Micheál Martin (Cork South Central, Fianna Fail)
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226. To ask the Minister for Finance the specific actions and recommendations made by the European Council in relation to addressing banks that are acting fraudulently, helping tax evaders or selling bad products to retail customers; the actions the Commission has actually taken; and if he will make a statement on the matter. [16217/15]

Michael Noonan (Limerick City, Fine Gael)
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This question covers a number of areas.

Actions to address banks that are "acting fraudulently"

Directors of banks operating in Ireland are required to ensure that they have governance and control arrangements in place that comply with the European Banking Authority's Governance Guidelines, and inter alia, the Central Bank of Ireland's Corporate Governance Code.

Directors of any Irish company, including banks, incorporated under the Companies Act, 1963, or the Companies Act, 1990, are required to comply with their fiduciary duties to that company, which include:  

- acting in good faith and in the interests of the company as a whole,

- avoiding conflicts of interest,

- a prohibition on making undisclosed profits from their position as directors and must account for any profit which they secretly derive from their position as a director, and

- an obligation to carry out their functions with due care, skill and diligence.

The Central Bank of Ireland's Fitness and Probity regime also requires credit institutions to assess the suitability of members of the management body and requires high standards of behaviour of those individuals on an ongoing basis.

Banks are expected to have strong controls in their front line businesses, in their risk management and compliance functions and an effective internal audit capability, such that conflicts of interest are managed appropriately and the associated risks are mitigated.  These arrangements are assessed through, for example, external audits and are also subject to ongoing supervisory engagement by the Central Bank of Ireland, including through regular inspections.

Where an action by a director or employee of a Bank constitutes fraud or offence, they are subject to the rigour of criminal law.  

The Garda Bureau of Fraud Investigation (GBFI) is charged with investigating serious and complex fraud matters and has resources and expertise to carry out this function.

The GBFI works closely with other bodies with relevant enforcement functions, including the Office of the Director of Corporate Enforcement (ODCE), the Central Bank, Revenue Commissioners, and the Competition Authority, with staff of the GBFI seconded to both the ODCE and the Competition Authority. 

I would encourage any party who is aware of any incidences of fraud to report such fraud to An Garda Síochána. 

Actions to address banks "helping tax evaders"

The Revenue Commissioners have advised me that, on the 9th December 2014, EU Member States, recognizing the need to cooperate more closely to prevent tax fraud and evasion, agreed to adopt Council Directive 2014/107/EU on administrative cooperation in direct taxation ('DAC2'), which provides for mandatory automatic exchange of financial information. Under the Directive, financial institutions in each Member State will be required to report financial account information to the tax administration including account balances; information on interest, dividends and other similar income; and gross proceeds from the sale of financial assets. Tax administrations will then exchange this information, where it relates to account holders who are residents of other Member States, with the other Member States concerned.

Legislation to implement this Directive will be introduced later this year, with due diligence in relation to tax residence and tax identification numbers (TIN's) for new accounts due to begin on 1 January 2016. Exchange of information in relation to account information for 2016 is due to commence in 2017. The reporting will be more extensive than the current requirements under the EU Savings Directive, which relate only to interest income. The EU Savings Directive will be superseded by the new Directive - DAC2 - and will be phased out accordingly. Implementation of DAC2 will greatly enhance the capacity of tax administrations to tackle the challenge of cross-border tax evasion.

In addition, the European Union and Switzerland signed an agreement last month, which provides for the automatic exchange of financial account information and is aimed at improving international tax compliance. It upgrades a 2004 agreement that required Switzerland to apply withholding tax to interest payments, in line with the option adopted by some Member States under the EU Savings Directive (in preference to exchange of information). Under the new agreement, the EU and Switzerland will automatically exchange information on the financial accounts of each other's residents, starting in 2018. The aim is to address situations where a taxpayer seeks to hide amounts representing income or capital gains in respect of which tax has not been paid.

The Criminal Justice (Money Laundering and Terrorist Financing) Act 2010, as amended (the "CJA 2010"), implements Ireland's EU anti-money laundering obligations.  The CJA 2010 requires Irish banks to identify and verify customers and in addition, where a customer is a non-resident PEP, the CJA 2010 requires the bank to always determine the source of wealth and the source of funds of any transaction the customer wishes the bank to carry out.

The Central Bank has advised me that, in light of the reference to tax evaders, it should be noted that a bank, including any employee or officer of the bank, who knows, suspects or has reasonable grounds to suspect on the basis of information obtained in the course of carrying on their business, that another person has been engaged in an offence of money laundering or terrorist financing, shall report that knowledge or suspicion to the Garda Síochána and the Revenue Commissioners, as soon as practicable after acquiring that knowledge or forming that suspicion.

Actions to address Banks "selling bad products to retail customers"

Directive 2008/48/EDC on Credit Agreements for Consumers is a harmonised Directive that ensures that all consumers in the EU enjoy a high and equivalent level of protection of their interests, enabling them to make their decision about consumer credit in full knowledge of its costs and conditions as well as their rights and obligations.

This Directive was transposed in Ireland by SI 281 of 2010 European Communities (Consumer Credit Agreements) Regulation 2010. 

The Regulations give effect to the provisions of Directive 2008/48/EC on Credit Agreements for Consumers (the 'CDD') and the scope includes credit agreements where the loan amounts are between €200 and €75,000. Part II of the Regulations set outs the information and practices preliminary to conclusion of credit agreements. Regulation 11 sets out the obligation on creditors to assess creditworthiness of consumers on the basis of sufficient information, where appropriate obtained from the consumer, and where necessary, on the basis of a consultation of the relevant database.

Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014 on credit agreements for consumers relating to residential immovable property (the Mortgage Credit Directive) is to be transposed by 21 March 2016.  As referred to in recital 4 of the Mortgage Credit Directive, the Directive is designed to address 'a series of problems that were identified in mortgage markets within the Union relating to irresponsible lending and borrowing and the potential scope for irresponsible behaviour by market participants'.  The Mortgage Credit Directive places an obligation on creditors to assess the creditworthiness of the consumer before concluding a credit agreement (Article 18).  Article 18 states that the assessment of creditworthiness 'shall take appropriate account of factors relevant to verifying the prospect of the consumer to meet his obligations under the credit agreement'. 

The European Banking Authority (EBA) is expected to publish final guidelines on product oversight and governance (guidelines) later in 2015.  These guidelines provide a framework for robust and responsible design and distribution of retail banking products (e.g. mortgage loans, deposits, payment accounts, payment services and electronic money), and in this regard, seek to avoid future cases of consumer detriment.  In particular, the guidelines provide that 'manufacturers' of retail banking products (including credit institutions) should consider the needs of their customers when designing and bringing products to the market and also requires such firms to review these products over their life cycle to ensure they continue to meet the interests, objectives and characteristics of the target market for which they were intended.  It is expected that these guidelines will be implemented in January 2017.