Charlie McCreevy (Kildare North, Fianna Fail)

I welcome the opportunity to address the House. During the past two weeks we have seen what is perhaps a first test of the new regulatory structure for financial services that was put in place last year. This new structure, which brought the financial services regulatory activity of four different bodies into a single new authority, the Irish Financial Services Regulatory Authority, IFSRA, was established by the Central Bank and Financial Services Authority of Ireland Act 2003. That Act rationalised the regulation of financial services and, in doing so, placed consumer issues at the heart of financial regulation in Ireland.

IFSRA has a dedicated statutory position of consumer director and the Government has allowed it the resources to greatly expand the focus on consumer issues in financial services. Members will have seen the difference this new structure has made in the regulatory reaction to the recent events at AIB. The regulator has been open and forthright in dealing with the issues which have arisen and has truly been the consumer's friend in the matter. Actions speak louder than words and the evidence of both the Government's and IFSRA's actions contradicts the assertions made by some people last year that IFSRA would be uninterested in the consumer and that the Government was more interested in protecting institutions than in protecting the consumer.

I wish to comment on some of the things IFSRA has done in the 12 months since it was formally established, arising from its new statutory remit. As regards consumer protection measures, the financial services regulator has taken a number of initiatives, namely, independent consumer guides on mortgages, savings and investments and personal loans and credit have been published; costs surveys on motor insurance, personal current accounts and credit cards have also been undertaken; a consumer helpline, information office and website have been established; the consumer director monitors the market and co-operates with the Competition Authority where appropriate; to ensure that financial service providers act in a fair and transparent way, IFSRA has supplemented pre-existing codes of practice by issuing an interim code of practice to guide the activities of insurance companies, mortgage intermediaries and moneylenders; a comprehensive review of all codes of practice has commenced and three consultation papers have been published in regard to conduct of business, the marketing and sale of tracker bonds and the mandatory competency requirements of financial service providers who deal with consumers; in order to foster safe and sound financial institutions in a competitive market, new client money requirements that apply to investment firms and stockbrokers have been amended and new money laundering guidance notes lave been issued; and new governance requirements for stockbrokers were introduced and the financial service regulator's staff are assisting my Department in reviewing client asset legislation.

This is a substantial list of actions taken or under way in IFSRA. The Government's actions will also continue to speak for themselves. Last year was the time for a radical overhaul of the institutional structures for financial services regulation. This year, we are in action again with a second, complementary, item of legislation which will give further powers to IFSRA to protect consumers and the financial system. Earlier today in the Dáil we considered Report Stage of this Bill, under which IFSRA will be given powers, with appropriate constitutional safeguards, to apply financial sanctions to miscreant financial institutions and also, in certain circumstances, to individuals within those institutions. For institutions, the penalties proposed can be up to €5 million. Individuals may be disqualified from working in the financial sector.

In addition to the penalties provisions, the Bill provides for significant additional powers for IFSRA to require formal statements from institutions in regard to their compliance with legislation, that is, compliance statements, on which IFSRA may also require sign-off by auditors. This provision will be in addition to provisions of the Companies (Auditing and Accounting) Act 2003 which will impose an obligation on the directors of companies to prepare and publish a directors compliance statement. The legislation currently before the Dáil will put the ombudsman system for financial services on a stronger footing, ensuring for the first time that there will be a single scheme serving the whole range of financial services consumers, operating on a statutory basis.

I will now deal with the AIB affair. Among the responsibilities transferred to IFSRA under the 2003 Act were the functions which formerly rested with the Director of Consumer Affairs under section 149 of the Consumer Credit Act 1995. This Act required credit institutions to notify the director of their charges. However, it did not make a failure to notify correct amounts to the director an offence.

IFSRA is carrying out a serious and detailed investigation and we should not prejudge the facts until it is completed. A team of senior inspectors has already advanced its work and, as a result, IFSRA has established that it should be possible to identify from records at least two thirds of the customers who have been affected by incorrect charges.

Naturally, the focus of the IFSRA investigation is initially concentrated on identifying the amount involved and the customers affected. The next phase of the IFSRA investigation will involve finding out how this could have arisen in the first place and then persisted over an eight-year period. It will also identify whatever measures need to be taken to address the issue.

IFSRA has also agreed with AIB that a €25 million deposit will be made with the Central Bank to cover anticipated costs of reimbursing customers, including interest. An independent investigation has also been set up. I note that this investigation has been set a very tight deadline for reporting of mid-June, which I think is right. The public needs the reassurance of knowing that this matter is being pursued vigorously and that remedial measures are being put in place.

As regards ongoing official policing of the 1905 Act provisions, I understand there is a spot-checking system in place and the majority of these spot checks have concentrated on foreign currency cash transactions. These account for the vast majority of foreign exchange transactions carried out by consumers. Random checks do not pick up everything, and I understand the IFSRA will consider any changes to the regulatory procedure required following its investigation in the current case.

The chief executive of IFSRA stated: "This case, I believe, clearly demonstrates that we do have powers and we are willing and able to use them on behalf of the consumer." However, he has noted a desire that IFSRA would have additional powers to levy penalties or sanctions in appropriate cases. As I have already outlined, the Central Bank and Financial Services of Ireland Bill 2003 is currently before the Dáil and will address these issues.

I have also tabled Report Stage amendments to the Bill currently before the Dáil which will ensure that in addition to the new penalty powers of IFSRA, breaches of the bank charge provisions of the Consumer Credit Act may also be treated as an offence, with all that this entails.

In human institutions, mistakes will sometimes occur. Banks need to ensure they have compliance and monitoring systems in place to minimise the number of mistakes and to identify those mistakes when they happen. They must also be fully committed to compensating consumers who lose out, must be open in their communications with the regulator and must foster a culture of openness, professionalism and fair dealing among their staff.

I turn briefly to the question of mis-selling of financial products. There is public concern about the way banks sell their products. Some cases have been highlighted in the media recently about situations in which elderly customers have purchased products that seem on the face of it inappropriate for them. As with any product, customers need to be vigilant at all times. Banking products are complex, but independent information is increasingly available from the regulator. I accept it is not always possible for all consumers to assess the risks involved in the more complex products, or right to expect them to do so. Banks should have procedures in place to ensure that products are not mis-sold. This is something the IFSRA is actively examining.

IFSRA will set new and additional standards for banks in this area. These standards will be embodied in new codes of practice being developed following the public consultation process, which recently concluded. If a regulated entity ignores or breaches those codes, the regulator will be able to penalise it. When consumers feel they have been mis-sold a product, they will be able to go to the statutory financial services ombudsman for redress.

To sum up, a great deal has been happening recently in regard to financial sector regulation. The Government has sponsored legislation, enacted last year, to establish IFSRA, which is already proactively managing the situation that has arisen in AIB. The Government has, through the legislation, considerably extended the consumer protection and education functions of IFSRA and has allowed it the resources to carry out those functions. Further legislation is already on Report Stage in Dáil Éireann.

We should await the results of IFSRA's detailed investigation before drawing final conclusions on the particular case, but it is clear that IFSRA has in its first year taken a significant number of actions to protect consumers and the financial system, and additional work continues.

We must all, Government, Oireachtas, regulators and financial institutions, learn the lessons that will emerge from the AIB case and from other issues that come to light in order to provide greater safety and reassurance to the financial services consumers. The Government is determined to do its part.