Thursday, 25 October 2007
Markets in Financial Instruments and Miscellaneous Provisions Bill 2007: Second Stage
I will begin my introduction of the Bill by mentioning that, although the Bill was published last April, a certain urgency has now come into play regarding the time available for completion of its passage through the Oireachtas. This is due to two factors. Sections 5 and 8 are required, and stated in the text, to have effect as from 1 November next and, to avoid the Bill being fatally compromised on grounds of retrospective legislation, it must be enacted by that date. It will be necessary to bring forward in this House an important amendment to section 19, which will inevitably result in its referral back to the Dáil for final confirmation. Given these exceptional circumstances, I must call on the good will of the House to expedite the passage of the Bill in line with the time constraint I have just mentioned.
The market in financial instruments directive, or MiFID, as it is now generally called, is one of the most significant pieces of EU financial services legislation agreed in recent times. It applies to both investment firms and credit institutions when providing investment services. The directive harmonises and modernises the EU-wide legislative framework for investment firms, promoting greater cross-border competition in particular. Thus, MiFID should, over time, lead to lower fees and make it easier and cheaper for customers, including retail customers, to buy and sell shares.
The aim of the MiFID is to create a pan-European market in investment services across the 30 Member States of the European Economic Area. In particular, it will simplify the regulation of firms that provide investment services on a cross-border basis in the EEA by providing them with an effective single passport which will allow them to provide such services across the EEA solely on the basis of authorisation by their home country regulator. The MiFID's predecessor, the 1993 investment services directive, or ISD, was only partly successful in providing a single passport, mainly because the effectiveness of its passport had been undermined by member states imposing their own investor protection requirements at local level. Therefore, investment firms which wanted to operate throughout the EEA would have had to comply with the unique investor protection rules in every member state.
This difficulty has been overcome in MiFID by incorporating harmonised, EU-wide investor protection provisions into the directive. These include standardised rules on the dissemination of quotes and on pre and post-trade transparency, as well as best execution practices. Member States were obliged to transpose MiFID by 1 February last, but it does not become operative for the industry until 1 November. This long lead-in for the industry was allowed by the EU to facilitate staff training and the extensive updating of IT systems required on foot of this new regulatory regime.
Ireland was one of the first member states to transpose the directive earlier this year. We did this by way of a statutory instrument, SI 60 of 2007, which sets down the obligations that must be complied with from 1 November. However, the scale of the maximum penalties proposed for breaches of the new MiFID regulations — fines of up to €10 million and-or ten years imprisonment on foot of conviction on indictment — is such that primary legislation is needed. That was the primary reason for the introduction of this Bill.
As is evident from its title, the Bill is comprised of two parts — the MiFID part and the miscellaneous provisions part. The MiFID elements of the Bill introduce penalties at national level for significant breaches of the new MiFID provisions — minor infringements were taken care of in the MiFID statutory instrument of last February — they empower the Financial Regulator to be able to levy fees on the financial services sector towards the cost of implementing its new MiFID functions, and its recently acquired market abuse functions, in the same way as arises for other regulatory provisions enforced by the Financial Regulator; and they repeal the Stock Exchange Act 1995 from 1 November when the MiFID regime becomes operational, as its provisions are superseded by the MiFID statutory instrument of last February.
The miscellaneous elements of the Bill essentially involve the updating or amendment of a variety of mostly technical provisions in various Acts which fall within the area of responsibility of the Minister for Finance. Section 19, however, inserted on Committee Stage in the Dáil and dealing with non-deposit taking lenders, including sub-prime mortgage lenders and mortgage reversion providers, is a significant new policy initiative.
The miscellaneous provisions cover the following topics. Section 9 will ensure that appropriate sanctions can be provided for a conviction on indictment for specified offences in the reinsurance regulations which were introduced in July 2006 as part of the transposition of the EU reinsurance directive.
Section 10 deals with the Netting of Financial Contracts Act 1995. That Act was introduced to meet the requirements of the EU directive on recognition of contractual netting and to bring certainty, through risk management, to firms engaged in financial trading, especially in the International Financial Services Centre. It ensures that netting and set-off arrangements between parties to financial contracts will be legally enforceable in the event of bankruptcy etc. provided they are properly drafted. Given the rapid pace of change in financial services, this amendment will widen the definition of financial contracts in response to market developments. This reform is needed to ensure Irish-based trading is not at a disadvantage as compared with institutions based in other jurisdictions.
Section 11 amends section 52 of the Investment Intermediaries Act 1995 to confirm certain limitations of receiver-liquidator access to client money following the winding-up of an authorised investment business firm, as recommended in the report of the Morrogh review group.
Section 12 provides for a simplification for the State ownership structure of Icarom plc, which is the rump remaining after the direct insurance business of the Insurance Corporation of Ireland, ICI, was sold off in 1990. The main role of Icarom plc is to run off ICI's pre-1985 liabilities, mainly in respect of its United States risks. The amendment involves removing Icarom's holding company, Sealúchaís Árachaís Teoranta, or SAT, from the structure. This reform has been recommended by the administrator on legal grounds in the interests of making it easier for Icarom to deal with litigation in the US courts.
Section 13 introduces a variety of minor amendments to the Central Bank Act 1942. It will allow the Financial Regulator an extra month to finalise the submission of its annual budget, from end of September to end of October of the preceding year. It will permit a reduction in the number of compulsory annual retirements from the board of the regulatory authority to take account of any voluntary retirements in that year. Another provision in this section will allow the Financial Regulator, subject to any EU confidentiality constraints, to disclose confidential information to the National Consumer Agency for the performance of the agency's functions. The section also permits the Financial Regulator to charge fees, with the approval of the Minister for Finance, in respect of various functions under Irish investment services law. Finally, there is an amendment to clarify the independence of the Financial Services Ombudsman from the Financial Regulator.
Sections 14 and 15 concern the National Treasury Management Agency and will allow the NTMA to provide foreign exchange services to Departments and State bodies. The savings to the Department of Foreign Affairs alone could be worth up to €700,000 per year. The NTMA will also be allowed to provide deposit-taking and lending facilities through its central treasury services to a wide range of State bodies. Another reform will permit the NTMA to engage in "transactions of a normal banking nature" concerning the Post Office Savings Bank fund and the central treasury service. For example, this will allow the NTMA to offer fixed-rate loans to State bodies because it will enable the use of interest rate swaps to hedge against the risk of interest rate rises.
Section 16 amends the legislation dealing with ministerial pensions in two ways. First, it provides for the backdating of payment of a Minister's pension to the date the person became eligible to receive the pension, rather than the date of application. On leaving ministerial office, severance is payable for two years. The ministerial pension is then payable if applied for. However, if a person, through oversight, fails to apply for the pension for more than six months after the ending of the severance payment period, payment of the pension cannot be back-dated for more than six months prior to the date of application. This amendment would allow payment to be back-dated to the date of entitlement and reflects a similar provision which applies to civil service pensions.
