Seán Sherlock (Cork East, Labour)
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Question 19: To ask the Minister for Finance if he is satisfied with the banking regulatory framework and all rules that govern it particularly with regard to the trading of derivatives and futures; and if he will make a statement on the matter. [31099/08]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Ireland's system of financial regulation is based largely on a comprehensive and detailed EU template and conforms to international best-practice standards. The role of the Minister for Finance as regards financial regulation is to develop policy and bring forward proposals to the Oireachtas for the regulation of the financial services sector. Once that legislation has been enacted, the task of implementing and applying it on a day-to-day basis rests with the Financial Regulator, which is independent of the Minister in the exercise of its statutory functions.

Ireland operates a regulatory framework for banks based on the Capital Requirements Directive (CRD), a framework which is applied commonly across Europe. In addition, the Financial Regulator in Ireland has imposed additional requirements on banks, requirements which have proven prudent in the light of recent events.

I welcome the fact that, as events have unfolded in the financial sector over recent months, the EU has taken the initiative to review elements of its regulatory framework including in relation to the prudential framework for banks set out in the CRD. Ireland has taken a full part in the debate at EU level and as events unfold we will continue to do so. We will be to the forefront in the implementation of any appropriate changes to the regulatory framework.

The Deputy refers in particular to derivatives and futures. In its 2007 Strategic Plan, the Financial Regulator identified the need to build up resources and capacity in the supervision of securities markets as an important area of work.

The Deputy should note that in transposing the Market in Financial Instruments Directive into Irish law in 2007, unlike some countries, we took up the option available in the Directive of imposing reporting requirements on derivative transactions based on shares. It is fair to say that events have shown this to have been a prudent choice on our part. It provides an important flow of information to the Financial Regulator on what is happening in the market.

I welcome, in particular, the fact that on the 18th September 2008, the Financial Regulator moved quickly to ban the short selling of bank shares in the wake of a similar SEC decision in the U.S. I understand that the Financial Regulator's rule covers positions taken via derivatives as well as the direct short selling of those shares. The rule sets out that any transactions or arrangements designed to benefit from a fall in the price of those shares, however engineered, is banned by the rule. Thus any use of derivative instruments is covered.

Accordingly, Ireland's general view and approach is that transactions involving share-based derivatives should be treated, in so far as practical, in the same way as transactions directly in those shares. We will continue to refine and develop the regulatory framework to ensure this is the case.