Wednesday, 23 September 2020
Investment Limited Partnerships (Amendment) Bill 2020: Second Stage
I congratulate the Leas-Chathaoirleach on his recent appointment. I know he will do an excellent job in the Seanad for whatever great number of years we have ahead of us.I welcome the opportunity to address the Seanad today on the Investment Limited Partnerships (Amendment) Bill 2020. The Bill seeks to update the operation of the Investment Limited Partnerships Act, as outlined in the programme for Government. It is also set out in the Ireland for Finance strategy. Some will find this quite a technical Bill as it concerns the issue of investment limited partnerships, ILPs. I ask the House to bear with me as we go through it, because we have to give the Bill proper scrutiny and it is one that will require careful consideration.
An earlier version of elements of this Bill passed all Stages of Dáil Éireann, but lapsed with the dissolution of the House. It was intended that the Government would make additional amendments to enhance the transparency applied to Ireland's fund vehicles by extending anti-money laundering beneficial ownership requirements to both ILPs, and to common contractual funds, which are two of Ireland's five corporate entities for the establishment of investment funds.
The Bill now before the Seanad modernises investment limited partnerships and provides for best practice in the area of transparency and anti-money laundering. The Bill also makes a number of technical amendments to the Irish Collective Asset-management Vehicles Act 2015. It also provides that the Central Bank can verify personal public service number, PPSN, information pertaining to beneficial ownership registers that it operates by proposing an amendment to the Social Welfare Consolidation Act 2005.
As Senators will be aware, the Ireland for Finance strategy was launched last year to develop further the success of international financial services in Ireland. Ireland's success in attracting top-tier global financial services is set against an increasingly dynamic and competitive backdrop. The changes put forward today aim to enhance Ireland's offering and improve our robust and transparent regulatory environment for investment funds.
The Irish funds industry is a key part of the internationally traded financial services sector. In May 2020 there were 7,750 investment funds authorised and regulated by the Central Bank of Ireland. Some 16,000 people are employed directly and a similar number indirectly in the industry throughout the country. The industry generates substantial direct and indirect Exchequer receipts annually. There is an estimated €850 million per annum in direct Exchequer receipts.
Ireland's offering is overseen by a regulatory regime which is responsive to the needs of industry while at the same time ensuring the protection of the interests of investors. The intention of the Bill is to ensure that our corporate structures for investment funds are fit for purpose and maintain our strong global reputation as a jurisdiction to domicile investment funds.
Investment funds are established for the purposes of investing the pooled funds of investors in assets in accordance with investment objectives and investment policies that are agreed with investors. Investors in investment funds expect redemption of their investment in a fund in line with the fund prospectus, which would have been issued at the early stages.
An investment limited partnership is a regulated partnership structure that does not have a separate legal identity. An investment limited partnership is formed under the Investment Limited Partnership Act 1994 and is established once it is approved by the Central Bank of Ireland. It is constituted according to the partnership agreement entered into by one or more general partners, who manage the business of the partnership, and a number of limited partners, who are the investors in the fund. A general partner in an investment limited partnership has unlimited liability for the debts and obligations of the ILP, while a limited partner is not liable beyond the amount of the capital contribution. When compared with our other investment fund vehicles, ILPs have particular advantages for specialised investment schemes such as private equity or venture capital funds, which have a smaller number of professional investors, or more bespoke investment structures with different ways of splitting the gains and losses from the partnership.
In an ILP, the general partner is responsible for managing the business of the ILP and is ultimately liable for the debts and the obligations of that ILP. An ILP is subject to oversight by the Central Bank of Ireland, and will be subject to the rules for these investment funds.
The Investment Limited Partnerships Act has been place since 1994. It needs to be updated to fit the environment at which it is aimed and to take account of the changes that have been made in Europe via the alternative investment funds managers directive of 2018 which establishes the EU regulatory landscape for non-undertakings for collective investment in transferable securities, UCITS, investment funds.
The Bill makes changes such as allowing an advisory role in the management of the fund for limited partners without putting their limited liability at risk.The changes will enable Irish industry to compete for some of the global private equity market that has chosen other European or global locations to base such investment funds.
The EU anti-money laundering frameworks have introduced a requirement to introduce beneficial ownership registers for corporate and other legal entities that have separate legal personality such as limited companies or Irish collective asset management vehicles and trusts under the Unit Trusts Act 1990. The investment limited partnership, ILP, and the common contractual fund vehicles do not fall within the scope of EU anti-money laundering directives due to the fact they have no separate legal personality and are not trusts. This Bill, however, provides an opportunity to align transparency requirements that apply to other Irish investment fund vehicles such as Part 24 of the Companies Act 2014, Irish Collective Asset-management Vehicles Act 2015 and the Unit Trust Act 1990, and to ensure the highest international standards in the area of anti-money laundering are met across Irish fund vehicles. These amendments will enhance Ireland's reputation as a well regulated financial centre.