Second, whereas the current ministerial pensions scheme allows for a pension to be payable after two years' service as a Minister, the old pre-1993 scheme requires three years' service. This amendment would provide for payment of a ministerial pension to a member of the old pre-1993 scheme who has more than two years' service as a Minister. This has been the position for members of the new scheme since 2001.
Section 17 of the Bill as published proposed an amendment to the Credit Union Act 1997 to clarify the interpretation to be given to five-year and ten-year loans respectively. For instance, at present, a five-year loan continues to be counted as such even when the repayment period still outstanding falls below five years. The clarification in the Bill as published makes clear that such loans are no longer to be counted as five-year or ten-year loans when the repayment term falls below these limits.
Quite apart from this interpretation issue, on Committee Stage in the Dáil I introduced a further amendment to section 35, which increases the amount credit unions can lend over five years from 20% of their loan book to 40%, and over ten years from 10% of their loan book to 15%, subject to the approval of the Registrar of Credit Unions. It should be noted that this amendment stems from a recommendation of the review group on longer-term lending limits. Earlier this year, it was implemented by regulation SI 193 of 2007 at the request of the credit union movement. The Attorney General's office, however, advised that the first opportunity should be availed of to incorporate this change into primary legislation, hence this latter provision. As a result of the above amendment, section 21 provides for the revocation of SI 193 of 2007.
Section 18 repeals sections 9 and 10 of the Insurance Act 1936 and makes consequential amendments to the European Communities (Non-Life Insurance) Regulations 1976 and the European Communities (Life Assurance) Regulations 1984. Section 9 of the 1936 Insurance Act makes it an offence for a person to effect an insurance contract with a company not in possession of an insurance licence. Section 10 of the Act deems certain foreign companies and persons to be carrying on insurance business in Ireland in specified circumstances.
Insurance industry representatives have brought to our attention concerns they have regarding these two provisions and how they are having a negative impact on the operation of international companies in Ireland. Basically, these provisions have no relevance in the current business environment and need to be repealed.
Section 19 aims to provide for a system of regulation of non-deposit taking lenders engaged in retail lending, together with providers of home reversion schemes. They will be brought within the Financial Regulator's authorisation and ongoing supervision regime by way of an amendment to the Central Bank Act 1997. This in turn will bring their lending activities within the scope of the Financial Regulator's consumer protection code and, hence, provide greater protection to their customers as regards their business with those firms.
It was originally intended to address the regulation of this sector later this year in the context of the third money laundering directive and the draft directive on credit agreements for consumers, both of which would require some form of regulation or monitoring of all credit providers. However, there has been growing concern about the activities of some firms in this sector and especially those in the sub-prime market. It was decided therefore to avail of the opportunity presented by this Bill to advance the timetable for the introduction of regulation of this sector. However, the technical drafting of this provision has presented major legal challenges and it will be necessary to bring forward an amendment on Committee Stage in the Seanad to address these difficulties.
Section 20 is a technical amendment in line with a recommendation of the Oireachtas Joint Committee on Finance and the Public Service which will allow disclosure, under the terms of the Freedom of Information Act and subject to the usual exemptions that apply to that Act, of confidential information obtained by a person while performing duties as a member of the board or a member of staff of Ordnance Survey Ireland, OSI.
Concerning section 21, as I mentioned earlier regarding section 17, it will be necessary to revoke SI 193 of 2007 when section 17, which, inter alia, confirms the statutory instrument's provisions in primary legislation, becomes operative.
As regards sections 22 and 23, the Investor Compensation Act 1998 was based on an EU directive aimed at giving investors, especially retail investors, a certain degree of protection in the event of the failure of an investment firm. The 1998 Act used the Investment Intermediaries Act 1995 and the Stock Exchange Act 1995 as the basis for many of its definitions, especially with regard to the definition of investment business firms.
The statutory instrument underpinning the new MiFID regime in Ireland, SI 60 of 2007, will ensure the provisions of the 1995 Investment Intermediaries Act will not apply in the case of MiFID activities. Therefore, consequential amendments to the 1998 Investor Compensation Act are needed to ensure firms engaged in MiFID activities continue to be covered by the compensation regime. There are also some minor amendments included at the request of the Investor Compensation Company Limited to take account of its experience over the years concerning the investor compensation scheme. In drafting this set of amendments, there were so many amending paragraphs that, having gone through the alphabet from A to Z in section 22, it was necessary to have a section 23 with further paragraphs running from A to Y.
In section 24, the National Pensions Reserve Fund Act provides, under section 18(2), for the payment of 1% of gross national product, GNP, annually from the Central Fund to the National Pensions Reserve Fund. It is proposed to amend the definition of GNP in that Act for the sake of clarity, to confirm that the statutory annual payment into the National Pensions Reserve Fund is 1% of the figure for GNP published in the budget book. This is a technical amendment for the avoidance of doubt. It will have no effect on the amount of the annual contribution to the National Pensions Reserve Fund which will continue to be 1% of GNP as estimated at the time of the budget.
The purpose of section 25 is to provide for the transfer of oversight and funding of Ordnance Survey Ireland from the Minister for Finance to the Minister for Communications, Energy and Natural Resources. This transfer was one of the key recommendations emanating from a value for money and policy review of the grant-in-aid to OSI last autumn. The Department of Communications, Energy and Natural Resources already oversees the geological survey and, arising from its core functions, has the structures and expertise required to monitor the activities of commercial State-sponsored bodies. All parties, including OSI, are amenable to the transfer.
I hope this overview of the measures contained in the Bill is helpful to Senators. I must bring forward an amendment to Section 19 on Committee Stage. Significant urgency now attaches to the processing of the Bill and in these exceptional circumstances, I ask that the House facilitate me in processing it in line with the time constraint which I have mentioned. It must pass all Stages in both Houses by the end of October.
This is a business Bill which is of little interest to most people inside or outside this House. It concerns the transaction of business in the European Union and allows companies work across borders within the Union. What about the inverse? Is there any chance that Irish people could get mortgages or other loans in other jurisdictions? The Bill focuses on companies coming to operate here. Recently, however, it has been clear that there is no competition in the market for insurance products here. People can do nothing to avail of better deals on financial products in other jurisdictions.
Does the Government have anything in mind to ensure a two-way flow from this legislation? There are significant restrictions on getting products in other jurisdictions, for example the banks' clearing house would obstruct someone trying to pay a mortgage in another country. The Irish Payment Services Organisation manages the clearing of cheques, drafts and direct debits between banks. The Bank of Scotland had a serious problem with this a few years ago but we have heard nothing since it was accepted into the system. The Government does not appear to be doing anything off its own bat to help Irish people. It is doing what the European Commission tells it to do with this Bill. What does it have in mind that would work in the other direction?
