Thursday, 27 June 2013
Central Bank (Supervision and Enforcement) Bill 2011: Committee Stage
I wish to read something into the record to enable Report Stage amendments to be taken later on. The Minister of States, Deputy Brian Hayes, on Second Stage flagged the fact I would table an amendment to the Central Bank Act 1971 to provide an authorisation regime for branches of third country banks. These branches would be subject to the same standards of regulation as those branches currently passporting into Ireland from within the European Union. My Department is currently finalising the amendment with the Office of the Attorney General and I expect to bring it forward on Report Stage.
Amendment Nos. 1, 27 and 29 are technical in nature. Amendment No. 1 corrects a reference in section 1. Amendment No. 27 is a technical amendment to section 6 of the Irish Bank Resolution Corporation Act 2013 and relates to the Bankers’ Books Evidence Act 1879. It provides for the procedural admissibility of evidence rule. This is one of the permitted exceptions to the hearsay evidence rule and facilitates the admissibility of bankers' books into evidence in all legal proceedings. This amendment mirrors a similar provision in section 191 of the NAMA Act 2009. Amendment No. 29 corrects a reference in the Second Schedule.
I move amendment No. 2:
I do not know what the Minister's travel schedule must look like these days but he is very welcome. My amendments aim to strengthen and support the Minister. They are suggestions.
In page 10, subsection (1), line 28, to delete “regulated”.
The Minister knows from direct experience, much more than anybody else in the country, the requirement that we should regulate financial institutions as strictly as possible given the amount of damage that was done to the country. He has had to bear that burden ever since he came to office.
The purpose of the first suggested deletion is that we do not want people saying X is not regulated. I would be interested in hearing the Minister’s view. Given the costs, every area of financial services should be regulated. There are separate rules for moneylenders and pawnbrokers. This is an area where we have bitter experience as a country and we are all in support of the Minister. In fact, the reason most of us got involved in the debate was to ensure that the financial sector would never again behave as it did when it imposed such costs upon the country.
I do not wish the word “regulated” to be used as an opt-out for people seeking to avoid scrutiny. If it is understood that everything is regulated then such an opt-out is not be necessary. I have tabled a later amendment on the matter. We did put the point to the Governor of the Central Bank, Professor Honohan, when he came to see us. We asked whether he should not take on more responsibility given the difficulties that exist in the area and his response was what size Central Bank we want to have given our request for it to take on extra functions. I would like to have no doubt that the Central Bank is regulating the industry on behalf of the Minister and this country. There should be no more opt-outs or loopholes in the law.
We have seen what emerged in recent days. We have had enough from the sector. That is the purpose of the amendments tabled. The Minister must consider whether his hand is strengthened if the word “regulated” is removed. That is what I want. There is no such thing as regulated financial services and other financial services. They are all in the same bag and they will all face the scrutiny of the Minister and his officials in the Department and the Central Bank.
What went on heretofore has done such damage to the country. That is the general spirit in which I am interested in discussing the change with the Minister. If it helps him he might consider such a change on Report Stage. There is nothing involved other than to strengthen the hand of the Minister and Parliament in dealing with the sector, which is held in the utmost public odium, in particular since the tapes emerged in recent days.
The Minister is very welcome. I did not expect to see him today. The saints have the ability of bilocation or multi-location and the Minister seems to be able to do the same thing himself as well.
I add my voice of support to Senator Barrett. When I first saw the amendment I did not understand the rationale behind it. I know he is committed to making sure that we have a very strong financial sector and I thought he was removing regulation, but in fact what he is saying is that by insisting the Minister includes regulation every time, if it is not done on one or other occasion it might appear to be an exception. The wording would then read “a financial service provider”, meaning that it must be regulated, and on the assumption that it is automatically regulated. I support Senator Barrett’s position.
The effect of amendment No. 7 would be to include the following within the definitions of financial service provider and related undertaking: Auditors, accountants, pension fund trustees, building societies, debt collection agencies, moneylenders and other financial services as determined by the bank.
The remaining amendments in this group delete a number of references to the word “regulated” such that the relevant provisions of sections 3, 8, 21 and 48 would relate to the Senator’s broader definition of a financial service provider, which I just described, rather than those regulated financial service providers currently regulated by the Central Bank.
In general terms, the effect of this group of amendments would be to broaden the remit of the Central Bank into a number of new areas. I should first clarify that both building societies and moneylenders are already within the remit of the Central Bank and a Central Bank authorisation is required to operate as either of these. It is an offence to carry on business as a building society or moneylender without an authorisation from the Central Bank.
The Irish Auditing and Accounting Supervisory Authority, IAASA, was established under the Companies (Auditing and Accounting) Act 2003 and holds responsibility for the supervision of the auditing and accountancy professions in accordance with national and EU requirements. Given that these professions have a role beyond financial services and across the corporate sector, it is appropriate that they are regulated under company law. In general, these professions are not subject to regulation by the Central Bank for the provision of, for example, financial advice, provided that the advice is incidental to their main role as auditor or accountant.
