Shane Ross (Independent)

I welcome the Bill in a limited way. The speeches made on the Bill and the reactions of Members of the House are, understandably, a response to recent revelations about AIB. However, if one returns to first principles of regulation of the financial services sector one finds that the Bill is lacking in the kinds of solutions needed for what is a large and fundamental problem.

I say this because the principle benefit flagged in today's debate is the penalties the Bill gives to the Irish Financial Services Regulatory Authority. I am doubtful about the value of those penalties. I see a virtue in plugging a gap in the original Bill by giving powers to the regulatory authority to punish those who offend the consumer in the ways we have seen. It looked somewhat ridiculous in certain instances where consumers were offended and ripped off by various banks and branches when the regulator, who was then the Director of Consumer Affairs, went into various banks which had offended in serious ways, ticked them off, got them to remedy the situation and then found that she could do absolutely nothing about the situation by way of penalties or prosecution. We are all responsible for allowing the 1999 Act to go through without that sort of penalty.

In Dublin Airport I spotted that a bank was doing something illegal. I complained to the Director of Consumer Affairs about it and it was found that the operation, a company called ICE, had taken either $21,000 or £21,000 from consumers over a very short period. The Director of Consumer Affairs forced ICE to remedy the situation and to close the gap, which was too wide and illegal, between the buying and selling prices.

They paid the money to charity, a suitable remedy. However, no penalty could be imposed on them and no prosecution could be taken against them. That was unsatisfactory. I was surprised to learn, because I thought I was well versed in such matters, that no action could be taken against them and that the money was then voluntarily donated to various charities.

The Bill remedies that type of situation. However, the penalties will not in any way act as a deterrent to banks intent on ripping off the public, as most of them are. I will explain my reasons for saying so. The great advantage of being a bank on which a penalty is imposed for the committing of an offence is that it can be paid off with other people's money. It is a simple advantage which arose in the case of DIRT taxes and others. The major offender in the DIRT tax case was AIB although the Bank of Ireland was also an offender. What happened to them in that regard was that they willingly and happily paid up vast sums of money — AIB paid €90 million while Bank of Ireland paid €30 million — the most painless penalties ever imposed. If the Minister or I were to commit parking offences in a company car and the company continuously paid the clamping fees and so on, we would not be too worried about committing that offence if we did not get ticked off about it and we retained our jobs. I cannot recall the maximum penalties which can be imposed under this legislation but I do not believe they are punitive to a bank. In the current situation, the bank will be paying with shareholders' money. Nobody cares all that much about other people's money.

It does not make sense to include a protection which states that the penalty should not be so high as to cause the bank any financial difficulties. That is simply saying that the amount must be one which is relevant to the bank. That causes a bit of a problem for us because we are continuously reminded in this and the other House that the argument in this regard must be balanced. We must continuously balance consumer interests with the interests of having a sound and secure banking system. Therefore, we cannot impose on the bank a penalty which would shake its foundations or solvency. I understand the maximum penalty that can be imposed under this legislation is €5 million for a body corporate, a pittance to a major bank. It is a laughable amount which will not threaten banks, result in anybody losing a night's sleep or be a deterrent to banks engaging in any of the malpractices in which they have willingly indulged. A €5 million penalty when one is making profits of several million every day is a small amount.

The argument continuously made by those in Government — it is extraordinary how the knee-jerk reaction between Government and Opposition changes in this regard — is that nothing must be done to threaten the Irish financial system. The Irish financial system is not threatened by anything that has happened in recent times. The offences uncovered have been a gross embarrassment to one bank in particular and, by association, to some others. The idea that the solvency of banks has been affected is nonsense. That has not happened. The only thing that will happen is that they will have to repay the money. There has not been a run on the bank's shares, something which could provide an indication of what might happen. I and others expected that when the continuous drip of bad information regarding AIB came out there would be a signal from abroad of lost confidence in AIB resulting in the selling of shares by overseas shareholders. However, there is no evidence that has happened even though the overseas shareholders could sell their shares as a protective measure.

Let us lay the myth that the banks are threatened by anything that is happening or that we might do. That is not true. The provision of greater rather than smaller penalties for such offences would result in more confidence among overseas investors in the financial services sector. I do not believe a mega-scale type problem exists regarding the primary or secondary solvency ratios for the banks. They are the markers at which people from overseas look. There is a problem of credibility, for customers and for AIB. Where will young people wishing to open a bank account go now? They will quite rightly think twice before going to AIB because of their fear of being ripped off. That is fair game. That will happen given the events of the past few weeks. However, such issues will not threaten the solvency of AIB or anybody else. That argument should not enter into today's debate.