As an example of my point, last year Seán Quinn purchased BUPA Ireland and there was much talk about how this would improve the health insurance market because Mr. Quinn works aggressively and has a history of dropping premia for car and house insurance. Last week, however, he announced that some health insurance premia would rise by 18%, presumably because he had no choice. This dovetails with the VHI's recent premium increases and continues the trend in the private health insurance market since 1996 when the market was supposedly opened up. Meanwhile it is Government policy to drive more people into the private health insurance market but there is no competition in that market, where two large companies dovetail their premia.
Seán Quinn wanted to reduce the amount paid to private hospitals and consultants to reduce premia but the consultants involved refused to see BUPA patients. That is the type of vested interest that controls the health insurance market. This left Mr. Quinn and BUPA with no choice but to continue to pay the consultants the same rates as VHI. The consultants, not the two largest health insurers in this market, dictate the cost of their products. In any other country that would be considered restrictive practice. The Government is doing nothing about this apart from making the market bigger and more lucrative.
The consultants will get their money because the Taoiseach has granted them significant benchmarking payments in the past three years. A few weeks ago, however, he told the Dáil that if these people did the job they are paid to do in the public hospitals there might be no waiting lists. He is either being stupid or acknowledging that he has no control over the health services. He is supporting a policy that forces customers into the private market for their health care. The customers are getting a raw deal.
The people who will gain from this financial legislation are those who have substantial assets or make substantial profits from their businesses. The Government is not prepared to do anything to help the ordinary people go about their business. None of us can seek cheaper loans or health insurance in other jurisdictions. Will the Minister of State comment on this in his closing statement? It is good to see such important legislation being introduced because the purpose of the European Union is to break down borders and make it easier for people to get these services.
The Minister for Finance needs to clarify the recent treatment of civil servants. The idea that civil servants in the Departments of the Taoiseach, Finance and Transport, who were aware of events in Shannon were unbelievably careless about informing their Ministers, hit a raw nerve. Three years ago when I was health spokesperson for Fine Gael on the Oireachtas Joint Committee for Health and Children I dealt with the then Minister for Health and Children, Deputy Martin, and the Ministers of State at that Department, Deputies Tim O'Malley and Callely, all of whom acted as if they were completely stupid in respect of the illegal nursing home charges. The Minister said he had never heard about it, Deputy Callely had heard about it, whispered it to the Taoiseach and then forgot about it. Three years later we are seeing a re-run of the Travers report and once again the civil servants are the bogey men. Whatever about the illegal nursing home charges getting lost within a Department, it is unbelievable that nobody in three Departments knew what was going on between Shannon Airport and Aer Lingus.
While I am not surprised that Ministers would be complacent in finding out about it for themselves, that is not the same as the idea that senior civil servants would not inform their Ministers about what was going on, when they clearly understood the importance of it. That is important because officials and Ministers from the Department of Finance have been going on in the last few years about performance indicators for civil servants. When I was on the Joint Committee on Finance and the Public Service, senior civil servants used to take their role on performance very seriously. That three senior Ministers from the Department of Transport and Marine, the Department of Finance and the Department of the Taoiseach did not know what was going on regarding Shannon is not unbelievable. I believe somebody is lying. That should be made clear to the public. Somebody is lying on this issue and it needs to be cleared up.
This is not the same as the difficulties encountered by the NRA in controlling its spending. Nor is it the same as the problems in the HSE, where senior managers paid themselves hefty bonuses but failed to stay within their budgets and are now penalising patients for it. There is something wrong here and some serious questions need to be answered by the Minister for Finance. If the Minister of State cannot answer these questions in his closing remarks, then the Minister for Finance should come into the House and tell us what is going on. The Department of Finance is responsible for all the improvements in the performance of the Civil Service. There has been a range of reports over the years on the change management process in the Civil Service. If anybody tries to tell me that those involved slipped up and failed to inform Ministers what was going on, then I do not believe it.
I have no difficulty with this Bill, but can the Department and the Minister do more to provide ordinary services to people in this country?
I welcome the Minister of State to the House. It is the first opportunity I have had to congratulate him on his re-election. I wish him well in his portfolio in the next five years.
By way of rebuttal, it is ridiculous in the extreme that one should put one's name forward to speak on legislation if one is going to start by saying that, like most others, one has no interest in the legislation, but will avail of the opportunity to bash the Government.
I have been in this House for a little bit longer than the Senator and I am aware of the procedures and of best practice in terms of achieving the best for our constituency. I am also aware of our constitutional requirements to members of the public.
That is, to comment on this Bill in a positive way. Irish people can get loans from foreign banks, but if the Senator had read the Bill, he would realise that it does not deal with that issue. The Bill is about investment firms and the dealing of shares across borders. The Senator wants to get stuck in to the only thing he knows anything about, which is health. Furthermore, it is unparliamentary to use the words "lie" or "lying" about any civil servant or person in general. It is not something in which we engage, on either side of the House.
The financial services sector in this country has been a shining light in leading the economy to its position as one of the most successful in the world. All the economic indicators would suggest that is the case, notwithstanding the fact that we are facing difficult times. It is time to be prudent, vigilant and conscious of world affairs and factors that can affect our economic outlook and situation at any given time.
The Bill sets out a regulatory environment in line with the markets and financial instruments directive. That reminds me that the Senator had said the Government was doing nothing about it. If he had even a remote understanding or knowledge of the institutions in Europe, such as the Council of Ministers, the Commission or even the European Parliament, the Senator would be aware that Ireland plays its fullest part in all aspects of legislation. This includes the preparation of directives at embryonic stage, right through to last February when the Government was one of the first in Europe to transpose the directive. We are now putting it into law, so the Senator was misinformed while having a rant about the health service. He knows a little about that, given his background in medicine.
The Bill has provided an ideal opportunity for the Department of Finance to make some changes to a number of areas which, taken on their own, would not have required a Bill. I particularly welcome section 13, which enables the Financial Regulator to disclose confidential information to the National Consumer Agency about the agency's performance of its functions. It is important that the Financial Regulator can deal directly with the National Consumer Agency in ensuring that the customer is the king. The advantages of this Bill must be clearly visible to the customer on the ground.
The Bill also allows the National Treasury Management Agency to provide foreign exchange services to the Department and State bodies, resulting in sizeable savings to the Exchequer, of up to €700,000, according to the Minister of State. This is a victory for common sense and we should seek such savings across Departments, through European legislation and our own primary legislation.
Fines are to be put in place by the Bill for up to €10 million and prison sentences can be imposed for up to ten years. It also provides for fees to be charged to the financial institutions so that the regulator can carry out its functions. This is very positive and is to be welcomed.