However, the analysis of the financial crisis highlighted the role of auditors and the Bill includes a number of provisions to respond to failures identified, for example, in the Nyberg report and by the Comptroller and Auditor General. Part 4 now provides for a statutory auditor assurance regime as recommended by the Comptroller and Auditor General, and section 58 provides for a limitation of liability to support open and frank dialogue between auditors, accountants and the Central Bank, as recommended by the Nyberg report.
In terms of pension fund trustees, the Government recently established a group to examine the amalgamation of the regulatory functions of the Pensions Board with those of the Central Bank. The group’s report was published in April this year and, following careful consideration, it recommended against such amalgamation. As such, the regulation of pension issues rests with the Pensions Board, which is to be restructured and reformed in accordance with the group’s recommendations. In respect of trustees specifically, the current role of the Pensions Board is to provide guidance for trustees on their duties and responsibilities in relation to scheme administration and to issue codes of practice on specific aspects of trustees' duties.
As Minister for Finance, I have no responsibility for the regulation of debt collectors and debt collecting firms. Debt collection services apply across a significantly wider range of activities than the recovery of money for financial products, for example in the case of utilities, rents, other consumer debts and also debts between businesses. My colleague, the Minister for Justice and Equality, is responsible for the relevant legislation in respect of debt collection, which is the Non-Fatal Offences against the Person Act 1997. This applies to all debt collectors that operate across any or all sectors of the economy, including private individuals and debt collecting firms.
In the case of financial institutions which use debt collection firms, the Central Bank has imposed requirements that offer protection to consumers under its revised consumer protection code. The code obliges the regulated entities that it covers to ensure that any outsourced activity, such as debt collection, complies with the requirements of the code. This means that outsourced activity should uphold the principles in the code.
The Senator’s amendments also propose that the Central Bank would be able to determine what falls within the definition of financial service provider. Given the broad range of serious powers which are afforded to the Central Bank by the Oireachtas, it would not be appropriate to provide such a blanket ability for the Central Bank to determine the entities it regulates. Such decisions are properly the responsibility of the Oireachtas through setting the statutory remit of the Central Bank. On that basis I do not propose to accept the Senators amendments in this group.
I thank the Minister, as always, for his response. The Minister mentioned section 4. For clarification, the version I have has a miniscule section 4 dealing with repeals and revocations? Does the Minister refer to section 4 of today’s Bill? Perhaps he might advise me in that regard.
I thank the Minister, I misheard him previously. I have taken a note of that. That is important. I welcome that also.
I am concerned about the broad remit of financial services that trustees of pension funds seem to be boasting that they are hundreds of millions in debt. Some of them think the Minister will bail them out, which is most worrying as well.
I also am greatly concerned about the auditing issue and note the Minister mentioned the Irish Auditing and Accounting Supervisory Authority. I consulted the website of one such body, namely, the Chartered Accountants Regulatory Board, which seemingly deals with matters like someone doing the books for a small cattle market down the country and so on. However - this is applicable to all the matters under discussion - the "Big Four" audit firms appear to have prepared accounts for Irish banks on which the State bought into those banks and yet nothing happens. Again, I am thinking of the popular expression of these matters. I accept the Minister's remarks and the changes he has noted but there is a wish for stricter regulation of the activities of these industries and a perception that we have been too slow in addressing it.
On the debt collection agencies, I again greatly welcome the Minister's comments. Concerns were expressed in the House that what one might call "heavies" or criminal elements were being used to collect debts by the Irish banks and I am delighted to hear from the Minister that the Central Bank wishes to control such activities. The other activity I had in mind in framing these amendments was a scheme - in south Dublin I believe - whereby one paid in money and the organisation concerned undertook to pay one's bills. This activity did not seem to be regulated although many people would regard it as a service and it caused great distress to those who entrusted their money to those persons.
While I appreciate the improvements the Minister has mentioned, I am surprised that pensions were not included but I accept this is what the expert report indicated. It is of concern to everyone in the House that serious pension problems exist in respect of building societies. They operated under a loose regime of regulation from the Department of the Environment, Community and Local Government and none now remain. That is the penalty of running their affairs so badly and one could have done with better regulation in that regard. I have mentioned the pension funds but I still have concerns about the auditors and accountants, in that it seems like light-touch regulation to me or, in the case of the "Big Four" with regard to bank accounts, no-touch regulation.
As for the last sentence, what I had in mind was a scenario in which someone invents new financial services into which people put their money only to subsequently lose it and that service was not within the definition. The case I had for the broad definition was that the Central Bank should be able to intervene before people's money is lost. However, I am pleased by and welcome the Minister's comments on the positive side and will not press the amendments. This Bill now before the House started off in 2011 and were one writing it in the past week, one might have more stricter and more stern thoughts, given the damage to the political and business scene as a result of the tapes. However, I thank the Minister and look forward to Report Stage. I will not press the amendments at this Stage but I am grateful to the Minister, as always, for his enlightenment on these issues.
I agree with the sentiments expressed by the Senator. The days of light-touch regulation are long since behind us and it was a mistake that they ever were brought in. The former Minister for Justice, Equality and Law Reform, Michael McDowell, chaired the particular committee which gave rise to the recommendations. One had this movement stating that because bankers were members of such a noble profession, were the principles of regulation to which they would adhere set down, one then could allow them to apply the principles themselves. That was the basis of light-touch regulation and it was a pretty serious mistake. Consequently, there is quite rigorous hands-on regulation now and the Central Bank has almost doubled the staff involved. Moreover, the regulatory function is rolled in as one of the principal functions of the Central Bank. There is no reluctance on behalf of the Government to give it all the powers it requires either now or in the future.
