Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I am pleased to be able to respond to this question in the absence of the Minister for Finance, who is in Luxembourg to chair the Eurogroup Finance Ministers and the ECOFIN Council tonight and tomorrow.

We have now had a series of announcements by AIB and the Irish Financial Services Regulatory Authority, IFSRA. These cover a range of matters from foreign exchange charges to transactions at AIB Investment Managers in the early 1990s. It is clear that every bank has a duty to ensure that regulations are complied with and client moneys are handled appropriately. Lapses of control and improper practices of the kind which have been reported are simply unacceptable. These are serious matters that must be addressed in a serious and systematic manner through the application of the investigative powers available to the appropriate regulatory agencies.

Deputies are aware that IFSRA is involved in a substantial investigation of the Faldor foreign exchange overcharging matters, and that other investigations are ongoing. As always in such cases, we should await IFSRA's investigation before drawing any final conclusions. We all want customers to be recompensed. We want bank systems to be fixed, all relevant regulatory authorities to be informed and disciplinary matters and any offences which have been committed pursued.

Specific breaches or failures are one thing, but we must strive to ensure an appropriate culture of compliance within financial institutions. I understand that IFSRA is determined to ensure that the highest standards apply in financial institutions and, if issues of general culture or compliance practices at a general level need to be investigated and corrected either in AIB or any other institution, this will be done.

It is therefore important that the various investigations continue to their conclusion. It is also important that we continue with the very considerable progress made in recent years in the regulation of the financial sector. In particular, Deputies will be aware that, following the enactment of the Central Bank and Financial Services Authority of Ireland Act 2003, there is a second, complementary Bill before the House. Last year's legislation radically changed the structure of financial supervision in Ireland, establishing IFSRA and bringing together a range of supervisory functions that had previously been spread over four separate institutions. It also made much improved arrangements for co-operation between regulatory bodies such as IFSRA and the Revenue Commissioners, and we are seeing the fruits of this in recent events.

This second piece of legislation — on which Report Stage will be resumed today — will make available to IFSRA new powers to impose stiff administrative penalties following an inquiry process. These penalties can be applied where there is breach, for example, of any financial services legislation, codes of conduct issued by the regulator, or any condition, requirement or direction imposed under legislation or codes. Penalties available will include the issue of a reprimand, orders to refund charges improperly applied, monetary penalties of up to €5 million and orders to pay the cost of the investigation. Most importantly, individuals may also be subject to penalties. A senior manager might be disqualified from employment at management level in the financial services sector and a monetary penalty of up to €500,000 might be applied.

This new Bill will also give the regulator considerable powers to require compliance statements from financial institutions. These statements will be in addition to those to be required under recent changes to company law. The current Bill will add to consumer protection, in particular by establishing for the first time a statutory financial services ombudsman scheme and by establishing consultative panels to allow IFSRA to consult consumer as well as industry interests more easily. New offence provisions are also being added on Report Stage regarding bank charges.

The financial services industry is important to this country. It delivers jobs — often of high value — both directly and indirectly to many thousands of individuals. It delivers tax revenues, and its success helps to attract other industries and investments to our shores. The economically important nature of this industry makes it all the more important that it maintains its reputation for high standards and integrity in its dealings, and the financial institutions in Ireland should contribute to that reputation.

There will be lessons to be learned from the issues that have arisen at AIB. These will have to be taken on board as appropriate by the financial institutions concerned, banking institutions and their shareholders, IFSRA and the other regulatory agencies, and the Government and the Oireachtas.

Dan Boyle (Cork South Central, Green Party)
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The Minister for State may not be aware that there has been a discussion today at the Joint Committee on Finance and the Public Service. The Governor of the Central Bank pointed out that in the period that the most recent revelations apply, 1989 to 1996, there was no effective regulation in place for subsidiaries, including the subsidiary involved — AIB Investment Managers Limited. Does the Government not fear that other financial institutions might reveal similar stories of how they have dealt the issue during that period?

Regarding the Government's attitude towards general remuneration packages, it seems that executives of banks not only expected handsome remuneration packages but also perks and privileges packages on top of that. Is this an area that needs to be regulated or even legislated for in future, given the expectations that seem to exist for people in the highest position in the banking industry?