Due to the technical nature of the Bill, it requires some research before one can speak on it, but it is to be welcomed. When one considers the contribution made by the financial services sector in this country, it is important that it is regulated. With 27 EU member states, it is even more important that we can operate to a regulatory system which we all understand, rather than having to deal with 27 different regulatory systems. The consumer and common sense are the victors, because it will lead to cheaper financial services, better consumer protection and better regulation. That will make Ireland and Europe more attractive to foreign investment from third countries.
I look forward to the passing of this Bill and I commend it to the House. It shows that Ireland is to the forefront in the introduction of such legislation. Ireland is also to the forefront in the preparation of such directives at European level. I thank the Minister of State for coming to the House. I know he and the Minister will look to the future in a prudent, vigilant way. There are uncertain times ahead and we might not be in the same situation as we were in the past few years, where the economy had been so buoyant as a result of the boom in property and in a number of other areas.
I welcome the Minister of State to the House. This is the first time we have had an opportunity to speak on finance related issues. The Labour Party welcomes this Bill and will facilitate its passage through the House. At first glance, it seems to be very technical, but is necessary as it aims to transpose the markets and financial instruments directive into Irish law. I can see why there has been difficulties in drafting the Bill, because it is so technical. Therefore, I understand why some parts of it may have to be re-examined on Committee Stage in the other House.
The Bill aims to identify areas in which clarification or correction were required by the Financial Regulator and the industry on the directive and related areas and I welcome a number of the Bill's aspects. It widens the range of core investment services and activities that can be carried out across the EU. This applies to both investment firms and credit institutions when providing investment services. It creates a pan-European market in investment products, replaces national rules and allows for harmonisation. This will pose many challenges to Irish firms because it will allow investment products to be sold into the country, thus improving competition. However, it also will allow for Irish firms to sell on a pan-European basis. Some challenges will arise in this regard to which I will refer later. In general however, this measure is to be welcomed.
The Bill introduces new and more extensive requirements that a range of financial firms will be obliged to adopt in respect of the conduct of their business and internal organisation. This is especially important given the issues faced by some of the firms in question which have appeared prominently in newspapers recently. It allows for further and more transparent transaction reporting by firms. It protects investors, increases transparency in respect of fees and reduces costs for users on many of the instruments sold by the firms affected. I hope this will be achieved through the standardisation of rules and dissemination of quotes etc. This issue is highly important for consumers.
I appreciate the Minister of State considered that a number of other issues should be included under the miscellaneous part of the Bill. I will not go through them in detail and acknowledge that many of them were necessary. I refer to issues such as the requirement to levy fees by the Financial Regulator, the limitation on receivers' and liquidators' access to client money, the provision of authorisation to the Financial Regulator to disclose confidential information to the National Consumer Agency, the indemnification of members of the Financial Services Ombudsman Council etc.
However, one of the Bill's core issues concerns the penalties and scale of punishments attached to the MiFID provisions. I understand this must be covered by primary legislation given the scale of penalties that will be required should some firms not conduct themselves in the manner to which they should be subject.
I refer to some important areas in respect of the Bill. I refer in particular to the capabilities of the National Treasury Management Agency. The 1990 Act enabled the Government to delegate the borrowing and debt management functions of the Minister for Finance to the NTMA with such functions to be performed subject to the directions and guidelines the Minister might give. This gave competitive deposit and borrowing facilities to local authorities. However the proposed changes will allow the NTMA to work with greater flexibility, which is welcome. This will enable it to work more extensively with semi-State organisations, universities etc. It should be acknowledged that in some cases, this may prove to be a better option in future than choosing public private partnerships.
I accept the Bill's urgency and the reason it must be enacted before 1 November. However, I have one significant concern regarding it, namely, that while Ireland will implement the directive, how will it be implemented at a pan-European level? While I am open to correction, I understand that up to nine other member states have not yet imposed the directive. The Minister of State's response should advise Members of the number and identity of such member states as well as the timing of their implementation of the directive. Moreover, will all member states impose the directive in a similar fashion or will it be done down by further regulatory constraints favouring a member state's home markets? How can this be avoided? The Minister of State should provide more information in this regard to demonstrate his certainty that this will not happen. Obviously, such a development would defeat the purpose of the entire Bill, as the harmonisation of rules seeks to avoid such activity. Can we rely fully on all member states to adhere to the directive and implement it completely? How will the EU manage to ensure the directive is put in place fully? It must provide strong direction at all times as well as imposing a code of conduct. The Minister should explain this issue.
I agree with Senator Twomey on two points. There probably should be greater debate on how Irish firms can be facilitated in this new environment. While such a debate should be held at another time, Members must consider the logistical issues and other challenges that many such firms will face in the near future. There is a need to define these areas and consider them one by one in order not to lose first mover advantage in what will be now a very competitive market. Moreover, Members must consider how best to facilitate consumers in order that they benefit from such enhanced competition. This must also be broken down to ensure that consumers enjoy better benefits.
While on this subject, I will raise some other issues of concern regarding financial markets and regulations of financial institutions that arose as a result of this directive and Bill. A recent International Monetary Fund report notes that the Irish banking system is in good health, which is to be welcomed. There is one authority, namely, the Central Bank and Financial Services Authority of Ireland. The latter supervises individual firms while the monitoring of overall financial responsibility is the role of the Central Bank. As this operates within the euro system and the European Central Bank, Ireland's regulatory framework is in good shape.
However, it is highly important to maintain confidence and some issues that have come to light in recent months have shaken confidence somewhat. Ireland must ensure this does not happen because the financial services sector employs thousands of people whose jobs must be protected at all costs. Much of this success is built on reputation and consistent confidence in the sector. This must be maintained and a number of issues must be dealt with to achieve this goal. I appreciate the Minister of State intends to introduce an amendment to section 19 on Committee Stage that will cover some areas I intend to raise. However, I will raise them to ensure they will be dealt with in some detail.
I refer to the issue of deposit protection schemes. There is a need to strike the right balance between protecting depositors and ensuring banks do not take inappropriate risks. The need for an enhanced depositor's protection scheme for savers and depositors in Irish institutions has been raised previously. The Irish scheme had been limited to 90% of deposits with an upper limit of approximately €20,000. This is out of line with schemes operating out of the United Kingdom and Europe. A standard scheme across Europe is required and the Minister of State should ascertain how this could be brought about.
Another issue concerns the need to regulate derivatives or contracts for difference, CFDs. I was startled to learn that 50% of all transactions in the Stock Exchange in recent years have involved CFDs. While I am open to correction, I understand that approximately one year ago, the Minister for Finance proposed the imposition of stamp duty on such transactions but subsequently had a change of mind, presumably following some lobbying. I understand that such instruments are now falling in popularity as the credit squeeze sets in. While many high net worth individuals have been involved, the ripple effect has resulted in ordinary citizens and small-scale investors becoming caught as a result of the high cost of lending and the consequent raising of interest rates and mortgage repayments. Consequently, this entire field requires some form of regulation to standardise its operations.
