Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael) | Oireachtas source

The individual we do not like has just as many rights as another we perceive we like for one reason or another. They are rights holders in our society as much as any other person, and their human rights and process rights must be protected as much as those o any other person in any other process. It is very important, therefore, to go through this in some detail.

I might outline the technical aspects and add some colour along the way. On the duty of full disclosure, the Senator is absolutely correct that the individual should have all the information on what is being said to him or her and about him or her. Nevertheless, irrespective of this legislation, the Central Bank, as a public body, is obliged to act in a manner consistent with its obligations under administrative law and with the constitutional rights of individuals to fair procedure, including the right to be heard and to mount a defence, in the context of any investigation or inquiry.

In addition, as provided for in the Bill, there will be new obligations on the bank, partly informed by the Supreme Court in the Zalewski case, to ensure a person who is subject to investigation by the bank, whether under the administrative sanctions procedures or the fitness and probity regime, will have access to all the information on the basis of which an enforcement decision may be based. The Zalewski judgment underlined the need for fair and transparent procedures where non-court bodies are engaged in the exercise of limited functions and powers of a judicial nature, as permitted by Article 37 of the Constitution, and that requires appropriate court oversight.

Further changes have been incorporated into the Bill to ensure the Central Bank's enforcement processes will comply fully and transparently with the standards of fairness. In close co-operation with the Office of the Attorney General, the provisions of the Bill are carefully balanced such that the resulting legislation is robust and will, we believe, withstand any challenges it might face in the courts, although that will be a matter for the courts and not for me in the Seanad today. We have presented it as best we can, following the advice of the Office of the Attorney General and informed by the Supreme Court decisions in Zalewski, but it is always open to the courts to review any matter.

I can give the Senator a number of examples that provide for greater information to be given to the subject of an investigation, as he rightly raised. There are specific provisions with respect to the operation of fitness and probity investigations that allow individuals under investigation access to the information on which the investigation is based. Section 15 will provide that, as soon as practicable after a decision has been made by the head of financial regulation to conduct such an investigation in respect of, for example, fitness and probity, he or she shall serve on the person notice in writing stating the reasons for holding the opinion there is reason to suspect the person's fitness and probity to perform the relevant control function, which should include a copy of such material as he or she considers appropriate on which that opinion has been based, and informing the person of his or her right to respond to the contents of the notice within a stated period. If the investigation is discontinued, the head of financial regulation shall serve on the person notice in writing of the discontinuation, giving one or more reasons.

The Senator raised the question of a discontinuation and the impact on a person's reputation of a case having been taken and then discontinued for one reason or another, and that will have to be provided as a matter of fairness to the individual. He highlighted a question regarding cases where an investigation has been discontinued for reasons of resources. That relates to the discretion of the Central Bank to prioritise its resources in respect of investigations, but the obligation to give reasons for discontinuing an investigation is in light of the Zalewski case. Those reasons must be given specifically to avoid prejudice against the person who was under investigation. Although the Bill refers simply to "reasons of resources", that decision may be prompted not just by financial resources but also by the availability of specialist investigators, and rather than straight-up prioritising one or the other, it is conceivable the bank might wish to divert those resources to an issue perceived as more important or urgent, and the bank should have the discretion to do that. I say this by way of explanation given the provision might seem a little stark in the Bill, but that is the justification for it.

To return to the correct processes, section 25 will substitute section 41 of the 2010 Act to require that the head of financial regulation, after completing a fitness and probity investigation, shall prepare a report on the basis of which the bank or the Governor, as the case may be, will decide whether any prohibition should be imposed on the subject of the investigation. A draft of that report is to be provided to the investigations subject, who may make submissions in respect of it, as is the final report, taking account of any submissions. In addition, section 27 will amend section 43 of the 2010 Act to require that a person on whom the bank or Governor proposes to impose a prohibition shall have access to any material taken into account for the purpose of ensuring the proposed prohibition is consistent with other prohibitions and is also proportionate.

The Senator correctly highlighted that the fines may be up to €1 million, and the obligation on the bank is to behave proportionately in that regard. Indeed, it is often said small fines are of no consequence to people of very large resources, so it is important to enable large fines to be imposed on people who have committed serious offences or against whom it is proportionate to their overall wealth or resources. The penalty should match what has happened and the person's experiences. Not everybody absorbs a smaller fine in the same way and that is appropriate, but the obligation on the bank is to behave in a proportionate way in all regards.

