Tuesday, 30 June 1998
Dáil Éireann Debate
I tabled this amendment on Committee Stage, which was intended to give a broader remit to the investor compensation company. The remit of the company is set out in the Bill and the board of the company specifically includes representatives of consumers. I consider this to be a sop as the company is a creature of the Central Bank. Its administrative functions will be performed by the bank, it will exercise its powers in consultation with the bank and it will essentially take its remit from the bank in all but legislative name.
The purpose of the amendment was to broaden the company's remit to look at consumer interests in financial services. We have had plenty of experience in recent months where there appears to be a loophole in terms of responsibility for the consumer's interests in financial services. The Director of Consumer Affairs, of course, has some responsibility, but it does not extend to the area covered by the Bill. This was discussed at  great length on Committee Stage. Has the Minister of State contemplated the matter further since?
Minister of State at the Department of Finance (Mr. Cullen): I appreciate the concerns which prompted this amendment. However, as I pointed out on Committee Stage the issues it raises go far beyond the compass of the Bill and the purpose of the investor compensation company. The Bill deals with investor compensation and derives from a European directive on that subject, although in terms of its coverage it goes much further than the directive. The purpose of the company, whose role the amendment proposes to adapt, is to administer the system of compensation and ensure it is adequately funded. Deputies will be aware the task of protecting the interest of consumers, including those of financial services, has been entrusted to the Director of Consumer Affairs under the terms of legislation sponsored by the Minister for Enterprise, Trade and Employment. I am sure, of course, no criticism of the director's role is implied in the amendment. I have no reason to believe that responsibility for any element of consumer protection should be taken from the director and conferred on a body whose sole purpose is to administer a scheme of compensation. There will be a strong consumer representation on the board of the company.
The Deputy's concerns may also have been prompted by recent allegations of malpractice in the banking sector and, as Deputies will be aware, the Minister for Finance set up a working group which is examining the area of banks and the consumer with special emphasis on the roles in law and practice of the Central Bank and the Director of Consumer Affairs to ensure to the greatest extent possible that there can be no repeat of these practices. The director is a member of this group which is chaired by an officer of the Department of Finance and the Central Bank is also represented. The concerns which the Deputy specifically raised would be best addressed through that committee. I, therefore, reject the amendment.
Mr. McDowell: On Committee Stage the Minister of State agreed to amend section 16 of the Central Bank Act, 1989, by allowing the compensation company to have access to certain information which the bank might uncover during the exercise of its supervisory role. The board of the company will include consumer representation and this will be the first time representatives of consumers will have access to that information. Has the Minister of State been advised that it is possible to restrict the confidentiality requirements of the Central Bank more than we had understood heretofore? When this was discussed last week on Committee Stage, he indicated that the committee currently discussing the matter within the Department was awaiting advice from  the Attorney General. Did the tabling of this amendment indicate such advice had been received and, if it has, will he outline its nature?
Mr. Cullen: The directive allows us to do this and I wanted to take the opportunity in the Bill to go as far as I could in ensuring that as much information as possible is made available to consumers. There is no follow up to the Deputy's point.
These are amendments to section 18 of the Bill, which outlines how directors of the company will be appointed. It states that the Minister for Finance and the Minister for Enterprise, Trade and Employment will decide the number of directors which will be appropriate and this will be done by agreement. It continues to state the Minister for Finance will select bodies which in his opinion have certain expertise in financial services and when the Minister for Enterprise, Trade and Employment has agreed that these are appropriate, the bodies will appoint directors who, in effect, will bring to the company expertise from that background.
In the other series of appointments, the Minister for Finance will decide what consumer bodies have expertise relevant to the investor's perspective. A body or bodies will be nominated and when the Minister for Enterprise, Trade and Employment agrees, these bodies will nominate directors. We had a long discussion about this on Committee Stage and on reflection I believe that while it is appropriate that the Minister for Finance should carry out the primary function in respect of nominating the bodies which represent the industry, the Minister for Enterprise, Trade and Employment should have the primary responsibility in selecting bodies which represent the consumer.
The changes I propose are more focused than those I proposed on Committee Stage. We will reverse the roles in respect of the consumer type directors and the bodies which will appoint persons familiar with the consumer as investor interest. I know the Minister of State may argue that the Minister for Finance “in agreement with” the Minister for Enterprise, Trade and Employment puts both Ministers on an equal footing. However, it does not and he will be aware that when the Minister is designated as having the primary function he will produce a list of bodies and if the other Minister assents, that is  it. Given the positioning of the Minister for Enterprise, Trade and Employment in this instance her Department has more familiarity with bodies which represent the interests of consumers best whereas the Minister for Finance has more information on the industry. This is a change which meets the points I made on Committee Stage and it improves the Bill. It is not a major issue but I ask the Minister to take it on board. It is correctly drafted because it is a reversal of what is in the Bill. Therefore, there is no technical reason for not accepting this amendment.
