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Thursday, 11th September 2025 |
| Over-regulation is threatening to strangle business |
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| In a recent speech to attendees at a Northern Trust evening event, PAUL DOBBYN, partner with A&L Goodbody, [see right (L-R) Peter Jordan, MD, Northern Trust, Paul Dobbyn, Michael Boyce, Director of Client Operations, Northern Trust] said that legislation has become over invasive and ‘disproportionate to the menace which it is seeking to prevent or cure’. He argues that going forward Brussels will be the driving force of change, and not the Irish legislature, and that Brussels’ ‘one size fits all policy’ in relation to setting regulation will not suit Ireland’s international funds business. Pictured at the event are (L-R): Peter Jordan, MD, Northern Trust, Paul Dobbyn, Partner, A & L Goodbody, Michael Boyce, Director of Client Operations, Northern Trust |
WWe live in an environment where the office of director is under siege. I am sure you have seen references in the media to applications being made to the High Court for restriction orders for directors. What you may fail to realise is the personal trauma that people are suffering in this process. I am acting for some directors who now have an unjustified cloud hanging over them. While this may not be your experience to-date, no doubt in time some of you will be a director of a company which may fail through no fault of anyone, yet under the new regime, liquidators are obliged to report to the Director of Corporate Enforcement on the circumstances of the collapse.
Legislation has become over invasive and disproportionate to the menace which it is seeking to prevent or cure. The Companies (Audit and Accounting Bill) introduces the requirement of directors’ compliance statements, and these compliance obligations go beyond mere financial accounts and reporting.
If this legislation becomes law, we will have a more onerous regime in Ireland than that which exists under the Sarbanes Oxley Act as one speaker once called it ‘The Sore Brains Oxley Act’. Under such Act it is only the executive officers, namely the chief executive officer and the chief financial officer who must issue a certificate and then it is limited to matters of pure financial reporting.
This is not the end of certification. Under Heading 26 of the IFSRA No. 2 Bill, which has yet to be introduced, it is contemplated that the certificate of compliance of directors will extend to every piece of legislation directive and guidance relevant to a financial services provider.
While it is true to state that the Minister has indicated his intention to exempt this provision of compliance statement and other provisions in the Bill in their application to collective investment schemes, the obligations will apply to other financial services’ entities including fund administration companies, custodians, credit institutions and other financial entities.
I have often asked myself the question why this over regulation. Initially I thought it was driven by a vindictiveness on the part of the mandarins in Merrion Street but my experiences in working with such mandarins as part of the legislative process in a recent transaction have shown to me that this is not the case. Then why so many enforcement provisions in legislation being promulgated today? In my opinion it is motivated in part by self protection and not solely motivated by what is the common good.
Who can a director turn to for assistance when besieged by such a body of legislation? In certain circumstances the auditor may not be the appropriate port of call. Under the Company Law Enforcement Act, 2001 an auditor has a duty to report where he has reasonable grounds for believing that an indictable offence has been committed under the Companies Act. This statutory provision puts an auditor in an difficult position.
I referred in passing to the issue of liability insurance. Recently I had occasion as a director of a company to go out to seek quotes for directors and officers liability insurance for a mutual fund. We were advised that the number of insurers in the market had reduced from roughly 30-40 to 6 leading insurers, premiums had increased in excess of 100 per cent and that there was not much appetite to write investment funds and hedge fund related risks. We ultimately did get a tender which excluded USA and Canada and when we read the detail of the policy, it excluded claims relating to failure of investments to perform which is a key area where one would seek to be indemnified. We were advised that the policy could include the territories of the USA/Canada but at a marked increase in the premium.
We at times fail to realise that the State has ceded extensive powers to Brussels in the area of corporate governance and financial services regulation. Going forward, Brussels will be the driving force of change and not the Irish legislature. The concern that I have with Brussels is that they appear to adopt an approach of one size fits all policy in dealing with issues, failing to take cognisances of structures and legal environments which may differ from state to state. For example, the European Commission has issued a communication on the matter of modernising law and enhancing corporate governance within the European Union. Based on this communication it would be its intention to apply principles of corporate governance across the board to all listed companies. It fails to take cognisance of the fact that mutual funds are in many cases listed companies which do not have key executive functions and that some of their requirements would be inappropriate in the circumstances. It emphasises the importance of encouraging shareholders’ democracy while in practice it has been our experience that shareholders in mutual funds see their holdings as investment products and not traditional shareholdings. As a result it may be difficult even to find a quorum to have a shareholders’ meeting.
The European funds industry represented by FEFSI is keen to establish a code of corporate governance for management companies. In many of the continental countries, management companies have more substantive operations than those found in the United Kingdom and Ireland and I would suggest that a more tailored code would be appropriate for the latter jurisdictions.
I am concerned that this culture of over regulation will not create an environment in which businesses will prosper. While I acknowledge that recent scandals outside Ireland may have caused the legislature in Ireland to look at the position at home, a more balanced approach is required, otherwise foreign investors, in particular US investors, will look to other regimes which have a more balanced approach. This message has to be got through to the various state agencies, in particular state agencies promoting Ireland such as the IDA. While in the short-term politicians do not see any votes been gained on the doorsteps in adopting a more balanced approach, the penny will only drop when foreign investments start to reduce and with it the consequential increase in the numbers of unemployed. On the European front we can no longer rely on our civil servants who at times are overstretched, to protect the interests of the financial services sector. Many of the changes being proposed are so technical in nature, that specific expertise is required. We can influence change provided we take the initiative directly and through various agencies in arguing our case with Brussels. |
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