Sean Barrett (Independent) | Oireachtas source

I welcome the Minister of State and assure the House that Senator Michael D'Arcy is a valued member of the banking committee. There should be no false modesty over there. I thank the Minister of State and his Department for the support they have given to the inquiry. I hope that he and the Minister for Finance, Deputy Noonan, will get something useful in return. I also thank the officials who offered a briefing on this legislation, but we were busy trying to keep Aer Lingus as an independent airline.

I echo the comments of Senators O'Donovan and Michael D'Arcy. A drop from tenth to 70th requires analysis. We developed a dreadful reputation in financial services. It was the largest banking bust-up relative to GDP anywhere in the world. Some shadowy banks from the IFSC feature in some of the accounts. For example, the Governor of the Central Bank, Professor Honohan, told us that DEPFA Bank had the Germans hopping mad when we needed to do real things in late September 2008. Germany was short €50 billion because of that operation. Another bank that called itself Ormond Quay Funding when it was in Ireland but was SachsenLB cost €15 billion. We want to be sure that there is no question of the Irish taxpayer once again being involved. We have already been badly damaged. The first sign I would erect at the IFSC would read, "Nothing here will be bailed out by the people of Ireland because they can take no more".

In many ways, we need stronger regulation but, according to page 2, AGMs need not be held. There was a great deal of sloppy regulation or non-regulation. People called it "light touch", but it was non-supervision. Let us not let people off the hook of AGMs. The instruments of incorporation can be changed without shareholder consent. All of the evidence that has come to the banking inquiry implies that it was this loose-leafed approach that cost the taxpayer dearly.

Company law directives will not automatically apply to ICAVs. Before Christmas we passed an immense amount of company law, but here we are already saying that it does not apply.

The Minister says this has nothing to do with tax avoidance. I really hope so, because we have an appalling reputation. Next month, the Organisation for Economic Co-operation and Development, OECD, will report on the Apple issue. Our first response in that case was to deny it and we annoyed no less than President Obama and the Governor of California. We have a bad reputation in that regard. The Irish tax rate is 12.5%. There should be no deductions or allowances and so forth.

In the earlier documents we received, dated October 2014, from the Oireachtas Library and Research Service there are references to taxation. If those have been resolved since then, and the Minister said there were extensive amendments in the Dáil, we will not proceed with those again. The Minister said the Central Bank already has exacting rules in place for the authorisation of a collective investment scheme by way of the UCITS regulations. According to the Honohan report, the Central Bank was AWOL, absent without leave, for a crucial period with regard to regulating the financial sector. I believe it had approximately 15 people doing it. That got us into trouble.

I am glad there is a prohibition on the making of directors' loans. That was an unsatisfactory feature previously. Very large amounts of money will be placed securely in the hands of investment managers to allow them to make investments grow and provide for retirements and so forth. The last crisis was a property bubble and I commend the Governor of the Central Bank on attempting to stop it happening again, but the evidence coming to Senator Michael D'Arcy and me is that it is even more necessary for commercial property. It is even more bubbly, if one can use that word. Can we learn from Canada, Australia and Singapore, which did not have bank busts and are compliant with Basel III? Why do banks not have more equity? Financial institutions in general must learn from the past.

I wish to refer to some of the statements in the research paper from the Oireachtas Library and Research Service which might be of concern. It states that the Bill sets up a new type of investment company with reduced, but not non-existent, compliance standards. I hope the reductions will not get us into trouble. The document goes on to state, on page 4, that it has highlighted several areas where the legal, regulatory, tax and operating environment may be improved. I hope that was not leading to fewer controls and more tax avoidance. That is a feature we do not need. It also states on page 7: "The ICAV will not be required to be incorporated as a public limited company ..... and therefore will not be subject to the full rigours of the Companies Acts...". It continues: "..... that the ICAV .... be treated as a partnership or disregarded entity for US federal tax purposes and therefore will facilitate investment by US taxable investors and/or US taxable and tax-exempt investors in a master feeder fund structure." I am worried about that. The next page of the document states that it will "allow US taxable investors to avoid certain adverse tax consequences that would normally apply to 'passive foreign investment companies'" and that it will avoid the need for compliance with certain Irish company law requirements.

There is a complaint on page 18 of the document that the EU directive was "excessively constraining and prevented fund managers from fully exploiting their development possibilities". We had to be excessively constraining. This was the greatest financial disaster to hit a country. The numbers in the Survey on Income and Living Conditions, SILC, report last week show that disposable income per person has dropped by €2,500 since the financial crisis, from €20,000 to €17,500. Page 19 refers to the role of the Central Bank and states that it "may make regulations for the proper and effective regulation of regulated financial service providers". It did not do so in the past and it must do so now, because we cannot go through all of that again. The document states on page 28 that the Central Bank can refuse to register an ICAV and that it is an offence to provide false or misleading information, which epitomised the crisis Senator Michael D'Arcy and I are investigating.

Page 34 of the briefing document refers to stronger control of auditors. Senator Michael D'Arcy and I would certainly agree with that. It must be strengthened. I do not know what they were doing. Either they were involved, like rugby referees who comment on every move in a match, or they just turned up six months later, signed the books and did not know anything. I suspect it is former. We will have to find out why auditing standards in Ireland were so bad.

We can have the problem of financial institutions that are too big to fail, in which case the country bears the burden. I hope anything the Minister said this evening does not give them any credibility or greater credence. I look forward to the next Stage. I thank the Minister of State and the Minister, Deputy Noonan, for their co-operation with the inquiry. We must get this right this time because we certainly did not get it right on the previous occasion.