Thursday, 14 April 2005
Investment Funds, Companies and Miscellaneous Provisions Bill 2005: Second Stage.
I am very pleased to bring this Bill before the House. Over the past two decades, the Government has made a strong commitment to making Ireland an attractive and competitive location for a wide range of international financial services activities and institutions. In 1987, the International Financial Services Centre was launched with strong support from the various institutions — political, legislative, fiscal and regulatory — focused on financial services, and from the major Irish financial institutions and professional firms which had a business presence and expertise in the sector.
Initially, IFSC activities concentrated on developing such sectors as banking, corporate treasury and insurance. These sectors have experienced dramatic growth and have now become cornerstone activities of the IFSC. Dublin is now host to half of the world's top 50 banks and is one of the main European locations for insurance, mutual funds and corporate treasury. The list of IFSC institutions reads like a "who's who" of top global financial institutions; JP Morgan Chase, Merrill Lynch, Société Générale, State Street, Sumitomo Bank, ABN Amro, Natwest, Chase Manhattan, AIG, Citibank and others. These are engaged in a broad range of activities, including banking, asset financing and leasing, corporate treasury management, fund management, investment management, custody and administration, futures and options trading, securities trading, and insurance, assurance, reinsurance, captives, and broking. These companies have been attracted to Ireland for a variety of reasons, including an attractive fiscal and regulatory environment, availability of highly skilled educated workers, political stability and effective marketing.
The Government values the important role the financial services industry plays in the Irish economy. It is a very significant employer in today's economy, with a total of over 51,000 working in the sector, of whom over 17,000 are engaged in providing wholesale or international services. Ireland has been exceptionally successful in attracting international financial services companies to locate here, a trend we wish to see continue. A recent IDA-commissioned report by Deloitte management consultants reviewed future options for the international financial services sector in Ireland and concluded that there are still excellent opportunities to develop the sector based on innovation, skills and expertise. In particular, the report identified opportunities in becoming the major European centre for specialist debt-financing products and securitisation; becoming a world class location for managing global and regional banking products; developing and enhancing Ireland's position as a major centre for asset servicing; and building scale in asset management, as well as positioning Ireland as the pan-European location for insurance products.
We must continue to be innovative and develop appropriate skills and expertise. A flexible, responsive and business-focused regulatory system has been the cornerstone of Ireland's development, and continued progress on that front was recommended by the Deloitte report. Our regulatory environment is a key component both of our competitiveness and of our international reputation.
The funds industry has played a crucial role in contributing to the growth of the IFSC. The industry has grown rapidly throughout the 1990s and today there are over 50 international funds administrators and over 20 custodians in Ireland employing 7,600 people directly with at least another 1,500 employed indirectly in legal firms, accountancy firms and listing brokers. These companies are currently servicing 3,771 Irish domiciled funds and sub-funds with net asset values of €445 billion together with another €200 billion under administration in non-domiciled funds. In 1987, the number of legislative vehicles that were available to the industry was rather limited, comprising entities established under the Unit Trusts Act 1972 as well as ordinary public limited companies incorporated under the Companies Acts. These were relatively inflexible vehicles at that time.
In 1989, EC regulations on undertakings for collective investment in transferable securities were signed into law, transposing the relevant EU directive which makes provision for collective investment vehicles capable of being sold throughout the European Union. In the ensuing years, a number of other types of fund vehicles were legislated for and existing law was updated, so that today, the funds industry can offer its products through entities established under the Unit Trusts Act 1990; Part XIII of the Companies Act 1990; the Investment Limited Partnership Act 1994; or the 2003 EU regulations on undertakings for collective investment in transferable securities, or UCITS, which include four amending regulations. With a view to providing the greatest flexibility to the funds industry, while at the same time keeping appropriate controls in place, this Bill makes a number of changes to the existing law. It provides for the introduction of a new type of investment fund vehicle, which is the nonUCITS common contractual fund. It also provides for the introduction of cross investment and segregated liability for investment funds. Apart from the changes to the laws on investment funds, a number of other changes to general company law are proposed, many of which will also directly or indirectly impact on at least some aspects of companies used as investment companies.
There is currently much happening at EU level in the financial services area. The 42 action points identified in the financial services action plan have essentially been completed at EU level. In this Bill, the companies legislation is being amended in anticipation of the transposition of two EU directives — the directive on market abuse and the directive dealing with prospectuses. The market abuse directive covers both insider dealing and market manipulation. The same framework applies to both categories of market abuse. This will simplify administration and reduce the number of different rules and standards across the European Union. It covers all financial instruments admitted to trading on at least one regulated market in the European Union. It is proposed to transpose the directive by way of regulations made under the European Communities Act 1972, as amended, and in so doing to repeal Part V of the Companies Act 1990. However, it is considered desirable to retain certain elements of Part V, particularly those provisions dealing with civil and indictable criminal liability, and to introduce other enabling provisions, which need to be done by way of primary law. This is being done in Part 4 of this Bill. Part 4 will not be commenced, however, until such time as the transposing regulations are also signed into law.
The EU prospectuses legislation will make it easier to raise capital in Europe and increase transparency and market integrity. By harmonising the necessary disclosure requirements, the new legal framework as a whole creates an effective single passport for both EU and non-EU issuers. In other words, it means that once a prospectus is authorised in one member state, it can be used in all the others, cutting red tape and costs for issuers.
As with the market abuse directive, the prospectus directive is being transposed by regulations made under the European Communities Act 1972, as amended, but certain complementary changes are being made in Part 5 of the present Bill to amend and where necessary to update national prospectus law provisions which do not arise directly from the EU directive and which accordingly must be made in primary law. In this regard, indictable criminal and civil sanctions are being retained and where necessary modified to reflect the new regime that is being introduced.
Moreover, certain requirements are being repealed, such as the four day rule contained in section 56 of the Companies Act 1963. Furthermore, in circumstances where an offer of securities to the public is outside the scope of requiring the preparation and publication of a prospectus under the EU directive, or where an offer is made in such a way as to avail of an exemption under Article 3.2 of the directive, there will be no requirement in national law to prepare a prospectus. This had been the case up to now. However, where the total value of the securities offered amounts to less than €2,500,000, then the offerer will be required to publish certain warnings in the offering document.
These changes reflect the EU requirements and will remove unnecessary bureaucracy where the size of the offer of securities is very small.
As with the provisions in the previous part, Part 5 will not be commenced until such time as the transposing regulations are signed into law. In Part 6, miscellaneous amendments are being made to the Companies Acts to remove anomalies and other changes that need to be made. Certain pieces of consumer protection legislation are being amended in Part 7, in order to increase the maximum fines that can be imposed on conviction.
I wish to turn to the provisions of the Bill and explain what each of these is designed to achieve. This is not intended as an exhaustive account of the contents of each section. The explanatory memorandum published with the Bill gives more detailed information on the provisions. Part 1 of the Bill contains some preliminary technical matters including the commencement of the legislation, interpretation, the making of orders and regulations and how parts of the Bill will relate to the existing Companies Acts. The purpose of Part 2 of the Bill is to provide for the introduction of a new type of investment fund vehicle, known as the non-UCITS common contractual fund. Section 8 deals with authorisation by the central bank and the financial services authority of the non-UCITS CCFs. The powers of the central bank in this Bill will be delegated to IFSRA, which is the financial regulator.
