Charlie McCreevy (Kildare North, Fianna Fail)
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I welcome the opportunity to address the House. During the past two weeks we have seen what is perhaps a first test of the new regulatory structure for financial services that was put in place last year. This new structure, which brought the financial services regulatory activity of four different bodies into a single new authority, the Irish Financial Services Regulatory Authority, IFSRA, was established by the Central Bank and Financial Services Authority of Ireland Act 2003. That Act rationalised the regulation of financial services and, in doing so, placed consumer issues at the heart of financial regulation in Ireland.

IFSRA has a dedicated statutory position of consumer director and the Government has allowed it the resources to greatly expand the focus on consumer issues in financial services. Members will have seen the difference this new structure has made in the regulatory reaction to the recent events at AIB. The regulator has been open and forthright in dealing with the issues which have arisen and has truly been the consumer's friend in the matter. Actions speak louder than words and the evidence of both the Government's and IFSRA's actions contradicts the assertions made by some people last year that IFSRA would be uninterested in the consumer and that the Government was more interested in protecting institutions than in protecting the consumer.

I wish to comment on some of the things IFSRA has done in the 12 months since it was formally established, arising from its new statutory remit. As regards consumer protection measures, the financial services regulator has taken a number of initiatives, namely, independent consumer guides on mortgages, savings and investments and personal loans and credit have been published; costs surveys on motor insurance, personal current accounts and credit cards have also been undertaken; a consumer helpline, information office and website have been established; the consumer director monitors the market and co-operates with the Competition Authority where appropriate; to ensure that financial service providers act in a fair and transparent way, IFSRA has supplemented pre-existing codes of practice by issuing an interim code of practice to guide the activities of insurance companies, mortgage intermediaries and moneylenders; a comprehensive review of all codes of practice has commenced and three consultation papers have been published in regard to conduct of business, the marketing and sale of tracker bonds and the mandatory competency requirements of financial service providers who deal with consumers; in order to foster safe and sound financial institutions in a competitive market, new client money requirements that apply to investment firms and stockbrokers have been amended and new money laundering guidance notes lave been issued; and new governance requirements for stockbrokers were introduced and the financial service regulator's staff are assisting my Department in reviewing client asset legislation.

This is a substantial list of actions taken or under way in IFSRA. The Government's actions will also continue to speak for themselves. Last year was the time for a radical overhaul of the institutional structures for financial services regulation. This year, we are in action again with a second, complementary, item of legislation which will give further powers to IFSRA to protect consumers and the financial system. Earlier today in the Dáil we considered Report Stage of this Bill, under which IFSRA will be given powers, with appropriate constitutional safeguards, to apply financial sanctions to miscreant financial institutions and also, in certain circumstances, to individuals within those institutions. For institutions, the penalties proposed can be up to €5 million. Individuals may be disqualified from working in the financial sector.

In addition to the penalties provisions, the Bill provides for significant additional powers for IFSRA to require formal statements from institutions in regard to their compliance with legislation, that is, compliance statements, on which IFSRA may also require sign-off by auditors. This provision will be in addition to provisions of the Companies (Auditing and Accounting) Act 2003 which will impose an obligation on the directors of companies to prepare and publish a directors compliance statement. The legislation currently before the Dáil will put the ombudsman system for financial services on a stronger footing, ensuring for the first time that there will be a single scheme serving the whole range of financial services consumers, operating on a statutory basis.

I will now deal with the AIB affair. Among the responsibilities transferred to IFSRA under the 2003 Act were the functions which formerly rested with the Director of Consumer Affairs under section 149 of the Consumer Credit Act 1995. This Act required credit institutions to notify the director of their charges. However, it did not make a failure to notify correct amounts to the director an offence.

IFSRA is carrying out a serious and detailed investigation and we should not prejudge the facts until it is completed. A team of senior inspectors has already advanced its work and, as a result, IFSRA has established that it should be possible to identify from records at least two thirds of the customers who have been affected by incorrect charges.

Naturally, the focus of the IFSRA investigation is initially concentrated on identifying the amount involved and the customers affected. The next phase of the IFSRA investigation will involve finding out how this could have arisen in the first place and then persisted over an eight-year period. It will also identify whatever measures need to be taken to address the issue.

IFSRA has also agreed with AIB that a €25 million deposit will be made with the Central Bank to cover anticipated costs of reimbursing customers, including interest. An independent investigation has also been set up. I note that this investigation has been set a very tight deadline for reporting of mid-June, which I think is right. The public needs the reassurance of knowing that this matter is being pursued vigorously and that remedial measures are being put in place.

As regards ongoing official policing of the 1905 Act provisions, I understand there is a spot-checking system in place and the majority of these spot checks have concentrated on foreign currency cash transactions. These account for the vast majority of foreign exchange transactions carried out by consumers. Random checks do not pick up everything, and I understand the IFSRA will consider any changes to the regulatory procedure required following its investigation in the current case.

The chief executive of IFSRA stated: "This case, I believe, clearly demonstrates that we do have powers and we are willing and able to use them on behalf of the consumer." However, he has noted a desire that IFSRA would have additional powers to levy penalties or sanctions in appropriate cases. As I have already outlined, the Central Bank and Financial Services of Ireland Bill 2003 is currently before the Dáil and will address these issues.

