Dara Calleary (Mayo, Fianna Fail)

This is the first occasion I have had to be in the House since the death of Senator Kieran Phelan. I extend my sympathy to his family and all his colleagues. He took great pride in his membership of this House. He always referred to it, particularly to those of us in the other House, as the Upper House. I encourage all Members to reflect the pride he had and in their membership of the House show the same diligence, care and sense of duty.

I am pleased to be here to speak on the important issue of whistleblowing in the financial sector. The Government does not cavil at the need to protect those who, at potentially great cost to themselves, expose corrupt practices in order to serve the public interest. I will begin by setting out is what ordinarily understood by the term, "whistleblowing". It is usually interpreted to mean the reporting in good faith of a breach or potential breach of the law and the protection of the person concerned against penalisation by the entity about which the report has been made. In many cases, it involves protecting employees who blow the whistle on their employer. Whistleblowers risk their careers and expose themselves to being ostracised by their colleagues. They may also face potentially costly and stressful legal action. They do so in order that information, often buried deep within organisations and beyond the purview of regulators and officialdom, can be brought to light. The Government does not need to be convinced of the value of having honest men and women of integrity who are willing to assume these risks in the public interest. Agreement on the policy principle does not, however, reduce the complexity in translating these protections into workable legislation to encourage the unearthing of illegal practices in a way that will prevent the victimisation of whistleblowers. I will speak about possible enabling whistleblower legislation in the financial sector, but it may useful to place my comments in the context of general whistleblower developments across the sectors.

The Government has never sought to play party politics with this issue. It was willing to engage with the Private Members' Bill brought forward by the Labour Party in 1999. It gave careful attention to the provisions of that Bill, but it became clear that a number of amendments were required, amendments which raised detailed and complex issues which required substantial redrafting of the Bill. Having explored the various possible approaches to protecting whistleblowers, it became clear to the Government some years ago that while one grand slam piece of legislation, so to speak, to provide blanket protection would be desirable, there were considerable legal obstacles to finding a good fit between the genuine intention of the legislation and the multifarious circumstances in which it was to apply. The Government was careful not to promise whistleblower protection which, if tested by the courts, might ultimately be found wanting.

The second difficulty is that there are many genuine instances where those working in the State have access to sensitive personal and commercial information or information that is of importance to national security. Clearly, in such circumstances, there were concerns about where best to draw the line of public interest. This problem was exacerbated by the need to find a solution that would work well and equally so in all circumstances.

I will provide the House with a flavour of some of the issues arising at the time to enable Members to gain some appreciation of the complexity involved in giving effect to a provision on which, perhaps, we all agree in principle. For example, in the financial sector it is necessary to consider the position of the Central Bank. Its confidentiality regime derives from obligations regarding professional secrecy imposed under the European System of Central Banks Statute and the Treaty of Rome and further underpinned by section 33 AK of the Central Bank Act 1942. Clearly, any provision will need to be consistent with the Central Bank Acts and-or EU law. Other complex legal questions arise in relation to the obligation on designated bodies and the Central Bank and Financial Services Authority of Ireland to report suspected money laundering to the Revenue Commissioners; the Official Secrets Act 1963 and its implications for civil servants; and the protection of trade secret types of industrial processes.

On balance and in the light of the many legal complexities likely to be encountered, it became clear that a sectoral approach would be more effective and practical. This approach has served us well in placing whistleblower protections on the Statute Book to be used effectively in a number of areas. Examples include the Safety, Health and Welfare at Work Act 2005; the Garda Síochána Act 2005 and the more recent Labour Services (Amendment) Act 2009.

Senators will be familiar with the whistleblower provisions in sections 222 and 223 of the National Asset Management Agency Act 2009. Section 222 provides protection against civil liability for whistleblowers, while section 223 prohibits penalisation of whistleblowers by their employers. The sections apply to a range of persons and there is a redress process available under Schedule 2 in respect of employees who consider they have been penalised. In addition, section 203 imposes a positive obligation on NAMA to report suspicion of crimes to appropriate law enforcement authorities. The Central Bank and Financial Services Authority of Ireland has also published a whistleblower policy for its own staff, outlining its approach to dealing with reports of wrongdoing within the authority.