Section 9 deals with public information and reporting on the authorisation of CCFs. Section 10 gives the Central Bank the powers necessary to impose such conditions it considers appropriate and prudent for the orderly and proper regulation of the business of CCFs. These conditions may be imposed for the purpose of authorisation or operation of the CCF and may be imposed generally or in specific cases. Section 11 deals with refusal of such authorisation.
Section 12 deals with any alteration in the deed of constitution of a CCF, or change in the name of a CCF. Section 13 deals with the replacement of a management company or custodian. Section 14 requires a management company to redeem units in the CCF at the request of the unit holder at the going rate and creates an offence where a management company fails to redeem units as requested by the unit holder. Section 15 prohibits management companies and their subsidiaries from making certain profits for themselves under the CCF.
Section 16 deals with the assets of a CCF. It provides that the assets of a CCF will belong exclusively to the CCF and shall be held by the custodian. Where a CCF is established as an umbrella fund, the assets of each sub-fund shall belong exclusively to that sub-fund effectively ring-fencing them from the other sub-funds in the umbrella. This ensures that each sub-fund will have segregated liability. This means the assets of one sub-fund cannot be used to discharge liabilities incurred by another sub-fund within the umbrella. This is an important provision from the point of view of investor protection, as different sub-funds may operate different investment strategies involving varying degrees of risk.
Section 17 deals with the liability of custodians of a CCF. It provides for the responsibility of the custodian to the investors and the management company and makes the custodian liable for any loss arising from failure in performing duties. Investors may enforce this liability directly or through the management company.
Section 18 applies certain provisions of the UCITS regulations to non-UCITS CCFs subject to appropriate and necessary modifications including terminology. Section 19 makes officers of a body corporate guilty of an offence where they have facilitated a body corporate in committing an offence under this part of the Act.
Section 20 makes it an offence for a person to contravene any provision in this part of the Act even though the Act may not have specifically created an offence of such contravention. For example, failure to comply with conditions imposed by the bank under section 10 will be an offence, given the duty of compliance imposed by section 10(6). Section 21 deals with penalties.
Part 3 provides for amendments to Part XIII of the 1990 Companies Act, which deals with investment companies. The purpose of this part of the Bill is to provide for the introduction of cross investment and segregated liability for investment funds.
Section 24 amends section 255 of the 1990 Act to provide that an umbrella fund may acquire and hold funds in any of its sub-funds for the purpose of transferring the funds to another one of its sub-funds. Essentially this allows for cross investment in investment companies.
Section 25 amends the 1990 Act through the insertion of five sections into Part XIII of that Act to provide for segregated liability for investment funds. It provides a mechanism by which any existing umbrella funds wishing to avail of the benefits of segregated liability must obtain approval by way of special resolution of the members. Where segregated liability applies, any liabilities of a sub-fund will be discharged solely from the assets of that sub-fund. Segregated liability will not apply to umbrella funds which had commenced trading before the commencement of this Act, unless the members of the umbrella resolve that it should, by special resolution. This section specifies detailed requirements regarding special resolutions to have segregated liability apply to the umbrella funds and the requirements to be complied with by umbrella funds.
Section 26 amends section 257(4) of the 1990 Companies Act which relates to powers of the financial regulator over investment companies. The purpose of this amendment is to extend the regulator's powers to management companies of investment funds.
Section 27 amends section 260 of the 1990 Act to disapply certain provisions of the Companies (Amendment) Act 1983 to investment companies. This arises from the provisions for cross investment for investment companies.
The purpose of Part 4 is to enact provisions which need to be enacted in primary law to ensure the smooth and effective transposition of the EU market abuse directive which covers insider dealing and market manipulation. As I said earlier, it is proposed to transpose the directive by way of regulations made under the European Communities Act 1972. These regulations are at an advanced stage of preparation. However, certain elements of Part V relating to indictable criminal offences and civil sanctions are being retained and this needs to be done by way of primary law. Section 28 provides for definitions used in this part.
Section 29 outlines penalties on conviction, on indictment, of certain offences relating to market abuse. It provides for a maximum fine of €10,000,000 and/or a maximum ten years in prison for conviction on indictment. Summary offences will be dealt with in the transposing regulations and provision will also be made for administrative sanctions, as required by the directive.
Section 30 provides for civil liability for breaches of Irish market abuse law. It provides that a person contravening those provisions will be liable to pay compensation to any party involved in the transaction who was not in possession of the relevant information for loss suffered as a result. This section also deals with breaches concerning market manipulation and provides that a person contravening those provisions will be liable to compensate parties dealing in shares as a result of the breach. The guilty person must also account to the company issuing the shares for any profit made from the transaction.
Section 31 gives the competent authority designate the power to make supplementary rules to allow it to fulfil its role as a competent authority.
Section 32 provides for an amendment to the Central Bank Act of 1942 to include the EU market abuse directive, and related directives, in the list of directives which the Central Bank has the responsibility to enforce. This deals with confidentiality of information obtained by the competent authority and effectively prohibits its disclosure.
Section 33 allows the Minister to provide, by order, that one or more provisions of Irish market abuse law may apply to any market specified in the order. This is to anticipate the establishment of any new market.
The purpose of Part 5 is to amend the 1963 Companies Act dealing with offers of securities to the public. This is in anticipation of the transposition of the EU directive dealing with prospectuses, which it is proposed to transpose by way of regulations under the European Communities Act 1972, as amended. As mentioned at the outset, the provisions in Part 5 will make a number of changes to the Companies Act 1963 modifications and repeals that do not arise directly from the EU directive and which, accordingly, must be made in primary law. Section 34 provides for definitions used in this part.
Section 35 deals with the construction of certain terms in the 1963 Act in cases where provisions have been amended or inserted by this part. Section 36 provides for necessary repeals and revocations which are being made in anticipation of the transposition of the prospectus directive.
Section 37 deals with civil liability for misstatements in the prospectus and provides that certain persons will be liable to pay compensation to persons who acquired securities on faith of that prospectus for loss or damage sustained because of untrue statements or omissions in the prospectus. Section 38 provides for exceptions and exemptions applying to section 37. For instance, liability shall not attach to the summary of a prospectus issued. In addition, directors will not be liable if they had not given their consent or had withdrawn their consent to the issue of the prospectus.
Section 39 provides for a restriction of liability in cases where certain non-equity securities are involved. Section 40 provides for indemnification of certain persons in cases where a director has withdrawn his or her consent, has not consented to become a director or has not consented to the issue of a prospectus, and to an expert who has withdrawn his or her consent or has not given his or her consent to the issue of a prospectus.
Section 41 provides that an expert must give his or her consent to the inclusion of statements made by him or her in a prospectus. Section 42 provides for penalties on conviction on indictment for offences under Irish prospectus law. Section 43 provides for criminal liability for untrue statements and material omissions in a prospectus.
Section 44 sets out requirements for offering documents prepared for local offers and specifies statements, essentially warnings, which must be included in those documents. Local offers are transactions not regulated by the directive where the total consideration for the offer is less than €2.5 million.
