Question proposed: "That the Bill be now read a Second Time."

The approach the Government has decided to adopt builds on the view of the Oireachtas Joint Committee on Finance and the Public Service, as set out in its report, Review of Banking Policy: The Regulation and Supervision of Financial Institutions, of July 1998. The committee stated it believed a single, independent, regulatory authority should be established and given supervisory powers in relation to all commercial, friendly and voluntary bodies which handle funds or financial transactions, including electronic transactions, on behalf of third parties or other institutions in Ireland. In 1998 the Government agreed, in principle, to the establishment of a single regulatory authority for the financial services sector and established an implementation advisory group – known as the McDowell group – to advise it on how this could be achieved. This Bill has drawn very heavily, though not entirely, on the work of the group.

I am satisfied that the structure adopted by the Government will work well because it will provide a one-stop-shop for consumers, business and the financial services industry by having the regulation of insurance, banking and credit unions under the one roof; facilitate the proper co-ordination of the complementary functions of prudential regulation and consumer protection; place the interests of consumers at the heart of financial services regulation by giving the authority specific responsibilities in this regard and creating a statutory position of consumer director; provide an effective framework for Ireland to meet its obligations under the statute of the European system of central banks; and provide for the operational autonomy and direct accountability of the new authority in relation to the bulk of its regulatory tasks.

I wish to deal with a more detailed description of the Bill. Its main purposes are to provide for the establishment of the Irish Financial Services Regulatory Authority within the overall new structure of the Central Basic and Financial Services Authority of Ireland; to assign functions to the new authority as the single regulator for the financial services sector – this will provide a one-stop-shop by having the regulation of insurance, investment intermediaries, banking and credit unions as well as certain other functions under the one roof; to strengthen the consumer focus of regulation by giving the authority specific responsibilities in this regard and creating a statutory position of consumer director; and to establish the Financial Services Appeals Tribunal.

The broad structure of the Bill is as follows. Part 1 contains the short title of the Bill and provisions for the commencement of the measure. Part 2 provides for the amendment of the Central Bank Act 1942 for the purposes of reorganising and renaming the Central Bank of Ireland. This Part, in addition to amending and repealing the text of the 1942 Act, as appropriate, inserts additional Parts and Schedules into the 1942 Act.

The provisions relating to the regulatory authority are set out in a new Part IIIA of the 1942 Act to be inserted by section 26 of the Bill. Chapter 1 of this new Part provides for the constitution, functions and powers of the authority. Chapter 2 provides for the statutory position of consumer director; while Chapter 3 provides for the appointment of the Registrar of Credit Unions.

A new Part IIIB of the 1942 Act contains certain provisions relating to the Central Bank and Financial Services Authority of Ireland and its constituent parts, including the new disclosure of information requirements. Part VIIA of the 1942 Act, as inserted by section 28 of the Bill, is divided into five Chapters and deals with the Financial Services Appeals Tribunal. Section 29 on page 97 inserts a new Part VIIIA into the 1942 Act and sets out the provisions for making regulations and orders under the Act.

Part 2 of the Bill amends the 1942 Act by amending and inserting additional Schedules into the Act. There are also three Schedules to the Bill. Schedule 1 sets out the consequential amendments to other Acts; Schedule 2 sets out the consequential amendments to the European Communities regulations, while Schedule 3 specifies the savings and transitional provisions which have effect.

At the heart of what is proposed in the Bill is the establishment of a new entity – the Irish Financial Services Regulatory Authority – as a constituent part of a new Central Bank and Financial Services Authority of Ireland, known as "the Bank". The new authority will manage the regulation of financial institutions in Ireland. In essence, it is to take on and develop the financial services supervisory functions of the Bank and, in addition, take on the regulation of credit unions and the insurance sector as well as consumer protection functions.

I wish to deal with the main provisions of the Bill as they relate to the regulatory authority. The authority will be established under the proposed new section 33B of the principal Act and will operate as a constituent part of the new bank. However, it will have its own chairperson, chief executive and consumer director, and up to seven other members, and will have independent functions. The non-executive members will be appointed by the Minister for Finance following consultation with the Minister for Enterprise, Trade and Employment, the chairperson will be appointed by the Minister for Finance from among these members and the chairperson, chief executive and some authority members will also be members of the board of the Central Bank and Financial Services Authority of Ireland. The authority will have its own budget. It will submit its annual report to the Minister for Finance, who will lay it before each House of the Oireachtas and, in recognition of the unique role played by credit unions in Irish society, a separate statutory post of Registrar of Credit Unions is also provided for.

As Senators will be aware, the Minister appointed an interim authority, on a non-statutory basis, on 16 April 2002, the chairperson of which is Mr. Brian Patterson. The role of the interim authority includes the selection of a chief executive for the IFSRA, working with the chief executive-designate and advising and assisting the Ministers concerned and the Central Bank in preparing for the establishment of the regulatory authority. The work of the interim authority will help ensure that a smooth transition to the new regulatory arrangements takes place as soon as possible. The posts of chief executive-designate and consumer director were filled recently on an interim basis after an open competitive process facilitated by independent executive search consultants. It is the Minister's intention that the members of the interim authority will form the new regulatory authority when it has been established under this legislation.

It is essential for the new regulatory authority to be properly and adequately funded if it is to be able to fully exercise its powers and functions. The McDowell group considered this issue and favoured funding by industry. Accordingly, the Bill gives the chief executive of the authority, with the agreement of the authority, power to make regulations to impose levies. However, these regulations can only come into effect if they have been approved by the Minister for Finance. There will be a consultation process to consider the fee or levy structure. If it should happen that the funds raised from the fees and levies imposed prove to be inadequate for the authority to perform its functions, the bank may provide the authority with funds to meet any shortfall.

