Seanad debates
Wednesday, 20 July 2016
Commencement Matters
Banking Licence Applications
10:30 am
Neale Richmond (Fine Gael)
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I appreciate the opportunity to address the House this morning. On a procedural note, I would appreciate if the Cathaoirleach would look at allowing five or even six matters on the Commencement. I know a number of Senators have raised this with the Cathaoirleach already. I have submitted this matter for discussion a number of times before it was accepted for inclusion in today's proceedings and while I do appreciate it-----
Denis O'Donovan (Fianna Fail)
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The Senator might convey to his colleagues in the Fine Gael Party that the reason that is not possible is that most Senators do not obey the eight minute rule. Yesterday is an example. The overall time between one of Senator Richmond's colleagues raising a matter and the Minister's response went to 14 minutes. If we took five 14-minute matters, it would affect the Order of Business, which is difficult. I have looked at that, but the real problem is that the Senators themselves do not respect their time.
Neale Richmond (Fine Gael)
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I appreciate that and I will do my best to stay within the time.
Denis O'Donovan (Fianna Fail)
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I am speaking in general.
Neale Richmond (Fine Gael)
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The reason I raise this point relates to the aftermath of the Brexit decision earlier this month. We know all too well, and we have discussed it in the House, that Brexit will be difficult for Ireland in economic terms, but there will be a few small possibilities, particularly in the area of financial services. The area I am concerned with is passporting. Current EU laws allow European banks to operate branches in the UK that do not need to be separately capitalised from the parent company abroad. Non-EU banks can use their subsidiary to sell services to clients across the EU. However, it is looking increasingly likely that the UK will lose access to the EU market as it will not accept EU laws relating to freedom of movement.
I was very interested to read a report prepared for Deutsche Bank earlier this month. It has already looked at the scenario and assessed that financial services institutions are already looking to passport into other EU countries, with Barclays and Bank of America Merrill Lynch in particular looking at Dublin, and J.P. Morgan also looking to move elsewhere, moving up to 6,500 jobs at the same time. The reason this is so important is that in order for companies to do this, they require a banking licence.
I am worried that the waiting time many institutions are facing to get a banking licence in Ireland is proving to be prohibitive. The Minister can correct me if I have got the timeline wrong on this, but like France, with whose capital, Paris, Dublin competes as a financial sector, expected decisions on applications in Ireland are currently taking, on average, 12 months. However, in other competing jurisdictions, like Frankfurt in Germany and Luxembourg, this is down to just six months. I have received contact from a number of leading companies and financial institutions who, in the wake of Brexit, have been seeking to relocate their operations to Dublin so that they can passport to the wider European Union. They have been put off by the expected delays and lack of flexibility from the Central Bank. I appreciate that our system, as it is, is not a bad system and there is a reason for the way our processes work, but it could be greatly improved. If we are to capitalise on Brexit, where we can, then efforts need to made to reduce these times so that we are not losing out on potential jobs and revenue.
Pat Breen (Clare, Fine Gael)
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I thank Senator Richmond for raising this issue. I appreciate his concern on this and would like to pass on the apologies of the Minister for Finance, Deputy Noonan, who has an important meeting this morning and has asked me personally to take this matter on his behalf. I assure Senator Richmond that I will discuss his concerns with the Minister at a later date. I will outline to the Senator the review of the application process for companies applying for a banking licence.
The primary responsibility for the authorisation of banking licences and its decision process rests with the Central Bank of Ireland and the European Central Bank. They are two very important bodies that make decisions in regard to banking licences. One cannot do it without the other. Both bodies are statutorily independent in the carrying out of their functions and have specific missions. Given the Central Bank of Ireland was established by the Oireachtas, I want to reference its core mission of "safeguarding financial stability and protecting consumers”. That is something we should all remember. This mission requires it to ensure that every bank operating in Ireland meets certain minimum standards and codes of practice before it can be deemed eligible to carry out its activities.
In order to be of assistance to Senators, I will very briefly set out the process for a bank seeking authorisation. More detailed information is set out on the Central Bank’s website, including guidelines on required information and the authorisation process.In summary, the principal stages in the authorisation process are as follows: exploratory phase; the submission of an application and its assessment by the ECB and the Central Bank; and a decision by the ECB on whether to grant a banking licence.
The exploratory phase is the important first stage. Applicants should demonstrate familiarity with all statutory and non-statutory requirements applicable to credit institutions in Ireland. These requirements include a knowledge of key codes of conducts such as those on mortgage arrears and business lending to SMEs which provide vital protections for consumers. If the applicant is satisfied that the proposed business model meets the requirements, he or she should arrange a preliminary meeting with the Central Rank. If compliant, the applicant submits a proposal for authorisation which the Central Bank will review in detail. Following this review, it will provide a preliminary view on whether the applicant should pursue the application for authorisation. If the applicant proceeds with a formal application, the ECB will perform a detailed assessment and further detailed assessment work will also be performed by the Central Bank. I must stress that given the risks and complexities of operating a bank, there are numerous issues to be considered as part of these assessments, including the structure of the bank and its organisation and management, including key personnel, which is extremely important. Also important are the risk oversight mechanisms and its capital, funding and solvency projections, among many other areas.
When the review of the application has been satisfactorily completed, the ECB will make a decision on whether to grant a banking licence. Such a licence will only be granted where both the ECB and the Central Bank are satisfied that the applicant complies with the authorisation requirements. The Government is fully aware of the possibilities and opportunities arising from firms and funds potentially seeking to locate in Ireland. In this respect, the Central Bank has confirmed to the Minister of State, Deputy Eoghan Murphy, that it is committed to providing a clear, open and transparent authorisation process which, importantly, is open to all applications. In assessing such applications the bank will ensure a rigorous assessment against regulatory standards so as to continue a high and consistent level of consumer protection.
The Minister for Finance is fully aware that this authorisation process takes time, but we have learned all too well about the consequences of having a light touch regulatory regime. It may be of interest to the Seanad to learn that a number of recently authorised firms have informed the Central Bank that they would be uncomfortable with the operating environment in Ireland if the authorisation process was too speedy or insufficiently challenging.
Neale Richmond (Fine Gael)
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I appreciate the response of the Minister of State. I agree with him on the need for licences to be granted in a transparent and, most importantly, rigorous manner. We have learned lessons from having a light touch regulatory regime. I ask the Minister of State to convey my fear to the Minister for Finance that we are missing a trick, especially in the light of Brexit. I will give one anecdotal example. Not long ago representatives of a very large multinational company came to see me and a colleague. They told us they had exhausted the process, having gone back and forth to and from the Central Bank for a period of up to four years. Ultimately, the company was able to complete the entire process in just ten weeks in Luxembourg and as a result 150 jobs were lost to this country. There are briefings in financial institutions which warn companies which are looking to relocate from London to expect delays in Ireland and that there are other options available in competing jurisdictions, be in Frankfurt or Luxembourg.
Pat Breen (Clare, Fine Gael)
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I know where the Senator is coming from and agree with him that there will be opportunities for Ireland post-Brexit. Obviously, the Department of Finance is monitoring the position very closely. We must, however, learn from what happened during the downturn in the economy and the lessons from having a light touch regulatory regime in the banking sector. The Minister for Finance is in constant touch with both the Central Bank and the ECB. We have regulations in place and must learn from what happened in the past. As the Senator outlined, I am sure the Minister is committed to making the most of the available opportunities for financial institutions and that Ireland is ready to avail of them with the proper scrutiny and regulation. The Senator has made a very good point, one that I will convey to the Minister. I again thank the Senator for raising the issue.