The Bill corrects technical and typographical errors in the Irish Collective Asset-management Vehicles Act 2015, and aligns it with other company legislation. The Irish collective asset-management vehicle, ICAV, is a legal structure for the holding of investment schemes established in accordance with the Act. The ICAV structure was specifically designed to be distinguishable from a trading company in terms of the instrument of incorporation and provided for an umbrella fund structure with specific accounting for subheads, or sub-funds, as they are technically known in the legislation.
A number of Irish company law provisions are often irrelevant or inappropriate to investment funds and can create unintended consequences where applied in the funds' context. The Bill includes measures to apply beneficial ownership requirements to all of Ireland's investment vehicles, including the common contractual fund vehicles. Part 5 of the Bill amends Schedule 5 of the Social Welfare Consolidation Act 2005 to list the registrars of beneficial ownership of investment limited partnerships, ICAVs, credit unions, unit trusts, and common contractual funds as specified bodies that are authorised to use the personal public service, PPS, number to verify beneficial ownership information provided to them.
I will outline some of the key features of the Bill, which contains five Parts. Part 1 is the standard preliminary and general section. Part 2 relates to ILP, Part 3 relates to ICAVs, Part 4 to common contractual funds and Part 5 amends the Social Welfare Consolidation Act.
Section 1 provides for the Short Title and commencement. Section 2 covers the collective citation and section 3 is a standard form for clarifying the Acts referred to in the Bill. A key improvement is that the Bill ensures that the same transparency, anti-money laundering, and counter-terrorist financing arrangements apply across all Irish fund vehicles in line with best international practice. A number of changes to ILP relate to alignment with EU and domestic funds legislation, for example, changing the term "custodian" to "depository". There are also some typographical corrections, correction of cross-references and the replacement of Companies Act 1963 with Companies Act 2014. I will address the key changes in more detail later.
Section 7 adds board participation in boards and committees related to an investment limited partnership to the white list, a list of activities which, if undertaken by a limited partner, will not be deemed to be taking part in the conduct of the business and so do not result in loss of limited liability for a limited partner. The white list concept is also common to limited partnership regimes in other jurisdictions.
Section 10 adds a new section 8(4B) to the Act of 1994 to allow the use of an alternative foreign name besides the Roman alphabet in the case of foreign investment limited partnerships.
Section 11 amends section 8 of the Act of 1994 by adding a new section 8A to give the Central Bank the power to refuse to authorise an investment limited partnership where the name, or alternative foreign name, of the ILP is deemed undesirable.
Section 13 amends section 11(1) of the Act of 1994. Section 11(1A) sets out the requirements for amending a partnership agreement. Section 11(1B) allows for alterations to the partnership agreement to be implemented under certain conditions. Section 11(1C) outlines what the majority of limited partners comprises.
Section 14 adds two new subsections to section 11 to the Act of 1994.Section 11(5) creates a statutory transfer of assets and liabilities on the admission or replacement of a general partner and section 11(6) sets out a similar provision on the withdrawal of a general partner.
Section 15 amends section 12(3) and (4) and deletes a restriction on the limited partner bearing the same name or part of a name as the investment limited partnership.
Section 19 inserts a new subsection 19A to the Act of 1994 setting out the meaning of majority of limited partners for different purposes, such as to rights or interests of a majority of the limited partners and to its use of simple majority. Section 20 replaces section 20 of the Act of 1994 and sets out how capital contributions by limited partners and liability of limited partners for partnership debts operate. Section 23 amends section 24(4) of the 1994 Act as it relates to permits to the investment limited partnership to purchase insurance for a general partner or auditor for indemnification against liability where the general partner or auditor is found not to be negligent or in default.
Section 27 also amends section 27 of the Act of 1994 by introducing beneficial ownership to investment limited partnerships and aligns with similar provisions that apply to companies established under the Companies Act or the ICAV Act as set out in Sl 110/2019, the European Union (Anti-Money Laundering: Beneficial Ownership Of Corporate Entities) Regulations 2019. Sections 28 and 29 amend section 28 of the 1994 Act to align the beneficial ownership requirements with SI 110/2019.
