John Gerard Hanafin (Fianna Fail)

The financial services industry in Ireland employs approximately 50,000 people and if our indigenous industry is the backbone of our economy, the financial services sector is the nervous system. Over the years, certainly throughout my lifetime, we have witnessed very significant changes to the financial services sector, many of which have been very positive. The development of the credit union movement, the development and evolution of the building society movement and the development of the banking movement and the dockside centre have all been positive.

Along with these changes there has been regulation, some of which was very necessary. Some time ago, we needed to regulate the APR because people needed to know the real rate of interest they were paying. Charges were hidden but existed nevertheless, including application fees, processing fees, etc. Institutions levied any fees they liked to obtain some money. We regulated and did a good job because it is now law that institutions must show all their charges. There are other ways in which we ensured the financial services sector was better regulated. We did away with redemption fees, which are criminal. Why should somebody have to pay a six month redemption fee because he is in a position to clear his mortgage early? There is no sound basis for it.

The evolution of the financial services sector has been positive, by and large. We should consider the building society movement in early 1960 and the credit union movement set up in Derry by John Hume, bearing in mind how many it has helped and employed, how many businesses it has started and how many holidays, cars and houses it has helped to provide. These developments have all been very positive.

This Bill represents a further enhancement for the consumer but there are still serious problems in the industry. Senator Ross alluded to malpractice associated with Faldor and AIB. It is very difficult to comprehend how those in privileged positions, who have so much and so many perks and of whom so much is expected, would have offshore accounts of the kind in question.

I wish to refer specifically to offshore accounts. There is considerable talk about and finger wagging at people holding offshore accounts. However, there is a major difference between a person claiming to live in Jersey, whom members of the bank staff knows lives down the road, asking to open an offshore account and a bank recommending that a customer should have an offshore account, which is what happened. People were actively sold offshore accounts by their banks and financial institutions.

We must address the issue of foreign exchange overcharging and repayment protection being sold to those holding mortgages, which were unnecessary charges on people. This is why we introduced the Central Bank and Financial Services Authority of Ireland Act 2003 and this Bill further enhances that Act. The Bill provides for the establishment of a financial services ombudsman, to deal with consumer complaints about financial institutions; the establishment of consumer and industry consultative panels to advise the regulatory authority; new reporting and auditing obligations for financial institutions; power for the regulatory authority to impose penalties on financial institutions for failure to comply with regulatory requirements; a right of appeal to the appeals tribunal over certain supervisory decisions of the authority; new regulatory requirements for money transmission and bureaux de change businesses; and miscellaneous other amendments to financial services legislation.

On 1 May 2003, the financial services regulator was formally established. The structure, which established the regulator, is virtually unique in Europe. As well as bringing the regulation of all financial services into a single organisation, it combines two distinguishing features in one organisation. The mandate puts consumer protection at the heart of regulation by integrating, defending and promoting the interests of consumers ensuring that financial institutions behave correctly in their dealings with consumers and ensuring the safety and soundness of the financial institutions. This enables a free flow of information to the benefit of all and an intelligent integrated approach that balances the different pressures. The alternative of megaphone policy-making between separate institutions has already been shown to be ineffective

On a deeper level, prudential supervision, often dismissed as protecting the rights of investors, is often misunderstood in that it safeguards the funds of depositors, investors and policyholders who are themselves consumers. This is well known to the clients and consumers of failed financial providers. The financial services regulator is independent in its function with its own independent board and management. It is also formally linked to the Central Bank through the now overarching Central Bank and Financial Services Authority of Ireland. This again enables a free flow of information between the prudential supervision arm of the financial services regulator and the financial stability arm of the Central Bank, which in turn links with Ireland's membership of the European system of central banks.

The approach to consumer protection is to: provide accessible information to the consumer, which encourages the proper functioning of a competitive market; monitor competition between providers and work closely with the Competition Authority; agree and enforce codes of conduct for providers; provide help to consumers with problems and complaints; and approve and monitor a range of bank charges. The approach to prudential supervision is to emphasise the responsibilities of boards of management to uphold the principles which underpin safety and solvency in a fair market, for which probity and integrity of key personnel are prerequisites; and ensure the processes and systems adequately monitor and report risk and carry out regular reporting and on-site inspections.

The mandate also includes the regulation of Ireland's 438 credit unions, registered under the Credit Union Act 1997. The credit union movement is one of the most important parts of the national financial infrastructure and serves the needs of more than 2 million members. The financial services industry is a vital component of the Irish economy and of Irish society. It is therefore in all our interests for it to be competitive. As well as employing 50,000 people in banks, building societies and insurance companies and contributing significant tax revenue, it represents the central nervous system of the economy and is an important element of our international image and reputation.

The financial services industry must be accountable to the public and us, the elected representatives; be open transparent and accessible; benchmark itself continually against best international practice; and provide ongoing value for money.