The Irish banks solvency ratios are strong, share prices have remained strong throughout the crisis and there is no threat whatsoever. Therefore, they should not be treated with kid gloves, as is happening here today with the introduction in this Bill of small penalties. They should be treated far more severely. A problem arises in terms of the fundamental attitude of IFSRA. Let us not condemn it at this stage but let us issue one or two warnings about it.

The Irish Financial Services Regulatory Authority was set up following a row between the prudential and consumer sides regarding who would assume overall charge of the sector. There are may serious questions which must be asked of IFSRA. IFSRA was welcomed by the public following the split between the prudential and consumer divisions of the Central Bank. It was hailed as the saviour of the consumer. The case can be made that IFSRA let down the consumer in this instance. That is not a helpful thing to say but we are not here to say helpful things. We must not ask what IFSRA is doing now these offences have been discovered but why it did not discover them.

IFSRA was set up to regulate and, if one likes, to interfere with, inspect and examine our financial services on behalf of the consumer. However, not one of the many serious revelations, damaging to the consumer, was discovered by this regulatory body. What we have seen is a reactive body coming in heavy on the bank once offences were identified. What is worse is that this practice was endemic in one particular bank and not one of the 90 people involved in the retail section of IFSRA spotted it. It should have been reasonably easy to work out whether AIB foreign exchange rates coincided with the amount it should have been charging. The offence lay in the fact that they did not coincide. One wonders what IFSRA was doing in its checking. Why did it not spot the activities of the British Virgin Islands company, Faldor, in the case of the people at the top of AIB? One must ask whether IFSRA considers it to be in its remit to look at the top people at all. If a bank is being regulated, it does not just mean regulating its charges but ensuring that people are not on the fiddle as well. It means ensuring employees are not taking advantage to the detriment of the consumer or the shareholders.

This is a very serious problem for the new regulator. If the new regulator is very hot on penalties and reaction and very good on public relations, as it has been, but never finds out anything that is going wrong, it will invite people to continue with the jiggery-pokery that was taking place but to cover their tracks a little more carefully. This is a real danger. The lesson to be learned from the latest scandals is that if somebody wishes to indulge in illegal practices in a bank, there is really nobody to stop him.

It appears there is a culture in at least AIB in which nobody really blows the whistle on anybody else. It is absolutely inconceivable that a large number of people did not know exactly what was taking place. I refer to everyone from top to bottom because there was significant malpractice at the top in the case of Faldor and malpractice at the bottom in the case of the consumer abuses. That people were turning a blind eye to the malpractices means there is a real culture problem extending from top to bottom in AIB, dictated and approved by the top and practised by people throughout. However, the regulator, which was in office for 12 months, spotted neither form of malpractice for some reason. This is a sobering thought and the problem will not be resolved by just whacking those involved on the heads with a penalty of €5 million. This sounds like an awful lot but is actually a pittance. Will the Minister take this thought away with him and respond to it in his reply?

The second area which I find so difficult to tackle and which this Bill does not tackle adequately is financial services, about which I can speak with some experience because I worked in the area for many years. The biggest enemy of the consumer is ignorance. The capacity of people to throw their money at institutions and request that they do what they like with it is quite staggering. I noticed it when I was a stockbroker and saw it in other areas. It is quite stunning and people still do it. One could place advertisements in the newspapers and, regardless of what they state, hundreds of thousands of euro would come into one's bucket shop the next day. People are almost relieved to find others who say they know what to do with their money. That is a serious human problem which we must resolve. I notice it specifically in areas that have been tackled by various regulatory bodies.

Consider tracker bonds in this regard. The appetite for tracker bonds in Ireland is quite stunning at present. However, if one challenges somebody to state how they work, he will not be able to tell one. They are the most complicated possible instrument one could imagine, involving some very sophisticated transactions with derivatives that nobody understands properly except those who have created them. What happens is that they are sold as absolutely riskless on the basis that people will get their capital back. They understand the message that they will get their money back — they probably will — but they do not understand very much else.

If IFSRA is to mean anything and if it is to have a long-term mission, it should explain to people who have small amounts of money that they are putting their money in great danger wherever they put it. The financial world is full of high-risk counterparties, as they are called, whereby one is not guaranteed any return at all. There is always a very large health warning on all these particular instruments. Some, of course, are less dangerous than others, Government bonds being an example. Even Irish Government bonds have little risk attached at present. People can certainly avail of them but it is important that they understand how they work and that they will only get back 3% and that the possibility of capital growth is virtually zero.