Section 30 amends section 29 of the Act of 1994 by deleting subsection (3) in order to remove the requirement for the bank to publish notice of revocation of authorisation inIris Oifigiúil. Section 35 clarifies in section 38(4) of the 1994 Act that the limited partner does not have unlimited liability for the debts of the partnership once the partnership is dissolved unless the limited partner purports to carry on the business of the partnership after dissolution. Section 36 amends section 39 of the Act of 1994 to ensure that limited partners who do not take any part in the conduct of the business of the partnership cannot be prosecuted for any offences committed in the management of the partnership.
Section 37 amends the Act of 1994 by adding section 42A after section 42. Section 42A seeks to align the ability of an investment limited partnership to indemnify against liability with those in the ICAV Act 2015 and the Companies Act 2014. This reflects the changes that were introduced under the alternative investment fund directive and enables the investment limited partnership to purchase liability insurance for any auditor or general partner of the investment limited partnership.
Section 38 amends section 45 of the Act of 1994 to provide for a cost recovery system in the context of the Central Bank's role in maintaining the beneficial ownership registers. Section 39 inserts a new sections 46 to 59 relating to beneficial ownership registers, including a central register and associated procedures obligations and aligns this with SI 110/2019.
Section 40 inserts a new Part VIII into the Act of 1994 covering the migration of investment limited partnerships into and out of Ireland, as well as their conditions of solvency. It also inserts three chapters. Chapter 1 allows for the migration into Ireland to become an investment limited partnership from another jurisdiction. Chapter 2 provides for the revocation of authorisation following migration out of the country. Chapter 3 covers the declaration of solvency of migrating partnerships.
Section 41 introduces the issue of an umbrella of sub-funds in investment limited partnerships. These sub-funds permit the establishment of a fund with several distinct sub-funds that are traded as individual investment funds but are not liable for the debts of the other sub-funds under the said umbrella. These funds will share general partners but are ring-fenced from each other in the event of insolvency.
Part 3 of the Bill deals with amendments to the ICAV Act. These amendments are technical in nature. I will highlight a number of the more substantive elements. Section 42 amends section 2 of the 2015 Act by adding a new definition of a "category 4 offence" to the definitions with the meaning given by section 60 so that a person guilty of a category 4 offence is liable, on summary conviction, to a class A fine for a fine not exceeding €5,000, which by definition would be a minor issue.
Section 46 ensures a contract entered into outside the viresof an ICAV is nevertheless enforceable. Section 50 clarifies the requirements for affixing or attesting the affixing of the seal. Section 51 will allow the ICAV to issue powers of attorney. Section 52 will amend section 77 of the 2015 Act and bring the Irish Collective Asset-management Vehicles Act into line with the Companies Act 2014 in permitting inter-group loans and transactions. Section 53 will allow for the ICAV to make an application to the court where certain legal proceedings are anticipated. Section 54 will insert new sections, 91A, 91B and 91C, regarding written resolutions, in line with the Companies Act 2014. Section 55 clarifies that where an investment company converts to an ICAV, the priority of pre-existing charges should remain unchanged. Section 57 will require that directors making a declaration of solvency declare they have formed an opinion and that the applicant company is able to pay its debts as they fall due.
Section 61 will provide for a cost recovery system for the Central Bank for maintaining the beneficial owner register. The costs will be fully borne by the organisation, not by the Central Bank or the public. Section 63 will insert a new section, 18A to 18U, to the 2005 Act introducing beneficial ownership to common contractual funds. Section 64 will provide for the following: a registrar of beneficial ownership of investment limited partnerships; a registrar of beneficial ownership of Irish collective asset-management vehicles, credit unions and unit trusts; and a registrar of beneficial ownership of common contractual funds, in the list of what is specified in Schedule 5 to the Act. This means these bodies will be able to receive and use PPS numbers to verify beneficial ownership information.
I hope this explains the background and underlines the benefits that will arise from the Bill. The Irish funds industry is, as I highlighted earlier, an important part of the international financial services sector based in Ireland. It is a significant employer and a sector that we hope will grow and deepen its links in the economy throughout Ireland. The Bill is a means of promoting investment and Ireland's competitiveness in international financial services, which is more acute in the wake of the economic impact caused by Covid-19. I look forward to hearing Senators' contributions and will be happy to provide any further clarifications they may need. I commend the Bill to the House.