Where I differ from the Senator is that I do not think the Central Bank can do everything. In other areas of financial activity, there are other regulatory bodies that are empowered to carry out the regulatory function and I went through those in my initial remarks. The question of bill payment services is covered in Part 10 of the Bill. As everyone is aware, there were a couple of serious scandals in which people who could not afford the losses had losses imposed on them when some of the aforementioned bill payment companies became insolvent. Consequently, after examining the situation it is the intention of the Central Bank to bring them within the ambit of its regulation. Part 10 of the Bill covers that matter, which of course will be discussed again on Report Stage. Moreover, when debating the group comprising amendments Nos. 15 and 19, we will go over much the same ground.
I move amendment No. 14:
This amendment is to be inserted after the line in section 23(1) stating "The Bank may require that information, records or other documents". I do not know whether I am being tedious on the Minister's time but the object was to ascertain whether tapes were documents and to give the Central Bank this power. Given what has emerged in the last few days, I certainly would be delighted if it assisted the Minister to get access both to paper records and to computer records, tapes and other recordings. If there is any other definition that is more comprehensive to get to grips with this particular problem, I would be delighted to support that as well. I tabled this amendment to be of assistance to the Minister. While tabling amendments, I did not quite know what would arise but if it is timely, it is entirely accidental.
In page 19, subsection (1), line 1, after “records” to insert “, computer records, tapes and other recordings”.
On section 23 and referring back to section 22(1), Senator Barrett has referred to what Members are hearing each morning on "Morning Ireland" regarding the Anglo tapes. However, those tapes are a number of years old and I have been raising an issue with which I am dealing currently regarding people in financial institutions.
Financial institutions are not adhering to what was then the code of conduct for mortgage arrears, and the mortgage arrears resolution process, MARP, is not being put in front of people who may not know about it. I raised this matter on Second Stage. The Minister of State with responsibility for trade and development, Deputy Costello, replied that if MARP is not being progressed through the code of conduct via the Central Bank, which financial institutions are obliged to do, the person who works for the bank can be removed from their role. My view is that this sanction is not sufficiently strong and that if a lending institution does not give somebody the correct MARP in line with the code of conduct, the individual responsible should be fired because it involves somebody's life savings and the largest investment they are ever likely to have, and the individual working for the lending institution is not adhering to an obligation they are obliged to meet. I would like to hear the Minister's view on that. If that information can be provided and it is shown that a person in the employment of the bank knows they are acting incorrectly, they should be sacked.
Amendment No. 14 in the name of Senator Barrett seeks to include computer records, tapes and other recordings in the definition of "record". Section 2 of the Central Bank Act 1942 defines "record" as follows:
As the definition in the Central Bank 1942 applies throughout the Central Bank Acts, this definition applies in this Bill also. Therefore, the Senator's amendment is not required. In respect of Senator Michael D'Arcy's point, the Central Bank, as a matter of course, will be reviewing the records of this debate and I draw the Governor's attention to the views expressed by Senator Michael D'Arcy because it is within the bank's remit to take the kind of action he proposes.
'record' means any record of information, however compiled, recorded or stored, and includes--(a) any book, a register and any other document containing information, and
(b) any disc, tape or other article from which information is capable of being produced in any form capable of being reproduced visually or aurally
We should probably pay tribute to the framers of the Central Bank Act 1942 because they had a remarkable ability to predict what kind of technology would exist in 2013. I thank the Minister and will not push the amendment.
I move amendment No. 15:
Section 27BA(9) as inserted by section 35 of the Bill states: "In specifying under subsection (2)(b) the standards in accordance with an examination is to be conducted, the Bank shall have regard to internationally recognised standards for assurance and auditing." My fear is that this is the problem. The Minister has just come from attempting to deal with it in Brussels. With regard to generally accepted international standards, do we need higher standards in Ireland? Many of the international companies in this area have done damage not just to Ireland but to Greece and all the other countries with which the Minister was discussing matters in recent days. Should we set the standards for people to operate here given what has happened internationally? I will leave it at that. I know there is a view that this will happen at European level. Does the Irish customer need protection and would we wish to do that ourselves? Due to public concern, would this strengthen the Minister's hand?
In page 27, line 19, after "auditing." to insert the following:"The Bank shall conduct and publish research on standards for assurance and auditing and shall be the authority for stipulating and regulating such standards.".
The Bill already moves into the space where the Senator indicates it should go while, at the same time, allowing the Irish Auditing and Accounting Supervisory Authority to be the primary regulator of auditors and accountants. Amendments Nos. 15 and 19 seek to make the Central Bank responsible for setting standards for auditors or financial service providers. As I stated in response to an earlier group of amendments from the Senator, the Irish Auditing and Accounting Supervisory Authority was established under the Companies (Auditing and Accounting) Act 2003 and holds responsibility for the supervision of the auditing and accountancy professions in accordance with national and EU requirements. Given that these professions have a role beyond financial services and across the corporate sector, it is appropriate that they are regulated under company law.
