Tuesday, 28 June 2005
Investment Funds, Companies and Miscellaneous Provisions Bill 2005 [Seanad Bill amended by Dáil]: Report and Final Stages.
I welcome the Minister of State at the Department of Enterprise, Trade and Employment, Deputy Michael Ahern, and his officials to the House.
This is a Seanad Bill which has been amended by the Dáil. In accordance with Standing Order 103, it is deemed to have passed its First, Second and Third Stages in the Seanad and is placed on the Order Paper for Report Stage. On the question, "That the Bill be received for final consideration", the Minister may explain the purpose of the amendments made by the Dáil. This is looked upon as the report of the Dáil amendments to the Seanad. For Senators' convenience, I have arranged for the printing and circulation of the amendments. The Minister will deal separately with the subject matter of each related group of amendments. I have also circulated the proposed groupings to the House. A Senator may contribute once on each grouping. I remind Senators that the only matters that may be discussed are the amendments made by the Dáil.
The first group of amendments consists of amendments Nos. 2 and 10 to 27, inclusive. This group relates to Parts 4 and 5 of the Bill, which refer to the transposition of the EU directives on market abuse and prospectuses.
Senator McDowell raised a number of points regarding these provisions on Committee Stage and, following further examination by the Office of the Parliamentary Counsel and the Office of the Attorney General, these provisions were further amended in the Dáil. Furthermore, the drafting of the regulations to transpose both directives has been progressed alongside the progression of the Bill through the legislative process and this has resulted in some mismatches which have now been removed.
Amendment No. 2 amended section 2 regarding the commencement of the new section 31, which repeals the existing provisions on market abuse law. At present, the Irish Stock Exchange operates the official list, the regulated market and the recently launched the Irish enterprise exchange, lEX, which in EU terms is not a regulated market for the purposes of EU directives. It was always the intention to apply the market abuse regime to the lEX using the powers in section 37. However, it will be necessary to examine the proposed transposing regulations to be made under section 30 to see what modifications may be necessary in the application of the full market abuse regulations to the lEX. This will take some time. In the meantime, it is considered undesirable to have no statutory prohibition on insider dealing applying to the lEX market. Section 2, as amended, will allow for a deferment of the repeal of Part V of the 1990 Act in its application to the lEX market until the section 37 order can be made.
Amendments Nos. 11 and 23 amended sections 29 and 43, now sections 30 and 46, regarding the regulations transposing the market abuse and prospectus directives. The previous draft gave the Minister the power to make regulations under section 30 for the purpose of giving effect to the EU market abuse directive, market abuse regulation and supplemental directives. However, the market abuse regulation is directly applicable in all member states. Therefore, it was incorrect to refer to "giving effect" to the regulation and section 29 has been amended to reflect this. Likewise, it was incorrect to refer to "giving effect" to the prospectus regulation in section 43, which has also been amended.
It has also been clarified that regulations made under sections 30 and 46 may only provide for penalties on a summary conviction. Subsection (3) of section 30, as amended, provides that such regulations may include provisions regarding disclosure of interests in relevant share capital currently in section 3 of the Companies (Amendment) Act 1999, which is being repealed in the new section 31. Regulations may also impose the requirements imposed by Article 6(9) of the EU market abuse directive that any person professionally arranging transactions in financial instruments who reasonably suspects that a transaction might constitute insider dealing or market manipulation shall notify the competent authority.
Amendment No. 12 added a new section 31 repealing Part V of Act of 1990 and the Companies (Amendment) Act 1999 which contains the existing law on market abuse and insider dealing. I would like to point out that the repeal of the market abuse legislation in section 31 and the repeal of the prospectus legislation in section 40 represent a significant streamlining of the law in these two areas. The EU directives will simplify administration and reduce the number of different rules and standards across the European Union. This is not adding new legislation on top of the existing law. It is bringing our legislation into line with Europe and making us more competitive globally.
Amendment No. 14 amends section 34 by giving IFSRA the power to make rules in order to determine whether a financial interest is significant, as required by the market abuse directive. Amendment No. 15 adds a new section 35, amending section 33AJ of the Central Bank Act 1942. This will ensure that the Irish Stock Exchange, in acting as an agent of the bank for the purposes of the market abuse directive, is covered by the immunity clause contained in Section 33AJ of the Central Bank Act.
Amendments Nos. 10, 16 and 18 to 20, inclusive, amend the definitions of "Irish market abuse law", "EU prospectus law", "Irish prospectus law", "local offers" and "offers of securities to the public" to ensure the text is consistent with that in the transposing regulations.
Amendment No. 22 amends section 43, previously section 40, by removing the reference to a threshold as it is not considered necessary to have such a threshold. The market practice is that for non-equity securities, the offerer, the person who sought admission of the securities or the guarantor alone should be liable. It will mean that Ireland will not lose competitive advantage to countries where liability for prospectuses for all debt issues attaches effectively to the issuers only. Amendment No. 25 amends section 48, previously section 45, to provide that the competent authority may prosecute for any summary offences under section 48, which refers to untrue statements or omissions.