Section 45 provides that a document prepared in accordance with EU prospectus law or an offering document does not constitute an investment advertisement within the meaning of the Investment Intermediaries Act 1995. Section 46 gives the competent authority the power to make supplementary rules and issue guidelines to allow them to fulfil its role as competent authority. Section 47 is a restatement of section 44(2) of the 1963 Act amended to encompass EU prospectus requirements. Section 48 amends section 53 of the 1963 Act and removes the reference to Third Schedule which is repealed in section 36. Section 49 amends section 55 of the 1963 Act and is consequent on the repeal of section 54 under section 36. Section 50 amends section 57 of the 1963 Act and simply substitutes words in order to reflect the new terminology being used in the directive.
Part 6 provides for various amendments to company law legislation. Section 51 amends section 60 of the 1963 Act. A number of these amendments implement recommendations of the Company Law Review Group. Sections 52 and 53 provide for electronic filing agents. This was recommended by the Company Law Review Group. It allows companies to appoint electronic filing agents to file documents with the Companies Registration Office, the CRO, in electronic form. Sections 54 and 55 provide for the reservation of a company name with the Companies Registration Office. A name may be reserved for 28 days and an applicant may seek an extension of this period for another 28 days only.
Section 56 amends section 128 of the 1963 Act to clarify a reference in that provision. Section 57 amends section 195 of the 1963 Act and provides that a director of a company may notify the Companies Registration Office of a change in name or address and that one notification can be used to change those details in respect of all companies to which he or she is a director.
Section 58 amends section 301(1) of the 1963 Act by extending the period within which liquidators may comply with notices issued by the CRO to encourage more widespread use of this provision and to avoid time consuming and expensive High Court applications. Section 59 amends section 371(1) of the 1963 Act and is a similar provision to that of section 58 but relates to "company" and "officer" as opposed to "liquidator".
Section 60 amends section 12B of the Companies (Amendment) Act 1982. It allows the CRO in the event of striking off a company for failure to make annual returns to advertise its intention to do so in the CRO Gazette in cases where it has no registered office address for the company. This will apply where a company fails to make an annual return for 20 consecutive years and will only relate to companies incorporated prior to 1982 as since then companies must provide a registered office from the date of their incorporation.
Section 61 amends section 19(2) of the 1990 Act. This extends the ODCE's powers in requiring production of documents to include where circumstances suggest that the affairs of a body are or have been conducted in a way that is unfairly prejudicial to some or all of its creditors.
Section 62 amends section 21(3) of the 1990 Act. This will allow the ODCE to share confidential information with the Irish Auditing and Accounting Supervisory Authority, IAASA, for the purposes relevant to the IAASA's statutory functions. Section 63 amends section 166 of the 1990 Act. The purpose of this amendment is to give the court discretion regarding whether or not directors should file certain notices regarding directorships and disqualifications in civil and criminal proceedings. Section 64 amends section 242 of the 1990 Act. Currently, that section makes it an offence to produce, lodge or deliver a document containing false information to the CRO. This amendment extends the offence to a person who completes or signs such a document. This too was recommended by the CLRG.
Section 65 makes several amendments to the Companies Acts to replace the requirement to publish certain notices in Iris Oifigiúil with a requirement to publish them in the CRO Gazette. The establishment of the CRO Gazette was provided for in 2004 and facilitates Ireland's application of the first company law directive. Essentially it is a national centrally-based electronic gazette which will be held and maintained by the CRO on its website. Section 66 is designed to address a number of incorrect references in Schedule 2 of the Companies (Auditing and Accounting) Act 2003. That Act amended the 1963 Act, so this section deletes the incorrect references in the 2003 Act and makes the correct amendments to the 1963 Act.
Part 7 deals with miscellaneous amendments, most of which are amendments to consumer legislation to increase the level of fines on conviction to bring them up to date. Section 67 provides for amendments to the UCITS regulations. The purpose of these amendments, which are contained in the Schedule to this Act, is to provide for cross-investment and segregated liability for UCITS investment companies. Section 68 amends section 26 of the Prices Act 1958 to increase the maximum penalties on conviction under the that Act. Section 69 amends section 23 of the Restrictive Practices Act 1972 to increase the maximum penalties on conviction under the Restrictive Practices Acts. Section 70 amends section 17 of the Consumer Information Act 1978 to increase the maximum penalties on conviction under that Act.
Section 71 amends section 6 of the Sale of Goods and Supply of Services Act 1980 to increase the maximum penalties on conviction under that Act. Section 72 amends section 13 of the Consumer Credit Act 1995 to increase the maximum penalties on conviction under that Act. Section 73 amends the Package Holidays and Travel Trade Act 1995 in two respects, first, to increase the maximum penalties on conviction and, second, to increase the timeframe within which a prosecution may be taken from 12 months to two years. Section 74 amends section 31 of the National Standards Authority of Ireland Act 1996 to increase the maximum penalties on conviction under that Act.
Recent success gives no assurance for the future. The financial services sector is one of the most innovative and rapidly-evolving services sectors. The funds industry is operating in a highly-competitive environment. As a Government we are committed to supporting the industry by responding in an appropriate way to the new challenges which are presented by this ever-changing global marketplace.
I think it appropriate, before I close, to make reference to the directors' compliance statement provision in the Companies (Auditing and Accounting) Act 2003. As Senators will be aware, the Act broadly gives expression to the recommendations of the review group on auditing established in the wake of the PAC DIRT inquiry. The directors' compliance statement provision is based on a specific recommendation of the review group on auditing. The requirement for such a provision arose from serious non-compliance with law and in circumstances where directors claimed to have no knowledge of malpractice and illegalities in their companies. The provision has been the focus of representations to Government over the past period by certain of the parties for whom it has implications, who expressed the view that it had the potential to impact on a number of fronts including costs and competition.
I have listened to, and am reflecting on, what they have said. A course of action which I am considering is to refer the provision to the Company Law Review Group for further consideration. I expect to make an announcement clarifying the situation in the not too distant future. I confirm again that I will give ample notice of my intention to commence the directors' compliance statement provision.
I emphasised in the course of debates on that Act in both Houses that my objective was to achieve a balance between the requirements of corporate governance and the commercial objectives of companies which must be solvent, create profits and generate employment. The aim has not changed. However, I must remind Senators again of the background to this measure, no less than the Act itself, which is the failure of persons charged with responsibilities under company law and other bodies of legislation to discharge the functions required of them. There can be no going back to a situation where incorporation and limited liability can be used as a cover to allow boards of directors to disclaim all responsibility when their companies cheat the Revenue, creditors, investors, employees or on other legal responsibilities that are material to a company's business. I commend this Bill to the House.
I welcome the Minister of State to the House and thank him for his overview of the Bill. From a standing start in 1989 Ireland has developed into a significant international jurisdiction for the domicile and administration of international investment funds and is now recognised as one of the leading international fund jurisdictions.
It is worth noting just how valuable the investment funds industry is to us. It employs approximately 6,500 people directly in industry companies and an additional 1,750 people in direct employment in the professional advisory firms. Many more indirect jobs have been created in IT firms and other service providers. Employment levels in industry companies are forecast to grow by 15% during 2005 with a corresponding increase in employment in the professional advisory firms. In excess of 1,000 people are employed outside Dublin and as the industry grows the proportion of industry employment outside Dublin is increasing. The investment funds industry is the single largest employment creator in the international financial services industry in Ireland and a significant contributor to the Irish economy.