I have also tabled Report Stage amendments to the Bill currently before the Dáil which will ensure that in addition to the new penalty powers of IFSRA, breaches of the bank charge provisions of the Consumer Credit Act may also be treated as an offence, with all that this entails.

In human institutions, mistakes will sometimes occur. Banks need to ensure they have compliance and monitoring systems in place to minimise the number of mistakes and to identify those mistakes when they happen. They must also be fully committed to compensating consumers who lose out, must be open in their communications with the regulator and must foster a culture of openness, professionalism and fair dealing among their staff.

I turn briefly to the question of mis-selling of financial products. There is public concern about the way banks sell their products. Some cases have been highlighted in the media recently about situations in which elderly customers have purchased products that seem on the face of it inappropriate for them. As with any product, customers need to be vigilant at all times. Banking products are complex, but independent information is increasingly available from the regulator. I accept it is not always possible for all consumers to assess the risks involved in the more complex products, or right to expect them to do so. Banks should have procedures in place to ensure that products are not mis-sold. This is something the IFSRA is actively examining.

IFSRA will set new and additional standards for banks in this area. These standards will be embodied in new codes of practice being developed following the public consultation process, which recently concluded. If a regulated entity ignores or breaches those codes, the regulator will be able to penalise it. When consumers feel they have been mis-sold a product, they will be able to go to the statutory financial services ombudsman for redress.

To sum up, a great deal has been happening recently in regard to financial sector regulation. The Government has sponsored legislation, enacted last year, to establish IFSRA, which is already proactively managing the situation that has arisen in AIB. The Government has, through the legislation, considerably extended the consumer protection and education functions of IFSRA and has allowed it the resources to carry out those functions. Further legislation is already on Report Stage in Dáil Éireann.

We should await the results of IFSRA's detailed investigation before drawing final conclusions on the particular case, but it is clear that IFSRA has in its first year taken a significant number of actions to protect consumers and the financial system, and additional work continues.

We must all, Government, Oireachtas, regulators and financial institutions, learn the lessons that will emerge from the AIB case and from other issues that come to light in order to provide greater safety and reassurance to the financial services consumers. The Government is determined to do its part.

Fergal Browne (Fine Gael)
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I welcome the Minister. He does not sound his best today; perhaps he reflects the state of banking in this country and the lack of public confidence in the system.

I regret this issue is coming before the House today when, perhaps, debate is still ongoing in the Dáil. My colleague, Deputy Richard Bruton, has put forward amendments on the Central Bank and Financial Services Authority of Ireland Bill, but I am not in a position to say whether they were accepted. The timing on this could have been better organised. It does not help that the Minister had to tear across here from the Dáil for this debate nor that the report will not be out until mid-June. This debate tries, in a way, to pre-empt the report. While the debate concerns the general banking system, all of us will of course refer to the AIB controversy because it is fresh in our minds.

We cannot blame the public for its cynicism on this issue. We know that if any of us owe money to the bank, it is not long before we get a reminder. In the past, prior to the time when interest rates rose so high in the 1980s, people were encouraged to borrow heavily. However, when matters started to go wrong, the banks were very quick to call in loans and repossess property and farms. This is still fresh in people's memories.

The Minister admitted that the overcharging in AIB was going on for eight years, an astonishing length of time. He mentioned in his speech a proposed penalty of €5 million. Those who pick up the tab for the €5 million will not be the offenders but the bank's customers, because the money will come from general banking charges. How can we put forward sanctions that will hit the offenders and not be passed on to the ordinary customer?

The Minister hopes the Central Bank inquiry will ascertain approximately two thirds of the customers who are owed money. What plans has he got to ensure the remaining third will receive compensation or that no bogus applications are made for compensation? It is a sorry mess. The overcharging took place over a period eight years and I imagine some people genuinely entitled to claim compensation have forgotten about their transactions.

While AIB said it was unaware of the overcharging, a claim was made in The Irish Times last Saturday that in 1998 the Director of Consumer Affairs had asked the bank to ensure it was not overcharging for these services, but the bank failed to confirm whether it was overcharging. This implies a breakdown in the system. When asked to clarify whether it was overcharging, the bank did not even reply to the Director of Consumer Affairs. It is not right that consumers should be treated with contempt by the banks who give the impression that they are untouchable. It was only because of media hounding that AIB came clean on this issue. It said at first that it had lodged €14 million with the Central Bank to cover reimbursement, but that has now been increased to a stunning €25 million. It is quite possible this could increase further.

Many questions must be asked of the banking institutions and the Government. Why is an internal inquiry taking place and why is the Garda not involved? Why do we ask an institution to investigate itself? Has the Minister full confidence in that system? Should not an outside agency such as the Garda be brought in to investigate the overcharging? Why have the Taoiseach or Tánaiste not apologised for allowing a situation develop where the integrity of the banking system was again denigrated? Why must the consumer take the pain while those meting it out get away scot free? What will it take for the Government to give consumers the voice they deserve and which employers and workers currently enjoy?

AIB customers would probably not have faced such overcharging had IFSRA been up and running prior to 1 May 2003. Unfortunately, internal rows between the Minister for Finance and the Tánaiste led to the delay. Currently, the Government has no power to seriously punish AIB for its misdeeds. One would wonder what view the board of directors of AIB and other institutions which have been caught out in the past hold on that. There are no sanctions.