I now turn to the vital issue of consumer protection. The McDowell group gave detailed consideration to the questions of prudential regulation and consumer protection. It recommended that the single regulatory authority, SRA, should be given statutory responsibility for prudential regulation and for consumer issues relating to financial institutions. The group also recommended that responsibility for approval of bank charges should be transferred to the SRA and that a statutory position of consumer protection director should be established within the SRA.

It is intended that the consumer director will have the lead role in the exercise by the regulatory authority of the consumer functions transferring from the Office of the Director of Consumer Affairs, as well as various other new and existing functions. The provisions contained in the Bill reflect this intention, particularly the requirement that the consumer director will be a member of the regulatory authority.

The responsibilities of the consumer director are provided for in the Bill. In essence, they are to monitor the provision of financial services to consumers and also to exercise important consumer protection powers under the Consumer Credit Act, the Investment Intermediaries Act, the Stock Exchange Act and Central Bank and insurance legislation. The Bill also sets out the reporting arrangements, etc., of the consumer director. In this regard, I draw the attention of Senators to the new section 33V(6), which will be inserted into the principal Act by section 26 of the Bill and which provides that the consumer director can report directly to the regulatory authority on any matter.

The new section 33C(3) to the principal Act explicitly states that the mandate of the regulatory authority is to promote the best interests of users of financial services in a way that is consistent with the orderly and proper functioning of financial markets and with the orderly and prudent supervision of providers of those services. Therefore, the regulatory authority and its consumer director will have a strong consumer mandate which will encompass the following: monitoring the provision of financial services to consumers and monitoring the extent to which competition exists among providers of financial services in so far as it affects consumers of those services; increasing public awareness of the availability, costs, risks and benefits of financial services; issuing and enforcing codes of conduct, regulations, directions, etc., to financial services providers with regard to the conditions under which they provide services to customers – namely, advertising, information to customers, terms of contracts, cooling off periods etc.; control and monitoring of customer charges, other than interest rates, imposed by credit institutions and bureaux de change; licensing of moneylenders, including approval of the interest rates charged; compensation arrangements in respect of financial services providers who cannot meet their obligations to customers; and promoting, in general, the best interests of users of financial services. In addition, a second Bill will provide for an ombudsman to deal with consumer complaints against financial institutions and a consultative panel for consumers of financial services

I will now deal with the post of Registrar of Credit Unions. At present, the Registrar of Friendly Societies has responsibility, among other things, for the general regulation and financial supervision of credit unions. The McDowell group recognised the valuable contribution and the unique role of credit unions in Irish society, about which I fully agree. The annual report of the Registrar of Friendly Societies for 2000 – the latest available – shows that there were some 438 credit unions in Ireland as at 31 December 2000.

The credit union movement is characterised by a large number of quite small, community-based credit unions providing fairly limited services to their members. However, credit unions, as a group, are a significant player in the financial services market. Some individual credit unions have grown into quite large operations which are now significant providers of services of a financial nature. More than 50 credit unions had assets exceeding €25 million according to the 2000 annual report. It has been reported that there are currently around 2 million members and assets of almost €7 billion.

The McDowell group considered that all financial service providers should, in principle, be dealt with by a single regulatory authority and that a compelling case would have to be made for the exclusion of any provider from its remit. In regard to the credit unions, the group recommended that the approach which would best address the unique characteristics of the credit union movement would be to have the existing functions of the Registrar of Friendly Societies, in relation to credit unions, brought into the single regulatory authority. The group considered that this should be done in a manner that would recognise and be supportive of the uniqueness of credit unions and also give comfort that their voluntary character would not be threatened by the establishment of a single regulatory authority, while still addressing the appropriate regulatory and consumer protection requirements that arise.

The McDowell group recommended that these concerns should be addressed by the establishment of a statutory position of Registrar of Credit Unions within the single regulatory authority. The Bill provides for the implementation of the recommendations contained in the McDowell report and is consistent with recommendations of the World Council of Credit Unions that credit unions should be regulated by the same entity as the wider financial sector.

Senators will be aware that the Irish League of Credit Unions has had a concern that by placing the registrar within the regulatory authority structure, there would be an implication that they would be regulated in the same way as much larger financial institutions. This is not the case. However, officials and the Minister had intensive discussions with the ILCU and the Bill was amended in the Dáil to copperfasten the requirement that the authority must deal with them in a manner which has regard to their special nature and the particular legislation that applies to them.

In his statement to the Dáil in July 2002 in relation to the report of the inspectors appointed to inquire into the affairs of Ansbacher (Cayman) Limited, the Minister referred to the constraints on banking regulators arising from the confidentiality provisions contained in EU and national legislation. He stated that it was his intention to make significant change in the area of confidentiality by way of Committee Stage amendments to the Bill. These proposals are contained in section 33AK to be inserted in the principal Act. The emphasis of this section, as inserted into the Bill during Committee Stage in the Dáil, is on the obligation to disclose information to other statutory bodies where there is a suspicion that the law is being broken.

Subsection (3) of this section is the core provision. It stipulates that the bank must report to the relevant authority – for example, the Garda, the Revenue Commissioners or the Director of Corporate Enforcement – if it comes across any information that leads it to suspect that a criminal offence or a breach of the Companies Acts or the Competition Act has been committed. The bank need not report if it is satisfied that the institution concerned has reported the information to the relevant authority. As tax evasion and failure to report money laundering of the proceeds of tax evasion are criminal offences, Senators will readily appreciate the significance of this provision in light of the DIRT and Ansbacher investigations.

I now turn to another element of the group of recommendations contained in the McDowell report. The group agreed that, where functions are being transferred to the single regulatory authority, relevant enforcement powers which relate to those functions should also be vested in the authority. The group considered that the ability of the single regulatory authority to regulate any financial market without being able to impose civil sanction to enforce the same would result in ineffective regulation. The group recommended that, in the first instance, the single regulatory authority should have power to impose sanctions on a financial services provider for breach of the relevant regulatory code. The group also identified a need to set up an appeals system for financial institutions which wished to appeal against the imposition of such sanctions

The group recommended that a tribunal should be established at the outset of the new regulatory arrangements and that this should be facilitated by the inclusion of the necessary provisions for the establishment of the tribunal in the legislation providing for the establishment of the SRA. Accordingly, the Bill contains provisions for the establishment and operation of the Financial Services Appeals Tribunal.

