Mark Daly (Fianna Fail)
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I welcome the Minister of State, Deputy Fleming, to the House and call on Senator Malcolm Byrne to begin.

Malcolm Byrne (Fianna Fail)
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I thank the Minister of State for coming in to take this matter. It is one that is of personal interest to him. As far as the consumer is concerned, there is very limited, and in some sectors no real competition, in banking, insurance and financial services in Ireland. The Minister of State will also be aware that there has been criticism among fintech companies about the approach the Central Bank has been taking, especially about trying to encourage a number of these companies to develop here. Due to his own expertise, he knows that we do not have competition within the insurance sector and in many sectors there is only one provider offering insurance products. In some areas there is no Irish provider and people must go outside the State to try to find service.

Every time we hear of a bank leaving the Irish market, meaning there is less competition, we sadly hear somebody from the Central Bank saying promoting competition is not its function. The Minister of State will be aware that there are some roles for the Competition and Consumer Protection Commission, CCPC, that he may be able to clarify. He will be familiar with the Herfindahl-Hirschman Index, HHI, which looks at the whole area of market concentration. If the HHI is greater than 1,000 it is regarded as a very concentrated market and if it is greater than 2,000 it is a highly concentrated market. The Irish mortgage market currently has a HHI of over 2,100 and for new lending Ireland has a score of 2,624. We thus have a highly concentrated market with no competition.

While the euro has lead to greater market integration it has not led to more competition. It certainly has in the areas of wholesale banking and corporate finance but in retail banking and with respect to benefit to the consumer we have not seen real competition. The Central Bank has acknowledged this. Governor Gabriel Makhlouf, writing on thecurrency.newsin January 2021 made clear the Central Bank did not have a function in the area of competition. In the bank’s own strategic policy statement, its strategic plan published in September, the word “competition” is not mentioned once. This is in contrast to central banks worldwide that in many cases have a specific mandate to promote competition. There is a statutory mandate to do so among the central banks in Australia, Argentina, China, India, Poland, Saudi Arabia, South Africa and the United Kingdom. While it is not formally set out in legislation, competition is a function of the central bank, and is clearly promoted, in Brazil, Russia, Singapore and Thailand but also crucially in our fellow eurozone countries such as France and Germany. The Lithuanian Central Bank’s strategic plan lays out very clearly as one of its core competences – and the country is a competitor for us in financial services – that it wants to encourage competition in the financial sector and boost competition in the payments market. Therefore, if we end up losing more banks or insurance companies, I do not want to hear the Central Bank washing its hands and saying it does not have a function with regard to competition.

I appreciate there is a memo between the CCPC and the Central Bank around who has responsibility in these areas but I ask the Minister of State to guide me on this because we do not seem to have any agency specifically looking out for the consumer, be they an individual or a business, to ensure we have a competitive market. In the era of digital currencies and especially when we move towards a central bank-issued digital currency, namely, the digital euro, it is going to be even more important that there is a very clear competitive mandate given to the Central Bank.

Seán Fleming (Laois-Offaly, Fianna Fail)
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I thank the Senator for raising the issue of the promotion of competition in the banking and financial services market.

HEADINGIt is not easy to balance the competing economic processes of consolidation and competition in any market, and the banking market is no different. We have seen some consolidation and it is also very difficult to promote and achieve competition during that process. However, as to the consolidation that is happening, there are new people and organisations providing a greater level of banking services than they would have heretofore, but perhaps are not considered part of the traditional banking system.

In the earlier years of the century, that is, in the past two decades, the Irish banking market was very competitive and one that had diverse banking and credit providers. Now, with the benefit of hindsight, it is not a sustainable banking market and I believe it is fair to say that ultimately it did not serve the best long-term needs of the Irish economy. We have seen that as a result of the financial crash and the banking crash and the banks that had to be bailed out. There was unbridled competition at that stage, which ultimately led to many difficulties in its own right, which we are still dealing with in terms of reserves, etc., that banks are required to hold.

Following the global financial crisis and its impact on the Irish financial system, changes were made to the legislation governing the financial sector and the structure of the Central Bank of Ireland, which included removing the part of its mandate to promote the development of the financial services industry. I wish to ensure that the banking and financial services system is one that will effectively contribute and support economic growth and employment. Competition in this sector is vital to ensure that businesses and consumers have a range of options available when using financial services and accessing credit.

When considering competition in any market, two key aspects are the range of products available to consumers and the various sectors in society and the pricing of those products. In terms of the product range, it is worth noting the provision of financial services is evolving rapidly and it might not be all through the traditional banking system that people talk about in the normal course of events. Innovations in the fintech space, which Senator Byrne referred to clearly, and new initiatives from credit unions, which I wish to highlight as Minister of State with responsibility for credit unions, and the new offering by An Post, are resulting in the provision of new services and products at all times. As regards An Post, any AIB or Bank of Ireland customers can go in to a teller in any post office in Ireland that has one and withdraw up to €1,500 cash, lodge cheques, lodge cash and conduct the normal business that they would have done in the bank branch that may have been up the road and is no longer there. That full range of services is now available through An Post, but perhaps people do not fully appreciate that at this point in time.

For the banking sector to be competitive, it must be acknowledged that it will have to be profitable. In order for banks to survive over the long term they need to generate adequate revenue and profits in order to employ and pay staff, meet business costs and provide economic return for their depositors and other financial providers.

With regard to the issue of the role of the Central Bank and competition, the role of the Competition and Consumer Protection Commission, CCPC, would need to be considered. The CCPC, a body under the aegis of the Department of Enterprise, Trade and Employment, is the statutory body responsible for the enforcement of domestic and EU competition law in the State. Essentially, there is a demarcation regarding competition. It is a matter for the CCPC primarily, and not a role for the Central Bank. It did have that role, and perhaps there was over-competition, and now those two roles have been separated.

Mark Daly (Fianna Fail)
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Tá nóiméad amháin ag an Seanadóir Byrne.

Malcolm Byrne (Fianna Fail)
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I agree with the Minister of State that consumers are voting with their wallets, so to speak, and moving on to new products such as Revolut and N26. They are moving into new areas of fintech. If he talks to any of the fintech companies, he will find that they do not feel that they are getting a level playing field from the Central Bank. The Central Bank obviously has to protect the consumer, but one of the best ways it can protect the consumer is by ensuring that there is competition between traditional retail banks and some of the new companies. There also needs to be collaboration in those sectors. The ultimate test is from the perspective of the consumer, and whether the consumer feels there is real competition in the Irish banking financial services and insurance sector. The answer is "No".

I appreciate the Minister of State's point about the CCPC. Some of the roles there need to be clarified. Very clearly, the Central Bank needs to take a greater role in ensuring that we have a competitive banking and financial services market in Ireland.

Seán Fleming (Laois-Offaly, Fianna Fail)
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Again, I thank Senator Byrne for raising this issue. While competition issues are primarily a matter for the CCPC, competitive pressures can clearly have an effect on the functioning of the financial system and the achievement of the Central Bank's aim, as can the ability of firms to enter and exit the system in an orderly manner. In light of the changing landscape for banking in Ireland, the Minister has instructed and commenced a broad-ranging review of the retail banking sector, which will also include the competition sector. This retail banking review has commenced its work and is currently at the research phase. As part of the review, a survey of consumers will be undertaken in the coming months to ascertain their experience and perceptions of the retail banking sector in Ireland. In due course, the Minister will consider the outcomes of that review and any findings it makes on competition in the retail banking market. It will look at the issue of competition as part of that review and it will be brought back to the Minister as soon as that report is completed.