As I mentioned, the Bill includes provisions under Part 4 and section 58 in respect of auditor assurance and sharing of information with the Central Bank. Amendment No. 15 relates to section 35 in auditor assurance. While it would not be appropriate for the Central Bank to set standards for auditors generally, it is being made responsible for setting the standards of assurance expected of auditors under Part 4. Amendment No. 19 seeks to extend the role of the Central Bank to making regulations for auditors under section 48. The regulations in this section relate to the responsibilities of regulated financial service providers regarding auditing arrangements. The standards that apply to auditors themselves are set in accordance with Irish and international standards, including IFRS and GAAP under Irish and European company law. Therefore, I do not propose to accept these amendments.
I thank the Minister. I accept what he says but as a Member of the House, I think the citizens might like to hear the odd noise out of the Irish Auditing and Accounting Supervisory Authority. It seemed to be remarkably silent at a period when such damage had been done to the country. That was the purpose of the amendment. If the authority is lax or slow in discharging its duties, we might need to look at giving responsibility to the Central Bank which dealt with banking, insurance and credit unions. I see one regulatory authority implementing the kind of energy and reforms the Minister and I like and nothing from the other one. I accept the Minister's point but if somebody could send the authority the present of an alarm clock, it would be helpful. Many small accountants throughout the country also wonder what it does. The so-called big four prepared accounts which turned out to be fictional and no one said anything. It is akin to what the Minister is dealing with in respect of bankers regarding who is on the board and what they were doing. They were remarkably silent and the same vow of silence seemed to apply to this body. If it has anything to say, I would love to read it in the newspaper tomorrow or the next day. I accept the Minister's statement and his bona fides but I am beginning to doubt whether this authority even exists at this stage.
I move amendment No. 16:
This is a very welcome provision for which I commend the Minister. I am in agreement with him all the way with regard to the protection of employees from penalisation for making a protected disclosure.
In page 33, between lines 9 and 10, to insert the following subsection:
"(4) The Bank shall publish in its Annual Report a statement of the employment status of persons reporting breaches and a statement of the reforms undertaken by the body in respect of which the report of breaches was made.".
I spoke to Dr. Estelle Feldman in the TCD law school about how whistleblowers are treated. She has two concerns, which I will outline to the House. First is that the victims do, in fact, suffer and second is that the organisation complained of will quite frequently continue as it has anyway.
The Minister's intentions are excellent and I support them. I suggest the Minister might consider introducing an amendment on Report Stage to provide for a check as to whether the complainant was victimised by moving down the promotion list etc., and what the bank did about it. While I know that the Minister present and the Minister for Public Expenditure and Reform, Deputy Howlin, are considering advancing legislation, Dr. Feldman's fear is that today the victim remains a victim and the people who carried out the malpractices can more or less shrug their shoulders and continue on.
I believe AIB got into trouble buying an insurance company in London in 1987 and it has not stopped much since. That is the real moral hazard. If nothing happens to reward the individual who brings such matters to the authorities' attention and nothing happens to the organisation, it will keep on doing it. That was a suggestion made from a practitioner in the field. She would share the Minister's goals that we need to protect whistleblowers and ensure that what they say is taken on board. That is the purpose of the amendment.
I have a specific question on this section. There was a peculiar case in 2007 where a whistleblower in UniCredit Bank in the IFSC allegedly reported alleged breaches of liquidity ratios. However, when he pursued it, it was discovered that, as the person responsible for ensuring the liquidity ratios were as they were, he, himself, faced criminal sanction. Will this section remove such a paradox in the legal system?
Amendment No. 16 seeks to require the Central Bank to publish in its annual report a statement of the employment status of persons reporting breaches and a statement of the reforms undertaken by the body in respect of which the report of breaches was made.
It is important that the identity of those reporting breaches is protected to the greatest extent possible. For that reason the Bill includes a protection for the identity of whistleblowers, except where disclosure is necessary for effective investigation or other action arising from the disclosure. On that basis I would not support publication of the employment status of the whistleblower, lest it lead to speculation about or victimisation of the whistleblower or other persons. For example, if the whistleblower were identified as the risk officer, chief financial officer or compliance officer, it might lead to an individual being identified or others with the same title being victimised.
That said I have some sympathy with the core point being made by the Senator about the need for action on foot of disclosures. I made an amendment in the Dáil to respond to this issue when raised by the Opposition. To address the point I have inserted a new section 38(4) requiring the governor to prepare a report for the Central Bank commission on the disclosures and action taken. Given the sensitivity of the issues likely to be involved and the need to avoid identifying whistleblowers or hindering subsequent investigations, I would not be in favour of publication of details in the annual report.
Given that this provision is being introduced for the first time in the financial services sector, I expect it is an element of the Act that will need to be reviewed after a time to assess its effectiveness in light of real world experience. However, for the reasons outlined, I do not propose to accept the Senator’s amendment.
