins (Independent)
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With respect, we differ on that. We have had differences in relation to the simple phrase "we follow the law". Mr. Makhlouf stated that he does not have responsibility for certain aspects of the law, that does not regard this as part of his remit, that those matters sit with either the European Union or the relevant authorities at national level and that it is only when they are going to act that he feels is obliged to act. He has been clear that he does not believe he has responsibility to act in the context of the Genocide Convention or in relation to the International Court of Justice rulings directly. Perhaps-----
Alice-Mary Higgins (Independent)
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-----it applies to this scenario. Mr. Makhlouf saying that he acts within the law is not enough. He acts in respect of those areas of the law which, as he has decided and stated, he believes apply directly to him. There is a clear difference of opinion between us, and a difference of opinion with many legal experts.
Alice-Mary Higgins (Independent)
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At the time in question, Mr. Makhlouf took national restrictive measures to the same effect. We know that under the Central Bank Act, the Minister for Finance can request to consult with the Governor on particular matters. Has the Minister for Finance consulted with the Central Bank regarding the approval of the transfer of Israeli bonds? Has the Minister ever done that? Did he do it last year?
Alice-Mary Higgins (Independent)
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That is important, particularly as we, sadly, have to move again to the political point of this being acted upon.
I want to come back to a slightly different and broader issue. I am looking what is happening in the Seanad. We are all going to be called away in due course. I will not speculate on this, but I want to ask Mr. Makhlouf about it. He mentioned that he did not believe it was an ideal or possibly appropriate situation for countries that are not authorised to buy Israeli bonds to be asked to facilitate their sale. We know that even with the most recent bond offering, there was a narrowing as to the number of countries in which these bonds can be sold. Germany and the Netherlands were included. I am not sure, but Austria and a couple of other countries may also have been included. Mr. Makhlouf was asked to approve the transfer of the sale. We have already established that he has huge discretion. He mentioned connectivity as a relevant point. Does he believe that he would be less or more likely to approve the transfer of the approval of these bonds to a state that was entitled to buy them? Is that an example of a connectivity test – that he might be applying to the request for approval of the transfer of approval?
Alice-Mary Higgins (Independent)
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If the proposal was that it be transferred to France, for example, where France was not one of the listed countries which could purchase the bonds, would that, from Mr. Makhlouf's perspective, be a reason not to approve it?
Alice-Mary Higgins (Independent)
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In the context of the approval of transfer - not his approval, because he has huge discretion - has he examined the additional criteria that he could apply in relation to a request to approve a transfer? Could it include, for example, a strengthened due diligence test in the context of international law regarding those who are the proposed new approvers of a prospectus?
Alice-Mary Higgins (Independent)
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The regulations only say that something may be done. There is no obligation under the requirements to approve anything.
Alice-Mary Higgins (Independent)
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The prospectus regulation does not create an obligation to approve a transfer of approval.
Alice-Mary Higgins (Independent)
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This is my final point. I will then pass back to the Chair. It relates to a different topic. In regard to modified domestic demand, Mr. Makhlouf mentioned the idea of multinational AI-related investment providing support in terms of growth in demand. In his opening statement, an almost positive role is anticipated for AI. When we look to the Central Bank's financial stability review, however, we can see that AI is regarded not so much as a support measure but as a very large risk. The review points to high valuation in the financial markets being at risk of adjustment, particularly in the AI sector. It also points to the vulnerabilities in private credit markets in the United States, including in the context of exposure to AI. It further points to cyber risks that are intensified by rapid developments in AI. In terms of the resilience of the Irish financial sector, the line is that there is limited direct exposure to AI-related market shocks. One would not have got that from the economic outlook piece in the Governor's opening statement, but it is there in the financial stability review. With respect, it seems that a lot of alarm bells are ringing. Perhaps Mr. Makhlouf could comment on that and on the measures the Central Bank is taking to protect us from the vulnerabilities associated with this and from situations where we find ourselves faced with the same kind of bail-out decisions, for example, that were put to us during the previous economic crash.
Mr. Gabriel Makhlouf:
I will ask Mr. Madouros to come in on this. The two documents are not inconsistent. One basically explains what our projections are saying in terms of modified domestic demand, which is that AI investment is going to support the fact that there will be a slight drop in growth because of what is happening in the Middle East. The other, the financial stability review, identifies a series of risks and recommends action to mitigate those risks. The two are not at odds.
Mr. Vasileios Madouros:
The issue with artificial intelligence is that it is a general purpose technology that has the potential to transform the economy and the financial system, with benefits but also with risks.
There are different dimensions to these things. There is what is happening now, as the Governor said, in terms of economic activity and the potential long-term economic effects, including on the labour market and productivity, but there are also the potential sale scenarios. As the Governor mentioned, our financial stability review is less about what we expect to happen and more about the risks and what could happen. I will focus a little bit on the latter. The Senator is right. When we look at developments in AI at a global level, there are a number of factors that are pointing to the build-up of our ability. The Senator mentioned high valuations in parts of AI-related stocks, including hyperscalers. That is No. 1. No. 2 is increased concentration. If we look at the global equity market, it is becoming increasingly concentrated in the US. Then, if we look within the US stock market, we see an increased concentration in hyperscalers but also AI-related companies. We also have very high levels of investment at a global level, especially in the United States but also increasingly in Europe, including Ireland.
