Kieran O'Donnell (Limerick East, Fine Gael)

I welcome the general thrust of the amendments. My colleague, Deputy Richard Bruton, has touched on most issues, although I would like to have clarification as to what is being paid to the pension fund.

The Minister is considering regulation of the sub-prime market, which is welcome. However, the Minister's speech gives no sign that prudential measures are being introduced for this area. My understanding is that this area might be regulated when the Minister returns to deal with the Central Bank Act 1997. Nevertheless, it is important that a level of comfort is given to borrowers.

The section being amended, which refers to resources, is not specific enough in terms of prudential measures. While there is an argument that this is not as necessary for institutions which do not hold deposits, this does not stand up in light of the Northern Rock case. When major difficulties arose in the sub-prime market in the US towards the end of July, this indirectly led to Northern Rock getting into trouble. Northern Rock's business predominantly concerned deposits but it was also in the mortgage business and would go to the interbank market to borrow funds to lend on to mortgage holders. However, when banks became wary due to the situation in the sub-prime market, this led to a crisis of confidence and money was no longer available on the interbank market for Northern Rock to borrow. Hence, the bank got into trouble. It is extremely important that there is prudential measures to ensure the financial base of the sub-prime market is strong, given the doubts with regard to the type of loans sub-prime institutions are making.

When the Minister brought the Bill through the Dáil on Second Stage in early October, he stated he was examining the deposit protection scheme and that it was being reviewed at European level. The UK is taking its own strides in terms of introducing a higher level of mortgage protection. We should follow suit and move ahead of Europe given that this is a very important issue.

SI 20 is the main statutory instrument in this regard, although there is also an amended statutory instrument, SI 663. Regulation 20 states that the Central Bank should introduce a code of conduct to allow the various investment houses throughout Ireland to know how to implement the Markets in Financial Instruments Directive. The word "may" is used but it should read "must" or "shall". The biggest worry in the industry is the lack of knowledge as to how it is supposed to implement the directive. The Central Bank is relying on the European model but it is important that we would reconsider the Bill with a view to amending the statutory instrument, if that is in order, to make it an obligation for the Central Bank and Financial Regulator to produce a specific code of conduct for all investment houses.

Section 123 of the original SI 60 deals with regulation of cross-border activities. For an investment house that has no branch in Ireland, the Financial Regulator relies on the home country to provide assurances on issues of financial regulation. However, if the investment house has a branch in Ireland, it must provide further requirements and is subject not only to the code of conduct but also to the money laundering regulations and it must provide details in respect of its investment compensation scheme. That does not appear to be a requirement for an institution based in another country which does not have a branch in Ireland. I am concerned a situation will arise where the Financial Regulator will have no inspection or supervisory role in dealing with investment houses trading in Ireland which might be doing significantly more business than a bank with a branch here. It is an issue we must consider. I understand the necessary powers may be available under Part V of the Central Bank Act 1997. It is important that these powers are copperfastened, either through further amendment to the Bill or the introduction of regulations. This would provide comfort to customers of such institutions.

The purpose of the Bill is to protect consumers and the changes I seek would provide additional consumer protection. It is vital that the deposit protection limit is increased. Customers of sub-prime lenders and companies which trade through the Internet and do not have branches here must be offered protection and assurance that the institution from which they are borrowing is sound. We do not want a sub-prime lender creating panic in the interbank market or causing a recurrence of the problem experienced by Northern Rock.

While, on balance, this is a good Bill, I ask the Minister to consider the issues I have raised. I look forward to exploring them further on Committee Stage.

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