If a person has broken the law his or her protection will not apply which I believe addresses Senator Gilroy's point. Section 40 sets out the protections from civil liability for those who make protected disclosures. This is a key section as it allows for whistleblowers' protection to apply beyond the employer-employee relationship, for example in the case of disclosures by customers or auditors. Subsections (1) to (4), inclusive, provide that a person shall not be liable in damages or any other form of relief in respect of making a protected disclosure unless it is known by the person to be false or misleading. This protection is in addition to and not in substitution for any other form of protection to which the person may already be entitled for making a disclosure, whether to an appropriate person or otherwise.
Subsection (5) provides for the protection of the identity of the person making the disclosure, except with his or her consent or where divulging the identity of the person is necessary for an investigation of the matter to which the disclosure relates. Investigation is meant here in its broader sense to include an examination of the matter or any proceedings which may follow. The section specifically lists a number of situations under financial services legislation where such a disclosure may be required, including an administrative sanction inquiry, an appeal before the Irish Financial Services Appeals Tribunal or a fitness and probity hearing.
A person acting in accordance with law has the full protection the Senator requires. However, protection does not extend to somebody who breaks the law.
Is there a role for the Ombudsman in this? I believe corporate Ireland will penalise the whistleblower regardless of the protections we insert here. That is the human rights part of it. The record is that the whistleblower's career would take a different path if he or she stays quiet. As the song goes, "Whatever you say, say nothing", and we need this to happen.
What about the organisation complained of? With the ICI affair and the offshore deposits affair, it seems that there are a load of serial offenders here and some record somewhere that these were reported, involving the name of the institution and corrective measures. I am concerned that the Minister's successors and successors in the Seanad - as I am sure there will be - will be investigating the same kinds of things because there is a record of this from 1987 to today. We need to know what was done about it. If the whistleblower is right we will try to protect him or her - I would like a bit more protection. However, did they do anything? The purpose is to get the reforms. My confidence in the Irish banks is as low as the public's and I am afraid that they will not carry out the reforms and that was the purpose.
What is not recorded does not get done I suppose. If we have an index indicating that a particular bank has done this for the 89th time, perhaps some kind of shame - Lord between us and all harm - might enter the sector and they might do something. These are people who treated their own shareholders with contempt. In theory the shareholders could have voted out the board and one man started to throw eggs and so on. The normal checks and balances do not seem to operate here. We need to send a very strong message from the Oireachtas that we want abuses corrected with far more alacrity than we have had up to now. I am not so sure that the corporate culture in Irish banking has changed at all and several Senators have said so on the Order of Business.
Perhaps the Minister could consider introducing a Report Stage amendment to provide for a scorecard. This sector has been a disaster for the country and we want to see evidence of much better performance, including by people who in many cases for patriotic motivation want to help this country. It is a pity they were not around ten years ago to give the authorities assistance. I would like to think of it having an impact, but I begin to despair that it ever does. I will not press the amendment but perhaps the Minister might come back to the issue on Report Stage. If there are a lot of black marks against somebody in banking, what is to be done about it? I will reflect on it and see if it can be framed another way.
I believe the protection for the person doing the whistleblowing is stronger and perhaps a link to the Ombudsman, to vindicate their human rights, may be worthwhile. Whether the people complain or take any notice of anyone these days is a concern.
I look forward to discussing this again on Report Stage if the Senator frames an amendment. The Minister for Public Expenditure and Reform is introducing comprehensive legislation in the area of whistleblowing. The protections in this Bill may need to be examined in respect of that Bill because we need to align procedures between the two Bills. I will examine it in context of the Bill of the Minister for Public Expenditure and Reform and I look forward to discussing it on Report Stage.
Like my colleague Senator Barrett, I would like longer to reflect on the section and to return on Report Stage. The complexity of the management structures of some of the financial institutions and the sheer dishonesty of the attitudes in them requires us to give this matter more deep thought in the House. When Senator Barrett returns with an amendment on Report Stage, I may be inclined to support it.
I move amendment No. 17:
Section 43(3) reads: "In subsection (1) “appropriate redress” means such monetary or other redress as is specified in the direction and (in the case of redress for pecuniary loss) as does not exceed the amount of the loss suffered or anticipated to be suffered". My amendment proposes to insert "triple". Other countries have triple damages for this kind of malpractice. The mere amount has not worked and it might help in bringing these people to their senses if they face stricter penalties. There are triple damages systems in the US. Given the trouble we have had and the money diverted from things we want to spend money on, the penalty could be made harsher.
In page 33, subsection (3), line 36, after “exceed” to insert “triple”.
Amendment No. 17 seeks to provide for redress of up to three times the amount of the loss incurred by persons affected. The purpose of redress is not to punish the financial service provider but to ensure that the person affected is put back to the position he or she would have been in had the incident not occurred. That is not to say that a financial service provider could not be the subject of an administrative sanction procedure, offence or other financial penalty in addition to redress, where the financial service provider is found to have breached a requirement. Furthermore, the Bill also provides for restitution provisions to ensure that firms or individuals cannot benefit from breaches of their requirements, as illegitimate gains can be retrieved through the courts and redistributed to those affected. This is separate to any sanction or redress procedure. On that basis, I do not propose to accept the amendment.