Sometimes we describe a Bill as a very technical piece of legislation or as boring. Unfortunately, this type of thing is boring but we have to get through it, and the devil is very much in the detail in this case. We are talking about the private equity sector in respect of financial services for Ireland. As the Minister of State will be aware, the financial services sector is quite a large employer, of about 16,000 people currently. The sector has been arguing, for about four and a half to five years, that without this legislation it cannot advance the private equity side of investment in Ireland. The reason it cannot do that is the investment limited partnership, ILP, legislation in Ireland, going back to the 1990s, is out of sync with that in other jurisdictions. In essence, if a business is part of such a partnership, and if it invests €2 million in an investment vehicle worth €100 million, it can be liable for losses to the value of the entire sum. As a result, investors do not invest in Ireland because in other jurisdictions, the structure is such that they can be liable only for the sum they invest. That is a very easy decision for investors to make, whereby they decide not to invest here.
This legislation has been on the books for almost five years, which is a criticism of the Department of Finance and the way we get to legislation. It is important to be advanced and pass this legislation so we can be competitive with other jurisdictions. The criticism is a self-criticism too; for three years I was in the seat the Minister of State is in and I did not get the legislation through in that period. I wish him well and certainly hope the Bill can be pushed through before the end of the year because it is important.
To put it in context, the sector has said for quite some time that there are probably 1,500 jobs attached to this. If we can move, therefore, and get the private equity world operating here in Ireland, it will be worth 1,500 jobs.The companies in question are all around the country and not just in Dublin. The perception is that they are all down on the docks along the River Liffey, but that is not the case. There are funds like State Street in Kilkenny and BNY Mellon in Wexford. I am using those as two good examples. The Ireland for Finance strategy that was launched in April 2019 entailed getting 5% of the sector to be based in Ireland. If we can get that base, it will give us the 1,500 jobs. In the context of Brexit and given the potential for Covid to rear its ugly head again, the hope and expectation is that those 1,500 will be higher value jobs with higher levels of pay and will benefit the Irish economy to a considerable degree.
Another important aspect of this debate is the question of how large the sector is. We are discussing trillions of euro worldwide every year, and we badly need to get a bite of that. However, I have consistently highlighted the bigger picture, that of sustainable finance. There are large quantities of funding to be spent, not just in Ireland but worldwide. The figure that people put on it is up to €100 trillion, which in itself suggests to me that no one really knows what is required to deal with everything that is attached to global warming and climate change. What is clear, however, is that this cannot be done through a single strand of investment. Rather, it must be done with private equity, of which Ireland has practically nil because this legislation has not been passed. It will also be done with borrowing - the standard borrowing that we know and understand and the multilateral borrowing from multilateral banks such as the Asian Infrastructure Investment Bank, AIIB, and so on - and Government funding. We need three legs to the funding stool of sustainable finance because enormous quantities of money will need to be spent to decarbonise the world economy. If Ireland is to become a truly global leader in this regard, which I believe we can in terms of investment, then we need this legislation passed. As the Minister of State said in his 19-page speech, the Bill passed all Stages in the Dáil but fell when the Houses of the Oireachtas fell.
I welcome the Bill. I will not go into its details, but I have a couple of questions and will discuss two points. From my experience, investors are significantly ahead of everyone else. They are the people with private equity funds and who administer the moneys that will be crucial if we are serious about sustainable finance. They are well ahead of everyone else because, if we destroy the world through climate change, there will be no world economy. They are clear that they want there to be a world economy.
I am pleased with the beneficial ownership element. It shows that the Irish authorities - the Department of Finance, the Central Bank and the Houses - are moving on that matter. We are actually moving beyond what is required. European directives are the requirement, but we are doing more. I support that entirely. The "more" in question is that we are trying to deal anti-money laundering, AML, and counter-terrorism financing, CTF, to ensure that the regulator knows who the owners of the private equity funds are and that their bona fides are above board.
As we saw in a "Panorama" programme this week, where we have these quantities of finance, there is the potential for wrongdoing. We do not want that to happen in this jurisdiction.We want to know who the beneficial owners are. This legislation goes beyond what is required by European law. It is stronger, more open and more transparent than the equivalent systems in any other jurisdiction of which I am aware. I very much support that.
I have a single question. The requirement for PPS numbers in this regard is fine but how is the regulator to deal with investors who are not Irish?
Six months after my election to the Seanad, this is my first time speaking in the Chamber. It has taken a while. I welcome this Bill, which will amend the Investment Limited Partnerships Act 1994 in several ways with the main aim of making Ireland a more attractive domicile for private equity funds. Enactment of this investment partnership legislation is also a commitment included in the programme for Government. The main objective is also part of Ireland for Finance, the Government's strategy to develop Ireland's international financial sector up to 2025. The Bill is an important step in maintaining Ireland's place as the leading funds domicile in Europe. Its intention is to ensure that our corporate structures for investment funds remain fit for purpose and that we maintain our strong global reputation as a jurisdiction for domiciled investment funds.