In the past few months my colleague in Carlow-Kilkenny, Deputy Hogan, has highlighted the rip-off culture, of which the charging of 1% instead of 0.5% commission is a prime example. We have consistently called for the following measures: regular price surveys to be conducted to highlight good value and name and shame those charging excessive prices; a price league website with prices on all major products to be created; codes of conduct to be developed for service providers and retailers on issues such as passing on exchange rate movements; a good practice provider quality mark to be devised and promoted for suppliers of goods and services who agree to be bound by relevant codes of practice; the local authority to be worked with to drive a pro-consumer agenda at local level involving regular price surveys and measures that protect consumers' interests against local cartels; fines to be imposed for non-display of price lists in banks, petrol stations, pubs, hairdressers and so on — the fine of €127 should be increased to a maximum of €3,000 to put pressure on people to give full information to consumers; and consumers to be represented in national partnership agreements. It is clear that recent agreements have been dominated by the producer with little thought given to consumers.

It is important that workers in the banking system, who are doing their job and are unfortunately being tainted by a minority within the banking sector, have their good name restored. People must have confidence in the banking sector, which must not be above the law. It is important that we impose real sanctions, not token gestures. It is also important that the sanctions hit offenders, not consumers who are already being hit.

Terry Leyden (Fianna Fail)
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I welcome the Minister for Finance to the House to discuss this very important and topical issue. The Minister cannot be completely satisfied with the conduct of the Irish Financial Services Regulatory Authority given its neglect in exposing the rip-off by AIB of approximately €25 million, which has been lodged with the Central Bank. It could be more than that, yet the very well paid officials of the Irish Financial Services Regulatory Authority did not detect it. If I were responsible for that organisation I would question my own position. It is meant to be a regulatory authority but it failed to detect something that had been going on for eight years. Although it has not been in existence for eight years, its first action on being set up should have been to find out all the rates and costs and to check on what was approved by the Central Bank. That seems a basic requirement. I am quite surprised at the lack of detection. This might not have been detected were it not for a whistleblower reporting it to RTE whose chief news correspondent, Mr. Charlie Bird, efficiently and actively took up the case and took on the role of the Irish Financial Services Regulatory Authority.

I understand approximately 10% will be untraceable because it relates to small investments prior to the introduction of the euro and involved cheques and different exchange rates. It would be impossible to trace. I stated here some weeks ago that in the circumstances the Minister should hammer the point home to the AIB. As a long-time customer of AIB I have always found it an excellent bank. The staff at local branch level are certainly not responsible but it seems they must pay for these mistakes. Given the upcoming People in Need Telethon television extravaganza on Friday, 21 May, it would be an excellent gesture if the €2.5 million that is owing to small investors throughout the country who cannot be traced, were donated to try to rescue at least some of the PR losses that have been incurred. The whistleblower has done the country some service in this regard, given of the length of time this was going on.

This is not the first time AIB has been in difficulty. The Minister will recall the Government having to rescue the situation regarding the Insurance Corporation of Ireland when he and I were Deputies. The Government should have taken equity in AIB at that time because it has never repaid the Government. It was an extraordinary debacle and scandal caused by abuse of the system. The risks against which insurance was taken out were unreal. Tornadoes and other types of risk that nobody else would touch were insured against and people made a lot of money out of the situation. Many people acted fraudulently in their work.

The Bank of Ireland does not have a great record either. Some $700 million was lost in the First Bank of Maryland and, again, no heads rolled. If a Minister were responsible for a loss of $700 million he or she would not remain very long in his or her job.

Fergal Browne (Fine Gael)
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What about the Minister for the Environment, Heritage and Local Government, Deputy Martin Cullen, and the electronic voting debacle? Should he resign?

Terry Leyden (Fianna Fail)
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I said $700 million.

Rory Kiely (Fianna Fail)
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Let us hear Deputy Leyden without interruption.

Terry Leyden (Fianna Fail)
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We await the report of National Irish Bank on how it has conducted its affairs over the past while.

In the report it is stated that regarding the sale of products to individuals it is very important that it is explained, particularly to elderly people who may not be conscious of the dangers, that if people sell their home to a bank for, say, €0.25 million, they could lose €18,000 per annum if they are in receipt of a non-contributory old age pension. It is a shock to learn that is the case. Credit is due to public broadcasters such as Mr. Joe Duffy of RTE's "Liveline" who exposed this and brought it to public attention. This demonstrates that it is worthwhile having a fearless public service broadcasting organisation.

During the course of the discussion on 12 May I referred to Shared Home Investment Plan Limited. I stated that I believed it was not properly informing its clients. SHIP is just one of the organisations involved in this area. I do not know who owns SHIP, whether it is owned by a bank or by individuals or private companies. It is a very reputable company. Its product can be very beneficial for those in receipt of contributory pensions who want to enjoy life, lead the life of a millionaire and head off to the Bahamas or go on a world cruise. It is possible for them to use the money obtained for the equity in their house to enjoy themselves rather than leaving it to be inherited by somebody who is not doing much for them. It is a very attractive scheme. SHIP has taken exception to the concerns I expressed regarding the holders of non-contributory State pensions and the impact equity release plans can have on eligibility for those benefits. In a letter to me the Chairman of SHIP, Mr. William Kane stated:

I wish to assure you that none of SHIP's clients to date have been affected adversely in this regard and as part of our compulsory consultation with clients and their families this issue is now discussed in order that there is no confusion. In addition our letter of offer which is sent to clients and their solicitors contains a specific clause highlighting the issue in question. I hope that you are therefore reassured that our clients are kept fully informed in this regard. I would welcome an opportunity to meet with you to address any other queries you might have. I look forward to hearing from you.