The Bill provides for procedures for hearing and determining appeals. It also provides for references and appeals to the High Court and for other miscellaneous matters relating to the tribunal.

It is intended that the IFSRA will draw the majority of its initial staff from the regulatory departments of the Central Bank and the Department of Enterprise, Trade and Employment, including the Office of the Director of Consumer Affairs and the Registrar of Friendly Societies. The Bill provides for the permanent transfer of staff from the Department to the new authority, subject to their agreement. The staff of the entity, whether working in the IFSRA or elsewhere, will be employees of the reorganised bank, the Central Bank and Financial Services Authority of Ireland. The board of the bank is required, with the agreement of the chief executive of the regulatory authority, to arrange for employees of the bank to be assigned to the authority. These provisions should ensure the authority will operate effectively and efficiently from the outset.

As Senators will be aware, the McDowell report contained a package of recommendations in regard to financial regulation. The Bill deals mainly with the establishment of the IFSRA. The Minister for Finance intends to publish a second Bill later this year to implement the remainder of the recommendations contained in the McDowell report. The main provisions to be included in the second Bill are to establish a statutory financial services ombudsman; to establish consultative panels of the financial services industry and consumers; to address issues arising from the recommendations contained in the report of the review group on auditing; and to make additional provisions for codes of practice by the new authority and the penalties applicable where the codes are breached.

I would like to make two basic points in conclusion. The Bill is concerned essentially with putting in place the basic structures for regulation and part of a package of measures rather than stand-alone legislation. As regards the basic structures for regulation, I am confident that the new structures provided for in the Bill give us the best of all worlds. On the one hand, there is a new regulatory authority – the IFSRA – with a clear consumer mandate, and, on the other, there is an organic linkage to the authority responsible for stability and monetary issues. There is also a structure in the Central Bank and Financial Services Authority of Ireland which facilitates efficient use of resources and mobility of staff. The Bill also provides for clear accountability, both within the new structures and to the Oireachtas. The measures incorporated in it and the proposed second Bill will together lead to more efficient regulation, with a stronger consumer focus than heretofore. I commend the Bill to the House.

Although some institutions have slipped through the net, the Central Bank has been quite successful as a regulatory authority. The most glaring instance of a financial institution slipping through the net is Enron but I can also cite the Allfirst and Ansbacher examples. I welcome the measures announced by the Minister today to ensure there is greater regulation in cases like Ansbacher which is the subject of ongoing deliberations in another forum. Certain financial irregularities received a great deal of attention at the time but have slipped from the memory of people other than investors who lost money. Hundreds of innocent investors lost money as a result of the Tony Taylor affair, for example. Many pensioners who invested pensions and gratuities on the understanding their investments were secure lost money that they had put away for a rainy day.

While the Central Bank has had a reasonably good record in relation to the regulation and supervision of the prudential sector, it has a poor record in the area of consumer protection. Its primary focus has been on ensuring the maximum solvency of the financial institutions which come within its remit. The key barometer in determining whether a financial institution is healthy, solvent and secure is its profits. Such institutions do not make apologies for the fact that their interest in taxation matters and consumer interests is negligible or non-existent. Perhaps I should revise my comment that they have little interest in taxation – there was quite a degree of whinging from the banks when a paltry levy of €300 million was foisted on them in last December's budget.

The Central Bank is being asked to take on a new function and area of responsibility. It is being asked to protect the interests of consumers, despite the fact that this area has been almost alien to it in the context of its prudential responsibilities. Such a role is alien to it, given that it has acknowledged that its core responsibilities lie elsewhere. It has been argued vehemently and cogently in the Dáil that the two areas do not sit easily together and I share this opinion. In such a competing situation which interest will take precedence? I suspect that the Central Bank's regulatory role will inevitably win the day. The two interests are poles apart – they are diametrically opposed – and driven by two imperatives.

Anybody who has observed the performance of the Director of Consumer Affairs could not be unimpressed by her fearless and determined stand in taking on some of the strongest and mightiest organisations in the interests of the consumer. Under this Bill, however, the Office of the Director of Consumer Affairs is to be subsumed into the new IFSRA which, in turn, is to be a subsidiary of the Central Bank. I note the Minister of State's comment that the Government hopes and intends the director will take a leading role in the new authority. I would like to believe this but I do not think I can as the director is to be one of a number of people on the authority under the aegis and vigilant supervision of the Central Bank. It will be a case of Big Brother.

One of the strange aspects of the Bill is the length of time it took to reach this House. It was discussed on Second Stage in the Dáil on 18 June 2002, nine months ago. I do not know what happened in terms of what one might call legislative digestion but nothing has happened to the Bill since last June other than the fact that it has been ploughed through Committee, Report and Final Stages in the other House. It has arrived in the Seanad in the dying days of March 2003. In the Dáil last June the Minister for Finance said:

This Bill deals mainly with the establishment of IFSRA. I intend to publish a second Bill later this year to implement the remainder of the recommendations contained in the McDowell report. The main provisions to be included in the second Bill are to establish a statutory financial services ombudsman; establish consultative panels of the financial services industry and of consumers; address issues arising from the recommendations contained in the report of the review group on auditing; and make provisions arising from a review of section 16 of the Central Bank Act, 1989 dealing with confidentiality of Central Bank information. I must stress, therefore, that this Bill is, first, concerned essentially with structures and, second, is part of a package of measures rather than stand-alone legislation.

