Paul Coghlan (Fine Gael)

I welcome the Minister of State to the House and thank him for his overview of the Bill. From a standing start in 1989 Ireland has developed into a significant international jurisdiction for the domicile and administration of international investment funds and is now recognised as one of the leading international fund jurisdictions.

It is worth noting just how valuable the investment funds industry is to us. It employs approximately 6,500 people directly in industry companies and an additional 1,750 people in direct employment in the professional advisory firms. Many more indirect jobs have been created in IT firms and other service providers. Employment levels in industry companies are forecast to grow by 15% during 2005 with a corresponding increase in employment in the professional advisory firms. In excess of 1,000 people are employed outside Dublin and as the industry grows the proportion of industry employment outside Dublin is increasing. The investment funds industry is the single largest employment creator in the international financial services industry in Ireland and a significant contributor to the Irish economy.

All investment funds established in Ireland must be authorised by IFSRA and the investment manager of the fund must be approved by IFSRA. In addition, the other service providers to the fund, notably the fund administrator and custodian or trustee, must be based in Ireland, must be approved by IFSRA to act as such and are subject to ongoing supervision by IFSRA. The level of fund regulation in Ireland sets a much higher standard than is in place in other fund jurisdictions. This is a major guarantee and hugely important.

The foundation on which the funds industry was built was the establishment of a legal and regulatory framework to facilitate the international investment funds industry. The innovation and responsiveness that served the funds industry well is still very much required and in an increasingly competitive marketplace, product development is more important than ever.

This Bill is welcome and will receive the full support of the Fine Gael Party. It is disappointing that it has taken so long for it to come to the House. The industry told the Department that this legislation was necessary years ago, yet nothing was done before now. I appeal to the Minister of State to ensure that once the legislation passes in this House, it will make its way through the Dáil as speedily as possible.

Part 2 provides the legislative framework for an Irish authorised and regulated investment fund structure which will allow for the pooling of assets by institutional investors. Similar pooling structures are available in other jurisdictions and it is imperative that Ireland can compete in this marketplace.

Approximately two-thirds of Irish funds are established as investment companies. Investment funds constituted as companies have distinct forms of company organisation and objectives from those of ordinary companies. In its report, the Company Law Review Group noted that due to the unique nature of investment companies, it is often inappropriate to treat them in the same way as the generality of companies.

Recognising the unique nature of investment companies, Part 3 includes two welcome and necessary provisions, namely, the introduction of segregated liability and the facilitation of cross investment. The introduction of Part 3 will allow the Irish fund product to be structured to include all the necessary investor protections and efficiencies to allow the industry to continue to compete in the international marketplace.

I would like to go into a little detail on these starting with segregated liability. Ideally, an investor who invests in a particular sub-fund should be in the same position as if that sub-fund were itself a limited liability company. The investor should be subject only to investment risks and liabilities incurred in the pursuance of the investment strategy attributable to the sub-fund in which it has chosen to invest and should not be exposed to potential liability as a result of activities in other sub-funds. Failure to implement segregated liability sub-funds would severely impact on Ireland's competitive position. France and Luxembourg, two of the largest fund markets in the European Union, have already introduced amendments to their legislation to provide for segregated liability for sub-funds. The changes will be achieved through the amendment of Part XIII of the Companies Act 1990.

The 1990 Act will also be amended to provide for cross investment by investment companies and the UCITS regulations will be amended to provide for cross investment by investment companies established as UCITS. These amendments will facilitate investment by one sub-fund of an umbrella fund into another sub-fund of the same umbrella. This is currently permitted in investment funds which are structured as unit trusts but is not possible in investment companies because the legislation currently provides that shares which are purchased by an investment company must be cancelled. This means that an investment company cannot currently purchase shares in itself and hold these for the benefit of the investors in a particular sub-fund. The proposed amendments are aimed at removing this prohibition.

The foundation on which the funds industry was built was the establishment of a legal and regulatory framework to facilitate the international investment funds industry. The innovation and responsiveness that served the funds industry well is still very much required and, in an increasingly competitive marketplace, product development is more important than ever. This Bill will provide the legislative framework for an Irish authorised and regulated investment fund structure which will allow for the pooling of assets by institutional investors. Similar pooling structures are available in other jurisdictions and it is imperative that Ireland can compete in this marketplace.

A number of important amendments that form part of the Bill appear in Part 7. In particular, sections 68 to 74 make provision for increased penalties to apply for breaches of various pro-consumer legislation across a range of measures. The Bill proposes increasing the applicable penalties significantly, in some cases as high as €60,000. The Minister of State referred to these penalties but did not mention the €60,000. I welcome these changes, as it is important that companies that deal with consumers see a real disincentive for mistreating them. Real and meaningful penalties must be applied for a failure to comply with consumer legislation.

I am particularly pleased that the Minister of State proposes increasing the penalties for a breach of orders made under the restrictive practices Acts. The groceries order is the last remaining such order and the increase in penalties for a breach of this order is significant. The Oireachtas Joint Committee on Enterprise and Small Business recently unanimously recommended the retention of this order and I am pleased to see a renewed ministerial commitment to its effective implementation.

I was taken by the mention in the Minister of State's conclusion of a matter close to my heart. He pre-empted me in his conclusion where he mentioned non-compliance with law and the potential to impact on a number of fronts, including costs and competition. He also spoke about a course of action which he is considering, the referral of the provision to the Company Law Review Group for further consideration because of what was passed in the auditing and accounting Bill. I urge him to do so immediately because I believe we have interfered with our cost competitiveness. It is absurd that on non-accounting and non-financial matters directors must sign a compliance statement, in particular non-executive directors. This cannot be the intention. Company law is about protecting companies and solvency. Auditors and accountants must deal with the accounting and financial side. Consider the increased costs we are imposing on a significant range of small businesses. I do not know off the top of my head what the increased costs are but they are phenomenal as I have been told by some reputable accounting firms recently. The Minister of State is a former accountant and is aware of this. We should remove this anomalous provision. If something has nothing to do with the financial accounting side, it should be removed as a requirement.

If a company breaks a law, it should be prosecuted but non-executive directors should not be required to know what is happening in the non-financial areas of a company on a daily basis. The provision is restrictive and I am not aware of another country with a similar provision. We are putting ourselves at a disadvantage. I appeal to the Minister of State to undertake an upward urgent review of the auditing accounting threshold, which puts the Republic at a major disadvantage to Northern Ireland and the rest of the United Kingdom.

I thank the Minister of State for introducing the legislation, albeit belatedly, and I urge him to take the mandate granted him by the House and get the legislation on to the Statute Book as soon as possible.