I have read this into the record because "Liveline" could be challenged or a claim for damages made against it by the companies mentioned. We enjoy full parliamentary privilege which we should use with caution and respect. I am being very careful. I made the point that people should be warned and I have read the response from the company in question. I suggest that when non-contributory pensions are sent out they should be accompanied by an explanatory leaflet explaining that if beneficiaries receive a large amount of capital assistance from a bank or other organisation they will lose benefits such as sickness benefit, old age pension and so on. It is a major blow to lose one's medical card and other benefits, simply because one wants to get this large amount of money. The Minister is aware that inflation is currently very low. The return on one's investment from the banks is practically nil, at approximately 1%. We should be alerted to this matter, in the circumstances. It is the responsibility of the Department of Social and Family Affairs and the Minister, Deputy Coughlan. I would appreciate if the Minister for Finance's senior officials could bring the matter to the attention of the Minister for Social and Family Affairs. I accept that SHIP and other organisations may be informing people of their responsibilities and the danger of losing their benefits. I ask the Minister to provide copies of the leaflet to warn everyone about the problems in this regard. I do not deny that the service, which is being provided by an honourable registered company, can be beneficial to many people.

I cannot say I am particularly satisfied with IFSRA. The Minister, Senators Ross and O'Toole and others have said we have an opportunity to give the authority teeth. We should allow it to take action, to impose penalties and to ensure that organisations face some sanctions if they do not fulfil their responsibilities. There are no sanctions at present. Financial institutions can lodge a voluntary contribution to the Central Bank, to be returned in the event of it being exonerated in any way or if there is some excuse for its activities. The Minister said today that he proposes to amend the Bill to allow IFSRA to be more effective. It cannot operate in a productive manner if it cannot impose restrictions and sanctions.

IFSRA was established independent of the Central Bank to try to achieve more control of financial institutions. It may be doing a good job, but the Minister cannot be satisfied that it did not detect this abuse of the system, but instead had to depend on journalists. If a whistleblower provided such information to Senators, I am sure they would use the facilities available to them to bring the matter to the attention of the public. RTE's decision to run with the story was quite courageous in the circumstances. In fairness to AIB, it put up its hands and admitted that problems had been ongoing for a considerable amount of time and there is a possibility it will give an apology to its customers. Mistakes are made by every organisation and I do not argue that mistakes were not made in this instance. Given that the mistakes have been detected, we have an opportunity to make changes.

I am not sure whether IFSRA has control over the credit card business of organisations. Credit cards can be open to abuse. Many more safeguards are needed in respect of the use of credit cards. I cannot understand why so much fraud is allowed to take place, given that it is possible to add security features to credit cards. I am not sure if IFSRA has any control in this regard. If not, we should consider examining this area. I recently received returns on my credit card from companies that were not registered. I did not know who they were, as they were not registered as limited liability companies and they did not supply telephone numbers. It is confusing to receive such demands. I thank the Cathaoirleach for his patience. I thank the Minister for attending this debate.

Shane Ross (Independent)
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I would like to discuss some of Senator Leyden's points. It would be wrong to state, as Senator Leyden did "in fairness to AIB", that it came out with its hands up, admitted everything and behaved well. That is not the case because AIB behaved disgracefully. It misled the public even though it had been caught red-handed. It put the figure of €14 million into the public arena, but it was forced within days to raise the figure to €25 million. AIB tried to distance its senior staff from this fraud by trying to blame junior staff, but it was forced within days to admit that the behaviour was not exclusively confined to junior staff. I would not particularly trust a so-called "independent" AIB inquiry, given that it has behaved in such a manner. The bank gave an incorrect date. It stated the problems had been ongoing for eight years, but they had been continuing for ten years. It misled the public in that regard. AIB also said it was sorry that the customers affected are untraceable, but it was forced to admit within a week that at least 80% of the rip-offs, as they have rightly been called, are traceable. In its response to this accusation, AIB misled the public on at least four counts. It displayed a certain arrogance by handling the matter in such an absurd manner. It took a week for the Chairman of AIB to move in to issue a statement, which was so close to countermanding and contradicting the first statement that it must have been a matter of acute embarrassment to the bank.

It is difficult to tackle this big issue in isolation. I am glad the Minister broadened it somewhat, because it should not be considered in isolation from what happened in the last two weeks. The events of recent weeks are no more than a symptom of what is wrong with Irish and foreign banks. Nobody could consider Irish banks to be symbols of private enterprise, risk-takers, those who assist industry and those who make a great contribution to the country's GDP. It is a long time since Members of the Oireachtas, particularly those on the left wing, argued that banks should be fully owned by the Government, or that they should be nationalised. I do not believe they should be nationalised, but we should ask questions. Who are the banks? For whose benefit are they run? I contend that they should be run for the benefit of the small shareholders who own them, in essence. It is obvious that some small shareholders are owned, in turn, by large shareholders, who use their blocs to support each other.

