Pearse Doherty (Donegal, Sinn Fein)
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121. To ask the Minister for Finance the legal and regulatory measures that have been put into place since the banking crash to ensure that the culture of reckless behaviour that contributed to that crash has been changed; and if he will make a statement on the matter. [7578/17]

Pearse Doherty (Donegal, Sinn Fein)
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122. To ask the Minister for Finance his views on whether bankers are more accountable for their actions since the banking crash; if so, the basis on which he is of this view; and if he will make a statement on the matter. [7579/17]

Michael Noonan (Limerick City, Fine Gael)
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I propose to take Questions Nos. 121 and 122 together.

A comprehensive overhaul of the legal and regulatory framework in the financial sector has been pursued at both domestic and at an EU level since the financial crisis. A whole raft of new European regulations have strengthened controls over the banking system and have resulted in an overhaul of regulation, supervision and resolution regimes.

The Capital Requirements Directive and Regulation which came into force in 2014, brought about significant enhancements in the quality and quantity of capital that banks are required to hold and the setting of minimum liquidity requirements. 

The Banking Recovery and Resolution Directive and the Single Resolution Mechanism have transformed the framework for dealing with failing banks and are designed to provide a financial safety net and a means for recovery and resolution with minimum disruption to the sovereign.

The Single Supervisory Mechanism (SSM) is now responsible for the prudential supervision framework for euro area banks. Building on the single rulebook, the SSM transfers key supervisory tasks for significant banks in the euro area to the European Central Bank. Daily banking supervision is now conducted according to a detailed ECB supervisory manual including frequent and intrusive onsite inspections.

This new regulatory framework is supported by the presence of new European institutions, such as the Single Resolution Board, to address weaknesses in the institutional structures and to improve cross-border cooperation, ensuring consistent enforcement of rules and systemic oversight.

While the reform of our statutory code for the financial services sector has been and continues to be driven by comprehensive reforms brought forward at EU level, a number of significant domestic legislative reforms have been undertaken towards building a strengthened domestic regulatory framework for the financial services sector which complements the strategically important reforms at EU level.

The Central Bank Reform Act 2010 created a single fully-integrated Central Bank of Ireland with a unitary board, the Central Bank Commission, chaired by the Governor of the Central Bank. The unitary Central Bank structure gives the Commission members a more complete remit over prudential regulation and financial stability issues. The Central Bank has demonstrated its willingness to use its macro prudential, micro prudential and enforcement powers to strengthen capital and liquidity positions, business model resilience and governance arrangements of the banks operating in Ireland.

The Central Bank (Supervision and Enforcement) Act 2013 introduced a more assertive supervisory approach and overhauled the Central Banks powers across a wide range of areas and throughout the regulatory life cycle of firms. It strengthened the ability of the Central Bank to impose and supervise compliance with regulatory requirements and to undertake timely assertive prudential interventions. The Act also provided the Central Bank with greater access to information and analysis and underpins the credible enforcement of financial services legislation in line with international best practice.

The 2013 Act provides the Central Bank with early intervention powers including the power to issue directions to regulated entities and their related undertakings to address emerging problems, including where the entity has become or is likely to become unable to meet its obligations to its creditors or its customers, or where it is not maintaining or is unlikely to be in a position to maintain adequate capital or other financial resources. 

The 2013 Act also gave the Central Bank extensive powers to make regulations including in relation to areas identified as weak points in the post crisis analysis such as risk management, consumer protection, audit processes and lending, including lending to 'restricted persons' such as those who work within the bank or family members.

Measures have also been introduced to address cultural change and behaviour in banking. In 2011, the new Fitness and Probity regime was rolled out by the Central Bank in accordance with the provisions of the Central Bank Reform Act 2010. The regime provides for new powers to be exercised by the Central Bank to ensure the fitness and probity of nominees to key positions within financial service providers and of key office-holders within those providers.

The Central Bank has put in place a pre-approval process for persons who apply for relevant positions, known as Pre-Approval Controlled Functions, in regulated firms, to ensure that they meet the required standards of fitness and probity. If concerns arise that a person or persons in Controlled Functions in a regulated firm do not meet the required standards of fitness and probity, they may be investigated by the Central Bank and could ultimately be prohibited from carrying out a Controlled Function in their firm, or any other regulated firm. These powers enable the Central Bank to ensure that the people in senior roles are capable, competent and act with integrity.

The 2013 (Supervision and Enforcement) Act also provides that if, in the opinion of the Bank, a person has engaged, is engaging or is about to engage in a contravention the Bank may apply to the Court for an order restraining the person from engaging in the conduct.

At present, a one year on report is being prepared for Minister of State Murphy on the findings and recommendations of the Joint Oireachtas Committee of Inquiry into the Banking Crisis. This report will set out the actions taken to date in relation to the Committee's Report and whether further actions are necessary for consideration by Government and/or other bodies.

Pearse Doherty (Donegal, Sinn Fein)
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123. To ask the Minister for Finance his views on the possible re-emergence of a bonus based pay culture in the banking system which could increase the probability of reckless behaviour in future; and if he will make a statement on the matter. [7580/17]

Michael Noonan (Limerick City, Fine Gael)
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The excesses seen in the banking system prior to 2008 has resulted in significant changes to the regulatory framework facing the industry. This included a number of changes to the framework that applies to bonus payments (including salaries and discretionary pension benefits) to staff of relevant institutions. The aim of these changes is to prevent a re-emergence of the issues we have seen in the past of short-term targets being the focus of institutions due to the remuneration policies implemented for staff resulting in significant risk taking.

The Capital Requirements Directive IV (CRD IV) introduced a remuneration framework to deal with excessive risk taking.

The framework includes a number of criteria to prevent a return to the excesses of the past. These include requirements on individuals within a relevant entity whose professional activities have a material impact on their risk profile, known as 'material risk takers'.

These material risk takers include senior management, risk takers, staff engaged in control functions and any employee receiving total remuneration that takes them into the same remuneration bracket as senior management and risk takers

The remuneration paid to these material risk takers must consist of the following structure:

- a substantial portion, and in any event at least 50%, of any variable remuneration should consist of equity-linked or other non-cash instruments;

- a substantial portion of the variable remuneration component, and in any event at least 40% to 60% (the latter in the case of a variable remuneration component of "a particularly high amount") should be deferred over a period of not less than three to five years;

- the variable component of the total remuneration shall not exceed 100% of the fixed component of the total remuneration of material risk takers;

- shareholders, owners or members of the institution, acting by a qualified majority can approve a higher maximum level of the variable component provided that this level does not exceed 200% of the fixed component of the total remuneration; and

- the relevant competent authority in Ireland, the Central Bank of Ireland are to be informed of recommendations to shareholders and of the result of any shareholder vote, which shall not conflict with institutions' obligations to maintain a sound capital base.

- In addition the regulatory regime requires greater transparency on bonuses paid by banks with disclosure requirements relating to the number of individuals earning over €1 million per annum. 

The introduction of the framework in 2014 and enforced by the relevant competent authorities across Europe is designed to ensure the excessive risk taking culture and short term focus on targets seen prior to 2008 is not repeated. This is being achieved by the framework outlined above on the structure of bonus payments by the relevant institutions and the increased disclosure requirements as introduced under CRD IV.