Tommy Broughan (Dublin North East, Labour)
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Question 86: To ask the Minister for Finance if he will introduce legislative changes in early 2009 to address the failure of financial regulation here over the past three decades. [47327/08]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The legislative regime for financial regulation In Ireland is largely based on a comprehensive EU framework of Directives which applies across the EU. Arising from the recent financial turmoil, the Ecofin Council meetings in October and December 2007 agreed a set of common principles and a road map of further actions to enhance financial stability arrangements and the ability of authorities to respond to serious disturbances in EU financial markets. These Ecofin Road maps deal specifically with strengthening EU arrangements for financial stability and actions taken in response to the financial turmoil.

New regulatory proposals currently being discussed at European level and due for adoption by the European Parliament in early 2009 include:

improvements to the Capital Requirements Directive to further strengthen the existing prudential framework for risk management and to put in place enhanced coordination among supervisors in relation to cross-border groups;

amendments to the Deposit Guarantee Scheme Directive to improve coverage levels and payout periods.

I will, of course, ensure that Ireland introduces the required amendments to Irish legislation as timely as possible in order to transpose the resulting Directives within the required timeframe allowed.

The role and mandates of national regulators have been the subject of in-depth consideration by the Ecofin Council arising from the Ecofin Road maps. Common reporting standards for financial institutions are being introduced to enable greater EU-wide consistency in supervision and colleges of supervisors are being introduced for cross-border financial groups to allow for easier exchange of information between authorities.

It can be expected that further proposals in this area will be introduced during 2009 following the report of the de Larosiére Group, which was mandated by the European Commission to consider the organisation of European financial institutions to ensure prudential soundness, the orderly functioning of markets and stronger European co-operation on financial stability oversight, early warning mechanisms and crisis management, including the management of cross border and cross sectoral risks. It will also look at co-operation between the EU and other major jurisdictions to help safeguard financial stability at a global level. It is due to submit an initial report to the Spring European Council.

I might also add that, following a request by the European Commission, the International Accountancy Standards Board (IASB) has made improvements in the valuation of illiquid assets in accounting standards (IAS 39 and IFRS 7) for financial institutions. The Commission has also introduced proposals to improve the oversight of independent credit rating agencies, which will most likely be adopted in 2009.

These measures are in addition to the broad range of conditions imposed on participants in the State's guarantee scheme for credit institutions. The Regulatory Authority, which has statutory responsibility for the regulation of credit institutions, has advised me that it will continue to intensify its on-site and off-site supervision of credit institutions. This will build on revised capital and liquidity measures introduced by the Regulatory Authority during 2006 and 2007. The Regulatory Authority will focus on liquidity requirements, capital adequacy, risk management, balance sheet structure and corporate governance. This may involve setting additional regulatory ratios as appropriate in order to reduce the risk in the balance sheet, reflecting the current domestic and global conditions.

In conclusion, many aspects of our regulatory systems have proved themselves to be robust and sound in the recent turmoil. But it is also clear that regulators in Ireland as elsewhere need to learn the lessons of recent events. I am relying on the Financial Regulator to do just that, and to adapt its regulatory systems to new conditions, to take on new skills and to ensure that Ireland has a top class regulatory system.