The number and range of the whistleblower provisions introduced in the past five years show clearly that the Government has engaged fully with this critical issue. Of course, there are still some key areas, of which financial services is one, in which we must consider what more can be done. Policy in this area has been informed by the work of the company law review group, the statutory advisory expert body charged with advising the Minister for Enterprise, Trade and Innovation on the review and development of company law in Ireland. The group examined the inclusion of whistleblowing provisions in Irish companies legislation in 2007 and brought to light the complexity of the issues involved. The majority recommendation at the time was that a company law-specific whistleblowing provision should not be included in the new Companies Consolidation and Reform Bill. In coming to this conclusion the group stated it had taken into account the degree of malpractice, the required nature and extent of the disclosure, the reputational risk for companies and the extra resources, or the diversion of resources, for enforcement agencies. However, this is a matter which the Minister for Finance will consider further, given recent disclosures regarding corporate governance in the financial services sector and, in particular, in the light of the outcome of ongoing investigations of these matters by the Office of the Director of Corporate Enforcement, the Garda Síochána and the Financial Regulator.

Senators will be aware of the recent announcements on white collar crime by the Minister for Justice and Law Reform. The Minister made proposals in the context of the Prevention of Corruption (Amendment) Bill under consideration by Dáil Éireann and awaiting Committee Stage. The Bill includes a provision to protect whistleblowers who report offences of corruption within the meaning of the Prevention of Corruption Acts 1889 to 2005. These measures propose to protect any person working in any sector who reports, in good faith, a suspicion of corruption as defined in these statutes. Under the legislation as it now applies to situations involving whistleblowing, the definition of corruption essentially provides that anyone who corruptly accepts any gift, consideration or advantage as a reward for someone doing an act or making an omission in relation to his or her office or position is guilty of an offence. The Minister intends to look at clarifying this definition further under the Bill. The provision will also contain an outline of the various methods of redress which will be available to an individual who may be treated unfavourably by an employer, for example, for making such a report. Committee Stage of the Bill is expected to be taken later this month and Senators will have the opportunity to consider the proposal in greater detail.

The Minister for Justice and Law Reform has also announced recently that he will be bringing proposals to the Government shortly for the consolidation of all the anti-corruption legislation on the Statute Book, some of which dates back to the Victorian era, while some has been introduced more recently. There is undoubtedly a need to bring greater clarity to the issue by consolidating these offences in a single statute.

One area in which the need for whistleblower provisions has been brought into sharp focus is that of financial services. The issue of whistleblower provisions in relation to financial services was most recently brought to public attention by comments made by the Director of Public Prosecutions during a recent interview on "The Week in Politics" programme on RTE.

Prior to the financial crisis, there was a general view that the structures and systems responsible for financial regulation were effective and appropriate. As we now know, that confidence was seriously misplaced. The previous regulatory system failed spectacularly to prevent grossly excessive and irresponsible lending to the property sector. As a result, our most systemically important banks have had to be recapitalised and Anglo Irish Bank has had to be brought fully into public ownership.

The financial system overall has been severely shaken and customers and households are managing unprecedented levels of debt. Wide-ranging reform is urgently required. We need a system where the overarching objective of the stability of the financial system directly informs the supervision of individual firms, while at the same time safeguarding the interests of consumers and investors.

The Central Bank Reform Bill 2010 has recently completed Second Stage in Dáil Éireann and is expected to come before this House before the summer recess. The Bill is a crucial step in a comprehensive programme to put in place a domestic regulatory framework for financial services. It meets the Government's objective of maintaining the stability of the financial system. It provides for the effective and efficient supervision of financial institutions and markets, and it safeguards the interests of consumers and investors.

In terms of the overall standards to apply across the sector, the Bill provides for new powers for the Central Bank to ensure the fitness and probity of nominees to key positions within financial service providers and of key office-holders within those providers. We have already seen the devastating effects of irresponsible and incompetent behaviour at senior levels in financial institutions and must ensure, as a matter of urgency, that the powers are available to prevent such behaviour in future. These new powers for the bank will help to restore confidence in the management of financial institutions domestically and in international markets.