Nine months later there is no sign of the legislation which the Minister promised would be published before the end of 2002. The Minister of State, Deputy Brian Lenihan, said today that the second Bill would be brought forward "later this year"– he used the exact same term that the Minister for Finance used in the Dáil in June 2002. When will it be brought forward? Can the Minister of State give a definitive deadline for when the legislation which has been promised as part of the process of allaying people's fears will be introduced? What happened to it? Where were the draftspeople? Why was there a rethink? What is the revised publication date? Why was it decided not to introduce a single consolidated Bill containing all the provisions of this Bill and the other promised and long overdue Bill? It does not make sense that two separate Bills will be brought forward.

The refusal of the Minister to take cognisance of an excellent report commissioned by the Oireachtas committee which strongly advocated moving responsibility for consumer protection to a dedicated, independent Director of Consumer Affairs does not make sense either. The Central Bank actually suggested that all the functions it previously had in respect of consumer credit should be given to the director. It does not regard itself as having a role in consumer protection.

The merging of consumer protection with prudential regulation under the overall aegis of the Central Bank which has disavowed any interest in consumer affairs is manifestly not in the best interests of the consumer. I am very much on the side of the consumer on this issue. While the Director of Consumer Affairs has undoubtedly rattled some cages in the process of protecting the consumer, there are glaring problems that have to be addressed urgently. For example, there is appallingly sparse information on financial products. Legislation was promised to address this. It would involve a stand-alone Bill which we have not seen. We have to acknowledge that the director is grappling with the issue but still has a considerable distance to go.

Car insurance serves as another example. Apart from its grossly excessive cost, how many of us have received notification from our insurance companies seven days before the expiry dates of our policies that our insurance payments are due within seven days? This gives one no opportunity to shop around. The entire insurance industry, not only car insurance companies, is operating as a cosy cartel. The companies decide on a price structure and there is absolutely no competition in the market. They have one over a barrel and should provide one with, say, a three week period within which one can shop around for a better price. Stand-alone legislation could be introduced to address this area of gross abuse.

The issues of bank interest and borrowing should be addressed. One must acknowledge that interest rates on loans, including mortgages, have decreased. In spite of progress in this regard, bank profits in Ireland are double those in other countries. The McDowell report is the font of all wisdom. I have read it and, as the Minister will know, it includes a section comparing Ireland with other jurisdictions. It examined the kinds of regimes that operated in 19 countries in terms of consumer interest and the prudential sector. It emerged that 16 of the 19 countries had shied away from the merger of regulation with consumer interest. As they did not regard it as the appropriate model, why should we introduce it here?

One of the most bewildering aspects of the report is that, after having found that 16 of 19 countries did not favour the model, it recommended that the kind of agency proposed in this legislation was appropriate for this country. I do not see how one can accommodate two diametrically opposed interests in the one authority, one dealing with regulation of the prudential sector and the other dealing with consumer interest. It should be a case of, "Ne'er the twain shall meet". I am in favour of one-stop-shops but the one-stop-shop proposed in the Bill makes no sense whatsoever. Therefore, I oppose it.

It makes good sense to establish an interim authority in order that any teething problems can be ironed out. It is good that the financial industry will be the principal beneficiary of the legislation. Companies involved in the industry need a respected regulatory framework to allow them to function and make profits and it is correct that the authority should, in the main, be funded by the industry. It is easy to criticise banks in respect of the profits they make, but healthy banking institutions are needed. That does not mean that one necessarily endorses all charges levied by banks. For example, in many cases the normal overdraft charge has remained constant at 10% or 11% at a time when there has been an overall drop in interest rates.

I wish to refer to the Central Bank's report, which was issued yesterday. There were a number of demands on the Order of Business that certain matters covered in the report should be debated. This is one of the opportunities to do so. What the report has to say about inflation is particularly significant. There have been some suggestions that inflation is rising and if one takes the figure for last month in isolation, that is true. However, inflation is on a downward trend and that is confirmed in the report. In that context, the report cites significantly reduced pay increases, indications of pay restraint in sectors facing competitive pressures, weaker demand and falling rents and states that income growth has been subdued. It is also stated in the report that there are signs that inflation is easing.

The report further states – this will be relevant to the debate on social partnership – that "The prospects for a further deceleration in wage inflation in 2003 have been improved by the relatively modest wage increases proposed under the new national wage agreement." Even in the case of the housing sector, it has a positive view on recent developments and states:

.the removal of the first-time buyers grant will reduce demand in this sector and the emergence of excess supply in the rental market will restrain investor demand. In line with risks for the economy in general, the balance of risk in the housing market is on the down side.

The report also points out that the decline in headline inflation is somewhat masked by increases in indirect tax rates and certain charges.

The report contains an interesting assessment of the employment situation. It makes the point – which has been repeatedly made by Senator Higgins in recent days – that employment last year was boosted by public sector growth. Obviously that will not be the case in the period ahead.

It is interesting, in light of conditions improving in the long term, that the report indicates that only 19% of the workforce is engaged in the education, health, public administration and defence sectors. We are ahead of Portugal, Greece and Spain, but behind all other EU partners, in terms of the size of our public service. Sweden is top of the range at 31%. In relative terms, we do not have an overly large public service. I accept that our defence forces are small in comparison with those of many of our partners and this may account for some of the difference. Overall, however, we should not be of the opinion that, particularly in comparison with those of other countries, our public service is bloated.

The Central Bank's average projection for unemployment this year is 5.75%, which is somewhat disappointing. I had hoped it would not rise above 5%. On the financial situation, the bank forecasts that, based on announced plans, the general Government debt will remain at 34% to 35% to 2005. This compares favourably with other countries and provides a sound basis for improvement.

I hope the new Central Bank will continue to issue its regular reports and that the proposed regularity authority will produce reports on a parallel basis. We have been very well served by the Central Bank. This new legislation will eliminate any ambiguity in regulatory interventions if untoward things happen in the financial sector. What we will have, as a result of this legislation, will be an integrated authority, where, hopefully, the right hand will know what the left hand is doing and where there will be a reasonable degree of co-ordination. The balance of advantage is to have one body, rather than two separate bodies. On that basis, I support the Bill.