I understand the area of sub-prime lending will be dealt with in some way on Committee Stage, although I am unsure to what degree. The Minister of State is aware this is a topical issue at present about which I have great concerns. This area is growing despite contradictory views. It simply constitutes the modern-day equivalent of hire purchase schemes and concern is now rising continually. Many sub-prime offers are given out like confetti by firms. They come through the letter box as financial institutions dispense proposed loans to people who cannot afford them. They are being given out in tandem with flyers for Indian and Chinese takeaways, advertisements to have one's driveway resurfaced etc. This constitutes a form of financial confetti. Moreover, advertising for sub-prime lending organisations is being carried out by celebrities who are making proposals about which they should know better. This looks like easy money to some consumers and the schemes are marketed with a great deal of colour. Unfortunately, many such schemes prey on the vulnerable and this sector must be regulated.
The Financial Regulator has remained aloof from the sub-prime market for a long time. At present it is worth €1 billion in Ireland and is expected to grow to €5 billion in the next few years. Members should be concerned by this and must take cognisance of present developments in the US sub-prime market to ascertain how it could affect Ireland in future. In many cases, those who buy such products are financially vulnerable and lack financial sophistication according to research that has been conducted. We must acknowledge this. In some cases there is evidence that the applicants are lying, but they are getting through the net because lenders do not scrutinise their applications sufficiently. These people are lying on their application forms because they are so desperate to get the money. They need to be protected.
The Minister of State needs to strike a balance between protecting people from themselves and offering a choice. The financial services sector has binged in the sub-prime area. It was greedy and now consumers are paying. There is a credit crunch and first-time buyers looking for a mortgage are in trouble. They do not need to be pushed in the direction of sub-prime mortgages and we should ensure they are not in the future. I welcome the fact that the sub-prime sector is covered under the consumer protection code, but traders in this area should be subject to a suitability check. Perhaps the Minister of State would comment on whether this is the case. A number of bad news stories in the recent past have pushed this to the top of the agenda. I encourage the Minister of State to do all in his power to address this. Do sub-prime lenders, who in many cases sell on loans to other institutions within six months, really have an interest in checking that the people to whom they are lending have the ability to pay back the loan? I have severe doubts about this. We should not allow this issue to drift.
Some firms offer certain types of investment in overseas properties. Is it sensible to give five-year guarantees on rental income when people on an average wage in the local area could never afford to pay such rent? There are many outside factors that could cause investments such as these not to work out. The Minister of State should also consider the area of on-line trading. How are we to regulate trading websites? This is a growing concern. We should institute a requirement to retain a customer code of conduct and regulations on money laundering for purely on-line retailers. These are firms that do not have a presence in the real world but trade only on-line. This is critical to ensure confidence is maintained in the market for innovative on-line products.
The sight of people queueing outside Northern Rock recently did not create confidence in our financial institutions. In that case, the fact that the institution does not have a public face caused a panic. Has the Minister of State considered how this can be avoided in the future? Many feel that the sub-prime market was also a contributing factor in the Northern Rock crisis. I certainly believe it was a factor. In the recent past, Bank of Ireland raised interest rates for first-time buyers as a direct result of the problems in the sub-prime market. This is because the interbank market on which Bank of Ireland was trading tightened up which meant that it cost the bank more to borrow money. These costs were pushed onto its customers. I believe that what happened with Northern Rock was similar but on a larger scale. Northern Rock is an almost faceless bank, which resulted in immediate panic. This is interlinked with the matter of on-line retailers. These issues need to be addressed.
As this is the first time we have had a Minister of State at the Department of Finance in the House, I wish to raise a number of general issues. There have been warning signs about the economy for some time, including the Northern Rock crisis, the 30% fall in the Irish Stock Exchange, the credit crunch and falling property prices. There are almost 280,000 people working in the construction industry which comprises 25% of gross domestic product. We all know what is coming in terms of the number of housing units built and the impact this will have on the economy. We know growth rates will drop.
Certain promises were given prior to the general election by the Minister of State's party in Government, including a 1% cut in the top rate of tax as well as changes in the standard tax rate, PRSI, vehicle registration tax and motor tax. I presume most of these will not be achievable despite the promises made. A similar type of strategy was used five years ago. However, I am concerned about the slash-and-burn tactics that are beginning to be used by the Government. Cuts will need to be put in place but I ask the Government to ensure that these are not at the front lines in the areas of health care and education. It is important we avoid this at all costs.
I wish to raise some issues to do with the forthcoming budget so that they may be noted by the Minister of State. National development plan appraisals for building projects should be more open and transparent. There should be more accountability in this area. I ask that efforts are made to achieve this because I do not understand why we do not have more transparency. There should also be some provision for equipping construction workers with alternative skills because the level of construction work will drop over the next few years.
We all know the decentralisation situation is a mess and the origin of decentralisation scheme was mad. For example, there was no possibility that Fáilte Ireland would ever move to Mallow. We need a sustainable decentralisation programme. However, the costs involved in the current round of decentralisation are so huge — €900 million over recent years — that the Government should in this case accept its mistake, cut its losses and run.
The Minister of State stated recently that €53 million would be required this year for national roads, although €87 million was spent last year. Should this figure not increase rather than decrease? Will there be a budget underspend in 2007? If so, why? Employee pension schemes are a real concern. The number of employers offering defined benefit schemes has dropped from 67% of the total to 37% over a five-year period. We need an explanation for this. It is quite worrying because the risk is that in 30 years' time, people will wake up and realise there is no money in their pensions. We need a strategy to deal with this. I know a Green Paper on pensions was published recently, but perhaps the Minister of State would comment specifically on this issue.
The Bill before us today is necessary in a number of respects. It gives us an opportunity to consider the importance of the financial services industry in this country and the need to assist its development. The primary purpose of this Bill is to enforce the EU markets in financial instruments directive. However, the way in which this Bill has been presented in this and in the other House has been far from ideal. It was published in April but its progress was interrupted by the general election, the formation of a Government, the summer recess and the delay in setting up the Oireachtas committees. As a result of this, we have before us something rarely used by this House, a motion for earlier signature, which is required to comply with the 1 November deadline of the directive. This is something we should try to avoid as much as possible despite the fact that the directive has been allowed to take early effect via statutory instrument.
Another area in which the Bill is not ideal is the inclusion of miscellaneous provisions. Especially in the area of finance we should try to avoid miscellaneous provisions Bills which come across as hotchpotch legislation. The difficulty is that there are small areas of legislation that need to be tuned and some of the provisions help us to fulfil our statutory obligations in terms of other European directives, particularly those on reinsurance and the recognition of contractual netting. However, the overall combination of miscellaneous items in this Bill negates the main purpose of it, which is the implementation of MiFID. There is also the question of why the miscellaneous provisions are being implemented by use of the earlier signature motion, which again is something we should always try to avoid in legislation.