I move amendment No. 20:
The section in the Bill provides that the Central Bank "may consult with such other persons as the Bank considers appropriate to consult in the circumstances" before making regulations. I am worried about the pillar bank situation. It could turn into a duopoly and there is a danger that Ulster Bank is in such dire straits that it may withdraw. We have seen reports that Mr. Cameron could make that decision. There is an offer to take it over, which I would recommend against. When the Central Bank is having these discussions, we want to ensure that we discuss competition issues and competitiveness. I am worried that sectors seem to be able to opt out of competition law that applies to other people.
In page 44, subsection (1), between lines 4 and 5, to insert the following:“(c) in the case of the so-called pillar banks shall consult with the Competition Authority and the National Competitiveness Council on the impact of the proposed regulations on the non-banking economy,”.
People have serious worries about the banks. We need extra protections for consumers against the activities of the pillar banks and the extent to which they may collude. Bank charges are always a hotly discussed topic. Providing for the views from the Competition Authority on whether the sector is competitive and how it affects the overall competitiveness of the economy may be a belt and braces approach but, given the sector's track record, the more we take the belt and braces approach, the better. It is having a serious impact on the non-banking economy. Using the American terminology for the Irish case, Wall Street is completely dominating Main Street and is making life miserable for people on Main Street. I would like that protection to be considered.
The amendment seeks to require the Central Bank to consult with the Competition Authority and the National Competitiveness Council on the impact of the proposed regulations affecting the pillar banks on the non-banking economy. Section 49 already allows for the Central Bank to consult any entity it considers appropriate so the consultation envisaged by the Senator is already allowed for in the Bill. On that basis, I do not propose to accept the amendment.
On the broader issue of the pillar banks, in the medium to longer term, having more active banks engaged in lending and other banking activity would be desirable but in the current environment there is little that can be done about the reluctance of foreign banks to expand their business in Ireland at this time. Stabilising the economy and growing employment is the best way to encourage banks to reactivate their interest in this country.
Is there a possibility the phrase "any other body" is too vague? As consumers, we want to have specified bodies referred to. Referring to "any other body" allows for discretion when society wants better value from Irish banks. I am sure the Governor and his very able staff will consult the bodies I have mentioned. Should it be discretionary? How will we enforce it? They may say that they do not have to bother with it and that they consulted the Irish Rugby Football Union. Should it not be more specific? I will not press the amendment but, in the interest of the consumer, I question whether the phrase is strong enough.
A valid point is raised by the Senator in respect of the lack of competition in the Irish financial services industry, particularly in respect of the domestic economy. There is a danger of a duopoly being controlled by two banks. One approach is to get the economy growing and make it worthwhile for foreign banks to have offices here. The amendment I will table on Report Stage is to enable non-EU banks to open offices and branches here. We can discuss that on Report Stage when the Attorney General signs off on that amendment.
There is a wider issue. Consider how the US funds its economy. Approximately 75% is non-bank finance, whereas the situation is reversed in Ireland, in that it is nearly all bank-financed. When the banks are impaired or inhibited from lending, there is a liquidity problem in the economy. This is what is happening.
We are moving strongly to encourage non-bank lending. For example, before our EU Presidency commenced, we brought senior people from treasuries across Europe to Dublin and the Secretary General of my Department held a seminar on non-bank lending. This discussion was carried through to the informal Council in Dublin where the Commission tabled a Green Paper on non-bank lending. Arising from the discussion on the Green Paper, a pan-EU group with Ireland as its co-chair has been established.
In terms of practical help on the ground, the European Investment Bank, EIB, is far more involved in Ireland than it was and is providing greater amounts of funding. Since it was voted €10 billion in extra capital last year, it has the capacity to leverage that amount to provide a further €180 billion of lending across the Union. This is significant. The EIB will be a player in Ireland, particularly as a co-partner in public-private partnerships on infrastructure, school bundles, health centres, etc. This work has already commenced.
Smaller banks, such as the Silicon Valley Bank, are providing venture capital to small to medium-sized enterprises, SMEs, in Ireland. It has a fund of approximately $100 million. We are identifying other sources of non-traditional bank financing so that the economy can have the funds required to grow the new model economy that this country badly needs.
When the amendment is tabled on Report Stage, we can re-examine the issues that the Senator has raised.
I thank the Minister. We developed a banking system that was based solely on property. Bankers played golf with builders and built up house prices. The expertise for SMEs to which the Minister referred will be welcome. He will get strong support from these benches.
I move amendment No. 21:
This matter was debated in the Dáil on Report Stage, but it was shifted to the justice portfolio. However, there are wider issues. The amendment is specifically worded to limit debt collection as a financial service. Therefore, it is eligible for inclusion in the Bill.
In page 49, between lines 39 and 40, to insert the following:" 'debt collector' means a person who for remuneration collects or seeks to collect consumer credit debt;".
Under the amendment's definition, debt collectors provide a financial service and should be regulated as such. Unfortunately, a greater number of people must turn to such providers. After the revision of the code of conduct on mortgage arrears, more people will move in this direction. The gap in this otherwise fine legislation should be remedied. The matter should not be kicked to another Minister's office. There is no reason that we cannot empower the Central Bank to regulate those who collect consumer credit. Will the Minister consider supporting these amendments or examining them in advance of Report Stage?
