20 October 2003
Advertisements for financial products always mention the regulator in the small print. In Ireland, the change in the identity of the regulator in these advertisements was the first indication for the general public that a new regulator had been appointed.
Financial advertisements now refer to the Irish Financial Services Regulatory Authority (IFSRA), whereas previously the Central Bank of Ireland was mentioned. But what is the IFSRA? And what has happened to the Central Bank? The answer lies in the Central Bank and Financial Services Authority of Ireland Act 2003 (the act).
Background to the change
The act was introduced following a detailed review over a period of five years of Ireland's regulation and supervision of financial services. Responsibility for this had traditionally been distributed among disparate government departments and bodies. It was also perceived that the traditional and effective focus of regulators on the stability of the financial system needed to be supplemented to reflect society's new emphasis on consumer protection issues. In October 1998, the Irish government decided that the remedy was a single financial services authority, and so an advisory group was established to devise a new regulatory regime.
In May 1999 the advisory group completed its report, which triggered a period of debate about the group's proposals. The structure that emerged at the end of the process was a combination of a single regulatory body operating within the overall framework of the Central Bank, but with considerable independence. Finally, on 22 April 2003, the act was passed, substantially to give effect to the report's recommendations; most of the act's provisions took effect on 1 May 2003.
The act has three key elements: it continues the corporate existence of the Central Bank of Ireland, but renames it the Central Bank and Financial Services Authority of Ireland (the bank); it also establishes the IFSRA as a constituent part of the bank; and finally, it makes provisions for the establishment of the Irish Financial Services Appeals Tribunal.
Under the act, the bank continues to perform a number of functions, including those relating to monetary policy, which were discharged previously by the Central Bank of Ireland. The IFSRA is responsible primarily for the supervision and regulation of financial services in Ireland, previously a core responsibility of the Central Bank, and (for insurance) the Department of Enterprise, Trade and Employment. The IFSRA is intended to have a more consumer-orientated focus than the Central Bank. For example, the act requires a consumer director to be appointed to the IFSRA board, and the first appointee to that role has acted energetically in developing a public profile. The Appeals Tribunal, when established, will hear appeals against certain decisions of the IFSRA.
The act makes various other provisions consequent upon, and incidental to, the core changes effected by the act.
The bank's functions
The bank is required to coordinate the activities of the constituent parts of itself (including the IFSRA) and the exchange of information by and among those parts. The bank represents and coordinates its representation in international financial bodies and at international meetings. It is generally required to promote the development in Ireland of the financial services industry. It also performs the key functions required as a member of the European System of Central Banks, and the governor of the bank is a member of the board of the ECB.
The regulatory authority's functions
The IFSRA is a constituent part of the bank. The act entrusts the IFSRA with a wide array of responsibilities, principally the discharge of the supervisory and regulatory functions hitherto performed by the Central Bank under some 64 different acts and regulations, such as the regulation of investment funds and the supervision and licensing of banks and investment intermediaries. The IFSRA will also assume responsibility for the authorisation, supervision and regulation of the insurance industry (including the life, non-life and reinsurance sectors).
The governor and board of the bank are empowered to issue guidelines to the IFSRA (which it must comply with) regarding the policies and principles that it is required to implement in performing functions and exercising the powers of the bank. If any matter relating to the financial stability of Ireland's financial system arises in connection with the performance of the IFSRA's duties, then the IFSRA must consult with the governor of the bank on that matter.
One of the innovations in the establishment of the IFSRA is the creation of the office of consumer director. Mary O'Dea is the first person to hold the post. Her responsibilities are twofold: first, she is responsible for managing the bank's functions relating to consumer issues, such as consumer credit, investment intermediaries and so on; second, she is responsible for monitoring the provision of financial services to consumers to the extent she considers appropriate and having regard to the public interest and the interests of those consumers.
In a departure from the existing regime, where recourse was sought primarily from the courts, a tribunal will be established to hear and determine appeals made against IFSRA decisions. The tribunal will decide what the correct and preferable decision is and then affirm the decision appealed, or vary, substitute or set aside a decision. When hearing an appeal, the tribunal may, on its own initiative or at the request of a party, refer a question of law to the High Court. A tribunal's decision can be appealed to the High Court.
Levies and fees
From an industry perspective, among the more interesting provisions of the act are its imposition of levies and fees by the IFSRA on those it regulates and supervises. Clearly, the intention is that in the future (unlike the situation that prevailed in the past) regulated or supervised bodies, and not the taxpayer, should largely fund the regulatory and supervisory framework to which they are subject and from which they benefit.
It is still too early to assess fully the impact of the act on Ireland's system of financial regulation and supervision. However, one thing is certain: the Irish government's adjustments are not yet complete, and the Minister for Finance is expected to introduce further legislation before the end of the year. Such legislation is expected to provide, among other matters, for the creation of a financial services ombudsman on a statutory basis, and for the establishment of consultative panels to be drawn from the financial services industry and from consumers.
Ambrose Loughlin is head of the banking and financial services department at McCann Fitzgerald.