The Arts Bill 2002, which is going through the Oireachtas at present, exemplifies a simpler, clearer and more open solution to the problem of making significant amendments to an existing Act. It repeals the two previous Acts and starts over. The benefit of this is that, for the next 30 years or so – I do not know for how long the new Act will hold sway – all our arts legislation will be neatly contained in one document and its constituent parts will be readily accessible.

In contrast, this Bill is a textbook example of how legislation should not be drafted. It will place on the Statute Book a separate Act that will be completely incomprehensible. This will, quite gratuitously, create a barrier to people's understanding of the legislation and will act as an obstacle to those who will have reason to refer to the legislation in the future. The person who conceived of this approach belongs to the era before the strategic management initiative, which was established six or seven years ago. He or she belongs to a culture which believes that members of the public have no right to easy access to the machinery of Government or to the laws by which they are governed. I hope that this is a one-off aberration and is not a signal of a new direction the Government proposes to take in regard to future legislation. The Bill, in its current form, sends a message to the people that they will not welcome.

I will conclude on this topic by repeating a point which I have made on numerous occasions. If we expect people to take an interest in the political process, we must make it easy for them to do so. We have been criticised for the decrease in the numbers of people who vote in elections. The latter seems to have happened quite regularly in recent times. Various efforts have been made to encourage a higher turnout at elections. We are often criticised and informed that people do not understand or do not take an interest in what happens in the Houses or in the legislation introduced here. When we behave bring in legislation of the sort before us, we make it difficult to encourage them to do so. I urge that this be the last item of legislation to take such a convoluted form.

The most contentious issue in the Bill is whether the proposed structure for financial regulation is the best route to take. Is the Central Bank the right body to look after the interests of the customers of firms operating in the financial services sector? I have experience of the Central Bank. I am probably one of the few Members who has visited the mint at Sandyford and the Central Bank itself. I did this prior to the euro changeover, when I was a member of a group in Europe which represents retailers. The group was concerned because, as a result of the flexibility of the process, the regulations introduced by the 12 participating nations were different. It wanted to ensure that certain steps would be taken to ensure that the central banks in each country would introduce the euro in a way that would make the changeover work. I was favourably impressed on that visit. The representatives of the Central Bank were receptive and understanding and my Dutch colleague, who was acting on behalf of the retailers, was impressed with its customer-driven approach. The fact that the changeover went so well is evidence of that.

I am concerned about whether the Central Bank is the right body to represent customers. From that point of view, what we are doing is similar to placing responsibility for the Office of Consumer Affairs under the aegis of IBEC. The latter is a producers' and employers' organisation and it is not part of its culture to place the interests of customers first. However, it would be extremely foolish of the members of IBEC to disregard those interests. Similarly, the Central Bank has always been more of a producers', rather than a customers', organisation. Its role has not been to represent the banks, but to regulate them. It has always seen its main job as keeping the banks in business, in order to sustain competition, by protecting them from anything that would threaten their ability to survive. That is right and proper and it is an essential function that the bank has performed very well.

The limited view the bank takes of its role was highlighted during the DIRT inquiry, when those responsible for running it admitted, quite frankly, that they were aware of what was going on in respect of DIRT but that they did not consider it part of their job to do anything about it. The issue appears to be whether it is possible to join together two such disparate tasks as regulating the financial sector and looking after the customers' interests? I am not sure that it is possible and my instinct is to be rather sceptical about it.

I will provide an example from the telecommunications sector which may be relevant. When the legislation to establish the Office of the Director of Telecommunications Regulation came before the House, I argued that the role envisaged for the regulator was not active enough to ensure that customers' interests drove the activities of the office. The role as set out in the legislation was essentially one of maintaining a balance between those who wanted to compete in the telecommunications sector. I argued that it should involve actively encouraging competition rather than letting it develop of its own accord. I suggested that perhaps we should not have a regulator but that the State should regulate, drive competition and encourage outside interests to enter the sector because this would be to the benefit of customers.

I did not win the argument, but I suggest that later events proved me right. The regulator found that her hands were tied because she did not have the power to do what soon transpired to be the obvious and necessary things required. The less than satisfactory situation that exists in the telecommunications sector today – with high costs, etc. – is due to the curtailment of the regulator's power in the past five years. It would have been better if we had done things differently and encouraged more competition, rather than merely ensuring that there was a balance between those already operating in the sector.

The Central Bank's traditional role has been to keep the banks in business and ensure competition. I agree with that objective, but we are now expecting the Central Bank to make life difficult for the commercial banks by taking the customer's part against them. I have some experience in this area because I was involved in unsuccessful efforts a few years ago to establish a bank, to compete through supermarkets, with other banks. The initiative involved the amalgamation of financial services between my company and TSB. It was a great attempt to encourage competition, but it did not succeed. Some people felt we never should have become involved in the sector in the first instance.

The essence of effective competition in any marketplace is the ease with which customers can change suppliers. In the grocery business, which I know something about, that happens to a large extent. It is easy to take one's business to a retailer that is to one's liking and also to chop and change between service providers. People have the choice of shopping with me or with my competitor down the road because there are no barriers in place to prevent them making that choice. That is not the case with banks. Moving one's bank account is an enormous hassle which anyone who has not done so will discover if they dare to try. This need not be so, but the banks have deliberately designed the system in order to retain business. There is nothing to prevent banks creating artificial barriers to stop the customer from exercising choice, but we can change that if we wish.

If one lives in a small town, one will be familiar with the different banks and there might be some embarrassment involved in changing from one to another. The real problem with transferring one's account relates to standing orders, etc. We could provide that when a customer elects to change suppliers, the paperwork would be carried out by the existing bank within a short period. The process could be triggered by the new bank when the customer signals his or her decision to transfer an account. All that would be involved would be the making of simple requests for the details regarding standing orders and so on. This is the sort of requirement on which a regulator would insist if customer interests were at the top of his or her agenda.