I welcome the opportunity to contribute on this matter. I raised it previously in respect of lending institutions that hire unsavoury agents with shady backgrounds to collect debts. It is not tolerable that people can break into someone's property, pose as debt collectors and effectively use criminality and scare tactics. Whether collecting debt that way is theft is debatable.
Perhaps the Minister will consider inserting a section on Report Stage whereby an agent hired by a financial institution will be licensed by the Central Bank or some other authority. A financial institution may wash its hands Pontius Pilate-like by claiming that it has hired a reputable agent, but that agent hires sub-agents and on goes the chain of disassociation. Under the proposed licensing section, responsibility for the actions of agents or sub-agents should fall on whoever has hired the debt collection service in the first place. I would appreciate it if the Minister could consider this proposal.
Amendments Nos. 21 and 22 seek to make provision for debt collectors and debt collection services. As the Minister for Finance, I have no responsibility for the regulation of debt collectors and debt collecting firms. Debt collection services apply across a significantly wider range of activities than the recovery of money for financial products, for example, in the case of utilities, rents, other consumer debts and debts between businesses. The Minister for Justice and Equality is responsible for legislation in this regard, namely, the Non-Fatal Offences against the Person Act 1997, which applies to all debt collectors that operate across any or all sectors of the economy, including private individuals and debt collecting firms. Under section 11 of that Act, it is an offence to demand payment of a debt in a way that is designed to cause alarm, distress or humiliation. A person found guilty of offences under the Act is subject to large fines and up to 14 years imprisonment.
In the case of financial institutions that use debt collection firms, which is the point addressed by Senator Michael D'Arcy, the Central Bank has imposed requirements that offer protection to consumers under its revised consumer protection code. The code obliges the regulated entities that it covers to ensure that any outsourced activity, such as debt collection, complies with the requirements of the code. This means that outsourced activity should uphold principles in the code, such as the requirement for institutions not to exert undue pressure or undue influence on a customer, to act honestly, fairly and professionally in the best interests of customers, to act with due skill, care and diligence in the best interest of its customers, and to prohibit personal visits or oral communications except in specified circumstances.
Similarly, there are provisions in the Central Bank's consumer protection code that provide protections for consumers in respect of the debt collection activities of licensed moneylenders, including where they outsource this function to a third party. For the reasons that I have outlined, I do not propose to take on board the amendments proposed by Senator Reilly. However, I will communicate her views and those of Senator Michael D'Arcy, particularly the suggestion regarding further strictures on third parties hired to collect debt by financial institutions. Everyone in public life knows that there is concern about this issue and that the law, while strong, is not always upheld. Nor are the sanctions that follow always imposed. I will ask the Central Bank to re-examine the matter.
I thank the Minister. Having researched this matter, there seems to be a differentiation between consumer protection and the protection of someone who is acting in business. This creates a difficulty, as it means that there is a different structure in place for many financial transactions in business and agriculture, for example, the purchase of an agricultural machine.
I ask that the Minister examine the issue.
I shall not pretend that I was incapable of putting together the changes required because they would, effectively, have rewritten much of the Consumer Credit Protection Act.
I will draw the Central Bank's attention to this short debate on this set of amendments today. I shall ask it to look at the views expressed by Senators Michael D'Arcy and Reilly to see if, in its opinion, any further action is necessary.
I move amendment No. 23:
As I understand it, the penalties under the 1942 Act are doubled but inflation has increased far more. I would hate to think that the penalties were being reduced in real terms. It is okay if we fine them the index linked euro equivalent of the 1942 fine. I ask the Minister to consider the matter. What have these guys done to deserve a massive reduction in fines? I mentioned a certain number but it is probably still short. At least my amount brings the 1942 fine more up to date with 2013 prices.
In page 55, line 38, to delete “€10,000,000” and substitute “€50,000,000”.
These amendments seek to increase the maximum penalty under the administrative sanction regime tenfold, from €500,000 to €5 million for an individual and from €5 million to €50 million for a body corporate. It is important that the fines are of sufficient scale to act as a deterrent to those who seek to profit from breaching their requirements.
The Bill already proposes significant increases in fines. For example, there is a proposal to double the individual maximum from €500,000 to €1 million. There is a second proposal to increase the maximum fine for firms from €5 million to €10 million, or 10% of turnover, whichever is the greater. This links the size of the fine to the size of the company.
In addition, the Bill provides for redress where customers who suffer a loss because of poor practice by financial service providers and restitution which will ensure that firms or individuals who make illegitimate gains from breaching requirements do not get to keep these gains. Restitution is particularly important for firms or individuals who have the financial ability to pay fines without difficulty.
Overall, these changes provide for a serious level of sanction, redress and restitution where the circumstances warrant it. However, in acknowledging the need for credible sanctions we should never forget that the primary purpose of regulation is to ensure that the standards in place are supervised, respected and abided by with appropriate early intervention by the Central Bank to address the problems.
On the basis that the fines are being substantially increased in the Bill, I do not propose to accept these amendments.
I thank the Minister. As always, I sought harsher fines. If we were trying to do the reverse I do not think that any Member of the House would be happy to take a doubling of his or her 1942 salary and expect to live on that sum. It would be a reduction in real terms.