In respect of the administrative sanctions procedure, section 43 will insert new sections 33ANJ and 33ANK into the 1942 Act. Section 33ANJ sets out the process in respect of the contents of a notice of investigation. There is a requirement to provide a notice of investigation to an individual in writing in respect of that investigation and that must be updated and amended if there is any change, such as the investigation being widened.There are also specific requirements regarding the notice and what it needs to contain, such as the identification of each prescribed contravention under investigation. If the investigation is discontinued, a notice must be issued and there is also a reasonable steps requirement on the relevant officer to keep the subject of investigation apprised of the progress of that investigation.

Section 33ANK requires that the responsible authorised officer, after completing an investigation, shall prepare a report on the basis of which the bank shall decide or not to hold an inquiry. A draft of that report must be provided to the investigation subject, who may make submissions in relation to it. A final report taking account of any submissions is to be provided to the subject and, in addition, if the bank decides to hold an inquiry, section 45 of the Bill substitutes section 33AP of the 1942 Act to require that the bank shall give to the person who is the subject of the proposed inquiry a notice specifying the grounds on which the bank's suspicions in relation to the commission of or participation in a prescribed contravention by the person are based. Section 62 of the Bill inserts a new section, section 33BAA, into the 1942 Act to require that a copy of any documentary evidence submitted to an inquiry must be given to each participant of the inquiry. There is also provision for the separation of functions so that the author of the report cannot make recommendations as to sanctions that may be imposed on the individual. You are trying to separate out all of these things at every stage, that is, provide information to the individual and separate out where there may be biases where somebody who has conducted a report may then impose a sanction. Given all of those requirements, I am satisfied, on the drafting of the Bill, that all information and documentation which the Central Bank has in its possession that might reasonably be of assistance to a person who is the subject of an investigation will be made available to such a person, precisely as the Senator has said happens in other cases where of course there could be much more serious penalties. It is important in the context of fair procedure that you have all of the information related to your investigation. I agree with Senator McDowell about ensuring that those subject to any enforcement action or investigation by the Central Bank are treated fairly and that the bank should provide transparency for individuals in terms of access to material. I do not believe that this amendment is necessary as the Bill already achieves that, as I outlined regarding safeguards that are built into the Bill in different ways. I am not accepting that amendment.

I also wish to address amendment No. 2 regarding legal assistance, the rights of persons and different aspects to continuing the fair process. The need to ensure that the rights of all persons are protected has been fundamental to the development of this Bill with the Attorney General's office. The Central Bank of Ireland, as the Senator noted, is entrusted with significant powers regarding the firms and individuals it regulates. These powers are necessary to ensure that the bank can regulate a sector which, as we know to our cost, if not properly regulated has the potential to have a profoundly harmful impact on individuals, the entire financial system and the entire State. That is the basis of all the legislation that has happened since, as the Senator correctly identified, 1999 and 2007, key moments where it is clear we did not have the appropriate regulation or the cross-securitisation of loans etc., and all of the things we now know not to have been the case, which impacted the stability of the financial system. An important point about this legislation is that it is not just firms that engaged in behaviour that was not appropriate, but individuals also. We are trying at every stage to improve accountability processes within the Central Bank, its standard of regulation more broadly and to change culture in the financial services system from the top. This legislation about executive accountability is a key part of that. We have seen problems emerge not just concerning the financial crisis but, as the Senator correctly highlighted, more recently in the tracker mortgage investigations. The calamitous impact of the financial crisis was one of the matters we considered on Second Stage.