Competition in this case means having the freedom to change banks and anything that is a barrier to that should be removed. In the UK, there is a regulation that makes it simple and fast for any bank customer to move their account. I have no doubt the Central Bank will include customer interests as one of several items on its agenda, but I have noted that it should be the priority.

Will enough be done to achieve what is intended by the legislation? I take some encouragement from the structure proposed in the Bill to create a regulatory body that is separate from the Central Bank proper, even though it will be under the bank's control. We must ask, however, if the separation provided for will be enough to allow the regulatory body to pursue its agenda and ensure that customer service is the driving force in the process. I doubt if anyone can be certain that will be the case. The best we can hope for is that awareness of the need to prioritise the customer's agenda is kept alive. If we find over time that the structure this legislation puts in place is not effectively looking after customer interests, I hope we have the courage and determination to revisit the issue and put matters right. I welcome the Bill, but I do so with a degree of scepticism and concern mingled with hope that the Minister's obvious intentions will be achieved.

Under the new section 33J to be inserted in the principal Act, the regulatory authority will have the power to impose levies on regulated institutions to provide it with sufficient funds to perform its functions. The new section 33J(5) provides that the levies collected from credit unions shall not exceed the total amount of the costs incurred in performing the 25 functions and exercising the powers of the bank under the Credit Union Act 1997. Is it intended to allow the levies imposed on other sectors to exceed the costs of regulating them? Assuming it is not, all financial services providers should be treated equally in the legislation.

It is right that the legislation provides for resources to be used efficiently, effectively and economically by the Central Bank and its constituent parts. Regulation and supervision should also be cost effective and the burdens imposed should be proportionate to the intended benefits. This is normally achieved through a regulatory impact analysis coupled with periodic independent reviews, but the Bill does not appear to provide for such mechanisms.

The new section 33AJ(2) provides that the Central Bank, the ISFRA and their staff, members and agents are excluded from liability arising from civil suits brought in the context of anything done in the performance of their functions or powers unless an act or omission was in bad faith. Where wilful misconduct or gross negligence occurs, the exclusion from liability appears to apply, which is a point that should be examined.

I highlight also Schedule 1, which contains some 80 pages of consequential amendments to the legislation. Schedule 2 contains a further 19 pages of consequential amendments to statutory instruments which implement EU directives. Perhaps the Minster of State to indicate whether these amendments are consequential or whether substantive amendments to existing legislation are included. If there are substantive amendments, they should be clearly identifiable.

Section 149 of the Consumer Credit Act is being amended by altering the definition of charge. A further worthwhile amendment to this section would be to substitute the word "consumer" for that of "customer" where it occurs. This would have the effect of confining the legislation to dealings with consumers, which would be in line with the intent of the consumer credit directive and clear up a long-standing legislative anomaly.

Looking at the amount of legislation we have now is, as Senator Quinn said, similar to a form of gymnastics. We need to be very careful to get it right. We should not bring forward legislation for the sake of it, particularly if it is not compatible with existing legislation. This Bill implements a portion of the McDowell group recommendations. Further recommendations of the group will be forthcoming at a later stage. It is important that its work is fully implemented. However, I urge the Minister to give serious consideration to consolidating the various Acts as has been done in the area of taxation. It would be a worthwhile exercise from the point of view of both consumers and those responsible for the implementation of the regulations.

Our experience of regulators and regulation sadly tends to confirm this. Most of what the Central Bank was supposed to do in the area of financial services was prudential regulation. However, for quite a while it had a token consumer regulation role also in the sense that it regulated bank charges before the Director of Consumer Affairs took it over. Consumer regulation did not loom in its thinking. The truth is that in every one of the scandals that emerged and which have affected the whole of the financial services area it said it did not know, thereby confirming the validity of the opinion that a regulator rarely knows as much as those being regulated. It seems, therefore, that unless regulators have a clear and unequivocal primary function, to protect the consumer, the balance will be weighed in favour of the interests of the regulated. It is the classic dilemma.

According to the Minister of State's script, the mandate of the regulatory authority is to promote the best interests of users of financial services – which means those of consumers – in a way that is consistent with the orderly and proper functioning of financial markets and the orderly and prudent supervision of the providers of those services. When those interests have to be balanced, whose will have the heavier weight? Whose is the easiest to leave out? Who will have the least organised lobby, the least organised publicity? It is clearly the user, the consumer. That is inevitable because, to again push the environmental analogy, the consumer is the point source of information whereas the regulated are organised institutions with a profile, resources and a continuity of interest in these matters, which means that they will have a continuous feedback into the regulating bodies. Therefore, the definition of what represents a way that is consistent with orderly and proper functioning will almost inevitably and without any malice or wrongdoing by anybody be balanced in the interests of the regulated rather than consumers. Once that balance is allowed to be taken into consideration there is a fundamental argument about this legislation. Co-opting the Director of Consumer Affairs – I will come to the credit unions later – into this essentially regulatory process will inevitably guarantee that the balance of interests will be weighed in the direction of the regulated rather than consumers. Again, this is not a criticism of the Director of Consumer Affairs, though that office did fail on a major issue.

Unfortunately, we have a succession of evidence that regulators, while they are supposed to have a brief to look after consumer interests, inevitably end up with what they see as a balanced position. There is a classic example in the city in which I live. The Office of the Director of Telecommunications Regulation, now subsumed into ComReg, has continuously succumbed to the arguments of a cable television service, allowing it to do things which are in breach of its contract and charge fees which are quite exorbitant. There is no particular reason other than an historic one cable television should cost more in Cork than anywhere else in the country but it does because nearly 20 years ago the service was being transmitted by a long cable from the Comeraghs to Cork involving considerable investment. That was given up years ago and satellite television services are now used but the regulator still allows a rate of charge for the service based on an antiquated and out-of-date argument.