A second Bill to be brought before both Houses in the autumn, will enhance the powers and functions of the restructured Central Bank, particularly concerning the prudential supervision of individual financial institutions; the conduct of business, including the protection of consumer interests; and the overall stability of the financial system.

A third Bill will consolidate existing statutory arrangements for the Central Bank and financial regulation in the State. This legislative programme is demanding and complex, but it is essential. A sound financial regulatory regime is fundamental to a sustainable and dynamic financial services industry.

It is within the context of the second Bill that the Government will look at the need for specific legislative protection for whistleblowers in the banking and financial services sectors. In carrying out this examination we will draw on recent experience in Ireland, as well as experience in other jurisdictions.

Current financial reforms under discussion in the United States include new financial incentives for whistleblowers. The Financial Regulation Bill passed by the US Senate recently includes a provision that expands a bounty programme to compensate whistleblowers who report fraudulent or corrupt activity by their employer. A new fund would pay out between a minimum 10% and a maximum 30% of the recovered money from a violation of more than $1 million. While I am not sure that making incentive payments to whistleblowers is the way to go in this country, it important nevertheless to note that whistleblower provisions such as this are emerging as a common feature of reforms elsewhere.

In the United Kingdom the Public Interest Disclosures Act 1998 provides a basis for whistleblower protection. That Act applies to people at work raising genuine concerns about crimes, civil offences - including negligence, breach of contract or administrative law - miscarriages of justice, dangers to health and safety or the environment, and the cover-up of any of these. The Act applies to employees, including contractors and trainees, but not to volunteers, the self-employed, the intelligence services or the armed forces. The Act provides that disclosures may be made by employees and, depending on the circumstances, to the employer, regulators or more widely to the police or MPs, for example.

Generally, disclosures are protected where they are made in good faith and where the whistleblower has a reasonable belief that the information tends to show the occurrence of malpractice. Additional requirements apply to disclosures to regulators or wider disclosures, for example, to ensure disclosures are not made for personal gain.

Gagging clauses in employment contracts are void in so far as they conflict with the Act, although the Act does not provide protection for breaches of the Official Secrets Act or other secrecy provisions. Where a whistleblower is victimised or dismissed in breach of the Act, they can claim for compensation from an employment tribunal. Awards are not capped and based on the losses suffered.

I am aware of the recent report on whistleblowing by Transparency International entitled, An Alternative to Silence, which puts forward the UK legislation as a model to follow. It also recommends the enactment of whistleblower protection for the financial services sector. That report pulls together useful information in this under-studied area of Irish life. I was particularly interested in the 2008 research cited in the report on the financial services sector, which explored attitudes to whistleblowing. It also examined reasons which would discourage disclosures such as a sense of loyalty to the company, fear of negative reaction from co-workers; the belief it would impact negatively on a person's career; and the belief reporting an incident was outside a person's realm of responsibility. Interestingly, the fear of reprisal was cited least. This is just another example of why this is a complex matter and that there are other factors that discourage disclosures beyond the existence of specific legal protections.

The Government is prepared to look at making such a provision in the context of the reforming legislation on the financial services to be published this autumn. In developing our thinking in this area, there are several matters that need to be examined in great depth such as whether there should be confidentiality provisions attaching to disclosures and whether anonymous complaints would be pursued; whether the protections should apply to all employees or even beyond employees to any person reporting malpractice, for example, customers or suppliers; and the time limits for making disclosures or claims for compensation for reprisals. We should consider whether reprisal protections should extend to others who may become vulnerable, apart from the whistleblower. We should also consider how compensation levels are to be set and whether a cap should apply. Equally, we must examine the circumstances when full whistleblowing provisions should apply, which would provide protection against penalisation of the employee and protection for the employee against civil liability. There are also a range of other issues.

When looking at the financial services sector specifically, we need to look at how best to handle the relationship between any whistleblower protection provisions and commercially sensitive information, intellectual property rights, and the protection of confidential and personal data, among other things.

As Senators will be aware, there are many important matters that must be considered and decided upon to give full effect to any sort of whistleblower provision in the context of the Irish financial services system.

Some Members of this House have had their own experiences with whistleblowers. I look forward to the debate on the issues I have outlined, as well as reflecting on the experiences that Senators may care to outline in this regard.