Mr. Cullen: I fully understand and appreciate the merits of what the Deputy said. I reflected on the issue since Committee Stage. However, the Minister for Finance has responsibility for the Stock Exchange Act, 1995, under which the Central Bank regulates stock exchange member firms, and the Investment Intermediaries Act, 1995, under which the bank regulates investment business firms. As Deputies will be aware, the Minister for Enterprise, Trade and Employment announced that she is drafting legislation to bring insurance intermediaries under the Investment Intermediaries Act. It is against this background and in view of the role of the Minister for Enterprise, Trade and Employment in relation to consumer affairs, it is logical that both the Minister for Finance, having prepared the investor compensation Bill, and the Minister for Enterprise, Trade and Employment should have a role in the appointment of the board of the investor compensation company. The Deputy's amendment would give the lead role to the Minister for Enterprise, Trade and Employment rather than to the Minister for Finance as the Bill is drafted.
However, given that section 18 provides that the Minister for Finance must have the agreement of the Minister for Enterprise, Trade and Employment when prescribing members and arranging for the appointment of directors, I cannot see how the Deputy's amendment in practice would make any difference. In practice, the Minister for Enterprise, Trade and Employment will play the lead role when it comes to consumer interests. My view is that the balance of the board and the representation within the board of the company must be got right and it must be representative of consumers' interests. I do not think, in practice, it makes any difference but for the reasons outlined it is better it remains as it is.
Mr. Noonan: It is a great pity the Minister and his officials would not be more open to a sensible amendment. The note the Minister has read is correct but it is out of date because he has repeated the reply he gave on Committee Stage. On Committee Stage I proposed a series of amendments which would have reversed the roles of the Minister for Finance and the Minister for Enterprise, Trade and Employment. After listening to that debate and the points made I am no  longer proposing that so that the Minister's reply is no longer correct. What I am proposing now is that the Minister for Finance retain the lead role in nominating the bodies which have expertise in so far as the industry is concerned for the financial services and the Minister for Enterprise, Trade and Employment should have the lead role in so far as consumers are concerned. It makes a difference in practice. The law should reflect practice. It is not a good defence for any Minister to say that is the law but in practical terms this is the way it will work. There should not be a divergence between what is practical, the practice and the law.
The Minister will be aware from his experience as a Minister that what will happen when this company is being set up is that the Minister will ask the officials of his Department to come forward with names of bodies that would be suitable under the terms of section 18 to nominate directors for the company. It will probably be the officials who are present today and some of those we saw earlier. While they have absolute confidence in relation to the industry, because they are attached to the Department of Finance and will be readily able to produce, after some consultation, a list of bodies, I do not think they have the same expertise in relation to consumer groups. The Minister of State or the Minister will ask for names of bodies. When the names of bodies are scanned, examined and culled it is at that point the Tánaiste, in her capacity as Minister for Enterprise, Trade and Employment, will be asked to agree.
In practice it would be much better if the Minister for Finance would select the bodies which represent the industry and if the Minister for Enterprise, Trade and Employment would represent the bodies which represent the consumer and that they would agree. That is a more practical way of doing it. I am asking the Minister to amend the section so that the law complies with what clearly will be the practice. The Minister is not taking a great risk if he accepts this amendment. There is no major risk involved, it costs nothing. It is just the insecurity of Ministers who feel their hand should be held by the officials that prevents them from taking on sensible amendments from this side of the House.
Mr. Cullen: I appreciate what Deputy Noonan said. I did reflect on the amendment and did not want to cause any confusion or be put in a position where I would eliminate from the Department of Finance some aspects of the Bill and suddenly invest them elsewhere. I appreciate the point made by the Deputy which is reasonable. I do not have any great difficulty with it and I cannot imagine there should be any difficulty with it in law. I cannot imagine that in practice there would be any great difficulty. Therefore, I will accept the amendment.
This amendment relates to one of the central provisions in the Bill, the maximum amount of compensation that can be provided by the company. We had a lengthy discussion on this matter on Committee Stage. Most of us on this side felt the maximum of 20,000 ECU or £15,500 was far too low. People reading the reports of the proceedings of this House will note we have passed a Bill intending to compensate them. If they go away and on return have to rely on the provisions of this Bill which is capped at £15,500 they will be less than satisfied.