The banks should be run for the benefit of small shareholders and consumers, but they are not run in such a manner. There is plenty of evidence to suggest the banks have become some sort of runaway monsters that are run more for the benefit of bankers than for the benefit of shareholders or customers. I wish to cite comments made by the chief executive of Bank of Ireland in an interview last week. I have already pointed this out in another place, so I apologise if anybody is aware of it. The chief executive gave a staggering reply when he was asked about recent events in AIB. He said defensively that we have a wonderful banking system. He chose an extraordinary week in which to make such a remark. It is evident, from his replies to that and other questions during the week, that the chief executive of Bank of Ireland is incapable of saying anything bad about AIB. It is quite extraordinary.

It is likely, in any other commercial rivalry, that a chief executive would take some advantage of the discomfort of another to try to pinch customers. When the chief executive of Bank of Ireland was asked last week about AIB's problems, he said that we have a wonderful banking system. What can we derive from the fact that during another interview he described AIB as a very competitive bank? Can one imagine Michael O'Leary adopting a similar approach in respect of Aer Lingus? If Aer Lingus was caught charging too much, would he say "hold it there boys, this is a great airline, they are a very competitive lot"? It just would not happen. What does it tell one about the difference between the banks and really strong companies with an enterprise ethos? It tells one that the banks automatically protect each other as a knee-jerk reaction. They will not put the boot into each other and will never say a bad word about each other. That was notable last week. While I am open to contradiction about this because I do not read everything that is written about banks, I did not see a single banker put the boot into AIB. I did not hear anyone from the Ulster Bank, National Irish Bank, the Bank of Ireland, Anglo-Irish Bank or anybody else saying "Come to us, we won't overcharge you". Would it not be natural for them to say "We'll charge you less and we haven't been charging you these appalling amounts for so long"? They did not say that, however. They were either silent or said things are okay and we have a great banking system. They are dead right — it is a great banking system for them, but not for the customers or shareholders.

Approximately three weeks ago, at the annual general meeting of AIB, all eight or nine resolutions were passed by 97% to 3%. That tells me that the Bank of Ireland, Irish Life and all the other large banking shareholders were voting for each other. Of course, if one of them voted against any resolution at an AGM, the others would do likewise and who knows what would happen then. We might have a competitive banking system, God forbid. It would ruin their party. It is very unlikely to happen in this country, however, given the way in which we are allowing these sort of things to go on.

It is indicative of the Government's attitude that, having discovered an abuse of the sort practised by AIB, we suddenly find that damn all can be done about it. That is because under the provisions of the Consumer Credit Act, there are no penalties for this particular offence. The banks can rip off €25 million but cannot be penalised. How did that happen? It is an extraordinary indictment of governmental deference to the banks that they can commit an offence by taking at least €25 million, although I am sure it is a lot more than that, including other spheres as well, and nothing can happen.

We now have a new regulator who has forced them morally at least to put €25 million in escrow in the Central Bank. That is an improvement but the banks continue on their merry way and we see more revelations each week, not only about the first issue but also about travellers' cheques and other areas where they overcharged without being detected. I contend that this is a far deeper problem than AIB.

I now turn specifically to the AIB affair itself. Some of the drafting in the Minister's speech is somewhat depressing and dilutes the offence. In establishment channels — maybe in the Department of Finance or higher up — there is an instinct to dilute the offence and protect the banks. In his speech, the Minister referred to this offence under the Consumer Credit Act 1995, stating: "This Act required credit institutions to notify the director of their charges. However, it did not make a failure to notify correct amounts to the director an offence." However, the Minister is not talking about a failure to notify correct amounts to the director, but about a fraud. He is talking about a bank charging an illegal amount and probably doing it knowingly, yet the way the Minister's speech was phrased indicates to me that it is only a soft Government interpretation of what is going on and that there is still an inclination to let the financial institutions off and give them the benefit of the doubt on this occasion.

In his speech, the Minister also stated: "As regards ongoing official policing of the 1905 Act provisions, I understand there is a spot-checking system in place and the majority of these spot checks have concentrated on foreign currency cash transactions." Why did these spot checks never come up with a result? If such spot checks were going on, why was the overcharging not detected by IFSRA? At least €25 million was involved, which means that hundreds of millions were changing hands in this offensive way, involving abuse, by being channelled through foreign exchange transactions in this category. It seems to me that the spot checks were inadequate. The banks were aware that IFSRA was a toothless tiger because the spot checks being carried out by the regulator were not working. While the Minister said that IFSRA has done all sorts of good things by taking initiatives and producing immense amounts of documentation and information for consumers, it does not appear to have detected the worst offences that were going on at that time.

As the Minister said, IFSRA's work is vital when it comes to explaining complicated financial products which people do not understand, but it is not good enough to use the caveat emptor approach. We must find a method of ensuring that consumers who purchase complicated products, such as tracker bonds, are aware of what they are buying.

Margaret Cox (Fianna Fail)
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I am glad to have an opportunity to speak about financial regulation. In recent years, this House has had many debates on the banking sector, including bank charges and the way in which banks do business generally. The largest financial institutions in the State operate a near-monopoly position whereby they all seem to offer the same services at the same cost. It is unfortunate that there seems to be no sense of competitiveness between the financial institutions. If one examines these institutions, one finds there is very little difference between them. We ought to be concerned about that because of their power over the ordinary man or woman in the street.