All investment funds established in Ireland must be authorised by IFSRA and the investment manager of the fund must be approved by IFSRA. In addition, the other service providers to the fund, notably the fund administrator and custodian or trustee, must be based in Ireland, must be approved by IFSRA to act as such and are subject to ongoing supervision by IFSRA. The level of fund regulation in Ireland sets a much higher standard than is in place in other fund jurisdictions. This is a major guarantee and hugely important.
The foundation on which the funds industry was built was the establishment of a legal and regulatory framework to facilitate the international investment funds industry. The innovation and responsiveness that served the funds industry well is still very much required and in an increasingly competitive marketplace, product development is more important than ever.
This Bill is welcome and will receive the full support of the Fine Gael Party. It is disappointing that it has taken so long for it to come to the House. The industry told the Department that this legislation was necessary years ago, yet nothing was done before now. I appeal to the Minister of State to ensure that once the legislation passes in this House, it will make its way through the Dáil as speedily as possible.
Part 2 provides the legislative framework for an Irish authorised and regulated investment fund structure which will allow for the pooling of assets by institutional investors. Similar pooling structures are available in other jurisdictions and it is imperative that Ireland can compete in this marketplace.
Approximately two-thirds of Irish funds are established as investment companies. Investment funds constituted as companies have distinct forms of company organisation and objectives from those of ordinary companies. In its report, the Company Law Review Group noted that due to the unique nature of investment companies, it is often inappropriate to treat them in the same way as the generality of companies.
Recognising the unique nature of investment companies, Part 3 includes two welcome and necessary provisions, namely, the introduction of segregated liability and the facilitation of cross investment. The introduction of Part 3 will allow the Irish fund product to be structured to include all the necessary investor protections and efficiencies to allow the industry to continue to compete in the international marketplace.
I would like to go into a little detail on these starting with segregated liability. Ideally, an investor who invests in a particular sub-fund should be in the same position as if that sub-fund were itself a limited liability company. The investor should be subject only to investment risks and liabilities incurred in the pursuance of the investment strategy attributable to the sub-fund in which it has chosen to invest and should not be exposed to potential liability as a result of activities in other sub-funds. Failure to implement segregated liability sub-funds would severely impact on Ireland's competitive position. France and Luxembourg, two of the largest fund markets in the European Union, have already introduced amendments to their legislation to provide for segregated liability for sub-funds. The changes will be achieved through the amendment of Part XIII of the Companies Act 1990.
The 1990 Act will also be amended to provide for cross investment by investment companies and the UCITS regulations will be amended to provide for cross investment by investment companies established as UCITS. These amendments will facilitate investment by one sub-fund of an umbrella fund into another sub-fund of the same umbrella. This is currently permitted in investment funds which are structured as unit trusts but is not possible in investment companies because the legislation currently provides that shares which are purchased by an investment company must be cancelled. This means that an investment company cannot currently purchase shares in itself and hold these for the benefit of the investors in a particular sub-fund. The proposed amendments are aimed at removing this prohibition.
The foundation on which the funds industry was built was the establishment of a legal and regulatory framework to facilitate the international investment funds industry. The innovation and responsiveness that served the funds industry well is still very much required and, in an increasingly competitive marketplace, product development is more important than ever. This Bill will provide the legislative framework for an Irish authorised and regulated investment fund structure which will allow for the pooling of assets by institutional investors. Similar pooling structures are available in other jurisdictions and it is imperative that Ireland can compete in this marketplace.
A number of important amendments that form part of the Bill appear in Part 7. In particular, sections 68 to 74 make provision for increased penalties to apply for breaches of various pro-consumer legislation across a range of measures. The Bill proposes increasing the applicable penalties significantly, in some cases as high as €60,000. The Minister of State referred to these penalties but did not mention the €60,000. I welcome these changes, as it is important that companies that deal with consumers see a real disincentive for mistreating them. Real and meaningful penalties must be applied for a failure to comply with consumer legislation.
I am particularly pleased that the Minister of State proposes increasing the penalties for a breach of orders made under the restrictive practices Acts. The groceries order is the last remaining such order and the increase in penalties for a breach of this order is significant. The Oireachtas Joint Committee on Enterprise and Small Business recently unanimously recommended the retention of this order and I am pleased to see a renewed ministerial commitment to its effective implementation.
I was taken by the mention in the Minister of State's conclusion of a matter close to my heart. He pre-empted me in his conclusion where he mentioned non-compliance with law and the potential to impact on a number of fronts, including costs and competition. He also spoke about a course of action which he is considering, the referral of the provision to the Company Law Review Group for further consideration because of what was passed in the auditing and accounting Bill. I urge him to do so immediately because I believe we have interfered with our cost competitiveness. It is absurd that on non-accounting and non-financial matters directors must sign a compliance statement, in particular non-executive directors. This cannot be the intention. Company law is about protecting companies and solvency. Auditors and accountants must deal with the accounting and financial side. Consider the increased costs we are imposing on a significant range of small businesses. I do not know off the top of my head what the increased costs are but they are phenomenal as I have been told by some reputable accounting firms recently. The Minister of State is a former accountant and is aware of this. We should remove this anomalous provision. If something has nothing to do with the financial accounting side, it should be removed as a requirement.
If a company breaks a law, it should be prosecuted but non-executive directors should not be required to know what is happening in the non-financial areas of a company on a daily basis. The provision is restrictive and I am not aware of another country with a similar provision. We are putting ourselves at a disadvantage. I appeal to the Minister of State to undertake an upward urgent review of the auditing accounting threshold, which puts the Republic at a major disadvantage to Northern Ireland and the rest of the United Kingdom.
I thank the Minister of State for introducing the legislation, albeit belatedly, and I urge him to take the mandate granted him by the House and get the legislation on to the Statute Book as soon as possible.
I welcome the Minister of State and congratulate him on introducing this important legislation. I thank Senator Coghlan for his wholehearted support for it. He referred to the extra pressures placed on small businesses by new legislation generally but, based on my experience, the pressure of meeting accountancy and legal charges create greater pressure.
Utilising an outside accountant represents a significant cost to a small business. The cost of insurance is the sexy issue, which is always highlighted by the media, but legal costs are also extraordinary.
The legislation is important because it reaffirms and strengthens the Government's commitment to making Ireland one of the most attractive and competitive locations for international financial services institutions and activities. The fact that half the world's top 50 banks are located in the IFSC and that Dublin is one of the primary European locations for insurance mutual funds and corporate treasury is testament to the vision of the architects of the Celtic tiger. Mr. Charles Haughey was the chief architect of the IFSC, ably abetted by——
He was supported by his Minister for Finance, Ray MacSharry, and my husband, Pádraig White, who, at the time, was chief executive of the IDA, which had to market the IFSC around the world.
I agree wholeheartedly with the Minister of State that there is a multitude of reasons why leading global financial institutions have been attracted to Ireland but the most notable are the attractiveness of the fiscal and regulatory environment and the availability of highly skilled and educated workers. It is a duty of Government to maintain such attractiveness for the reward is substantial. Ireland has a thriving financial services sector, which employs 51,000 people and contributes at least €700 million to the Exchequer annually. I commend IDA Ireland and the Government on seeking to boost Ireland's attractiveness as a leading location for financial services.