I appreciate that the Minister wants an early warning system. I will not press my amendment. Reducing the imposition of fines by a number of decades will not get the undivided attention of some of these characters. I share his goal to get them early so that we do not have to worry about fines. At least if they are caught then maintaining 1942 values might be a good idea. I shall not press my amendment and I thank the Minister.
I wish to make a point for the sake of the record. The base legislation is the 1942 Act but I believe that the penalties have been updated more than once in the meantime.
I move amendment No. 25:
My amendment deals with the ombudsman's report and its content. The section contains excellent material such as the trading name of the financial services provider, the identity of any group that the regulated financial service provider is a member of and the number of complaints found to be substantiated, or partially substantiated, in respect of the regulated financial service provider in the preceding financial year. My amendment merely suggests a reporting addition to improve things and states: "(d) the responses of the financial service provider to complaints made under this section."
In page 59, between lines 12 and 13, to insert the following:“(d) the responses of the financial service provider to complaints made under this section.”.
I shall return to our discussion on the role of the ombudsman. What did these people do in response to complaints? All of the other information is recorded and I say well done. Should we insert my amendment? What did they say back? Would the provision help to improve consumer confidence and vindicate consumer rights?
The amendment seeks to require the Financial Services Ombudsman to include in its report the responses of the financial services provider to complaints made and reported by the Financial Services Ombudsman. However, I am satisfied that the naming provisions provided for in the Bill are sufficiently robust to provide consumers with information to assist them in making decisions about availing of the services of particular financial service providers.
I am of the view that providing a further requirement for a response by the financial service providers is not required to strengthen this provision. The requirement would be unduly burdensome with little added value. It should also be noted that when investigating any complaint against a financial service provider, the ombudsman would require a response from the provider before making a decision on whether to uphold a complaint or not. Accordingly, I do not propose to take on board the amendment tabled by Senator Barrett.
Government amendment No. 26: In page 67, lines 32 and 33, to delete subsection (7) and substitute the following:“(7) Section 47 of the Act of 2011 is amended by substituting “If a liability to repay arises under section 46(5)” for “If a liability to repay the Fund or the Minister arises under section 46(4)”.”.
This is a technical amendment. The amendment involves an amendment to section 47 of the Central Bank and Credit Institutions (Resolution) Act 2011. It is a drafting amendment and is consequential on changes made to section 46 of the 2011 Act on Report Stage in the Dáil.
Government amendment No. 27: In page 71, after line 11, to insert the following new section:93.--Section 6 of the Irish Bank Resolution Corporation Act 2013 is amended by inserting the following subsection after subsection (6):"(7) (a) In this subsection 'Act of 1879' means the Bankers' Books Evidence Act 1879. (b) Where--(i) a copy of an entry in a bankers' book (within the meaning of section 9(2) of the Act of 1879) falls to be produced in evidence, (ii) the book is in the custody or under the control of a special liquidator or IBRC, and (iii) the special liquidator or an officer or employee of, or other person duly authorised in that behalf by, the special liquidator or an officer or employee of IBRC gives evidence (orally or by affidavit) that--(I) he or she truly believes that the book or record was kept in the ordinary course of the bank's business, and (II) the book is in the custody or under the control of the special liquidator or IBRC,then the requirement for proof in section 4 of the Act of 1879 shall be taken to have been satisfied.(c) The Act of 1879 has effect in relation to the books and records of IBRC as if--(i) references in that Act to bank or banker were to--(I) a special liquidator, or (II) IBRC,(ii) references in that Act to bankers' books were to the ordinary books and records of a special liquidator or IBRC, as the case may be, or the ordinary books and records of IBRC in the custody or under the control of a special liquidator, and (iii) references in that Act to an officer of a bank were to a special liquidator or an officer or employee of, or other person duly authorised in that behalf by, a special liquidator or to an officer or employee of IBRC.”.
Government amendment No. 28:
In page 75, between lines 11 and 12, to insert the following:
7Section 33AK(5)Substitute “2010, or” for “2010.” in paragraph (ao) and insert the following after that paragraph: “(ap) for any purpose connected with the functions of the Bank, the Minister, the Governor or the Head of Financial Regulation or a special manager under the Central Bank and Credit Institutions (Resolution) Act 2011.”.
This amendment is technical in nature and is designed to remedy an incorrect reference in the Central Bank and Credit Institutions (Resolution) Act 2011. The objective of this amendment is to ensure the Central Bank is legally able to share confidential information to facilitate the Central Bank, the Minister, the Governor, the head of financial regulation or a special manager appointed under the resolution Act in the performance of their functions under the Act. This should remove any obstacles to the necessary information exchange.
It is interesting we are inserting new sections and making amendments. The irony is not lost on me that this is being done in the Seanad. Given the proposed abolition of the Seanad, perhaps the Minister will mention it to the Taoiseach that these mistakes were made in Dáil Éireann or that are things which were not included there. How would this proceed if there were no Seanad after the next general election? It is just an observation in that regard.
I thank Senators for the expeditious handling of this important legislation on Committee Stage. In particular, I thank Senator Barrett who did most of the heavy lifting today.