Does the Minister accept that the Government has made a fundamentally flawed approach in the way that it has brought forward both the original Central Bank and Irish Financial Services Authority Act 2003, and the current Bill that is on Report Stage? We have a farcical situation with a regulatory authority that can identify problems which exist but seemingly has no real powers to deal with those problems as and when they arise.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I do not accept that the legislation is inadequate. It is important we continue with the progress made in recent years on regulation. Following the enactment of the Central Bank and Irish Financial Services Regulatory Authority Act 2003, a second, complementary Bill is before the House. Last year's legislation radically changed the structure of financial supervision in Ireland, establishing IFSRA and bringing together a range of supervisory functions which had been spread over four separate institutions. It also made much better arrangements for co-operation between the regulatory bodies and the Revenue Commissioners, and we are seeing the fruit of that in recent events. Far from the initial measure being defective, as canvassed by Deputy Boyle, the measure we have already adopted was one of the reasons we have made progress and the reason these events have come to light.

The second Bill, Report Stage of which will be dealt with in the House this afternoon or this evening, will make available to the authority a more comprehensive set of penalties. I accept the Deputy's point that the penalties will be stiffened in this legislation, and that is a welcome development, which can be applied in appropriate cases. It will also give the regulator considerable powers to require compliance statements from financial institutions and these statements will be in addition to those required under recent changes to company law. Moreover, the current Bill will add to consumer protection, in particular by establishing for the first time a statutory financial services ombudsman scheme and consultative panels to allow the authority more easily consult consumer as well as industry interests. New offence provisions are also being added on Report Stage in respect of bank charges. The regulator and the Government have been very active in carrying out their respective roles in regard to the financial system.

The second issue raised by Deputy Boyle related to the question of remuneration and fringe benefits, which are often accorded to senior bank employees and staff on their retirement. I take it that was the point raised by the Deputy.

Dan Boyle (Cork South Central, Green Party)
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Early retirement?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Or on early retirement, as the case may be. These are matters for the Minister for Finance to consider in the formulation of his budget and in the submission of proposals in a Finance Bill on an annual basis.

On the question of whether other subsidiaries may have been involved, that again is a matter for the investigative authorities. What we have seen is of deep concern and the Government is determined to take action.

Richard Bruton (Dublin North Central, Fine Gael)
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Does the Minister of State believe it would be useful to have a rapid probity check within AIB, carried out by IFSRA, which would give us assurances that the compliance systems, as of now going forward, are adequate? That is a separate issue from the necessary investigation of the malpractices that have been turned up. I would like to hear the Minister of State's view on that.

Also, after Ansbacher, Rusnak and all the other scandals, why did the Minister's regulators not ensure there was the internal compliance within AIB, and perhaps in other banks, that was necessary to highlight these sorts of problems? In 2002, the Central Bank, immediately after the Rusnak scandal, requested that such procedures be put in place. Why did the regulators not guarantee that they were robust?

In the final part of the Minister of State's reply he said there will be lessons to be learned and he hoped they will be acted upon by the Oireachtas and others. What procedure does the Minister of State propose to put in place for the unfolding of these lessons to ensure that the Oireachtas can act upon them? Will there be some formal procedure whereby this occurs?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I do not quite follow the last issue raised by the Deputy.

Richard Bruton (Dublin North Central, Fine Gael)
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For example, some have suggested a banking commission. If it was just another report it would not commend itself to me but if action is to be taken they need to be quickly identified and a procedure for acting on them put in place.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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On whether there is a need for a banking commission or forum, the Minister for Finance has no plans for such a commission. The investigations under way into the Allied Irish Banks issues need to be completed as speedily as possible so that all the interested parties — the institutions concerned, the regulators, the Government and the Oireachtas — can take the appropriate steps based on the lessons learned.

On the issues about previous difficulties that have arisen with the bank, and two celebrated episodes were referred to by the Deputy, the Oireachtas put legislation in place last year to empower the authority and the regulator to deal with this matter.

On whether compliance systems and probity checks should be put in place, we have to see a rapid conclusion to this investigation before we draw conclusions from it. In any event, it is a matter in the first instance for the authority and the regulator, not the Minister.

Joan Burton (Dublin West, Labour)
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Is the Minister of State aware of the statement made to me by the Governor of the Central Bank at the Joint Committee on Finance and the Public Service this afternoon that until 1996 or 1997, Allied Irish Banks Investment Managers, AIBIM, was an unregulated entity? Has the Minister any plans to order a look-back in respect of such unregulated entities in the banking sector such as AIBIM, which handles the pension funds of many workers, as do similar subsidiaries of other banks? Will the Minister intervene to ensure a look-back takes place in respect of the activities of these unregulated entities, as described by the Governor of the Central Bank, and what are the taxation implications? Apparently, the Central Bank had no knowledge of Faldor because it was a vehicle connected to an unregulated entity. That is an astonishing disclosure.