It is appropriate to recognise the great success we have had in the area of international financial services, achieved through ongoing commitment from all successive Governments. As a party, Fianna Fáil is very proud of the role we played in the 1980s in establishing the International Financial Services Centre here in Dublin. Since then, international financial services have developed right throughout the country, which it is important to recognise. There are now more than 44,000 people employed in international financial services across the country. Of the top 15 global aircraft lessors, 14 are now based in Ireland. Ireland is home to 20 of the world's top 25 financial services companies. With more than €4 trillion in fund assets under administration, Ireland is the third largest global investment funds domicile, the largest European domicile for exchange-traded funds, ETFs, and a leading location worldwide for hedge fund administration. Some 17 of the top 20 global banks and 11 of the world's top 15 insurance companies have a presence in Ireland. The Irish cross-border insurance sector, a report points out, writes business into more than 100 countries with more than 25 million customers. By any measure, this is a remarkable record that Ireland has grown over time in international financial services. This success is not something about which we can be complacent because this is a very dynamic industry in which the pace of change is rapid and the nature of the investment is highly mobile.
As the Minister of State and Senator D'Arcy have pointed out, this is technical legislation amending the 1994 Act. We welcome and support the Bill.
I also congratulate the Leas-Chathaoirleach. I was not around on Friday. I am delighted he is in the position and I believe he is the ideal candidate to take on the role of Leas-Chathaoirleach. He has a been a friend and comrade at the Council of Europe and I wish him well. This is his first day and he should know that it is an auspicious day. It is Bruce Springsteen's birthday. It is a fine day to start.
We should get him over here. I also welcome the Minister of State. As he alluded to, this is a highly technical Bill which is pitched towards one industry, which has its own needs and interests. I am sure the Minister of State will also agree that those needs and interests are not shared by the vast majority of our constituents, who would benefit much more from a reversal of the cuts to the pandemic unemployment payment, solutions to a coming wave of mortgage arrears or increased capacity in our hospitals than from arcane legislation that will delight private equity asset managers.Unfortunately, the priorities of this Government are clear.
The Irish investment limited partnership product was first established under the 1994 Act. It was thought then that the ILP would become a popular investment vehicle for real estate investments and private equity. The Bill before us is intended to update the existing ILP regime and make Ireland an attractive place for international investors. Amazingly, it made its way into the programme for Government rather than, for example, any commitment on affordable housing.
The ILP is a partnership the primary business of which is investment in financial assets, such as property and shares. It is a collective investment fund consisting of one general partner, who assumes unlimited liability, and limited partners who assume assets and liabilities in proportion only to the capital they each contribute.
The partnership does not have an independent legal status like a normal company; the profits are owned by the partners, with each able to use tax reliefs available in their own jurisdictions. Unlike the general partner, the limited partner cannot take part in the management of the firm without taking on full liability for the partnership's debts and liabilities.
The ILP is established as an alternative investment fund, AIF, and is regulated by the Central Bank. Given the technicalities of this legislation, the small audience that it seeks to please, and the more pressing matters that face the Seanad, it is strange that the Government has given it such priority.
Ireland remains one of the best destinations of alternative investment funds in Europe. In the past ten years, the number of funds domiciled here has risen by 60%, with their net assets increasing by 350%. The value of investment funds currently domiciled and administered here stands at €4.9 trillion. This is not an industry in need of help at this critical time. We should be talking about industries that have been hammered by Covid-19, not the Irish funds Industry which is getting by just fine.
We understand that global private equity asset managers have been keen to establish European structures similar to those held in places such as the Cayman Islands for distributing profits to their European investors. This encouraged the Irish funds industry to lobby both the Central Bank and the Department of Finance to upgrade the legislation around limited partnerships, and to achieve the Government's aim of making Ireland a global hot spot for private equity funds. The result is the Bill before us. We view this legislation as an unnecessary distraction and a waste of time given the crucial issues that we face. However, we will endeavour to give this legislation the scrutiny it deserves, as we did before the Bill lapsed in the Dáil.
The Bill, updated from that published in June last, proposes a number of changes to the current regime. It allows ILPs to be set up as umbrella funds, allowing them to be divided into sub-funds that are treated individually without being liable for the debts of other sub-funds in the umbrella - an arrangement similar to that enjoyed by Irish collective asset-management vehicles, ICAVs. It seeks to expand the white list by allowing limited partners to participate on boards and committees without loss of liability. The Bill also seeks to incorporate practices from other jurisdictions, aligning the ILP structure fully with alternative investment fund managers directive, AIFMD, and other fund structures such as ICAV.