The Minister indicated he was willing to contemplate that even if we accept that the maximum of 20,000 ECU, which is the minimum provided for in the directive, is to apply for the moment we should give some thought to how it should be increased in the future. We all know that the experience with this type of Bill is that generally it will not be revisited unless we discover a problem. The most likely event is that something goes bust in five or ten years' time and there is a public outcry that the compensation has been capped at such a low amount. Whereas £15,500 is relatively insignificant, it may well be even more insignificant in ten or 15 years' time or whenever this Bill is called into play in a serious way.
This morning we discussed the possibility that either the bank, or, more likely, the Minister would be given power by way of regulation to change at some time in the future the maximum amount of compensation that could be provided. Nobody is suggesting the Minister would do that in response to a particular crisis. It is not as if something would blow up and the Minister would suddenly unilaterally decide that one may provide compensation at 30,000, 40,000 or 50,000 ECU. Clearly this is not something that could be  done retrospectively, it would have to be done prospectively.
There is a compelling case for giving power to the Minister, by way of regulation, or to the bank or the company to make a change in the maximum compensation that can be provided at some time in the future.
Mr. Noonan: I tabled a similar amendment. Deputy McDowell has recited the arguments in favour of increasing the amount of compensation. While the figure of 20,000 ECU appears in the directive, it is a minimum figure. Governments of member states have discretion to bring in a compensation scheme in excess of that minimum of 20,000 ECU per injured investor. I realise the Minister has extended the scope of the Bill beyond the scope of the directive and that the compensation will apply to categories of investors in categories of companies beyond the scope of the directive. He should have gone a step further and extended the amount of compensation for individual investors also.
Like Deputy McDowell I implied I would not press the amendment on Report Stage had the Minister tabled an amendment to take power to change the amount by regulation. It is a simple provision which we asked the Minister to consider on Committee Stage. If he said: the Minister may vary this amount, as he sees fit but that any variation would only apply from the date of the order, that would ensure the Minister was not forced into making regulations because a particular intermediary has gone bust. I do not want that to happen.
However, £15,500 or 20,000 ECUs is a modest sum to offer to people injured by the fraud of an intermediary who takes away their savings or investments and it will look extremely small in five years' time. While the pace of legislation in this House is efficient, it is slow, and a long time elapses between the original decision to do something and its signing into law by the President. The Minister has put himself in the position whereby he must introduce primary legislation to increase the amount of compensation which will be bestowed on an investor under the provisions of this Bill. Given that he has not introduced a Report Stage amendment to allow himself the flexibility to regulate an increase, I will join Deputy McDowell in pressing for an increase in the text of the legislation.
Mr. Cullen: We dealt with this issue at length this morning I do not see any point in repeating my arguments. Deputy Noonan mentioned the £15,500 fine but there is no fine at present, so that is at least a reasonable step forward. It would be marvellous if the total investment could be claimed but that is not the purpose of the scheme — it is to put in place a reasonable insurance policy, to provide for a compensation fund and to offer protection to investors who have been defrauded.
Both Deputies made points this morning which  I said I would consider, and I will turn directly to them. There are a number of other important points but they have been put on the record so often that there is no need to repeat them. On Committee Stage I said I would consider two suggestions; Deputy Noonan said the Minister should have power to increase the amount of compensation while Deputy McDowell said the Investor Compensation Company itself should have the power. The amount of compensation is central to the provisions of the Bill — every other provision concerning compensation is to ensure it is paid. I do not think it particularly appropriate to leave it open to a Minister to amend the central  provision of a Bill by regulation. I would have thought it more appropriate that it should come back to the House for amendment, rather than allowing a Minister to take that power unto himself. Also, since Committee Stage I have not had time to seek the view of the Office of the Attorney General as to whether it is legally possible to include such a provision. For those reasons I would not be enthusiastic about the amendments and I think I am correct in not accepting them.