Many of the miscellaneous provisions are to be welcomed. I have already referred to the other EU directives that are being given statutory recognition. Section 11 contains a provision that acts on a recommendation of the Morrogh working group. Members may be aware that this review group was established on foot of the collapse of a firm of stockbrokers in Cork. We are still dealing with the consequences of this occurrence and there are many lessons to be learned from this and from the actions of other investment firms.
Bills such as this run counter to good practice as exemplified by the Department of Finance itself. The Department has put much good work into consolidation legislation, especially in the area of taxes, and particularly in an area as important as financial services we should strive to produce a consolidation Act instead of introducing measures by way of a miscellaneous provisions Bill. I hope that once this legislation reaches the Statute Book, the Department's next step will be to bring the various legislation together.
Section 12 relates to the remaining tragedy that is the Insurance Corporation of Ireland. It is somewhat pathetic that it is a matter with which we still must deal in legislation so many years later. It certainly was a lesson that was badly learnt in public life here.
I welcome the provisions related to the Financial Regulator and the Financial Services Ombudsman. In terms of logic, they give a greater sense of what is being attempted through the directive.
Sections 14 and 15 give important powers to the National Treasury Management Agency, but I want to put on record another concern of mine. The National Treasury Management Agency now not only is responsible for dealing with the national debt, has a supervisory role in the National Pensions Reserve Fund and the State Claims Agency and the review of value for money in public private partnerships, and has a role in overseeing the Post Office Bank fund, in this Bill it is being given another power in terms of foreign exchange and an extension of its role in the Post Office Bank. The latter power is a useful one in that it allows that bank to be a lender of first resort which gives an opportunity in terms of State infrastructure to put in place something for which my party has always argued, that is, the idea of public-public partnerships in the development of infrastructure.
I must admit that I am at a loss as to why section 16 on ministerial pensions is included in this Bill. Perhaps it is a matter that needs to be tidied up but it has no relationship to markets in financial instruments and it does not help the type of legislation we must enact in this area. I have no difficulty with the concept of it being put on the Statute Book. It just should not be done in this legislation. There has been other legislation in which this could have been done more readily.
The Bill includes a number of good amendments to credit union legislation, tidying up the regulations on lending and allowing credit unions, subject to the advice of their own regulator, to lend more freely more of their own assets. The second matter has been a constant complaint from the credit union movement and this will allow credit unions to be more effective, especially in terms of social finance which is their real remit.
However, the Credit Union Act is now ten years old and there are many other issues that need to be dealt with in terms of renewing and reforming the credit union movement and its governing legislation. The time is now right, rather than having specific provisions in a miscellaneous provisions Bill, to introduce a new credit union Bill to update that legislation and I would ask that such would be considered.
Much of this Bill reminds me of the song with the line about the hip bone being connected to the thigh bone in that one connection seems to lead to another. Several of the provisions here relate to insurance. Section 19, which was mentioned already, relates to issues which are current in the international economy dealing with sub-prime mortgages in particular. Here I would probably contradict myself. There is a need for legislation to be proactive in this area. It needs to be immediate and it needs to address the ongoing concerns. I accept the need for the Minister to make amendments in this area and to address the real existing concerns. We do not want an occurrence in this country like that in the United States where such mortgage providers and lending institutions have tended to create a chimera of what appears to be an easy way of dealing with financial difficulties for people in quite severe household income difficulties when in fact it makes the matter worse.
Unfortunately, we are seeing advertised in this country a plethora of these organisations giving the impression that there is an instant solution to people's financial problems, that with one loan a person can consolidate all his or her loans and, suddenly, his or her problems are gone. The reality is people end up paying more for the same debt. The Irish Financial Services Regulatory Authority has a particular role to ensure the myths being portrayed through this advertising and people seeking to trade in this area are given as little licence as possible. I fear for the consequences if that does not happen.
The Bill includes two provisions related to Ordnance Survey Ireland. One is a welcome one related to freedom of information and the other is related to transfer of oversight. Ordnance Survey Ireland is a responsibility of the Tánaiste and Minister for Finance and, obviously, legislative provisions must be made to overcome these particular anomalies where they arise. It is fair to say in the context of this legislation that Ordnance Survey Ireland, as an organisation, tends to get overlooked too often and would probably deserve to be looked at in the context of overriding legislation for itself. It is an organisation that performs a useful role which tends to get ignored, not only by the public but, unfortunately, by most of us involved in policymaking. I hope the reference to it in the legislation might jig a response in terms of how we see Ordnance Survey Ireland as a body in the future.
The last area I want to refer to is the National Pensions Reserve Fund and the provision for tightening up the definition of gross national product. I do not have a difficulty with this in that the definition needs to be given a stronger statutory footing. However, there is a need for an examination of the National Pensions Reserve Fund as it proceeds. We exist at a time where international stock markets, if not in free fall, are certainly in an unhealthy state and the gains that have been made by the National Pensions Reserve Fund in recent years are in danger of withering away unless we look at the policy and the investment priorities. I have constantly called for ethical investment to be part of those policies, as is the case in the Norwegian state pension fund, and we should have such a debate and re-examine the legislation. We must accept that the National Pensions Reserve Fund has been a success and provides us with a bit of security in terms of future pension provision, although it will not go anywhere close to meeting pension needs in future years. The fact that the fund exists and needs to be enhanced and protected should be of concern to this House and should be the subject of renewing legislation.
I welcome the Bill, subject to the provisions I outlined. I hope we will revisit this and put this legislation in a proper context in future legislation.
I welcome the Minister of State, Deputy Noel Ahern, to this House once again. The debate has been quite interesting. As Senator Boyle stated, it is a reminder of the need to consolidate legislation which is something the Minister of State should take into account.
I want to raise a matter which is certainly not part of the central function of this Bill but which is not dealt with at all, namely, the risk that exists to the good name of Ireland as a place to carry out financial services. From the very initiation of the Irish Financial Services Centre 20 years ago, it has been a cardinal principle of Government rhetoric that the financial services regime we were creating would be properly regulated by international standards. Repeatedly, we often stressed that we were creating not a tax haven but a genuine financial centre that would provide real services. From the beginning it was realised that achieving respectability for our financial services centre was essential to its long-term success and goals. However, at the same time, the Government was busy assuring potential participants in the centre that any regulation introduced would not be bureaucratic and would be with a light hand.
There was a certain tension between these two messages it was sending out to two different parts of the financial community. Many sceptics thought the end result would be that the Irish centre would have regulation that just went through the motions but at the end of the day would not prevent participants in the centre doing anything they wanted. I refer to the questions that were asked 20 years ago.
