Emmet Stagg (Kildare North, Labour)
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Question 82: To ask the Tánaiste and Minister for Finance if he is satisfied that the Financial Services Regulator has sufficient powers to deal with banks and credit institutions operating here and that such institutions are sufficiently vetting mortgages and other loans to minimise financial risk to borrowers, particularly those with a weak financial history; and if he will make a statement on the matter. [7737/08]

Brian Cowen (Laois-Offaly, Fianna Fail)
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A comprehensive system of banking supervision is in place under both EU and domestic law to ensure that credit institutions do not put customers' deposits at risk through imprudent lending practices. Banking supervision encompasses the authorisation of banks and building societies, their prudential supervision on an ongoing basis and the development of supervisory guidance and requirements for their operation. Prudential supervision involves monitoring the business of banks and building societies and how it is planned, managed, and controlled and checking compliance with statutory and non-statutory requirements. This system of prudential regulation is administered in Ireland by the Financial Regulator, which has extensive powers of inspection, review and enforcement under the relevant legislation.

The Financial Regulator adopts a risk-based and principles-based approach to its work. This model places responsibility for the proper management and control of a financial service provider, and the integrity of its systems, on the board of directors and its senior management. The financial services industry is expected by the Financial Regulator to adhere to ethical leadership standards, grounded on robust fitness and probity, good governance, and good risk management, relevant public disclosure, proper planning and most importantly, a commitment to protect customers.

All consumer credit, including mortgage credit, is also regulated in Ireland under the Consumer Credit Act 1995. The Act makes detailed provision for the form and content of loan agreements and for advertising of consumer credit. The Financial Regulator has powers of investigation, review and enforcement in relation to matters covered by the Act. Consumer complaints about the performance of creditors with respect to their obligations under the Act also fall within the remit of the Financial Services Ombudsman.

The Financial Regulator's supervisory guidance for the credit institutions that it regulates includes guidance on the manner in which banks assess the ability of their customers to support higher repayment burdens, should interest rates increase. At present in cases where the guidance applies home mortgage applications should be assessed at an interest rate at least 2.75% above the prevailing European Central Bank rate.

As regards non-deposit taking lenders in the domestic market, Section 19 of the Markets in Financial Instruments and Miscellaneous Provisions Act 2007 amended Part V of the Central Bank Act 1997 to provide for an appropriate system of authorisation and regulation of retail credit firms and home reversion providers. The primary purpose of this amendment was to extend to customers of these firms the benefit of the additional consumer protections provided for in the Financial Regulator's Consumer Protection Code (CPC).

Under the CPC there is an obligation on financial service providers to act in a fair and transparent manner in their dealings with consumers. Before providing a product or service including advice to a consumer, the financial service provider must gather and record sufficient information from the consumer to allow it to provide an appropriate recommendation to that consumer and must supply the consumer with a copy of its written statement setting out the reasons why the product or service offered is considered suitable for that consumer. For example, reasons must be stated as to why the recommended loan is considered as suitable to the consumer having regard to the facts disclosed by him/her. Regulated financial service providers who are in breach of the CPC may be subject to financial and other sanctions.

My function, as Minister for Finance, is to provide an appropriate and robust framework for regulation of the financial services sector with a particular focus on the consumer. I am satisfied that, since the establishment of the Financial Regulator and the Financial Services Ombudsman, and on the basis of enhancements, such as the introduction of the Financial Regulator's Consumer Protection Code, we have such a framework in place.