|Ahern, Dermot.||Kenneally, Brendan.|
|Ahern, Michael.||Killeen, Tony.|
|Ahern, Noel.||Kirk, Séamus.|
|Ardagh, Seán.||Kitt, Michael.|
|Aylward, Liam.||Kitt, Tom.|
|Blaney, Harry.||Lawlor, Liam.|
|Brady, Johnny.||Lenihan, Brian.|
|Brady, Martin.||Lenihan, Conor.|
|Brennan, Matt.||Martin, Micheál.|
|Brennan, Séamus.||McDaid, James.|
|Briscoe, Ben.||McGennis, Marian.|
|Browne, John (Wexford).||McGuinness, John.|
|Byrne, Hugh.||Moffatt, Thomas.|
|Callely, Ivor.||Molloy, Robert.|
|Carey, Pat.||Moloney, John.|
|Collins, Michael.||Moynihan, Donal.|
|Cooper-Flynn, Beverley.||Moynihan, Michael.|
|Coughlan, Mary.||Ó Cuív, Éamon.|
|Cowen, Brian.||O'Dea, Willie.|
|Cullen, Martin.||O'Donnell, Liz.|
|Daly, Brendan.||O'Donoghue, John.|
|Davern, Noel.||O'Flynn, Noel.|
|de Valera, Síle.||O'Hanlon, Rory.|
|Dempsey, Noel.||O'Keeffe, Ned.|
|Dennehy, John.||O'Kennedy, Michael.|
|Doherty, Seán.||O'Rourke, Mary.|
|Ellis, John.||Power, Seán.|
|Fahey, Frank.||Roche, Dick.|
|Fleming, Seán.||Ryan, Eoin.|
|Flood, Chris.||Smith, Brendan.|
|Foley, Denis.||Smith, Michael.|
|Fox, Mildred.||Treacy, Noel.|
|Hanafin, Mary.||Wade, Eddie.|
|Harney, Mary.||Wallace, Dan.|
|Haughey, Seán.||Wallace, Mary.|
|Healy-Rae, Jackie.||Walsh, Joe.|
|Jacob, Joe.||Woods, Michael.|
|Kelleher, Billy.||Wright, G. V.|
|Barnes, Monica.||De Rossa, Proinsias.|
|Belton, Louis.||Deenihan, Jimmy.|
|Bradford, Paul.||Dukes, Alan.|
|Broughan, Thomas.||Durkan, Bernard.|
|Browne, John (Carlow-Kilkenny).||Enright, Thomas.|
|Bruton, John.||Farrelly, John.|
|Bruton, Richard.||Finucane, Michael.|
|Burke, Liam.||Fitzgerald, Frances.|
|Burke, Ulick.||Flanagan, Charles.|
|Carey, Donal.||Gilmore, Éamon.|
|Clune, Deirdre.||Hayes, Brian.|
|Connaughton, Paul.||Higgins, Jim.|
|Cosgrave, Michael.||Higgins, Joe.|
|Crawford, Seymour.||Higgins, Michael.|
|Creed, Michael.||Hogan, Philip.|
|Currie, Austin.||Howlin, Brendan.|
|Kenny, Enda.||Owen, Nora.|
|McCormack, Pádraic.||Penrose, William.|
|McDowell, Derek.||Perry, John.|
|McGahon, Brendan.||Quinn, Ruairí.|
|McGrath, Paul.||Rabbitte, Pat.|
|McManus, Liz.||Reynolds, Gerard.|
|Mitchell, Gay.||Ring, Michael.|
|Mitchell, Jim.||Sargent, Trevor.|
|Mitchell, Olivia.||Shatter, Alan.|
|Naughten, Denis.||Sheehan, Patrick.|
|Neville, Dan.||Shortall, Róisín.|
|Noonan, Michael.||Stanton, David.|
|O'Keeffe, Jim.||Timmins, Billy.|
|O'Shea, Brian.||Upton, Pat.|
|O'Sullivan, Jan.||Wall, Jack.|
In page 23, line 50, after “firm”, to insert “including money owed or liable to be recovered in an action or potential action by the client for damages arising from negligent advice given by the investment firm,”.
This amendment was also discussed this morning and, as the Minister knows, it is at the heart of the Bill. It seeks to explore the circumstances in which compensation will be paid by the compensation company. I expressed reservations this morning that, while it is intended to provide compensation only in cases where money has been fraudulently misused or appropriated, this does not appear in the Bill. The Minister undertook to consider this matter.
Mr. Noonan: This is one of the Bill's curiosities. While the Minister stated several times on Committee Stage that the circumstances which would give rise to an intervention by the company to compensate investors would be due to fraud in the first instance, these circumstances are not outlined in the Bill. One could envisage other circumstances in which the funds of investors would be lost, where fraud would not be perpetrated, and yet a valid claim for compensation could be lodged. In the context of explaining the point, I would be pleased if the Minister would outline how, in circumstances in which a company goes under and a liquidator or administrator takes over, it will be established that investors have a claim on the company. Will he also summarise how such a valid claim would be communicated to the company and how it would adjudicate on the validity of the claim? At what point would the company decide the claims were bona fide and pay out compensation up to 90 per cent of 20,000 ECU or 20,000 ECU, whichever is the lesser, in respect of each investment? I understand that in normal circumstances it will be paid within six months.