Twenty years on, it is clear that, whether these sceptics were right, there now exists in financial circles what it would not be an exaggeration to call a crisis of confidence in the quality of regulation at the IFSC. As respectable an organ as The New York Times characterised Ireland as "the wild west of financial services". Coming from such a respected source, this was a disastrous judgment and it followed on directly from certain highly questionable activities in the re-insurance area to which we refer today. Such activities would be plainly illegal in the United States.
Since then, our reputation has come under further attack from Australia, with the regulators there clearly very unhappy about certain activities being carried on from Dublin that have had implications for their own marketplace in Australia. Against this background, all we get by way of action from the Minister for Finance is soothing assurances that the Government attaches the highest importance to effective regulation, which is the type of statement that was made 20 years ago. However, in the absence of any firm action being taken, I fear these assurances have about as much credibility as the repeated protestations by the United States Secretary of the Treasury that his Government favours a strong dollar.
Meanwhile, other recent events have made the situation more acute and have put our international reputation even more at risk. One of the issues at which outsiders look most closely when they consider a foreign financial services centre is the probity of the local people who operate in that centre. The smaller the country concerned and the more closely-knit the people involved, the greater is the need to demonstrate that the principles of fair trading will be scrupulously observed.
What people watch out for most closely is any evidence that the playing field between foreigners and locals is not fully level. In particular, they are alert to the possibility of insider trading which becomes a more likely possibility the smaller the marketplace is. Foreign operators will run a long way from any centre where they believe insider trading is prevalent because they know that such a market can be easily stacked against them. No amount of tax advantages can compensate for this risk.
It follows, therefore, that of all the elements of our international reputation, the one we should be most careful to preserve jealously is in regard to insider trading. Our claims, and our behaviour in support of these claims, should be absolutely above question. If this is not the case, the whole edifice of our international reputation is at risk of falling down like a house of cards.
In this context, the two events that took place during the summer are of the highest importance to the future of Ireland in the world of financial services. I do not have to remind Members about them. One was a decision of the Supreme Court in a civil case which made it clear beyond any doubt that a serious case of insider trading had taken place. That was bad enough but what happened next was even more significant. That judgment should have been followed by universal condemnation of the action by all the important players in the marketplace, allied to swift Government action to ensure the matter would be promptly and thoroughly pursued in the criminal courts. In fact, what happened was the exact reverse. The important players in the marketplace — incredible as it might appear to any outsider — queued up to express their full confidence in the person concerned and argued against any punitive action being taken against him. Meanwhile, the civil authorities who have the power of prosecution in the matter, met the situation with a deafening silence.
I have no wish whatever to conduct a witch hunt against this individual but if the Irish financial establishment is prepared to not only turn a blind eye to misbehaviour that has been identified by the highest court in the land and also to argue publicly that sleeping dogs should be left to lie, then the Irish financial establishment has dealt a massive blow to the international reputation on which its own future well-being crucially depends.
All this sends precisely the wrong message to the world outside and creates an urgent imperative that we should do what we can to undo the damage already caused and which will continue to worsen for as long as effective action is not taken. It may be said this matter is not germane to the Bill, but it is. The purpose of the Bill is to ensure everything we do in regard to financial services upholds rather than damages the success that has taken place.
I, too, welcome the Minister of State, Deputy Noel Ahern. The Markets in Financial Instruments and Miscellaneous Provisions Bill 2007 gives us an opportunity to speak about the Irish financial sector.
The first matter of note is the current controversy regarding sub-prime lending. Prime lending is a misnomer; the reality is there is prudent or normal lending and anything other than that is imprudent. If one is trying to securitise billions of euro worth of assets such as mortgages that are below prudent lending, one is hardly going to call it that, so it is called sub-prime lending. It is a question of trust.
People trust something that is prime but in Ireland lending has been prudent for many years. This area has been properly regulated and overseen by the Central Bank which ensures lenders do not exceed the amount a borrower can afford. It also insists that stress tests are built in to all borrowing, ensuring that in the event of one person in a family not having a job or if interest rates go up by 1% or 2% the loan can still be repaid. We must ensure the Financial Regulator is on the lookout for mis-selling, which in effect is what is involved in sub-prime lending.
I commend the Irish market on the manner in which it handled the Northern Rock problem. It reminded me of somebody whose computer would not work who brought in an engineer, programmer and anybody else who could help but ultimately it was discovered that nobody had switched on the computer. In the UK there were queues outside the banks and the BBC showed these queues getting longer every day. It was obvious people did not have trust in the system. It is necessary for people to have trust and to believe in the system.
To continue the analogy, in Ireland somebody cleverly put back on the switch. People were asked for their withdrawal slips and told to come back at 3 p.m. for their money. Hence the queues were done away with and we did not experience the same problem here. I congratulate the Financial Regulator who worked in harmony with the Central Bank, unlike in the UK where the situation was allowed to develop because the regulator was in competition with the Bank of England and it was almost too late when the latter stepped in to underwrite the full amount owed by Northern Rock.
Senator Quinn made some relevant points about the Irish Financial Services Centre but the Irish financial retail sector is in very good shape. The Bill is important in terms of a single European market in financial services. It is specific in its aim to attain harmonisation and modernisation of the EU-wide legislative framework for investment firms, thus promoting greater cross-border competition and the competitiveness of the EU financial sector overall. It will make it easier and cheaper for customers, including retail customers, to buy and sell shares across a single market.
I accept that as more foreign banks, institutions and lenders move to this country, we will need to have confidence in them. Knowing there is an EU-wide directive to ensure the financial instruments being sold are regulated properly will give us that trust and create that confidence.
I also welcome other elements of the Bill, including the provisions which allow the National Treasury Management Agency to lend. This is a very positive aspect, for example, for the Post Office savings bank, and will allow the agency to offer fixed rate loans to State bodies. Why should the retail banks or foreign banks profit from the guarantees that are inherent in the repayment capacity of State bodies when the NTMA can benefit from this? The same applies to foreign currency transactions, for which I would also welcome this measure.
The reinsurance directive forms part of the European Union's continuing financial services plan, which aims to create the Single Market. The directive establishes a regulatory framework for reinsurance activities in the EU. No formalised framework existed for reinsurance within the EU and member states had been free to decide separately whether to regulate reinsurance. This is the putting forward by the EU of a common framework for reinsurance across the EU, which is welcome.
We have signed up to the EU and have our input. Free movement of goods and capital is part of the central tenet of the EU, from which we have benefited hugely. It does not make sense to try to draw back when we are all in favour of the benefits the EU can bring. We must apply the directives that ensure a common playing field throughout the Union.
The issue of ministerial pensions is an easy one — in reality, we all live in hope. We may be supporting a measure that will benefit some of us at a later stage. Nonetheless, it is correct that Ministers would be properly dealt with and that their pensions are brought into line. It does not make sense that if a person does not apply before a certain date, he or she would lose out. It is entirely appropriate that the six month limit regarding severance should be brought into line.
