Kieran O'Donnell (Limerick East, Fine Gael)

I am delighted to speak on this Bill. I thank the Minister for bringing forward legislation on the sub-prime market. People will probably be aware that within the sub-prime lending market there is no regulation of any description. The sub-prime market accounts for more than €1 billion of loans while currently the market it not subject to any regulation. It is important that it is subject to the consumer protection code, the CPC. Furthermore, some prudential measures should be examined with a view to introducing controls over this area.

I welcome the fact the Minister for Finance is reviewing increasing the levels in terms of a deposit protection scheme. The levels are too low. He should examine the possibility of ensuring there is consistency and a standard consumer deposit protection scheme throughout the European Union.

I wish to comment on two further measures. The Tánaiste, Deputy Cowen, mentioned earlier that he was looking forward to the budget. It is extremely important that he considers a number of measures in that context. When stamp duty legislation was going through this House on 26 June I stated that it did not go far enough, that the Bill was a sham and that it was not fair. I said it should be examined in particular to make it fairer for home owners who wished to move home. The Minister chose to disregard that proposed amendment to the legislation, but I have been proven right. The market is in a major slump. In rural areas, areas outside Dublin, and the area of Limerick East which I represent the housing market is stagnant. I call on the Minister in the forthcoming budget to amend the stamp duty legislation to make it fairer, to reform it to provide for people who wish to move from their first home to a second home to ensure they will not be liable to penal tax rates. A major point is that while the Minister talks about not interfering in the market, he has a role to instill confidence in the market. The Minister has shirked his responsibility in this area and, therefore, I call for reform.

We have been told that in the next six months there will be a further two increases in mortgage interest rates, probably of 0.5%. That would put people under immense pressure. Ironically, there probably would have been EU mortgage interest rises but for the turbulence in the market. It is important that the Minister makes such reforms in the next budget, particularly in the area of stamp duty and mortgage interest relief. It is all about confidence. The Minister should take steps to build confidence in this regard for the building industry, house buyers and the market.

I wish to make one further comment. The issue of employee pension schemes has arisen. A report on this area was issued on Tuesday. It stated that the number of defined benefit schemes provided by companies has fallen from 67% to 37% of the companies involved in a five-year period. That is worrying. People will be aware that with a defined benefit scheme employees are guaranteed a certain pension whereas with a defined contribution scheme the risk is put back on the employee depending on how the markets perform. The Minister must examine, in the forthcoming budget, reforming employee pension schemes to make them more flexible. Virtually 100% of new employees commencing work in companies will opt for defined contribution schemes rather than defined benefit schemes. We will not see the end result of that until 20 years' time when these people claim their pensions and suddenly discover there is nothing there. In terms of reform, it is important this Minister examines this area.

While I examine a Bill such as this in the context of financial markets, ultimately the Government should consider it in terms of consumer protection; that is what it is all about. There are worrying features to the Bill, primarily to do with the advent of the Internet, which has made regulation more difficult. Effectively, this Bill concerns the introduction of EU-wide regulation of financial instruments. This is good in terms of the principle of the Single Market. However, there are concerns.

The regulation is to be introduced by 1 November, but nine EU countries have yet to implement the directive, namely, Spain, Italy, Holland, Hungary, Poland, Portugal, Estonia, the Czech Republic and Slovenia. The question must be asked as to whether these countries will be able to operate in the Irish market from 1 November. Furthermore, we are unsure whether each country will transpose the directive in the same way or whether we will have different standards. Our Financial Regulator is being asked to rely on regulators in other countries in the matter of activities based in those countries, which is a concern.

A survey conducted by KPMG in 2004 is interesting with regard to the risk that transposition will not be carried out correctly throughout the European Union. Some 49% of companies surveyed stated the regulations would be enforced differently throughout the Union, 29% said regulators would still interpret and apply requirements differently and only 22% of respondents had confidence that the markets in financial instruments directive, MIFID, would work. This is a worrying feature.

In practical terms, as we stand currently with our Financial Regulator, if an investment house based in another country operates through the Internet, with no branch in Ireland, it is subject to our consumer code of conduct and to our money laundering legislation. However, under the new MIFID regulation, the Irish regulator will have no input and must rely on the other country providing security. The Financial Regulator informed me of this when I made contact with it.

When it comes to making amendments to the legislation, we need to incorporate a requirement to retain a consumer code of conduct and money laundering powers over companies providing services into Ireland via the Internet. We have those powers where there are branch offices and subsidiaries, but there is a weakness in the MIFID that does not give us these powers over companies operating purely over the Internet. It is critical we cover this area.

The Financial Regulator can investigate any wrongdoing it discovers in all financial investment houses operating in Ireland, whether they operate across borders or have branches here. However, it must be informed of those wrongdoings because it has no review function. This is a function that should be enshrined in the legislation on Committee Stage.

There are positive elements to the directive. Investment houses must now look after investors by finding a product to suit them. Regulations 74 and 75 of the statutory instrument deal with conflicts of interest. The issue of contracts for differences have received media attention recently. Where investment houses have a conflict of interest, for example, where they receive commission in contracts for difference from whoever is providing funding, the legislation will provide that they declare this to the investor and seek the best price for him or her. The investment advisers must look at a number of markets, whether the stock exchange or other regulated markets and find the best price for the investor and go with that.