The amendment proposed by Deputy McDowell would extend the scope of the Investor Compensation Bill to include cases where an intermediary has been negligent. The Deputy said on Committee Stage that he saw this amendment as a way of opening up a debate on the section and on the exact circumstances in which investor compensation will be paid.
The purpose of the Bill is to provide compensation for the clients of investment and insurance intermediaries where the intermediary is unable to return money or investment instruments owed to or belonging to a client. The Bill implements the Investor Compensation Directive and the wording of section 30(1) reflects the wording of article 2 of the directive. In framing the Investor Compensation Bill, it was decided to align the provisions of the Bill with the requirements of the directive, but to extend the scope of compensation to include all investment and insurance intermediaries.
It may help if I repeat a point here which I made on Committee Stage and which is important in relation to Deputy McDowell's amendment. The Investor Compensation Company will not be a form of tribunal to which aggrieved investors bring cases for compensation and which will decide those claims. Compensation will not be paid on an ex-gratia basis. The reason for section 30 is to set objective criteria for entitlement to compensation. An investor will have to establish that he or she is a creditor of the investment firm. One might ask who will decide on investors' claims. In simple terms, that will be the role of the liquidator, assuming the investment firm is being liquidated. If a liquidator is not appointed, either because liquidation does not arise or because it is not worth anybody's while appointing one, the bank will appoint an administrator to verify investors' claims. In either case, the role of the liquidator or administrator is  the same, to establish as quickly as possible whether the investor is a creditor of the firm in terms of section 30 and the amount which the firm is unable to return.
Deputy McDowell appeared to be interested in establishing whether an investor could claim compensation where he or she had lost money through negligence on the part of the investment firm. I am satisfied entitlement to compensation will arise where an investment firm has defrauded an investor and that is what we set as the minimum coverage for investor compensation. Deputy McDowell pointed out that the text of the Bill does not state compensation arises only in relation to fraud. That is true because part of the function of the Bill is to transpose the Investor Compensation Directive and we did not want to include any text which would cut across the legal scope of the directive. The preamble to the directive indicates that investor compensation is intended to cover fraud, but the actual text of the directive does not make a specific reference in that regard.
On the general issue of extending the coverage of the Bill to include negligence, which of course we are free to do, many of the arguments which I put forward on amendments Nos. 6 and 7 apply here. Those amendments proposed extending investor compensation by increasing the amount of compensation. This amendment proposes extending the scope of compensation by including negligence.
Minister of State at the Department of Finance (Mr. Cullen): Deputy Noonan queried whether, under section 21(1) investment firms should be replaced by authorised investment firms. The definition of “investment firms” includes firms which are currently authorised to provide investment business services and those firms which have had their authorisation revoked. It is intended to ensure that firms who have had their  authorisations revoked can still be obliged to pay outstanding contributions to the Investor Compensation Company. Deputies Noonan and McDowell raised the issue of whether the requirement to establish a complaints procedure should more properly be placed on the compensation company. I am anxious that these procedures should be put in place, and imposing a specific duty on the board of the company is the best way to achieve this aim. The point of the section is to ensure the board will listen to complaints.
On section 60 we spoke about the 14 day issue and I considered the matter. I was anxious to foreshorten it, but I am advised that if an intermediary or some other person has to post a notice, they may need to take legal advice on the matter and need time to prepare. I want to allow reasonable time to deal with the issue properly and I do not want to include an unworkable measure. Therefore, on balance, it would be more appropriate to retain the 14 day limit.
I thank all Members for their involvement in the Bill. It was a fairly intensive session and the legislation is the better for it. I also wish to thank my officials for helping me with the background preparation of the Bill and steering it through the House. I wish the investor compensation company well. Many officials from the Central Bank and the Department of Enterprise, Trade and Employment's working group also helped with the legislation.
Mr. Noonan: I thank the Minister and his officials and compliment them on their good work. We did not amend very much after our long scrutiny on Committee Stage but, at least, there is sufficient material on the record for persons outside the Houses to establish precisely what the policy intention is.
Mr. McDowell: I thank the Minister and his officials for their co-operation on Committee Stage. We scrutinised the Bill in reasonable detail and the legislation will be clearer for that. The measure is an important one in principle even if it is modest in its scope. It has been a good day's work.
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