Seanad debates

Wednesday, 16 June 2004

Central Bank and Financial Services Authority of Ireland Bill 2003: Second Stage.

 

3:00 pm

Photo of John BrowneJohn Browne (Wexford, Fianna Fail)

I thank Senators for their comments on the ombudsman's council. The Minister's intention is to provide for a broad balance between representatives of the financial services industry and consumers. The chairman should have knowledge or experience of consumer issues. Given its central role, it is important that the council should have the confidence of consumers and the industry. The provisions on the appointment of its members are drafted accordingly. In this regard, Senators referred to the consultative panels in respect of which the Bill obliges the Minister to consult the Tánaiste and Minister for Enterprise, Trade and Employment. In the case of the industry panel, the Bill obliges the Minister to consult with the Taoiseach due to the close involvement of the Department of the Taoiseach with the international financial services sector. The Bill also obliges the Minister to consult industry and consumer representative groups.

Senator Ross raised the issues of adequacy and fairness and asked why a limit of €5 million was being set given that a fine of this amount might not constitute sufficient punishment in some cases. Section 33AQ(4) provides that this amount can be increased by ministerial regulation if it is considered necessary. It should be borne in mind that the limit of €5 million applies only to the direct punishment inflicted on an institution which has contravened a provision of financial services legislation. The authority also has the power under section 33AQ(3) to order a refund of a charge for the provision of financial services. Based on recent history, one can easily envisage circumstances in which the cost to an institution in refunding its customers in respect of a charge incorrectly imposed could considerably exceed €5 million.

A number of Senators raised the issue of relevance to the AIB. While Senators will appreciate that I do not wish to refer to the details of matters which are currently the subject of investigations, the following aspects of the Bill and last year's Act are relevant. First, if it is suspected that a financial institution has not been complying with its obligations under legislation, the regulator may under section 23 of the Bill require its directors to report on whether they have complied with their obligations over a specified period. In such cases, the directors will be obliged to acknowledge any instances of non-compliance and if they fail to do so the auditor will be obliged to contradict them in his or her report. The regulator could also require the directors to indicate what measures they have taken to ensure full compliance in the future.

Second, if the regulator suspects that a financial institution has breached a provision of financial services legislation or an IFSRA code or direction, the provisions of section 10 can be initiated leading to the imposition of an administrative penalty. The penalties are potentially very severe. A fine of up to €5 million may be imposed on an institution and up to €500,000 on a manager who may also be disqualified from employment in the financial services sector. The regulator may also publicly reprimand an institution and order it to refund any charges improperly imposed. Third, the Central Bank and Financial Services Authority of Ireland Act 2003 imposes clear obligations on the regulator to report to the Revenue Commissioners any suspicion that a financial institution is engaged in tax evasion. The Act removed all confidentiality constraints on the regulator other than those laid down in EU law.

The financial regulator is currently carrying out a review of codes of conduct and has recently completed a process of public consultation. The purpose of the review is to ensure a consumer-focused standard of protection for purchasers of financial products and services and put in place the same level of protection for consumers regardless of the type of financial services provider they choose. It is also sought to facilitate competition by ensuring a level playing field. I understand the authority will complete its review this year and subsequently publish revised codes of conduct. In finalising its review, the authority will doubtless consider the implications of the events to which different Senators referred this afternoon to ensure the new codes are sufficiently robust.

According to the consultative document, the Central Bank and Financial Services Authority of Ireland Bill proposes to provide the financial services regulator with the power to impose sanctions on firms which fail to comply with their regulatory obligations. When the regulator has been given that power in law it intends to ensure that regulated entities understand clearly what is expected of them in terms of compliance. The authority is entering new territory with powers to impose heavy administrative penalties on financial institutions for breaches of legislation and codes of conduct. Happily, the authority can easily amend its codes in light of new developments.

We must remember that the aim is to ensure that financial institutions put systems in place to treat their customers fairly. Further developing a consumer-focused compliance culture in financial institutions rather than penalising them for non-compliance represents a major challenge. It is one the authority and the majority of financial institutions have shown a willingness to meet head on.

I thank Senators for their contributions. I am sure the points they raised will be further considered on subsequent Stages.

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