I am not implying the regulator is misbehaving. I am saying the regulator has listened to the consistent, intense lobbying by the regulated and compromised between them and the rights of consumers – to integrate the regulation of the system, the technology or the processes as in the financial services with the regulation of what should be a sole priority, the rights of consumers.

Let somebody else who is totally independent look after prudential regulation. If consumers' rights are a dominant issue and concern, they should be the sole concern of somebody. Let some other person argue with the Director of Consumer Affairs about prudential regulation and, if necessary, let the Oireachtas be the final arbiter. To pretend that consumer interest regulation and prudential regulation can be integrated in one institution is to cede the argument to the regulated. That is a long-standing view of mine. Even with independent consumer interest regulation, extraordinary things can happen.

I was a member of the Joint Committee on European Affairs in the last Oireachtas. One of the areas of interest for the committee was the transition to the euro for which the rate of exchange was fixed about three years before notes and coins came into use. Most of us had assumed that the permanent fixing of the exchange rate would mean that since there was minimal cost to the banks and zero exchange risk there would be a dramatic drop in the cost to the consumer of acquiring currencies. However, the banks succeeding in persuading the Office of the Director of Consumer Affairs that other costs would be incurred. To compensate for the loss of profits made from the alleged risk of currency uncertainty, charges for acquiring French francs or German marks rose. The consumer was only at best marginally better off. The Director of Consumer Affairs accepted the argument that being slightly better off was acceptable.

The European Commission intervened with some equivalent of dawn raids on some of our more prestigious banks. After a lot of huffing and puffing the charges which the Director of Consumer Affairs had ruled to be reasonable mysteriously turned out not to be needed after all. The banks persisted even longer with the charges accruing to withdrawals of, for instance, French francs from an ATM in France. They charged a 3% levy on such withdrawals until the European Union intervened. They then conceded that the same charges would be applied to ATM use elsewhere in Europe as are charged in Ireland.

It must be clarified unequivocally that the regulator in the area of consumer interests is a champion of the consumer, not a champion of a balanced position. I have great respect for the present Director of Consumer Affairs but it is extremely difficult for even the best of regulators because the regulator never knows as much as the regulated. That is one reason I would have preferred to see a separation of the prudential regulation of financial services from consumer interest regulation. I am sceptical about regulators generally. I am even more sceptical when there is a perceived or real potential conflict.

Credit unions are another focus of legitimate concern about which the Minister of State has spoken at length. Most accept that there were gaps in the regulation information. I was intrigued by the Minister of State's speech. I know he has up-to-date information. He has said there are 438 credit unions. The report for the year 2000 of the Registrar of Friendly Societies is the last available from that body. How can there be proper regulation if the information available to the Oireachtas is almost three years out of date? That is an argument for a new look at the regulation of credit unions.

There is a fundamental difference between credit unions and other financial institutions. They are run by volunteers who are not there to make money for themselves. Such institutions cannot be integrated with a financial services sector run by individuals who grossly overpay themselves. They regard financial services as the area in which to get rich quick. To a degree, it is a semi-protected market. The same ethos, values or regulation to deal with financial services delivered through the volunteer credit unions cannot be applied to financial services in which individuals are very highly rewarded. It does an injustice both to the credit unions and those asked to regulate them.

The Bill will place added emphasis within the supervisory structure on the consumer interest. A new position of consumer director will be established. The office of the parliamentary counsel has identified and listed the specific enactments and regulations under which the regulatory authority is to perform functions of the bank, amended and restated the provisions of the 1942 Act, repealed and amended other Acts consequential on the provisions of the Bill and amended the European Communities legislation.

I will respond to specific issues raised by Senators. Senator Higgins complained about the delay in dealing with this measure from the time of its introduction. No Oireachtas committee was established until some time after the convening of the new Dáil. Therefore, while the measure was introduced on Second Stage as one of the first measures of the new Dáil, the necessity to establish the committees imposed a considerable delay in progressing the measure. The Senator also raised the question of bank charges, of which I am advised that the Competition Authority is conducting an investigation.

In regard to the promised Bill dealing with panels of experts and the ombudsman, the heads were published with a consultation document in July 2002. Extensive comments were received. Accordingly, the heads have been revised to take account of what were very helpful comments and submissions on the measure and the Bill is now with the parliamentary counsel for drafting. The target for publication in mid-year is realistic.

The core issue raised by the Senator and touched upon by Senators Ryan and Quinn relates to the Government's decision to integrate prudential supervision with consumer protection which should be distinct policy objectives. As the Senators pointed out, the Central Bank is responsible for prudential supervision of financial institutions operating in the State such as banks and building societies, while the Department supervises the insurance industry. The Director of Consumer Affairs has certain responsibilities under the 1995 Consumer Credit Act. Due to legal and confidentiality requirements, there has been a well highlighted difficulty in the full exchange of information between regulators. I am sure Senator Ryan would enjoy that justification.

The McDowell group believed strongly that separating consumer issues from the prudential regulator had two important disadvantages. First, it left unresolved the legal problem of passing relevant information from the authority to the Director of Consumer Affairs and, second, the advantages of a one-stop-shop would be lost in that there would be two official bodies dealing with different aspects of financial services regulation. The group concluded that, given the requirement imposed by the relative EU law, the best mechanism for providing for the maximum flow of information between prudential regulators and those concerned with consumer protection was to combine both functions within one authority. The Government considered this restriction in the exchange of information was unacceptable. Because of this and other considerations, it decided to implement the structure before the House today. It is important to stress in the light of comments made by various Senators that this is not the existing Central Bank, standing as is, or amended by this legislation. A new authority is being established under the legislation which will have a special relationship with the Central Bank which is being transmogrified by the legislation.