I saw a particular example of this power quite recently when I was doing some work for a constituent who was having difficulty in making mortgage repayments. The constituent managed to get everything sorted out and wanted to pull a number of loans together in order to re-mortgage the entire amount. He was able to show through earnings and other income that he was in a position to manage the repayments. We had a meeting with the bank but it was not interested in re-mortgaging the deal with this individual. The bank was only interested in advising the person to go elsewhere with his business but if he did so, he would have to repay all the loans in three months. The bank had promoted these loans to the individual as a solution and had driven him to this position, yet it was now absolving itself of responsibility. The institution to which he was referred, said that if he got things in order in three months, it would examine the matter.

The kind of power that banking organisations have over people's everyday lives is nothing short of scandalous. The abuse by certain institutions and by certain managers in certain locations, indicates their overriding objective in doing business is to make a profit. I manage a business and I accept that profit is important but if profit is king and nothing else matters then it is a sad state of affairs. The business sector has a responsibility to the community and to the society in which it operates. Making generous, fancy donations in terms of sponsorship to the People in Need Telethon, the Special Olympics etc., does not absolve one from the need to operate business in a fair and equitable manner for the benefit of everyone in the State, namely, shareholders, employees and customers.

On many occasions in this House we talked about credit cards and the exorbitant interest rates charged. In this State they charge the highest interest rates in Europe on outstanding balances at the end of the month. Many people are not aware that even if one makes the minimum payment at the end of each month with certain institutions, one still pays interest on the entire balance. Making the minimum payment merely reduces the capital owed, but makes no impact on the interest. Interest still has to be paid from the beginning of the month, even if one has made a payment during the month. This sort of small print which we do not notice on our credit card bills is not acceptable. Nor is the arrival every six or nine months of a letter which urges a person to sign up for more credit regardless of a person's credit history, in cases where it may be obvious that an increasing balance shows the person is not able to use the facility in an appropriate manner. What is going on? Is there no conscience involved? When one eventually tells the institution that one is having difficulties, it suggests converting the debt into a long-term loan, which is cheaper. Of course it is cheaper, because the institution has inflated the interest charges in the beginning. One then gets a call from some other institution urging one to transfer the credit balance and offering a six-month interest-free period. This is not fair.

We have also seen loans being provided through ATM machines. One might be stuck in town on a Saturday afternoon or night, spending money, and it is suggested there is no problem because one can borrow through the ATM machine. There is no-one at hand as one's voice of conscience. There is huge encouragement to borrow more money. It takes a very strong individual to withstand that constant bombardment of "buy now, pay later" and the urge to continue to buy. Because of Ireland's banking system one does not have to worry about paying later, because the banks make so much profit from selling one money continually, without conscience. That is not acceptable.

Consider the actions the banks are taking among various communities. We have talked about this in this House over a number of years. The issue has gone off the boil, yet banks are closing rural branches all over the country and are cancelling services. They cancelled the mobile banking service in Connemara recently because it was not making money. They say they have installed ATM machines and that facilities have been made available in branch offices in Oughterard and Clifden. If one lives in Rosmuc, however, one might have to travel 20 miles on public transport to lodge one's few euro. Nor can one cash a cheque these days. The bank in effect says it cannot possibly hand over one's money from one's own bank account, if one arrives with a cheque. The cheque must be lodged first. In certain circumstances, if it is drawn on the branch that one attends, one might get the money immediately. If the money is drawn on another bank however, or another branch of the same bank, one just has to wait for it to be cleared. The bank then holds one's money, making no apologies, while making obscene amounts of profits. The bank has no conscience regarding its overall objective as a realistic and proper part of the community.

Financial regulation is vitally important, but banking culture must change. We cannot continue to allow the banking industry to abuse the power it has in our community, society and economy. We need to say "stop". I welcome IFSRA and I expect and hope it will do a good job. I commend what it has already done. It has a difficult job. It is for us, the public, the bank customers and shareholders, to make it clear to banks that we will not accept an abuse of power in an industry in which we invest.

Joe O'Toole (Independent)
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I welcome the Minister of State. Listening to these debates, I sometimes wonder if I am living in the same world all the time, or if people change so much. What brings politics most into disrepute is when people shoot from the hip with knee-jerk responses to the issue of the day in a manner completely at odds with all they have been saying on the issue for the previous six years.

There was a debate recently in this House on compliance and compliance statements. I fought for three hours against both sides of the House to get support in the IASA Bill in order that a director's compliance statement would require directors of companies to sign off on the statement that their companies are compliant with all the rules and regulations. I could not get agreement. That Bill eventually had to be changed in order to satisfy people on both sides of the House who talked of what an unfair burden this was putting on company directors. One man asked how they could possibly be held responsible in such situations.

Senator Leyden is no longer in the House, but I hope that regarding all I have heard since this debate began, and the strong line promised, I will see the same again. The Minister of State said the IFSRA Bill coming through the Houses will give the IFSRA authority to require compliance statements from directors and that it may also require auditors to sign off on them. There should be no "may" about it. It should be an absolute essential. That is the reality of the matter, though we have heard much nonsense about it. There will always be people to do things wrongly, to take shortcuts and to rip us off. In a well-run pub I would be ripped off by more in one night than by means of this 0.5% or 1% nonsense that we have been hearing of for the past two months. Charlie Bird makes a big issue of this, and it is a big issue. I am not making light of it, yet it is very small in the light of some other issues we are considering.