Maintaining a competitive edge requires continued review and reform because the global market continues to evolve and dwelling on past successes is not an option. One must innovate almost on a daily basis to keep ahead of the competition based on my experience in business. The Government must continue to be innovative to ensure continued progress and the legislation has been introduced with this in mind. The Minister of State outlined the importance of the funds industry and its growth over the past 15 years. He also detailed the legislative change that has occurred pertaining to funds vehicles. The Bill is being introduced with innovation in mind. As the Minister of State said, it seeks to provide the greatest flexibility to the funds industry while maintaining appropriate controls. The legislation will, therefore, make a number of important changes to existing law and it proposes a number of other changes to general company law.
I commend the Minister of State because the Bill amends the Companies Acts in anticipation of the transposition of two EU directives, most notably on market abuse. Anticipative legislation is much more preferable to responsive legislation. While the Bill is legalistic and complex, it is necessary and innovative, and I commend the Minister of State and his departmental officials. Given his professional background, it is within his capacity to do this.
As the Minister of State pointed out, recent successes give no assurance for the future. Financial services is one of the most innovative and rapidly evolving sectors and the funds industry operates in a highly competitive environment. I congratulate IDA Ireland, the Government and the Minister of State for their commitment in supporting this industry.
I welcome the Minister of State. I also welcome his comments in introducing the Bill and his emphasis on the Deloitte & Touche report. He referred to making Dublin a major European centre and a world class location, which are phrases I like.
I refer to a procedural issue. Yesterday we debated legislation intended to tidy up the Statute Book to make it easily accessible. However, this is not helped by the introduction of a portmanteau Bill, which deals with a number of different subjects in one package. While I can understand why, the legislation deals with two issues: new investment fund products and amendments to company law. However, they deserve to be addressed in separate Bills. The Minister of State may say they were put together because of the pressure on parliamentary time but such pressure is totally artificial, as it is caused by the scandalously low number of days the Oireachtas sits annually.
The first part of the Bill addresses the latest chapter in the ongoing success story of the IFSC, which is one of the jewels of the Celtic tiger, as Senator White said. Credit should be given to Dermot Desmond and C. J. Haughey, who grabbed hold of the idea when Dermot Desmond put it to him, more than 20 years ago.
It was a success. From the outset, the Custom House Docks project was marked by the unprecedented readiness of the authorities to fast track legislation to facilitate the broadest range of activities in the centre. They grabbed hold of it and it was a question of moving with the times. Senator White referred to her husband.
Whenever a market opportunity was spotted by the IDA or one of the other players in those days, there was no delay in putting the necessary enabling legislation in place. There was a real sense of getting it done, and that approach has clearly paid off.
The approach has clearly paid off, and it continues to pay off today. That is why we must remember those days and the activities and need to get things done rather than putting them on the long finger. It is for that reason that I welcome the Bill, the Minister of State and the work that his officials have put into what is before us today. Financial services are a fast-evolving industry, with new products being created all the time. To stay competitive, we must ensure that our legislation keeps abreast of that innovation.
However, there is another aspect that we must not forget, namely, the need to regulate all those new activities effectively. In general, I am against too much regulation, especially regulation with which it is difficult and expensive for law-abiding businesses to comply. That is a challenge, since we heard Senator Coghlan touch on some aspects of the legislation introduced last year. I know the Minister listened very carefully during the passage of that legislation and accepted some amendments, although not as many as some of us might have liked.
I recently agreed to become chairman of a new IBEC-sponsored committee called "Sensible Rules". That group has the purpose of encouraging the Government, which has welcomed us, to carry out in a sensible manner the regulatory reform that we need so badly. The better regulation introduced in Britain, with a report issued last year in Ireland, has exactly the right kinds of steps, so the concept, ideas and commitment are there. We hope to pursue that and encourage the Government in that area. That is why I was interested to read a speech by the chief executive of the financial regulator, IFSRA, at a conference in Dublin last week which I am sure many Senators, along with the Minister of State and his officials, will have read. In that speech, he expressed a preference for what he called "principles-based regulation" as opposed to "rules-based regulation". It was very interesting to hear it described in that way. Like most people, I favour that approach, and I am sure the Minister of State will too.
An example the chief executive gave of the difference between the two was how capital gains are treated for taxation purposes in Canada and Hong Kong. In Canada, they have a long list of rules that accountants spend vast amounts of energy seeking to get around using technicalities. In Hong Kong, on the other hand, they have no rules at all. They simply state the general principle that revenue should not be transferred from income to capital gains or vice versa simply to avoid paying tax. It seems that the Hong Kong approach is far better in bringing about compliance. As I say, I support that approach, and I believe that in general the State does too. I support IFSRA in taking that line.
However, I also wish to sound a note of caution. I am all for light, principles-based regulation to keep this country competitive and attract people to come and set up businesses here. However, ultimately, we must judge regulations not by how light or heavy they are, but by how effective they are in getting the results we desire. In my view, the desired results are focused overwhelmingly on protecting the customer. We have a problem of mindsets. Traditionally, the Central Bank, which is the forerunner and parent of IFSRA, has seen its regulatory role not as protecting the customer but as protecting the fabric of our financial system, and that is understandable. It protects the banks against themselves rather than protecting the customers against the banks.
I hope I have explained that well enough. We are assured that that is now all in the past. However, mindsets tend to linger long after we think we have killed them off. My point is that, in the international financial services field, everything depends on reputation, and the competitive position of the country could be irretrievably damaged if the idea ever became current that we were a haven where a blind or benevolent eye might be turned to activities that would promptly be cracked down on if they happened somewhere else.
In that respect, the current publicity about some suspect transactions in the reinsurance market, which is receiving significant coverage in America, is a major risk to Ireland's reputation. It seems the inappropriate behaviour now being investigated was masterminded from the IFSC and that certain executives banned from the Australian market by the authorities there continued to work in Ireland for months after that ban had been reported to IFSRA by the Australians. I do not wish to pursue the details of that case any further, since we should certainly not do that here. My point is simply to highlight the risk of our international reputation being compromised, seriously or fatally. Those who judge such matters will go by the results that we get rather than the principles we espouse. We can say what we plan to do and how we behave, but they will judge us on the basis of results.
What can we do about that situation? We can ensure that we promptly equip IFSRA with all the necessary resources to do its policing job thoroughly. We cannot expect it to vet every transaction, since that will not be possible. However, we can expect it to be knowledgeable enough to be fully aware of where difficulties are likely to arise and be quite alert to them. We should not spoil the ship for a ha'penny of tar.
I would like briefly to refer to the company law provisions in this Bill. I have no problem with the provisions themselves, which all seem eminently reasonable, as one might expect from suggestions that emanated mainly from the Company Law Review Group. However, I wish to repeat the point I made yesterday on the statute law revision Bill regarding the need to consolidate company law regularly. It is good that we keep changing company law to keep abreast of changing circumstances, although I do not agree with the added burden of compliance it often imposes on businesses.
Senator Coghlan has referred to one aspect of that issue. The first act in compliance is to find out what the law actually says. If we are to have compliance, what is stipulated by law must be easily accessible and something on which we can lay our hands. That is made more difficult and expensive if it is spread across many different Acts of the Oireachtas, all of which must be consulted if one is to get the full picture. That has happened in many different areas, and I suggest it is happening still.