With regard to the Credit Union Act, I am very much in favour of the extension of the limits. It is an ideal opportunity to broaden the capacity of the credit unions, which they are well able to shoulder. I support the development of credit unions to ensure they continue to provide for the social and financial needs of the communities they serve. The increased lending limits for credit unions approved by the registrar will allow their lending to grow and develop with appropriate regulatory safeguards. This amendment is to be recommended and approved.
The Bill contains many minor provisions, including the amendment to the Freedom of Information Act with regard to the performance of duties of members of the board or staff of Ordnance Survey Ireland. I am glad we have taken the opportunity to incorporate this amendment in the Bill, which I commend to the House.
I thank Senators for their comments and thank the Whips for agreeing to give the Bill priority. It is hoped to have it passed by the end of the month. While I accept discussion has been curtailed, a number of interesting points have been raised, some of which I will ignore as they were political.
Much of the Bill concerns the markets in financial instruments directive but the other items referred to, in particular section 19, do not come from Europe but are relevant to the ordinary person. Section 19 aims to provide for a system of regulation of non-deposit taking lenders. This in turn will bring their lending activities within the scope of the Financial Regulator's consumer protection code. This is of great interest to ordinary people. I am sure Senators have met constituents recently who have dealt with such financial institutions. While the main thrust of the Bill concerns MiFID and is not relevant to the ordinary punter, section 19 is certainly relevant to what is happening at street level.
I take Senator Twomey's point with regard to hospital consultants and I bow to his superior knowledge on such matters. Various Ministers are trying to bring competition to many of the professional sectors, where cartels are not supposed to be allowed. While I am sure the relevant Minister has already heard this point, it is interesting to hear it made from the Senator's position of knowledge.
I do not wish to address the issue of Shannon on this occasion. Senator Kelly raised several interesting points and in particular referred to the other member states. The most recent information I have is somewhat out of date as it is five weeks old. Ireland moved quickly in this regard and was the third state to notify the Commission that it had transposed the directive. However, as of five weeks ago, on 12 September, ten member states had yet to notify the Commission that they had transposed the directive. A number of these are expected to meet the deadline but it is likely a few will not.
As for states that fail to meet the 1 November deadline, it is likely they will be allowed to continue to operate on the basis of their existing authorisation. However, they could not be allowed to provide the new MiFID activities, such as the provision of investment advice, until such time as the directive was fully transposed in the relevant states. The idea was that every state would be involved and that there would not be a situation such as that which arose in the early 1990s. The Senator also referred to the sub-prime market, which section 19 is intended to curb.
Senator Boyle made the point that this is a miscellaneous Bill. That is a reality of life. When a Department produces a relatively small Bill, sections in the Department and Ministers will try to add miscellaneous parts which are often of value. While I understand the point that this might detract from a Bill, the introduction of legislation is often used as an opportunity. Small items may knock around in Departments for a long time and, as they are not regarded as important enough to be dealt with in a separate Bill, it is necessary to tag them onto another Bill. That is what happened in this case.
The Markets in Financial Instruments and Miscellaneous Provisions Bill began as a relatively small one, with only eight sections relating to MiFID, but along the way it gathered a further 17 sections. While many of these originated in the Department, section 19 grew out of the concerns expressed in contributions in the Houses. It had been intended to act in this area later in the year but Members in the other House wanted the matter addressed and wanted amendments introduced. While we understood the idea behind this, it is sometimes difficult to find the correct legal wording, which is why a further amendment will be brought forward next week — it is still being checked by the Attorney General's office.
With regard to the recent debate on the sub-prime issue, there have been many recent developments in global financial markets and it is important to address the quality of Ireland's financial system and its regulatory regime — I understand Senator Quinn's point in this regard. The most important point that needs to be made in a national context is that our banking system is well capitalised, profitable, liquid and soundly regulated. I am not an authority in this area and I do not know much about the detail of complaints from Australia. Senator Quinn knows more about the matter than I do. I am not certain if this is a case of sour grapes or whether it fully stands up.
The system here is soundly regulated, as has been confirmed by the conclusions of a recent International Monetary Fund report, in which it was noted that the Central Bank is satisfied that major lenders have a very solid financial base and stress testing by the regulator has shown that banks are well placed to weather any possible storms. As to the effectiveness of the regulatory system, the IMF report explicitly acknowledged the strength of the financial regulatory and supervisory system in recent times and indicated that the system in place in Ireland reflects international best practice standards. It is vital that we do not allow an impression to be given that insider trading or similar practices take place here because such a perception would have serious consequences for business. I do not believe this impression is as widely held internationally as Senator Quinn suggests. The IMF report has given Ireland a clean bill of health in that regard but if certain operators seek to circumvent our regulations, we will have to amend the rules, close loopholes and maintain vigilance. Our reputation is all-important.
Senators took the opportunity to raise some extraneous matters, including the forthcoming budget. The Minister for Finance has indicated that while the economic climate may not be as benign next year as in recent years, cuts are not planned. Tax revenues have increased by 8% and 9% in recent years and will probably increase by approximately 4% next year. While this reduction in revenue requires new approaches, the overall amount available for the provision of services and investment will not be reduced next year. On the contrary, it will continue to increase, albeit at a lower level than in previous years.
Irrespective of whether it involves a Department or a household budget, a lower percentage growth in spending power in a given year does not spell disaster but provides an opportunity to take a more frugal attitude to spending money. No cutbacks are planned and tax revenues and Government expenditure will increase next year, albeit at a lower rate than in previous years.
The Office of Public Works is heavily involved in the decentralisation programme. As a representative from Dublin, Senator Kelly may not be a strong advocate of the programme. Once completed, all previous waves of decentralisation were universally regarded as a complete success. Thousands of civil servants decentralised to various locations under these earlier programmes. The current programme may have been ambitious in its timing but no one would move if the process had been scheduled to take place over a ten or 20 year period.
Most of it is under way. I am due to officially open offices in Kilrush and Listowel. I will not cut sods as the offices have been built and are occupied. A problem has arisen in the semi-State sector, in which I previously worked. The flexibility that allows civil servants to move from one Department to another is not available for employees of semi-State bodies. The issues surrounding decentralisation are more difficult than they were 20 or 30 years ago because most homes now have two earners. Nevertheless, many people want to move. An individual who worked in my office in a previous Department moved out of Dublin as part of an advanced party — I will not be specific about the location — but has had to return to the capital to be promoted. The decentralisation process will settle down and in a few years we will agree that the current wave of decentralisation was hugely successful, irrespective of whether it is implemented in full.
I apologise for wandering from the subject. I thank Senators for agreeing to process the Bill quickly. The wording for the amendments to section 19 will be available on Wednesday.