I want to ask the banks some questions. Why, 15 years after the Cecchini report, which the Cathaoirleach dealt with in his other life when we were opening the Common Market, does it take five to six weeks to get a personal cheque cleared in Europe? Why is there no cheque clearing system in Europe? Why is it that we are restricted to buying a credit card service in the country of residence? Why can I not get a credit card in Brussels and use it in Ireland? I would like to see legislation allowing that. I can use my Irish credit card in Brussels, and pay dearly for it.

I agree with the points made by Senator Cox about the purposes of the financial institutions. They are in the business for the money. I am not surprised at that. They are not providing a social service, do not want to do so and are not paid to do so. What annoys me in all this legislation is that we penalise institutions. That is a joke. We penalise the AIB shareholders for something wrong done by its directors. The directors do not suffer even the loss of a shilling. If the institution is fined, it does not matter to the directors. The individuals responsible should be fined. We are finally confronting this issue in the proposed legislation, so that in some situations we may penalise the individuals. That is how it should be.

I ask Senator Cox to consider the following. Nobody on the other side of the House supports the maintenance of mutualisation in large financial institutions. The Minister would confirm this if he were here. Regular representation is made to him to allow building societies and other institutions to be sold off, to allow carpet-baggers receive a few thousand euro, with the company then owned by the shareholders. People then ask why they are in it for the profit. The EBS will be the only large mutual company left. There is no debate in this House as to the impact that makes. It is the core of the point that Senator Cox made about whether companies are in business as mutual societies to do good for the customers, or to make a profit by selling it off. When the next largest building society is about to be sold off in the next six months to the shareholders, there will be cheers and support. Nobody will care. Up until now such institutions have been working for people buying houses and trying to get houses built, which is why building societies were initially established. Nobody cares about that. It is all about the quick profit.

The Minister of State will not believe what I am about to say. I am glad he is sitting down to hear it. This morning, a Member on the other side of the House stood up on the Order of Business and complained about telephone charges. In fairness, he was not here when we had this big debate eight or nine years ago. We said the selling off and privatisation of Eircom would not reduce prices; it was never meant to do so. We are now worried about broadband. I assure Members that if Eircom was still owned by the State, we would have broadband in every house in Ireland if there was a copper wire going into someone's telephone pole. That will not happen now because Eircom is in business simply to make a profit. That is an issue at which we should look.

There is another issue at which I would look and which is much more important than the0.5%. Members should go into a branch of any bank and look at the cost of foreign exchange. How many speakers today have checked the cost of sending currency within the European Union? There are three price ranges for sending money from an Irish bank to a bank anywhere else in the European Union. The price to send money which will get there in its own time is quite cheap. One is not given a date as to when it might go through. There is another price of over €30 to send money by the close of business and there is an in between price which will get money there in two days. If one writes a cheque, one has no notion how long it will take to clear — it could take five or six weeks. The bank has our money for three days and it is working for it morning, noon and night. Money being transferred apparently goes nowhere after 5 p.m. in the evening and goes nowhere on a Friday, Saturday or Sunday. The banks are making money out of it. That is a legislative issue and there is no reason we should be tied in to such situations.

Senator Leyden and other speakers referred to the shared home investment plan, SHIP. It is a fine idea for some people who have many assets but no money, or plenty of equity but no shillings. If they are properly guided and advised, it can be of great help to them in improving the quality of their lives.

It seems there is no free market in such areas. My argument with the market is always that whenever it might do us any good, it is never free. The credit card issue raised by Senator Cox is the classic example. Why can someone living in Europe not get a credit card anywhere in Europe? There is no reason they should not be able to do so. We are living in the same euro zone and so on. These are the issues on which there should be legislation.

Senator Ross referred to the banks. What level of investment does Bank of Ireland Finance, Bank of Ireland Asset Management or Bank of Ireland funds have in AIB? I would say we would fall down if we saw the amount and that we would have much counting to do. I would say if we counted €1,000 per minute, we would be a long time counting the amount of money Bank of Ireland has invested in AIB. The reason it invests in AIB is that there is no competition and Senator Ross is absolutely right in that regard. We need to move on. At the same time it is not about knee-jerk reactions to the 0.5%, sticking the knife in the bank, hitting it hard and dealing with it as harshly as possible because it deserves it. We also need to know the people who are responsible.

Let us remind ourselves of the hearings of the Committee of Public Accounts a number of years ago which the directors of AIB attended. As the Minister of State's party leader has said time and again, she was told they did not know it was going on in their company. Their internal auditor had brought matters to their attention but they took no notice of them. Reporting within that financial institution is weak, flawed and has failed. It is not a matter of having an investigation to find out the level at which the information stopped. The real question is, why did the people at the top not have structures in place to ensure they got the information. That is what needs to happen.

As regards looking at the whole question of banking, we should begin by discussing foreign transactions and not only the 0.5%. Let us look at the whole area because what will happen is that next time there is a scandal, we will discuss another aspect. Nobody cares about it. There is no media coverage. This scandal has passed already. There were only four or five speakers today. If this debate had been held one week ago, speakers would have been queuing up outside the door and they would have been looking for extra time. That is the reality. I would like to see how we will deal with these compliance issues.