As the bank's powers are by necessity so extensive, it is important to ensure they are discharged within a carefully-crafted legislative framework designed to ensure powers are proportionate and exercised in a manner that does not involve an impermissible restriction on the rights of individuals. There are safeguards to protect the constitutional rights of individuals woven throughout the Bill, given the widening of the cohort of individuals on whom sanctions could potentially be imposed. The Senator was correct to identify that. Those people may not all be of the same financial resources. These safeguards are there to ensure that the powers of the bank are exercised in a manner that is to be proportionate, fair and reasonable. The cohort of those to whom the new powers in the Bill will apply was chosen with reference to the bank's existing powers. It is clear and well defined. Those to whom the new senior executive accountability regime, SEAR, obligations will apply are already pre-approval controlled function holders under the fitness and probity regime. Those to whom common conduct standards will apply are already controlled function holders under the fitness and probity regime. Most, if not all of those who will be brought within the scope of the fitness and probity regime as a result of its extension to certain categories of holding companies are already in the scope of that regime because they perform functions whereby they may exercise significant influence on the conduct of affairs of a regulated financial service provider, RFSP, which is a subsidiary of a holding company.

A significant extension of the powers of the Central Bank under this Bill arises from the duty to take steps to meet the conduct standards. Failure to discharge that duty will be a prescribed contravention, as the Senators know, with the result that those performing a controlled function in relation to an RFSP who are not currently persons concerned in the management of an RFSP, therefore more junior persons, will for the first time now come within the scope of the Central Bank's administrative sanctions procedures. All of these people are already within the scope of the fitness and probity regime whereby the Central Bank has the power to prohibit them indefinitely from performing any controlled function, which is already a significant power. That power has been used sparingly. Some nine individuals have been prohibited in the last ten years. Prohibitions imposed to date have been for periods of two years, ten years and an indefinite period. There are currently eight people prohibited and a further two whose prohibitions have expired. There are two prohibitions subject to ongoing High Court confirmation proceedings and there are three investigations ongoing. To put that in context overall, in the retail bank sector alone, there are approximately 13,500 people performing controlled function roles. Those are the numbers against whom sanctions of the kind we are describing have been imposed. It is clearly only for the most serious of cases and it is a crucial power that the State's financial regulatory system must retain.

The extension of the administrative sanctions procedure to that cohort means they could potentially be financially sanctioned or disqualified from performing a controlled function for wrongdoing. The implications of this for an individual are severe, which necessitated the range of safeguards to ensure the powers of the bank are exercised in a manner that is proportionate, fair and reasonable. For that reason, the Bill includes a non-exhaustive list of matters the Central Bank must take into consideration when it is determining the circumstances relevant to a breach of the duty of responsibility in section 53B or a breach of duty to meet conduct standards in section 53C.

Regarding Senator McDowell's amendment and the suggestion that legal assistance should be available to those subject to enforcement action by the bank, it must be acknowledged that thus far, individuals who have been subject to administrative sanctions procedures have to date all been senior executives, persons concerned in the management of a regulated financial services provider. It is true that the introduction of binding conduct standards for all of those performing controlled functions expands that cohort to more relatively junior positions. The intention of the amendment is to ensure everybody has access to legal representation and funds, but I wish to think through how that would operate in practice within the context of the Bill, separate to any other representation. There do not appear to be any national or international comparators for a provision of this nature within such an administrative sanctions regime. If the intent, thinking through the different aspects, of the amendment is that the Central Bank's employees who are legal professionals would be required to provide legal assistance to third parties who are subject to its enforcement processes, that would create professional conflicts which would be impossible to resolve. You could not possibly do that. I do not think that is what the Senator is suggesting but let us go through it. No Central Bank employee could possibly practically or lawfully provide such assistance. If the intent is to provide some nature of quasi-civil legal aid to be funded by the Central Bank, again we run into a conflict issue and the difficulty of how it would operate in practice and the conflicts that are there. Section 33AY of the Central Bank Act 1942, as amended by section 57 of this Bill, and other provisions in Part IIIC enshrine in statute the following principles in respect of the conduct of an administrative sanctions procedure, ASP, inquiry by the Central Bank. Section 33AY(1) provides that the Central Bank must "conduct an inquiry with as little formality and technicality, and with as much expedition, as a proper consideration of the matters before it will allow".That provision sets the tone, not for a sloppy investigation, but for conduct of ASP inquiries and to make sure the investigation is accessible to anybody, including people who are not legally represented, as has been the case in the past, indeed. As for section 33AY(2), again following on from the requirement that an inquiry must be conducted with as little formality as possible, this section provides that at the inquiry, the bank is not bound by the rules of evidence, with the exception of admission of documents and the proof for the information contained therein. It also provides that the inquiry must abide by the rules of procedural fairness for the benefit of the inquiry subject.