We get around that difficulty by consolidating the law at regular intervals. In the case of tax law, we have made a policy of doing that every ten years, so one can at least find where one is at the end of that period. However, in the meantime, one must still search. It is accepted procedure that we consolidate those tax laws every ten years, but I would like the Minister to adopt a policy of doing the same with company law. However difficult it is for someone living in Ireland to keep up to date, it is much more difficult for a stranger coming here and trying to understand company law only to realise that we have not managed to consolidate it. I know the Minister's heart, along with those of his officials, is in the right place. We want to make Ireland an attractive place to do business, particularly in the financial services area. This is a step in the right direction, and I would like to see the Minister wholeheartedly get behind the idea of ensuring we consolidate it in future too.
I once again welcome the Minister of State at the Department of Enterprise, Trade and Investment, Deputy Michael Ahern, to the House and thank him for piloting the Bill through it today. I also thank his staff, who have assisted him in that important work.
I would like to refer back to the Irish Financial Services Centre in Dublin. At the time, I was a member of the Fianna Fáil Front Bench, and the Leader of the Opposition was Charles Haughey. He brought a policy document to us, behind which was Dermot Desmond, the financier. The two put forward that document, which was adopted unanimously by the Front Bench. Quite frankly, most members would not have been aware of the implications. It looked like a futuristic dream, but now it is a reality. There are now 17,000 people employed at the centre. How many politicians would have the tribute paid to them that they had in some way been responsible for a policy that created so many jobs? It is a good example for the Opposition parties to follow. Rather than trying to score points against the Government, the Opposition parties should propose policies which would help to create jobs if they ever get back into Government. They should make known the ideas they will use if they are in Government in the future, with Fianna Fáil or another party. It is time to consider these issues.
For example, the Opposition could introduce a Bill to establish a development corporation for the River Shannon, thereby creating many jobs. It would be worthwhile to research this policy area and to propose ideas for future development. The River Shannon is not being properly exploited.
We need to build on the fantastic success of the global funds sector. The Investment Funds, Companies and Miscellaneous Provisions Bill 2005 is further evidence of the continuing evolution of Ireland's legal and regulatory environment, in response to and anticipation of the needs and trends of the global funds industry. It will reinforce Ireland's position as a primary jurisdiction of choice for the domiciling of investment funds. This can be cited as proof of the continuing benefit of the unique partnership arrangements in Ireland, where the Government and the financial services regulator work with industry, without compromising their individual mandates, to ensure this country remains the location of choice for the international funds industry. The Bill will provide a legislative framework for an Irish authorised and regulated investment fund structure that will allow for the pooling of assets by institutional investors. That is to be welcomed because it will ensure that the services provided by the Irish financial industry are more streamlined and cost-effective for all concerned.
The funds industry is the largest employer in the financial sector, having achieved extraordinary growth since the early 1990s. The reputation of Dublin and Ireland as a major international centre for the administration and servicing of funds is at the core of the growth of the sector. It has been recognised internationally, since the foundation of the State, that Ireland can be trusted irrespective of the composition of its Government. International investors understand that Ireland is a safe, well-regulated and democratic country. It is invaluable, in the interests of investment in this country, that Ireland's reputation cannot be undermined by any shade of government.
The Dublin funds industry has recorded exceptional annual growth since its establishment in 1989. The level of growth in 2004 represented an increase of over 20% on the level in 2003. Dublin has an international reputation for excellence not only in its administration of Irish-domiciled funds, but also in its servicing of funds. There has been outstanding growth in the latter area — non-domiciled funds increased by 41% in 2004, which is phenomenal. Many promoters whose funds are domiciled in a jurisdiction other than Ireland are opting to have their funds administered in Dublin.
I welcome the proposed amendment of the Companies Acts to tackle the issues of market abuse and insider dealing. The proposal will increase standards for market integrity in the securities field throughout the EU. It is based on principles of transparency and equal treatment of market participants and will require closer co-operation and a higher degree of exchange of information between national competent authorities. The proposal will reduce potential inconsistencies, confusion and loopholes by establishing a basic framework for the allocation of responsibilities, enforcement and co-operation within the EU. It will boost investor confidence in our markets and help them to develop and grow.
Insider dealing is traditionally a white collar crime, but it is a crime nonetheless. Martha Stewart, who is a home-making icon in the United States, was recently convicted of insider trading. If we cannot trust Martha Stewart, who can we trust? That is why this Bill is so important.
Ireland's location within the EU, with close links to the US and Asia, is a major advantage. The prevalence here of the English language, which is the international language of commerce and computing, has greatly assisted the growth of the financial services sector in Ireland. The stability of our Government is fundamental. The current Fianna Fáil-Progressive Democrats Administration is an ideal match in that context. The circumstances were solid when Deputy Quinn was Minister for Finance during Fianna Fáil's period in government with the Labour Party. People were given great support by the coalition of that time. Any Government is safe as long as Fianna Fáil is the majority party in it.
Its fundamental goal is to ensure continuity, consistency and reliability in the governance of this country. It has an abundance of good Ministers and Ministers of State at present, including the Minister of State, Deputy Michael Ahern, who is an accountant. He has introduced excellent legislation and done a great deal of practical work since he was appointed to the Department of Enterprise, Trade and Employment. He has shown a steady hand. I wish him continued success in that Department. Having worked in the Department for four years, when it was known as the Department of Industry and Commerce, I am aware that its staff are of the highest standard, particularly in its trade section. This country enjoyed phenomenal growth when I was Minister of State with responsibility for trade. I never had to rely on external agencies to provide advice or public relations, because the Department was well served for such services when I was there. I cannot understand why outside agencies are sometimes used when the best experts in Ireland are working for the Department.
I hope the Bill, which is supported by all sides of the House, will be unanimously adopted. The House should try to complete its Committee Stage consideration of the legislation as quickly as possible so that it can be passed into law.
I join others in acknowledging the significant progress and growth that has taken place in the Irish Financial Services Centre over the past 20 years. The centre is based in a part of Dublin that used to be derelict, but now resembles the skyline of a North American city. The number of people employed in the financial services sector has increased from not much more than zero to well over 10,000, half of whom are employed in the funds industry. I have mentioned some of the positive attributes of the sector because I intend to make a few balancing remarks.
I do not think the role of legislators involves acting as cheerleaders. Deputies and Senators should not be content merely to take up the rattle and say it is great that so many jobs have been created. I accept that the financial services sector is important and that billions of euro flow through the IFSC each year. As public representatives, however, we have a broader role than merely seeking to attract and retain jobs and investment in this country.
I would like to mention three aspects of the multifaceted role of legislators. First, we have a role in protecting consumers. I refer to individuals who have invested money for their retirements in pension funds, institutional investors and corporate investors. We need to ensure that regulations are in place to allow everyone to be confident that the system is being fair to us and that our money is being invested properly, legally and well.
Second, public representatives have a role in attracting investment and jobs to this country and retaining them here to the maximum possible extent. There is a limit beyond which we should not go, however. We were informed in the briefing material we were given that non-UCITS common collective funds have been established under legislation in financial centres such as Guernsey, Jersey, the Cayman Islands and Switzerland. It is worth remembering that such locations have gained their reputations as financial centres by doing what Senator Quinn described earlier. They have made it clear, in effect, that they welcome money and do not ask questions. Ireland has to make it clear that it is not interested in such activity. While we welcome the major global financial institutions and stockbroker groups, of course, we should stress that they are welcome here only if they are engaged in legitimate business.