Additionally, we welcome the fact that new provisions have been added to this legislation which were not included in its previous incarnation in June 2019. My colleague, Deputy Pearse Doherty, spoke with the then Minister of State, Senator D'Arcy, around issues of beneficial ownership, and I welcome the fact that section 27 will ensure these funds are covered by beneficial ownership legislation. Sections 29, 39, 63 and 633 are similar in this regard. Sinn Féin will further scrutinise these provisions of the legislation as it progresses.
We recognise that the Irish funds industry employs a significant number of people. That fact cannot be contested. However, it is becoming clear that the Government's industrial policy has become a one-trick pony, with phantom FDI and private equity funds becoming the central plank of high wage employment in this State, with an industry of tax and legal advisers benefitting, and a domestic low wage economy struggling beneath it. This is not a sustainable model.
Furthermore, we dispute the relevance of this legislation given the other pressing challenges we face, including the small issue of a global health pandemic. That the Irish funds industry has bumped itself up the list at the Department of Finance is testament to its determination and the priorities of this Government.
This is a highly technical Bill, but that is no reason to let it pass without scrutiny. We look forward to examining its provisions on Committee Stage.
I extend my congratulations to the Leas-Chathaoirleach. He is a long-serving Member of the Oireachtas and it is fitting that he now fulfils the role of Leas-Chathaoirleach. I also extend my congratulations to the Minister of State in his new role and thank him for bringing forward this legislation.
I share the concerns articulated by Senator Gavan about the timing of the Bill and the use of valuable Seanad and Dáil time to debate it. I acknowledge that there are sections within it that are long awaited by those working in the financial services sector and that the Bill is a commitment in the programme for Government, but in the same vein we are in the middle of a global pandemic and urgent legislation is required to assist workers and their families and SMEs. It seems bizarre and ill timed to have this legislation before the House now. Indeed, there is a certain irony that a debate has just concluded in the Lower House about the need for sick pay. There was a great deal of talk in that debate about the need to help SMEs and about why sick pay could not be introduced now to help workers who do not have access to paid sick leave in their workplaces and why they must wait for six months. There is an irony that people who very much need something in the context of the pandemic are being told to wait when this Bill is before us today.
There is significant employment from financial services in this country, and it is a welcome source of employment, but the Bill's provisions arguably seek to intensify our share of employment that is reliant on highly mobile capital. As a vision for employment and our future economy, serious questions must be asked about whether we need to put such emphasis on developing a financial hub and having so much employment based in financial services, given those services' highly mobile nature and the competition that exists internationally for that money. At the end of the day, private equity is about the domiciling of funds in a particular country and benefiting from the regulatory and tax regimes within same.
The Minister of State has had to table a very technical Bill. We recognise the necessity of updating the 1994 Act and modernising the law around investment limited partnerships, ILPs, that the Bill seeks to meet, in particular regarding its AML provisions. The main change between this Bill and its 2019 version is the addition, as promised last year, of sections relating to beneficial ownership, on which Senator D'Arcy and the Minister of State spoke, and the compilation of registers. This is to be welcomed in the interests of transparency and placing all investment vehicles on a level playing field. When looking back through the record of the Bill's debate in the Dáil, I noted that the then Minister of State, Senator D'Arcy, spoke about the register going beyond the legal requirements and the precedents set by other countries.It is welcome that there will be a register. However, we should not pat ourselves on the back for that. We need to strive for standards of transparency above and beyond those of other countries. This is very important in the context of the reputational aspect of Ireland trying to attract financial services and any other international capital. While it is a different area of taxation, we are well aware that Ireland has been characterised as a tax haven, rightly or wrongly, by others. Although we might dispute that characterisation, we must remain cognisant that the eyes of the world are often on the Irish financial system and that we need to behave in a way that puts us beyond reproach. Transparency must be a keystone value of the entire regulatory system in this country.
I support and echo Senator D'Arcy's question about PPS numbers and seek clarity on the situation for non Irish resident investors.
My final point relates to access to the central register of beneficial interest. It is one thing for it to be provided for in law but how it exists in reality is another matter. I ask that the mechanisms to access the register be truly accessible and comprehensible and that it is not restricted, by either price or access, to those with an inside knowledge of the industry. We need to strive to ensure confidence in the nature and activities of these funds. Bearing in mind that these funds do not enjoy widespread public support, particularly with regard to private equity and where that money has been put in other countries, we need to ensure we have confidence in the nature and activities of the funds operating from these shores. The information pertaining to their ownership must be properly accessible and the overall regulatory regime transparent.
