Joe Costello (Dublin Central, Labour)
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Question 147: To ask the Tánaiste and Minister for Finance if he will carry out a review of the regulatory framework for funds operating here in view of the recent crisis in a Dublin based investment fund (details supplied) which brought a German state bank close to collapse and the fact that this fund was not subject to any Irish regulatory authority; and if he will make a statement on the matter. [23671/07]

Brian Cowen (Laois-Offaly, Fianna Fail)
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Ireland prides itself in matching best international practice in all aspects of financial regulation at both domestic and international level. The IMF has recently confirmed that our regulatory regime complies with the best international standards.

It is very important to distinguish clearly between the type of wholesale off-balance sheet Special Purpose Vehicles (SPVs) which are sponsored and managed by banks which have given rise to some recent concerns, and the wider investment funds industry where there are important safeguards in place to protect investors, especially retail investors. Retail investment funds such as EU UCITS (Undertakings for Collective Investment in Transferable Securities) have tight restrictions on what they can invest in and there are strong rules about what information must be given to investors.

The type of investment vehicles that recently encountered difficulties are not authorised funds or collective investment schemes covered by EU Directives. They are SPVs for issuing commercial paper, frequently referred to as Structured Investment Vehicles (SIVs), and they are not, either in Ireland or internationally, subject to direct regulatory oversight. Where such investment vehicles expose a parent banking entity to risk by way of, for instance, a guarantee of a significant line of credit in the event of a financing difficulty being encountered by the investment vehicle, then it is the duty of the financial regulator of the parent banking entity to monitor such exposures, regardless of where the investment vehicle may have been incorporated.

In 2005, KPMG produced a report on the German parent bank which included certain issues in relation to its Irish-licensed subsidiary. As part of its ongoing relationship with other regulators, the Financial Regulator has had regular contact with the relevant authority, on whose behalf the report was produced. As recently as April 2007, a meeting between the two regulators concluded that there were no outstanding issues with regard the 2005 report.

It may well be the case that there is a need for greater transparency about the links between off-balance sheet vehicles and their parent entities. That is why the treatment of non-regulated entities will be part of the discussions taking place at EU and international level over the coming months.

The Deputy will be aware that Ireland participates in EU discussions relating to EU financial services regulation. At its recent meeting on 9 October, the Ecofin Council decided on a preliminary set of issues to be analysed and addressed following the recent financial market turbulence. These include reviewing whether disclosure of sponsoring of SPVs by banks under the new Basel II/Capital Requirements Directive framework is sufficient. This review is to report by mid-2008. I consider that it would be appropriate to await the outcome of this review.