Each time the Government brings in a new regulation, a new burden of responsibility in terms of reportage or a commitment of compliance, there is a line up of speakers in this and the other House to oppose it. Members should cast their minds back to the recent debate on the personal injuries assessment board. We were doing what every politician I had heard speak about it for four years wanted, yet all it met were arguments, opposition and people asking about solicitors and the person who would not be looked after. There is no interest in getting it right until the next row takes place.

We need to look at a recently prepared Government policy document on effective regulation and on the yardstick or benchmarks for effective regulatory procedures which was not debated here. We should not have an over-regulated society. Regulation should be there, but it should be a light touch, real and honest. That is the way we should deal with compliance. What happened in the bank last week is probably happening at the moment in some other area of what some other bank is doing. We must recognise that compliance must be met. There is no point blaming the Irish Financial Services Regulatory Authority if we have not given it the authority and resources to do the job we require of it. What happened was unfortunate but there are worse things happening every day with which we are compliant, for example, with credit cards, to which Senator Cox referred, with foreign transactions, which I mentioned, and with a million other things, particularly the fact the bank can hold on to our money for three to seven days.

I spoke to somebody recently who transferred money on the Wednesday before Easter. It was only lodged in the bank to which he was sending it the following Wednesday. The bank said Good Friday was a bank holiday, Saturday was a dead day, nobody worked on a Sunday and the Monday was a bank holiday and nobody worked. When asked where the money was for those four or five days, the bank gave no answer. The bank reopened on the Tuesday and the money finally got there on the Wednesday. It took one week for the money to get there in this day and age when one can press a button and transfer any amount of money from one account to another as a result of computerisation. It is time these people were asked the really hard questions and not about 0.5%, but about the level of service they are giving, the costs they are charging and the real rip off that is going on.

Tom Parlon (Laois-Offaly, Progressive Democrats)
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I thank all the Senators for their contributions, although I cannot respond individually to all the points made. Indeed, some of these points will require serious reflection. However, it is fair to say the record of today's contributions should be read carefully by anybody who claims to have a serious interest in the regulation of the financial sector.

Many of the issues raised are already being dealt with by IFSRA under its existing powers. These powers will be further strengthened in the legislation which is due to come before the House shortly. There has been much activity recently in regard to the regulation of the financial sector. Last year's legislation sponsored by the Government established by the Irish Financial Services Regulatory Authority which is proactively managing the AIB situation. The resources being made available to IFSRA will ensure that it can effectively carry out its functions. These functions are now very much extended, particularly in the context of the protection and the education of the consumer.

IFSRA, in the short time since it was established, has taken a good number of actions to protect consumers and the financial system. It has been proactive in developing consumer protection and information. This is in addition to dealing with investigations such as that arising from the AIB matter. We should await the results of IFSRA's detailed investigation before coming to a conclusion on that case.

Codes of practice are an important tool in financial regulation. They existed in some financial service providers before IFSRA was established. Last December, IFSRA introduced interim codes for insurance companies, mortgage intermediaries and money lenders. Good advice principles are incorporated in all these codes but they are not completely uniform across all sectors and products. This lack of uniformity may prevent consumers from fully understanding their rights. To establish this, IFSRA is seeking to develop unified codes which will meet both consumers' needs and international best practice.

IFSRA recently finished a public consultation process. Their consultation document made a point of seeking comments on the needs of older clients. The penalty provisions provided for in the legislation going to the Dáil today will also apply to the enforcement of those codes. If a regulated entity ignores or breaches those codes, the regulator will be able to penalise it. Likewise, if a consumer feels he or she has been mis-sold a product, that person will be able to go to the statutory financial services ombudsman for redress once the Bill has been enacted.

I will turn briefly to issues of compliance with the legislation and the compliance culture generally. Senators will be aware that the Central Bank and Financial Services Authority of Ireland Bill 2003 will shortly be coming before this House. Provisions in that Bill will give the financial regulator the power to require the directors of a financial institution to provide it with a compliance statement. Once the Bill has been enacted, the regulator will have the power to require the directors of a financial institution to provide, on a tailored basis if necessary, a statement on their compliance with specific legislation, such as the Consumer Credit Act 1995, or a specific code, such as the code of practice for credit institutions issued under the Central Bank and Financial Services Authority of Ireland Act.

I should also mention that, apart from the provision in this Bill, the Companies (Auditing and Accounting) Act 2003 will impose an obligation on company directors to prepare and publish a directors' compliance statement. That statement must cover the company's compliance with the Companies Act 1990, tax law and any other enactments that provide a legal framework within which the company operates and that may materially affect the company's financial statements. That will also embrace the legal framework within which regulated financial services companies operate.

Financial sector regulation poses immense challenges for all us legislators. In his contribution, the Minister for Finance, Deputy McCreevy, explained the broad range of activity, both regulatory and legislative, going on at present. We should acknowledge that lessons will be learnt from recent situations and that IFSRA will now have the powers that it needs for that. Our response to such matters should make us better prepared to meet future challenges and new issues as they emerge in financial service regulation. All stakeholders — the Government, the Oireachtas, the regulators and the financial institutions — will need to be constantly vigilant so that consumers' needs can be treated as a priority.