There has been a perception that certain institutions have a vested interest in the Stock Exchange and route all transactions through it. This will no longer be the case. Customer trades will be better executed and investment companies must provide more comprehensive documentation for investors and a full audit trail.

On balance, MIFID is good, but we must protect the good regulations we already have which have been built up over many years. My greatest concern is that we will be fully reliant on other financial regulators throughout the European Union, of which there are over 20. They may have different levels and interpretations of the regulations. It is critical that the European Commission gives direction to all financial regulators on a code of conduct for cross-border exchange of information. The regulators of all member states must be provided with defined ways of exchanging information.

Statutory instrument 60, which is the primary instrument, was published last February, but the follow-up, SI 1663, was only published in the past week. This probably contains the most important element for the industry here and mentions for the first time that a code of conduct should be drawn up by the Financial Regulator. I know from speaking to people in the industry that their main concern is that the regulations are currently a grey area and they do not understand exactly how they will affect them. As a matter of urgency they would like a specific code of practice for the regulations. I call on the Financial Regulator to draw up such a code. It is difficult for people operating in the market to abide by the regulations when they do not understand fully how they should implement them.

I would like to see more resources being made available to the Financial Regulator to allow it to regulate this complex market. Over the past number of years we have had regulated markets like the Stock Exchange. However, we have also had an increase in highly sophisticated unregulated markets, particularly with the advent of the Internet. We need to strike a balance between regulating the markets and allowing for the introduction of innovative products. If we do not have a regulator with sufficient resources to regulate the situation, people will not have confidence in the market. We should allow for the development of innovative products while at the same time putting in place a regulatory mechanism which allows them to operate and gives confidence to the market.

I wish to raise an issue that arose in the Northern Rock situation in the United Kingdom. Our regulatory system is similar to that in the UK. We have a Central Bank that, effectively, provides policy and a Financial Regulator that enforces regulations. However, there is a difference between us. In Ireland, the Central Bank also regulates liquidity in terms of institutions, whereas the Financial Regulator deals purely with regulation. In the UK, the financial regulator deals with both liquidity and regulation. What happened in the Northern Rock situation is that the lines of communication between the Financial Regulator and the Bank of England were slow. If those lines had been more accessible then, once the liquidity problem hit Northern Rock, the Bank of England could immediately have contacted the Financial Regulator. However, it was slow to act and had it provided money more quickly it may have given some stability in the market. It is important that we review the lines of communication connecting the Central Bank, the Financial Regulator and the Government so they can operate in an efficient and speedy manner to ensure a situation like that involving Northern Rock can never happen.

Northern Rock took a hit as a direct result of the sub-prime market. People are of the opinion that the sub-prime market is small, worth €1 billion but growing. However, in the past two weeks Bank of Ireland has raised its mortgage interest rates for first-time buyers as a direct result of the sub-prime market because the interbank market had tightened up, meaning it costs Bank of Ireland more to borrow money. That affected ordinary people who borrowed money so we should not think the sub-prime market is divorced from the normal mortgage market — that is far from the case. I call on the Minister, as a matter of urgency, not only to bring in a consumer protection code, which he promised, but to put in place prudential measures in respect of the sub-prime market.

There is considerable nervousness in the market. Finance Ireland divested its stake in Nua Homeloans last Tuesday and its CEO said it was because of the uncertainty in the sub-prime market, which is worrying. The market is unregulated currently and it hits the vulnerable. We all know of people who get into financial difficulty and are sold products in the sub-prime market on which they are charged the exorbitant rate of almost 9.5%, well over twice the normal rate. I will push the Minister on the sub-prime market and its regulation.

I welcome the Bill but it is extremely important we, as regulator, retain control over all investment houses operating in the country. The interbank market is very much a cross-border market and I ask the Minister to amend the legislation to make certain we keep control over the operation of our consumer code of practiceand matters relating to money laundering forall financial institutions which operate inIreland.

I welcome the fact the limits for the deposit protection scheme will be increased. An EU-wide standard should be considered. It is extremely important the Financial Regulator introduces a code of practice immediately to ensure companies know what they have to do. I call on the Minister, as I did on 26 June when the Finance (No. 2) Act 2007 was going through the House, to introduce real reform of stamp duty in the budget, to make the system fairer for homeowners moving house and to return confidence to the market. It is all very well to say the construction industry needs a soft landing but going from 90,000 houses to 40,000 is not a soft landing — it is a hard, bumpy landing which we may not come out of. It is incumbent on the Minister to bring stability to the market. He must bring in measures in the budget on mortgage interest relief and, as mentioned earlier, he must look after the vulnerable, particularly those with disabilities, the old and infirm. He has a personal interest in the area and I call on him to provide funding. People have been encouraged to get into the housing market so they can trade up at a later stage. The problem is they are being sucked in without having to pay stamp duty but the minute they get in, if they want to move on, they are being screwed for stamp duty and that is diabolical. The Minister must instigate reforms in the budget to bring stability to the market.

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