As for section 33AY(4), unlike a court of law, that provision envisages that an inquiry subject may be assisted at an inquiry by persons other than legal practitioners and that is in keeping with the overarching principle that inquiries in general are to be conducted with as little formality as possible. Section 33BAA allows the inquiry to admit documents if proof of the information, as an exception to the hearsay rules, greatly easing the burden on an inquiry participant seeking to rely on documents without having to call witnesses, just to ease procedural matters. The inquiries are not designed to be adversarial. This is to try to deal with these things in an informal way, where possible. As per the relevant case law, ASP inquiries are inquisitorial in nature and unlike many other bodies, are not adversarial. The purpose of an ASP inquiry is to enquire into subject matter and to make findings. Inquiry subjects have a right to be heard throughout the process. Thus far, the Central Bank's experience has been that many investigation and inquiry subjects have not been legally represented in the enforcement process despite perhaps assuming that those concerned may have the legal or the financial resources to do so.

In any case, the financial burden that may be involved for a person subject to enforcement action by the bank who chooses to pay for legal representation has actually been challenged in the courts without success. The High Court noted in Purcell v.Central Bank of Ireland in 2016 that:

It is, however, a matter for the applicant whether he incurs any costs. He could decide he did not wish to be legally represented before this entirely independent inquiry. Moreover, it is open to persons in his position to take out insurance cover against such costs. I know the applicant did this and the extent of the cover has been exhausted. The inquiry, however, cannot be saddled with any level of unfairness or oppression due to the applicant not taking out adequate insurance to cover all the costs he might incur.

Notwithstanding that, it is still important to test that this is not something of concern to people to whom it will actually apply. In consultation, we have discussed this legislation with the various representative bodies throughout the financial services, including Insurance Ireland, Financial Services Ireland and, crucially, the Financial Services Union, which may represent people in more junior positions to whom the additional obligations are being extended and whom we might assume or perceive as not being of the same financial resources to support themselves legally throughout a process. The issues that Senator McDowell raised have not been raised in our consultations by any of those interested parties as part of our engagement. The processes already exist for fitness and probity investigations and there have not been any calls for those processes to be supported with external legal support. Indeed, we are of the view that there are significant benefits to keeping the processes informal and as inquisitorial as possible.

There are specific provisions in the Bill to allow for the training of those subject to conduct standards in order that potential actions in terms of breaches of legislation can be avoided by the bank. While there are penalty provisions, the aim of this legislation is to ensure improved behaviour and we discussed that in detail on Second Stage, to effect cultural change, and crucially, we hope, to reduce the need for investigations and sanctioned processes. As the Central Bank is an independent regulator, it is not appropriate for me to determine where or where it might not use its processes but the law, irrespective of when it chooses to do so, must be proportionate. It is, I would expect, reasonable that the bank would not deploy the administrative sanctions procedures lightly for a trivial misdemeanour. I think that would stretch the credibility of the process and is not consistent with what has happened to date. As we noted on Second Stage, it is also important to say that the enforcement decisions are appealable to the Irish Financial Services Appeals Tribunal, IFSAT, and the IFSAT rules provide that the tribunal may reduce or waive the appeal fee in cases where it would cause serious financial hardship and might be a cause of injustice.

I have a couple of final points in terms of the read-across from other legislation. The scheme is not proposed - the Senator is highlighting an important issue - but if we were to take it further as a kind of quasi-civil legal aid scheme for this process, it would be very difficult for us to confine that to Central Bank processes only. We would have a read-across all agencies of the State that operate quasi-judicial procedures. While the Senator notes the possibility that support schemes could take account of other financial supports, again in practice it would be difficult to manage and could give rise to concerns about costs and it would be possible that these would be borne by the Exchequer. I think the real point is around the process in the first instance, providing full disclosure, making sure that people have absolutely fair procedures and keeping it in a way that we hope reduces the need for legal support by keeping it as informal and as inquisitorial as possible. That has been the experience to date and it has worked reasonably well. We will keep it under discussion throughout the consultation, as the Central Bank goes through its consultation, and we are always available to discuss it with financial representative institutions who will be experiencing this directly.

Senator McDowell raised a number of different points around judicial review and the six year look-back for investigations and if he wishes I can come back to any of those points.