Ar dtús báire, déanaim comhghairdeas leis an Leas-Chathaoirleach as ucht a bheith tofa mar Leas-Chathaoirleach an tSeanaid.
I will not take the full five minutes as I will only make a brief contribution on this Bill. It is very important legislation. As we have heard, it has been a long time in the birthing process and in coming before this House. In that regard, it is unfortunate to describe it as unnecessary, a waste of time or ill-timed. The reality is that we do not always get to choose the timing of the legislation that comes before this House. It is, nonetheless, important legislation. It is not reasonable to compare it to the importance of other legislative or policy measures that might come before the House because we can always draw up a list of the hierarchy of what we consider to be most important. This legislation is a long time coming and perhaps most important, it creates, or enhances, a regulatory regime.
I agree with what Senator Sherlock said about the importance of transparency in this area because the financial services aspect of the Irish economy is tremendously important. Of course, some people are critical of that and Senator Sherlock is quite right in identifying the mobility of the funds that might be part of the industry here. That is a significant risk given the economic model that Ireland has followed, though that model has served our economy extremely well for more than a generation now.
The Minister of State and Senators referred to the extent to which the financial services industry contributes to our economy. That is not just about jobs, though it is estimated that more than 30,000 people are employed directly or indirectly by this sector alone. That, of course, does not count. Many others are involved in the provision of services and so on for people who come here. Reference was made to the Government's desire to increase the number of people working in financial services within the economy. I would not necessarily accept that because one of the things international financial services do is draw people into the country. They bring people here who then pay tax, spend money, live here and contribute to our society. That is an important aspect as well, apart from the nearly €1 billion directly received by the Exchequer and the additional money spent in the sphere through the various other things associated with it. It is tremendously important to note this legislation is making a positive contribution. It is adding to our reputational status within Europe, adding to the transparency that was mentioned by other Senators and, of course, addressing our obligations under the EU anti-money laundering frameworks, which is very important. It may not be as important as other specific difficulties we have, legislatively and societally, but it is, nonetheless, very important legislation and I am delighted we will bring it through Second Stage.
I want to acknowledge a point made by Senator Casey. This is my first time speaking in the Seanad as an elected Senator, even though I was elected at the beginning of April, so it is bizarre we have waited this long to get to this point. It is important to note this is the first time we have not taken all Stages of a Bill in one day. That is another positive move towards the way this Chamber should be operating. It is welcome that we are taking Second Stage and taking our time to consider all aspects and, in due course, to deal with the Committee Stage amendments.
I thank Senators for their contributions and we can have a more detailed discussion on Committee Stage and Report Stage. I want to deal with some of the specific issues raised. Some Members raised similar issues but came at them from a different perspective.
Senator D’Arcy referred to the important issue of sustainable finance. This fund will help raise funds for sustainable climate projects. What is it all about? It helps to raise funds, manage funds and invest in funds related to sustainable financial products.
The issue of beneficial ownership has come up quite a bit in the context of the PPS cards. Senator D’Arcy asked about a situation where the person is not Irish and does not have an Irish PPS card, and this may also have been raised by Senators Gavan and Sherlock. The legislation allows a flexible method to be determined by the registrar in respect of an individual, for example, if the individual does not have a PPS number, he or she can verify details such as name and date of birth. If investors from another jurisdiction have no PPS number, it is important they can meet the verification requirements by producing their passport, so we know who they are. It is important we do not have people with PPS numbers all over the globe, so it is specifically provided for in the legislation that a person can produce a passport.
I now turn to the important issue of transparency. I accept it is a very long and detailed Bill. To clarify for those who have raised issues and for people watching, the proposed beneficial ownership amendments will enable the public to ascertain the beneficial ownership information of investors in these limited partnerships and will ensure the highest international transparency standards apply to investment limited partnerships. Simply put, a public register of the beneficial owners will be maintained by the Central Bank and any member of the public can walk in and inspect the register for a minor fee. It is like going into any planning office in the country in that a person can walk in and look at the public file on beneficial ownership. That public register is a phenomenally transparent example of how this can work, and it is important to stress that point. I have never in my life gone to the Central Bank to look at a public register, but I might do it to see how this works when it is up and running. In summary, people will have to produce their passport if they do not have a PPS number and there will be a public register available for public inspection, which is important.