The question of how best to deal with the issues arising from combining the functions of prudential regulation and consumer protection was dealt with comprehensively in the report of the McDowell group. A number of options were examined. The group examined the issue of protecting the interests of clients of financial institutions, both at the level of protection of consumers' interests in the context of solvency and at the level of the individual consumer and his or her relationship with the particular institution. The relationship between these levels was examined, especially from the point of view of the obligations imposed under EU law in relation to the prohibition on disclosure of information to the relevant authorities on issues for which it had no statutory function. The ability to disclose information is very important, as seen in the DIRT inquiry. In the end, the expert group took the view that the consumer's interests would best be served by combining the functions of consumer protection and prudential regulation in one body.

Various other options were examined. Separate authorities for prudential regulation and consumer protection – two competent authorities, one having a consumer protection function and the other a regulatory authority with a subsidiary responsible for consumer protection – were ruled out as it was only within the entity which combined the prudential regulation function with the consumer protection function that the disclosure of information between the two could be done within the provisions of EU law.

Apart from this issue, the Government was of the view that the integration of the two functions provided for the advantage of the one-stop-shop. In the context of Ireland being a relatively small jurisdiction with a limited pool of expertise in the case of financial regulation, it is important to build a critical mass of skills relating to financial regulation in a single location. This is of major importance to the country. It also places the interests of consumers at the heart of financial services regulation by giving the authority specific responsibility in this regard. What is at stake is not simply a restatement but a redefinition of the role of the Central Bank.

Senator Mansergh referred to the International Financial Services Centre and the tremendous success it has had and the importance of light regulation. This is a balance which must be struck in this matter. He used it as a basis for urging us to proceed with great caution in this area. I agree with him that it is important to be very cautious. However, we have considered the report and made our decision on that basis. There is a transfer of some but not all of the Central Bank's functions. No doubt, a sound banking sector is essential to our prosperity.

Senator Quinn raised the form of the drafting. When I was first tasked with introducing this measure on Report Stage in the other House a few weeks ago, I had sympathy with his point of view. The McDowell group recommended that a single regulator should be set up which should be followed by the consolidation of the relevant legislation. The Minister for Finance has decided to adopt this sequence. He has promised that the relevant legislation will be consolidated. This sequence will allow the authority to have a full say in the consolidation exercise. It is proposed to enact the second measure which I outlined to Senator Higgins and, at its conclusion, consolidate the entirety of the legislation. There will be consolidation of all Central Bank legislation into one piece of legislation with the financial legislation.

I agree with Senator Quinn that the complexity of the legislation before us is very striking. The parliamentary counsel had a very difficult task to perform. The practical need to ensure the regulator was established not just on an administrative basis but also on a legal basis was very important to the Government. There is a sequence. Following the enactment of the legislation dealing with the ombudsman and the panels, there will be consolidation of the relevant financial legislation. Consolidation is very much on the agenda.

Senator Quinn also raised the question of reporting and the frailties in the performance of the Central Bank disclosed at the DIRT inquiry. The Minister accepted amendments in the other House which strengthened the reporting obligations.

I think I have dealt with most of the points raised by Senators. The question of credit unions was also raised. The credit union movement has occupied a unique niche in a very competitive and fast-changing financial environment. Credit unions foster a habit of saving and thrift. There is no doubt the movement is based on a very admirable principle of self-help and mutual co-operation and that there has been a tremendous record of impressive growth in recent years. Voluntary effort is a particular feature. The Bill as initiated provided that the functions of the Registrar of Friendly Societies would be carried out independently by a registrar of credit unions.

Senator Ryan has drawn attention to the fact that the recent report and statistics available to us go back to 2000. I understand the delay is linked to the time it takes to obtain information from the relevant credit unions. I suppose when one is dealing with a voluntary organisation, this can often be a difficulty. Those of us who seek to register party branches or cumann in a calendar year are more than aware of it.

The Bill as initiated provided there would be a registrar of credit unions loosely within the overall framework of the regulatory authority. Both the members of the interim Irish Financial Services Regulatory Authority, established in April 2002, and the Governor of the Central Bank were unhappy and expressed reservations about the reporting arrangements for the Registrar of Credit Unions within the new regulatory authority. They argued that they contradicted the principles of good governance. The Minister felt obliged to look again at the provisions and amendments were tabled in the Dáil which altered the reporting relationship of the registrar, bringing the position more fully within the framework of the authority. This matter on which the Minister had very detailed discussions with the league can be looked at on Committee Stage.

On 16 December 2002 the Minister set out in detail the amendments he proposed to make to the Bill, their impact and the reasons he considered he had no choice but to propose them. A delegation from the league held a subsequent meeting with officers from the Department of Finance to examine possible wordings to ensure the ethos, characteristics and uniqueness of credit unions could be safeguarded in the Bill. The officers met the league on a number of occasions in January and a draft text was agreed. The league confirmed it was satisfied and the Bill was sent to the parliamentary counsel for drafting. It is now before the House.

The supervision of credit unions by the new authority should not be viewed as a threat to the movement but should be seen as a development that will work to the advantage of the credit union movement and member customers of credit unions. The concerns expressed by the league have been taken into account by ensuring any directions given by the registrar must be within the scope of the Credit Union Act 1997. The Bill provides that the regulatory authority will be obliged to have regard to the particular nature of credit unions, having regard to the 1997 Act and the voluntary ethos of credit unions. I understand the league has written to all credit unions stating that while it has a preference for the Bill as published, the new amendments mean that the authority will have to take into account the unique nature of credit unions and the decisions affecting them. I can make available a copy of the league's statement to Senators if they wish.

I have dealt with most of the points raised by Senators and thank them for their attention. I commend the Bill to the House.

Question put.

Tá

Níl

Tellers: Tá, Senators Minihan and Moylan; Níl, Senators U. Burke and Tuffy.

Question declared carried.

Committee Stage ordered for Tuesday, 1 April 2003.