Third, politicians have a role in ensuring that a framework is put in place to prevent abuse. We should not put in place circumstances in which money laundering can or does happen. We should not allow revenue abuses to occur. I refer not only to revenue abuses which are particular to Ireland, but also to the abuse of the revenue codes of other countries.
I would like to speak about consumers. Very few of us had any knowledge of investment companies 20 years ago and for some that is still the case. Many of us now, however, have contact with them because we must take advice from brokers or intermediaries who know or claim to know about investing money. Our money, through savings or through pension funds, ends up in investment funds that use it in most cases to invest for our retirement and it is important that they are regulated from start to finish. In recent years we put in place the Investment Intermediaries Act and we have strengthened the consumer wing of IFSRA; I acknowledge the work that Mary O'Dea and the consumer section of IFSRA did in highlighting only last week insurance premia that are not refunded when loans are repaid early. A few years ago that sort of abuse would probably not have come to light and we should be satisfied that IFSRA is dicharging its responsibility in that regard.
The Minister of State was involved with the Select Committee on Finance and the Public Service when the Investment Intermediaries Act was passed. It would be interesting to see the current state of play with the Act, how many claims for compensation have been made, the number of intermediaries' licences that have been revoked and how the Act is working.
The purely commercial aspect of the IFSC has a downside. It employs 7,500 people in high value jobs who then use their money to purchase goods and services with resultant beneficial effects for the economy. We achieved that, however, by setting the lowest headline rate of tax in Europe and that has undermined our capacity to tax some of the most profitable companies in the world. That downside should be acknowledged. We have secured a certain amount in tax but we have also contributed to an environment where many of these hugely profitable multinational corporations get away with paying very little tax, particularly compared to manufacturing industry that cannot move assets as quickly.
I share Senator Quinn's view that this is a technical Bill. The sections on money laundering, insider trading, share offerings and prospectuses are enabling in an anticipative fashion European directives that we have not seen and that are not set out in the Bill. There is very little we can do to scrutinise those.
I have tried to get my head around the non-UCIT common contractual funds but I am unsure what they are. I appreciate that the regulations dealing with UCIT common contractual funds are set out in European regulations but non-UCIT common contractual funds seem to be defined in the negative, where anything that is not a UCIT common contractual fund is a non-UCIT common contractual fund. The Bill gives powers to IFSRA to regulate non-UCIT common contractual funds in a general fashion in terms of their borrowing requirements, the assets they can deal with and how they can deal with them. It would be preferable to be considered a non-UCIT common contractual fund because the European regulations dealing with UCIT common contractual funds are too restrictive. It follows, therefore, that IFSRA will put less onerous regulation in place. If that is the case, the Minister of State should specify the circumstances where such an instrument will be used. The great advantage of European regulations is that they are shared and set a common standard. Here we are saying that we will walk on the wild side and impose less regulation and more flexibility. I am concerned about where that might go and the circumstances in which the instruments provided for in the Bill will be used.
Likewise, when the Bill deals with segregated liability, I do not have the expertise to comment in any great detail but it struck me when reading the explanatory memoranda that this can also be abused. Our central purpose should be to ensure that people who invest in a fund or sub-fund in good faith are properly compensated and can bring the operators of the fund to account if something goes wrong. The last thing we want is the creation and manipulation of various sub-funds by people who want to avoid their responsibility and liability. If a particular sub-fund deals with particular assets and the investor is investing exclusively in them in the knowledge he is doing that, it is all well and good but it is not hard to imagine that it would be possible through the innovative creation of sub-funds to avoid liability in circumstances where it would otherwise exist. I would like the Minister of State to assure me that he is conscious of that danger and that IFSRA will ensure that will not happen.
The European directive will deal with non-local share offers and its provisions will not apply to share offerings of less than 2.5 million. That will exclude many share offers in this country and, therefore, blunt the effect of the directive and the legislation we are putting in place. Could we lower that limit? There are obvious benefits in setting standards and in giving recourse to law to fix liability on people listed in the Act who have responsibility for misleading or wrong statements in a prospectus. If we accept that general principle, we should not effectively exempt many of the share offerings that take place in this country from the implications of the directive.
Is there legislation that deals with insider trading? I cannot recall any prosecutions being taken in Ireland. The major provision in the Bill is that of stiff fines on indictment.
I assume, therefore, that the major effect of this is to transpose the directive and effectively increase the fines that can be imposed in cases on indictment and I welcome that.
There is plenty in the Bill to tease out on Committee and Report Stages. I welcome the Bill but I am nervous about legislation the major thrust of which is to create a regime where regulation is lighter than at present. While we all want major international banks and investment funds to come to Ireland, we must be conscious that they are attracted here in a way that secures consumer rights and avoids some of the downsides that other financial centres around the world have experienced.
I welcome the Minister of State and the Bill and wish to make a few general points. The primary purpose of the legislation is to support the further development of the International Financial Services Centre which has been one of the outstanding successes of the last 20 years. While I claim no credit, I was privileged to attend as an observer some of the early meetings on the centre in late 1986 when Fianna Fáil was still in Opposition and in 1987 as it entered Government. The International Financial Services Centre is the outstanding example of a policy initiative developed in Opposition, put to the electorate during a general election campaign and very promptly implemented and fast-tracked in Government. While I remember arguments about whether 5,000 or 10,000 jobs would eventually be created, the Minister of State referred in his speech to 17,000. The centre has succeeded beyond what anyone envisaged was possible. We began with a belief that a niche existed which Ireland could fill but we have developed something which is much more than a niche.
The IFSC is a full blown centre which competes in its own right with many other important centres around the globe. It has been a terrific success story because a high priority has always been given by the Government to addressing any concerns which have been expressed as the centre developed. It shows what can be achieved when one applies all of the resources of the State to a particular development. The centre was especially valuable in 1987 when the economy was at rock bottom and the Government was seeking development opportunities which would not require a great deal of up-front investment. The money for such investments was simply not available. Great credit is due to former Taoiseach, Charles Haughey, who ran with the idea and to senior officials, including Mr. Pádraig Ó hUigínn, in the Departments of the Taoiseach and Finance and the Central Bank.
The fears expressed by Senator McDowell about lost revenue miss the point. If we did not have an extremely attractive corporate tax regime, firms would simply not have come to Ireland and the IFSC would never have got off the ground. The idea of lost revenue is illusory. There are many countries, of which Germany is the obvious example, which have struggled for years to maintain corporate tax revenue and failed to increase it. If I remember correctly, corporate tax revenue in Ireland was of the order of £320 million in 1986 and is many multiples of that today. Financial services alone account for €700 million, which represents many schools and hospitals and is very valuable.
I do not wish to be argumentative, but the point I made was slightly different. I wished to say that what we did has made it impossible for governments anywhere to adequately tax international financial institutions which have mobile assets as they deal in money. My point was not that there has been a specific loss in Ireland but that it is now impossible to adequately tax multinational institutions anywhere.
The Senator does us too much credit as the circumstances he outlines would have developed anyway. There are many other jurisdictions including ones which charge little or no tax. I do not accept that our actions made a significant difference to the global scene. We no longer have exchange controls and a series of closed economies around the world, nor do we have a fortress Europe. We may not like the implications, but it is a scenario we must accept and work with. If we do not, we will simply find ourselves falling behind as employment and investment go elsewhere.