I would say the most important bit from a stability perspective is that this investment has typically been funded through cash flows - equity, basically - but it is increasingly being funded through debt now, whether that is public debt issuance or the issuance of corporate bonds or debt through private credit markets. The combination of these factors raises vulnerabilities, which is one of the reasons we looked at it so closely. The Senator asked why we were doing this. We have been monitoring this very closely. She mentioned the kind of bottom line we had in the response, which is that the domestically focused financial system's direct exposures are limited. However, there could be indirect effects and second order spillover channels.
To take it back to our broader work, which is fundamentally about the resilience of the financial system, the various tools we have, whether in stress-testing or capital buffers, are all aimed at making sure that the financial system is resilient to a range of possible shocks, including those that might stem from a crystallisation of those risks.
Alice-Mary Higgins (Independent)
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I will leave it because it is hopefully a topic we will return to in the autumn.
Mairéad Farrell (Galway West, Sinn Fein)
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Maybe we will. I am going to allow an Teachta O’Callaghan in, but just so he is aware, I am going cut this at 6 p.m.
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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On Central Bank of Ireland v. CD, under section 43(12) of the Central Bank Reform Act 2010, which was the relevant legislation, a prohibition notice is not to continue longer than necessary to achieve its statutory purpose. In the CD case, the prohibition remained in force for more than three and a half years while confirmation proceedings remained unresolved. Who was responsible in the Central Bank for monitoring whether a continued prohibition remained necessary during that period?
Mr. Colm Kincaid:
The decision made by the Central Bank was to impose a prohibition for a period of one year to February 2023. That was contested by the individual. We made an application to court in March and from the point of that application for confirmation, the matter sat with the court, and it is-----
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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Is there anyone monitoring any of this within the Central Bank?
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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However, the Central Bank's actions led to the prohibition notice being in place for three and a half years. The High Court has now made its findings on that notice and refused to confirm it. Was anyone in the Central Bank monitoring this while this was going on for three and a half years?
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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Was the Governor of the Central Bank informed that the prohibition had significantly exceeded it is intended duration?
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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Was the Governor informed at any stage that it exceeded its intended prohibition?
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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Was anyone in the Central Bank looking at the continued necessity and proportionality of the provision? Was that formally reviewed at any stage during the three and half years?
Mr. Colm Kincaid:
I can speak to that. The legal reality, as I understand it, is that there was nothing for us to review. The matter was before the court. It was for the court to make its decision and to conclude that process. Speaking frankly, for the period of time I have been in this role - I was director of enforcement before that and aware of this case through that role - a principal concern of mine was that while the matter was with the court, the advice I had was that because of the legislative position as it was then, the prohibition notice continued to run. That position has been changed by the 2023 Act. However, my understanding is that it was a matter with the court and only for the court to make a decision upon.
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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Mr. Kincaid was concerned about the length of it. That was a principal concern of his.
Mr. Colm Kincaid:
We imposed a prohibition notice for a period of one year. We made an application within a matter of weeks to the court. It took the period of time that the Governor outlined in his opening statement for the court to make its decision, and we respect and accept the decision. As I understand it, that passage of time has meant that the prohibition notice was imposed for a year and continued for a period longer than that. Yes, it is a concern for me that that happened.
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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Does the Governor regret how the Central Bank conducted itself in the CD case?
Mr. Gabriel Makhlouf:
We never like to lose cases. We never intentionally go into anything knowing that we are doing the wrong thing. Certainly, the philosophy that we adopt, as Mr. Kincaid just said, is that we completely accept the judgment. If something goes wrong, we own the problem, we fix the problem and we learn from it. That is certainly the philosophy we are adopting here. The intentions of the people working on this case were well-founded. They believed that the processes they were following were the right processes. The court has decided they were not; the court is correct.
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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Does Mr. Makhlouf regret that an individual has had their livelihood ruined?
Mr. Gabriel Makhlouf:
Absolutely. I have no qualms with the decision to investigate this case. I think the judgment on that was right. I regret that the processes we followed were found by the court to have been inadequate. I am glad that we can now fix this. The philosophy is own it, fix it, learn from it, and we are certainly learning from it. However, it would be wrong to imply that we somehow went into this investigation with ill intent and that we deliberately somehow-----
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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I do not think anyone has implied that, just for clarity.
Mr. Gabriel Makhlouf:
No, but I am just saying that we sometimes do things and the court, quite rightly, is the final arbiter. That is why we have courts; they are the final arbiter and they help us to learn and improve. Ideally, I would have preferred us to have learned all of these things way in advance so that we did not have this process.
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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This is my final question. Given the failings in the CD case, has the Central Bank apologised for those?
Mairéad Farrell (Galway West, Sinn Fein)
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We are running out of time, so could Mr. Makhlouf address the question?
Cian O'Callaghan (Dublin Bay North, Social Democrats)
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No apology for the mistakes made, though.
Mr. Gabriel Makhlouf:
In the context of everything I have just explained, I am very happy to apologise. To be clear, however, we never went into this thinking we were doing things wrong. We were right to investigate the case. We played zero role in the case taking as long as it did for the judgment to be announced. I regret that.
I certainly would not have wanted this to turn out in the way it did.
Mairéad Farrell (Galway West, Sinn Fein)
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Go raibh míle maith agaibh go leir. The committee stands adjourned for summer recess until 11 a.m. on Wednesday, 16 September 2026, when we will have an informal meeting with representatives from the Assembly in the North in. At 3.30 p.m. on the same date, we will reconvene for a private meeting.