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CBIFSA: Confused compromise or workable structure? Back  
The introduction of the Central Bank of Ireland and Financial Services Regulation will be the most radical shake-up to hit financial services ever in Ireland.
The announcement by the Government of a transformed Central Bank structure that will bring in an independent financial services regulator has met with mixed reaction from the industry. While most appear happy that a decision has been made there has been criticism that the structure is unwieldy and confusing.

The Government has said it will enact two bills of legislation for the new structure, and the logistics of setting up the departments and recruiting for the new positions the actual work of the independent regulator unlikely to start in proper until January 2002 at the earliest. At this stage it is probably too early to tell exactly what the snags will be.

The new structure will encompass a single regulatory authority for the financial services sector, the Irish Financial Services regulatory Authority (IFSRA) and a monetary authority, to be called the Irish Monetary Authority (IMA). These will both be set within a transformed Central Bank to be called the Central Bank of Ireland and Financial Services Authority (CBIFSA).

The consumer protection functions currently exercised by the Director of Consumer Affairs in relation to financial services will be integrated with the prudential regulation of financial services within the IFSRA - where insurance and banking regulation will be combined.

In addition, communication between industry and consumers with the regulator will channelled through consultative panels. A statutory ombudsman scheme will ensure that consumers have their complaints addressed in an authoritative and integrated way. The ability of the regulator to penalise financial institutions will be strengthened by establishing a formal system for imposing and where appropriate, reviewing penalties imposed by the regulator.

The main innovation in the Government’s announcement is the establishment of an Irish Financial Services Regulatory Authority. This authority will be a one-stop shop for the consumer and for industry in relation to licensing, supervision, regulation and industry standards. Six members of the Board including the Chairman and ceo will be on the Board of the central Bank of Ireland and Financial Services Authority.

Charlie McCreevy will appoint a Board of ten members. It will have an independent chairperson, and the ceo and the customer protection director will be on that board also. The remaining members of the IFSRA board will be representative of the main social partners, consumers and people with appropriate legal, accountancy and other expertise.

The board of IFSRA will appoint its own ceo and statutory officers. One of the main points of contention so far emerging from the announcement is the next point. The IFSRA board will decide its own budgetary and staffing requirements, which the Minster for Finance will then approve.

The Government was at pains to underline that this was a real departure from the old, while maintaining the expertise already held within the Central Bank, and said that the IFSRA would be an independent structure in relation to its prudential and consumer protection functions.

The McDowell report, on which most of CBIFSA are based, estimated that the annual cost of running an independent regulatory system would be in the region of ?13 - 14 million annually, following substantial initial set-up charges. The Government said that much of this will come from financial industry licensing fees paid to the Central Bank, but the Irish Insurance Federation is already wary of exactly how the cost of setting this system up will be distributed across the industry sectors.

IFSRA will have its own annual report and the CBIFSA will also produce a combined annual report for the overall structure. The Board of IFSRA will be directly accountable to the Minister and the Oireachtas. The chairman, ceo and the customer protection director will appear as required before an appropriate Oireachtas Committee in relation to the discharge of their statutory functions.

Ireland is a signatory to the Maastricht Treaty and a member of the European System of Central Banks, set up under that Treaty. Ireland’ position in that regard is unaffected by the Government’s proposals. The Governor, currently Maurice O’Connell. Will hold the Irish seat on the Council of the ECB. What is proposed now is a dedicated monetary authority within the overall new structure that will support the Governor in ensuring that Ireland’s responsibilities within the ESCB are effeciently exercised.

The proposed structure allows for an overall board, made up of equal numbers of representatives of the boards of IMA and IFSRA, and this board will coordinate the activities of both. The Governor will be the chair of this board.

Exactly how the power will be shared across the overall board is questionable but it is envisaged at this stage that the coordination between IMA and IFSRA will be organised by CBIFSA so that the board of CBIFSA will be responsible for the following areas:
• Ensuring the coordination and free flow of information between IFSRA and IMA
• Promote the general development of the financial services sector
• Contribute to the smooth conduct of policies relating to the prudential supervision of credit institutions and the stability of the financial system
• Co-ordinate responses to requests for technical assistance and advice from other countries
• Facilitate staff mobility in the joint provision of services
• It will also approve and publish the annual report of accounts. The respective boards of IMA and IFSRA will each approve and publish separate annual reports and accounts

New bodies
The introduction of the statutory Ombudsman, the appeals tribunals and consultative panels are another aspect of this regulatory shake-up. The Government sees this as an important innovation to reinforce and re-focus regulation.

The proposal to establish a Financial Services Ombudsman will be a statutory scheme covering all areas of the financial services provision regulated by the IFSRA. It will be linked to the IFSRA so that the Ombudsman can benefit from the experience and authority of IFSRA in dealing with the industry. However, the Ombudsman will be fully autonomous in investigating complaints and will publish an annual report and be appropriately accountable to the Oireachtas.

Secondly, the McDowell Report identified a need to set up an appeals system for financial institutions. This part of an overall proposal to review all existing provisions for sanction and penalties. It is now proposed to set up this system against decision of IFSRA. However details of this systems have not yet been published.

There will also be a formal system for the industry and consumers to express their views about the industry to IFSRA. The industry and consumers will each have a separate panel where they can discuss issues and formulate ideas.

It is envisaged that the legislation will take the form of two bills, one to provide for the new structure and the setting up of the Ombudsman, the consultative panels and the appeals tribunal. The second bill will also make provisions arising from the Report on the Review Group on Auditing.

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