Amendment No. 27 amends section 51, section 48 in the Seanad text, and gives IFSRA — the competent authority designate — the power to define "significant" for the purposes of the register of SMEs and natural persons. Article 2(2)(a) of the prospectus directive lays down criteria for those investors who wish to be considered as qualified investors, one of which is that the investor has carried out transactions of a significant size on security markets at an average frequency of at least ten per quarter over the previous four quarters. The amendment was felt to be necessary because, for example, applying for inclusion on the register of SMEs and natural persons is not an obligation imposed by Irish prospectus law but one that only arises if a person decides to avail of that particular registration regime. Amendments Nos. 13, 17, 21, 24 and 26 are related to or consequential on the amendments I have just described.
We supported this Bill from its inception. The amendments in question relate to the EU directive on market abuse and prospectus provisions. We tabled some amendments and the Minister of State mentioned there were some inaccuracies that were amended in the Dáil. We consider those amendments strengthen the Bill and we fully support the amendments as outlined.
I thank the Minister of State for bringing this Bill back to the Seanad. The fact he has examined and is including these amendments makes the Bill a thorough one. To his officials I say it is worthwhile to have the Bill as accurate as it can be. I know the Minister of State and his officials are anxious to make it 100% watertight. I commend him for returning the Bill to the House to do that.
The second group consists of amendments Nos. 9 and 32. A new section 28 was inserted which added a new section 260A to the 1990 Companies Act, and the Schedule amending the UCITS regulations was amended by adding a new Regulation 79A. These amendments make provision for investment companies established under Part XIII of the Companies Act 1990 and investment companies established as UCITS to prepare their accounts in accordance with certain accounting standards. These amendments will give these investment companies the flexibility to prepare their accounts in accordance with an alternative body of accounting standards. These standards are to be issued by standard setters prescribed by the Minister by regulation.
Investment companies are still bound by the Acts and will be required to give standard information that every company gives but are being allowed to actually prepare the accounts in accordance with another body of accounting standards in place of the international financial reporting standards, which would not necessarily require such disclosures. A company opting for the alternative standards must fully comply with the relevant standards as if it were registered in the jurisdiction of the standard chosen.
Amendment 28 adds a new paragraph (n) to section 56(1) — section 53(1) in the Seanad text — which amends section 60 of the 1963 Companies Act. Tax law provides that employee share ownership trustees must be incorporated as subsidiaries of the company in which the employee share option trust, on behalf of the employee share option plan, will acquire the shares. In addition, it is not unusual for non-Revenue approved arrangements to have as the trustee, a subsidiary of the company whose shares are acquired. This amendment is accordingly designed to allow these forms of financial assistance to operate.
Amendment 29 relates to new section 75, inserted to address a problem arising from the present scope of the Irish Takeover Panel Act 1997, which brings issuers of non-voting debt instruments under the remit of the takeover panel, if those instruments are listed on the Irish Stock Exchange. The provision is causing concern for the Stock Exchange and the takeover panel. The Stock Exchange is now a major centre for the listing of debt instruments, having achieved significant growth in the past three years.
An emergence of a large number of domestic Irish issuers of debt has also occurred, mainly in the international financial services sector. This growth has been encouraged by governmental initiatives which accept that debt issuance represents a significant opportunity for Ireland to go "up the value chain" as regards financial services activities. The recent Deloitte report sponsored by the IDA placed debt issuance at the top of the strategic aims for Ireland as a financial services centre. It would not be in keeping with this strategy if those Irish bond issuers were required to list in a country such as Luxembourg in order to avoid this legislation.
This issue was not identified when the legislation was enacted and the takeover panel has no desire for the legislation to have this effect. We are not aware of any other jurisdiction where the remit of the local equivalent to the takeover panel goes beyond traditional voting equity shares in this manner. Moreover, the focus the 13th EU directive on takeovers, which must be transposed into Irish law by 2006, is on equity shares with voting rights. The amendment also ensures that a company listing only equity securities in London and only debt securities in Dublin will come within the remit of the takeover panel.
Amendment 31 adds a new section 87. In Parts 2, 3, 4 and 5 of the Bill, certain functions are given to the Central Bank and Financial Services Authority of Ireland. It was always the intent that these would be discharged by IFSRA. No difficulty arises in Part 3, as this part amends Part XIII of the 1990 Act. However, in respect of Parts 2, 4 and 5 we were advised by the Office of the Attorney General and the Office of the Chief Parliamentary Counsel that the necessary designation should be done by way of primary law.
Separately, the Department of Finance already had under consideration some changes to the Second Schedule of the Central Bank Act, and was proposing to add other statutory provisions to the Second Schedule. The amendment in subsection (2) makes all the changes needed to the Second Schedule in primary law. The amendment in subsection (1) ensures that the administrative sanctions regime set up in the Central Bank and Financial Services Authority of Ireland Act 2004 do not apply to the market abuse and prospectus provisions.
Group 4 consists of amendments Nos. 1, 3 to 8, inclusive, and 30. The final group of amendments are drafting and technical amendments. Of those, amendment No. 4 was a Labour Party amendment which I accepted. In addition, amendments Nos. 6, 7 and 8 follow on amendments concerning the terms used in section 25 which were tabled by the Labour Party on Committee Stage. Following the advice of the Office of the Parliamentary Counsel, these amendments address the points raised by the Labour Party.