The Bill is very technical and illustrates the heavy reliance of Government in areas like this on professional advice from civil servants, financial advisors and lawyers. Government can address any political issues which arise, the main one being the importance of protecting the reputation of our financial services by ensuring abuse does not take place. There is undoubtedly a trade-off in creating the degree of regulation required to prevent abuse while avoiding weighing down the system in a way which leads bona fide firms to find it more attractive to relocate. I note with some amusement that legislative requirements provide the source of the advertising clichés with which we are bombarded on morning radio to the effect that past performance may not be a reliable guide to future performance and that investments may fall as well as rise in value. The Government is to blame rather than the advertising and insurance industries, or even the EU. I accept that these warnings, of which the Bill addresses one or two I have not seen before, are necessary to counter any attempt to oversell or hype products.
I welcome the Bill and encourage the Government to continue to pay close attention to the financial services sector. It has been one of the major success stories of the economy over the last 20 years.
I thank Senators Coghlan, White, Quinn, Leyden, McDowell and Mansergh for their very useful contributions on a technical, complicated Bill which makes provisions in a number of different areas of company and consumer law. A number of interesting points have been raised and I will address as many of them as possible.
Our regulatory environment is a key component of our competitiveness and international reputation. The financial services sector is one of the most innovative, and rapidly evolving and new products are constantly brought forward at the cutting edge of a most exciting business. All of these products aim to find a new way to package risk. It is a sector which is increasingly technologically-enabled, and which draws upon new skills from specialist areas such as mathematics and economics. It is also highly mobile. Our competitors can catch up fast. New financial centres are emerging across all time zones in the new globalised economy. It is truly a global service. We in Ireland have to be up there with the best of them and, if at all possible, be ahead of the game.
However, at all times we must be sure we strike the correct balance between innovation, supervision and protection. If we get it wrong and introduce draconian requirements, the funds industry will move elsewhere. If the regulatory regime is too light or lax, we run the risk of facilitating the rip-off of investors. Not only that, but our reputation as a well-regulated jurisdiction would suffer irreparable damage. We are satisfied that the balance in the Bill is the correct one.
I intend to move some amendments on Committee Stage. The first is to the Competition Act 2002 and concerns the retention of evidence gathered during investigations. The purpose of the amendment is to remove operational difficulties experienced by the Competition Authority in regard to the current provisions. The Office of the Director of Corporate Enforcement is also experiencing problems with a similar provision in the Company Law Enforcement Act 2001 and I propose to move an amendment to resolve this. My Department is working on some amendments relating to the Industrial and Provident Societies Acts in connection with financial limits in co-operative societies.
Senator Coghlan referred to the director's compliance statement and to my earlier comments on this measure. I confirm what I stated, that I would expect to be in a position to finalise my deliberations on this matter over the coming week or so and to announce what action we will take on it.
Yes, within a week.
On the point made by Senator Quinn regarding the principles-based regulation vis-À-vis rules-based regulation, we are always mindful of the need to strike the right balance. IFSRA was fully consulted on the provisions in the Bill.
I agree with the comment that introducing amendments to Bills on many different subjects is not the perfect solution. The Company Law Review Group has been examining future developments in regard to company law. A significant amount of work has already been undertaken by my Department in this regard, with the support and assistance of the members of the Company Law Review Group, to implement the group's recommendations for changes to company law. These recommendations, when implemented, will radically update, consolidate and reform company law. I hope that Bill will be available in 2006.
Without going into any great detail, it might be helpful to give a brief outline of the work in hand. In general terms, it is proposed to divide the present provisions found in company law into three broad categories or pillars, as follows: pure company law; market-related company law matters; and provisions relating to investment companies at present located in company law.
A brief overview of what each of these will deal with follows: at the heart of the changes is the proposal to refocus company law, such that the private company limited by shares with a standard constitution becomes the primary focus of the law. This reflects the fact that the private company limited by shares comprises over 88% of all companies on the register of companies in the Companies Registration Office, CRO.
To further facilitate this emphasis on the private company, Part A of the new principal Companies Act will solely deal with this category of company. This means that persons who are members of such a company will have all the company law applicable to them in the one place. Part B of the pure company law provisions will contain the appropriate law applicable to all other types of company, whether private and limited by shares but with specific objects, public limited, or private or public limited by guarantee or unlimited.
The market-related provisions, which for the most part will apply to public companies limited by shares, will deal with such matters as the preparation and issue of prospectuses when securities are issued to the public, with ongoing disclosure of information to the market and will also contain the national legislative provisions relating to market abuse. All of these are areas in which the EU has adopted directives. Some of the national provisions will be in primary law, and some will be contained in regulations made under the European Communities Act 1972, as amended.
The company law provisions relating to investment companies are at present found in Part XIII of the Companies Act 1990. As I mentioned in the introduction to the Bill, I and my predecessors have greatly expanded the range of legal vehicles that can be used by the investment funds industry, and the Bill introduces a further one, the non-UCITS common contractual fund — with which I will deal presently — or non-UCITS CCF for short.
As part of the programme for rationalisation of the underpinning legislation, and with a view to having as uniform a regulatory supervisory structure as possible in place for all investment vehicles, it is proposed to bring together all of the relevant law relating to investment entities in this third pillar.
My intention in giving this outline was to share with Senators the major reforms that are being planned and worked on by and in co-operation with the Company Law Review Group. It may be that a few interim stages may have to be negotiated to get to the final destination, but the Bill will allow a significant first preparatory step to be taken.
On the point made by Senator McDowell, on non-UCITS CCF, this mirrors what is done by Part XIII of the Companies Act 1990 regarding UCITS. Regarding the common contractual funds, the legislation will provide the legislative framework for an Irish-authorised and regulated investment fund structure which will allow for the pooling of assets of a number of pension funds.
Many multinational companies operate pension schemes in a number of different jurisdictions for the benefit of employees in those jurisdictions. When these local pensions funds are centralised or pooled, a number of cost savings are achieved through economies of scale. These savings include a reduction of management fees, administration costs and custodian fees. In addition, the pooling of assets allows smaller individual funds to diversify their risk by using a larger number of investment managers than would be possible if they were to operate on a stand-alone basis.
The availability of UCITS common contractual funds has allowed Ireland to market itself as a jurisdiction for consideration to multinational companies looking for an investment fund structure to pool the assets of a number of individual funds. The availability of an Irish pension pooling investment fund structure has been well received in the marketplace and it is anticipated that there will be a strong demand for the UCITS CCF.
However UCITS structures by their very nature include inherent restrictions, for example, restrictions in investment policy, acceptable asset classes, borrowing restrictions etc. These restrictions limit the value of the UCITS CCF structure and highlight the need for a CCF beyond the UCITS structure to complete the product range. Considering the experience, benefits and potential of the UCITS CCF structure due to its inherent restrictions, a number of the Department of the Taoiseach industry authority working groups, that is, the IFSC funds working group and the pension task force have highlighted the general introduction of a non-UCITS CCF structure. We can discuss the matter in greater detail on Committee Stage. In reply to another point made by Senator McDowell on setting the limit at €2.5 million for prospectuses, this limit was set in the directive.
I thank all Senators who contributed to this most useful and informative debate. I hope I have clarified most, if not all, the questions raised. We will consider these matters in more detail on Committee and Report Stages. I will examine the points that have been raised and I look forward to further debate on these matters.