Rory O'Hanlon (Cavan-Monaghan, Ceann Comhairle)
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The Deputy should confine herself to questions.

Joan Burton (Dublin West, Labour)
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Will the Minister comment on this disclosure by the Governor of the Central Bank and in what way do the Government and the Minister propose to address this astonishing lapse?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The Revenue Commissioners announced yesterday that they have commenced a full investigation of all tax matters arising from recent disclosures regarding the AIB Group and related entities and individuals. The team is led by the Revenue's investigations and prosecutions division and it includes officers from the large cases division. That Revenue investigation is under way.

Joan Burton (Dublin West, Labour)
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I asked about the Central Bank, which is the regulator, having identified unregulated entities which were in existence up to 1996 or 1997. Does the Minister propose that the Central Bank should specifically look back at the activities of such unregulated entities? The actions by the Revenue Commissioners are welcome but they do not address the job of the Central Bank in this regard.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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In fact, IFSRA is the appropriate regulatory body until the legislative——

Joan Burton (Dublin West, Labour)
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No, I am talking about the time——

Rory O'Hanlon (Cavan-Monaghan, Ceann Comhairle)
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The Deputy should allow the Minister of State to reply without interruption.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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IFSRA has done a good deal of work in the 13 months since it was formally established, arising from its new statutory remit. I will not give the House the entire list of the work it has done but it is substantial. The various actions taken today clearly demonstrate that it has powers, and it is willing to use them on behalf of the consumer. The chief executive of IFSRA has said that already.

I understand the actual series of events was that IFSRA, having held a meeting of the authority on Wednesday, 26 May, made a public statement on the matter at 4 p.m. on Thursday, 27 May. While AIB alone is responsible for its public statements on this matter, I understand IFSRA strongly encouraged AIB to make a public statement. The matter is under full investigation by the appropriate authority, which has authority in this matter. If there are other matters involved, they will be investigated as well.

Joan Burton (Dublin West, Labour)
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Not according to the Governor of the Central Bank.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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Will the Minister of State advise the House if he has any concerns about the recent revelations regarding Allied Irish Banks, all of which have arisen as a result of the activities of whistleblowers and not as a result of the regulatory authority's work in uncovering bad practice, illegal activity or whatever may be the case within any of these institutions? Would it not give rise to further concern about the level of regulation and the powers of IFSRA in this regard? In light of the Bill we are about to address shortly in respect of Report and Final Stages and given the advent of these revelations, is the Minister of State not concerned that the Bill does not go far enough in respect of these matters?

In response to Deputy Boyle earlier the Minister spoke of penalties. Given the practice heretofore, which is already signalled with regard to the €25 million lodged by AIB with the Central Banks for excess charges for foreign exchange transactions — a conservative figure which will inevitably grow——

Rory O'Hanlon (Cavan-Monaghan, Ceann Comhairle)
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Does the Deputy have a question?

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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Given that fines and penalties imposed on financial institutions inevitably make their way to the consumer, is the only way to root out these practices not to make the people responsible for drawing them up and for ordering, arranging and conducting them, individually accountable for the abuses? Otherwise they will be covered against personal penalties in perpetuity. The financial institutions——

Rory O'Hanlon (Cavan-Monaghan, Ceann Comhairle)
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The Deputy must confine himself to questions.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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——are not bearing any serious burden by virtue of the penalties that are likely to apply, just as happened with the DIRT situation. Should penalties not be applied to the functionaries of the banks? Is that not the only way of rooting this out?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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That is a matter which can be examined during the debate on Report Stage of the Central Bank and Financial Services Authority of Ireland Bill. The Bill provides for disqualification of individuals, as the Deputy is aware. Investigations are ongoing regarding the issues which have arisen in AIB. I do not wish to comment on individuals. There are internal disciplinary proceedings in AIB which should not be prejudiced.

As Deputies are aware, IFSRA has made it known that it will be reporting publicly on the outcome of its investigation. It will then be a matter for AIB to take the appropriate action regarding any of its staff who are involved, bearing in mind its legal and commercial obligations and its public reputation. IFSRA is involved in a substantial investigation of the Faldor and foreign exchange overcharging matters. We must rely on IFSRA to design its investigative process to focus on the important issues. IFSRA is determined to ensure that the highest standards apply in financial institutions, and if issues of general culture or compliance practice at a general level need to be investigated and corrected, in AIB or in any other institution, this will be done.