On another point, in Ireland we are constrained by the number of banks. There are only a handful of small banks and many people in business find that, even if they have a good idea, for example, for a green project or in whatever other area, banks might only lend 50% or 60% of the funding and, sometimes, projects cannot get off the ground.At one time, banks used to lend 100% of the funding and that led to its own problems. Now they do not lend 100% of funding. These are non-banking sources of funds that people can invest in small and medium-sized businesses that would not have access to the required capital to get a project off the ground and where the banks are not willing or in a position to provide the funds for that. It is important that these funds are available here.
The sector has already been mentioned. It is well dispersed throughout the country. Obviously, much of it is in Dublin, but it is in Cavan, Cork, Drogheda, Dundalk, Galway, Kilkenny, Letterkenny, Leitrim, Sligo, Tipperary, Waterford, Wicklow and Wexford as well. It is all over the place.
On the over-reliance on this sector, my recollection is that 200,000 people are employed as a result of foreign direct investment in Ireland, of whom 45,000 are involved in the financial services sector. It is an area Ireland has particular expertise in. It is a significant, but not dominant, proportion.
Senator Ward mentioned bringing people into the country. When I met the chief executive of IDA Ireland last week to discuss the financial services sector, I was conscious of the people working from home. I asked how many people in the sector are working from home but are abroad. We have a good level of diversity of employees in the financial services sector - 25% or 26% - who are from other European countries or further afield and are working from home. That country may be 1,000 miles away. These type of businesses bring people into Ireland. They are paying the top rate of tax. It is one of the areas where taxation has held up because those companies, fortunately, are not dependent on the pandemic unemployment payment or the temporary wage subsidy scheme. One of the reasons the income tax receipts have kept up is that employees on high wages have been kept on the books and in employment. When we get the Covid situation to a level that people can work with, the main challenge will be to bring them back to Ireland. We do not want them staying in Spain, Portugal, Bulgaria or wherever they happen to be living at present. We have diversity. It brings people into Ireland. It brings income tax into Ireland. As I stated in my opening remarks, this particular sector provides €850 million in direct receipts to the Government every year.
In relation to the priority, two aspects were raised. I was asked why there is a rush. Another Senator asked why there is a delay. The Bill had almost gone through the previous Oireachtas but collapsed with the Government. It was one of the Bills that was in the system. The couple of months in between provided an opportunity to refine and improve it. We have a better piece of legislation here now. I understand people say there are other priorities. In this House, this entire legislation will take an hour.
The purpose of this legislation is not to help any of these businesses. The purpose of this legislation is to help Ireland to grow as an area where we can attract employment. People will get employment as a result of this new legislation and these new funds being in place. We are helping the Irish economy to recover by getting this legislation through. It is designed to help these businesses. It is designed to grow the industry in Ireland. That is an important issue to highlight as well. Those are the main points I would like to make.
I understand people have asked about the beneficial ownership. When I went into the Department and I was presented with this legislation and told that it was coming through, like the Senators and some other people, I wanted to know about the taxation situation in relation to these new investment limited partnerships. The investment limited partnerships authorised by the Central Bank after 13 February 2013 are treated as tax transparent. That means investment limited partnerships are taxed as if the partner or the investor directly holds the asset rather than the fund, and this is standard practice. Let me explain to the public. They think we are setting up a new corporate structure; we are not. It is only a contract between two persons. It does not have a legal identity. It is two persons, six persons or ten persons coming together to form a partnership. Each of the persons contributing to the partnership is liable for the tax in relation to any profits he or she makes as a result of his or her investment. There is not a partnership organisation, structure or body registered with the companies office or the Revenue Commissioners. It is only a legal contract between the two sides. The investors directly pay the tax wherever they are located in the world. That is important. It is a question I asked. I asked about the beneficial ownership because they do not even have to be from Europe. They could be from the United States or wherever.That is why we have to get proof of people's identity through their passports before they can invest. The tax treatment will not change.
The Ireland for Finance strategy was developed with the aim of creating employment and securing Ireland's reputation as a reputable and attractive location for the funds industry, which is subject to a robust and transparent regulatory regime. The Central Bank is a very highly regarded regulator internationally, but some people in the industry feel it sets the standards too high. If they do not like Irish regulation, let them go somewhere else. We do not want anything to do with them if they do not want to be subject to our regulations.
I welcome the opportunity we had today to discuss this Bill, which did not take long. This legislation will help to increase investment in the economy, thus creating employment. It will allow the sector in Ireland to compete for funds that have been going to other jurisdictions. I look forward to the co-operation of Senators on Committee and Report Stages.