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Second IFSRA Bill sees powers of single regulator increased Back  
The recently published second IFSRA Bill will lead to a a major expansion and strengthening of the powers granted to IFSRA. However, with rising concerns over the level of regulation imposed on Irish entities, the big question is – do these new proposals get the balance right Kevin Allen asks.
WWith last month’s publication of the Central Bank and Financial Services Authority of Ireland Bill, 2003 a significant step towards giving teeth to IFSRA, the Irish Financial Services Regulatory Authority, has been made. This legislation proposes major new enforcement powers and mechanisms to strengthen financial services regulation in Ireland. In particular the Bill provides for the following:

• An Office of Financial Services Ombudsman to deal with consumer complaints;
• A Regulatory Authority Sanctions Panel to mete out punishments to financial service providers that breach applicable laws and regulations;
• Two ‘consultative panels’ (one representing consumers, the other representing industry), designed to provide IFSRA with ongoing input;
• A more onerous compliance scheme and corporate governance regime; and,
• An expanded role for IFSRA in the fields of mortgage brokering, non-consumer lending and

Bureau de Change regulation.
The Bill maintains the focus on consumer protection by proposing a new extra-judicial forum for dispute resolution. The new Financial Services Ombudsman will, it is proposed have power to make decisions on consumer’ complaints against regulated financial services providers. Consumers will be required firstly to make a complaint directly to the financial institution concerned and if, after a reasonable time, there hasn’t been a resolution the Ombudsman can consider the consumer’s complaint. Before considering a matter however the Ombudsman must be satisfied the complaint meets certain minimum standards, (for instance, it is not frivolous or time barred) and the consumer has attempted to resolve the dispute by mediation. If no solution is mutually agreed the Ombudsman may (i) further investigate the complaint, (ii) dismiss it; or, (iii) direct a finding against the financial institution.

Whilst the Ombudsman will have power to compel the production of documents from financial service providers and summons witnesses, no formal legal procedures or rules of evidence will apply. The determinations of the Ombudsman are to be binding on financial institutions, subject to their right of appeal to the High Court. Both the complainant and the financial institution retain that right of appeal, and the Ombudsman can refer a point of law to the High Court. The purpose of the scheme is clearly to create an extra-judicial means of quick and efficient dispute resolution.

Probably the most significant provisions of the new Bill are those relating to the granting of greater enforcement powers to IFSRA. ‘Greater’ here should probably read ‘more appropriate’. Currently IFSRA can only adopt the ‘nuclear option’ i.e. revoke an authorisation or impose an embargo on a firm’s business. Aside from this power IFSRA’s hands are pretty much tied. The new Bill gives IFSRA a wider menu of options.

It proposes the establishment of a ‘Regulatory Authority Sanctions Panel’ or ‘RASP’. The RASP will have the authority to investigate allegations against and if found appropriate, sanction, regulated financial services providers for breaches of regulatory standards. The new sanctions being proposed in the Bill run the gamut from a simple caution to fines of up to €5 million. The RASP will also have the authority to impose similar sanctions against the directors/managers of those financial service providers, including the ability to disqualify individual transgressors and fine them up to €500,000. This is a significant expansion of IFSRA’s powers.

As proposed, the RASP will have the right to summon witnesses, take evidence, hold hearings in public, (close those hearings to the public if issues of confidentiality or reputation justify it) and demand documents necessary to the Panel’s investigation. Those appearing in front of the Panel have the right to be represented by a lawyer but the RASP is not to be bound by the rules of evidence and is charged to conduct its proceedings with ‘as little formality and with as much expedition as a proper consideration of the matter will allow’. In order to preserve all rights of natural justice a right of appeal to the Financial Services Appeals Tribunal (together with a full right of appeal from the Tribunal’s decisions to the High Court) are included in the Bill.

It seems clear that with an arsenal of enforcement powers under its belt IFSRA will be in a position to let its presence be felt a lot more than has been the case to date.

The Bill also envisions the creation of two new consultative bodies, one to air the consumers viewpoint, the other devoted to ‘industry’ concerns. It provides for the Minister appointing between 5 and 20 members to each Panel. The membership of these Panels must be consulted before IFSRA makes or issues any policy or regulatory document and will also provide commentary on IFSRA’s performance of its duties. The industry Panel will have the additional responsibility of commenting upon the competitiveness impact that IFSRA’s actions may be having on Irish business. The reports and comments of each Panel must be published openly and IFSRA will be required to state why it may disagree with any of the comments contained in those reports. Whilst the legislation allows for a great deal of flexibility in the interplay between the consultative Panels and IFSRA, clearly it is the drafters’ hope that the presence and viability of the consultative Panels will lend legitimacy to IFSRA’s enforcement regime. This will also provide an increased level of transparency with respect to IFSRA’s operations and ultimately will help to ensure harmonised regulation across all financial service sectors.

Whilst these new proposals are far reaching and will no doubt provoke a fair amount of comment, perhaps the most controversial provisions of the Bill are contained in the sections dealing with corporate governance and compliance. These provisions are especially timely because they are published in conjunction with the recent passage of the Companies (Auditing and Accounting) Act dealing with many of the same topics. The provisions of the IFSRA Bill are in many ways much tougher on directors and financial service providers than the provisions of that Act.

For instance:
The IFSRA Bill requires financial service providers to certify actual compliance with relevant regulations, whereas the Auditing and Accounting Bill requires certification only that ‘all reasonable endeavours’ be used to secure compliance with relevant obligations.

In the Auditing and Accounting Bill only directors may be cited for an offence of non compliance whereas under the IFSRA Bill both financial service providers and individual managers (including directors) are subject to sanction for offences.

Under the Auditing and Accounting Bill a compliance statement need only be given annually whereas under the IFSRA Bill the statement can be required by the Central Bank ‘whenever it considers it appropriate’.

Given the number of significant differences between the two pieces of legislation it is likely there will be intensive lobbying on a number of the above issues. A great deal of interest will be generated over whether the Government digs in its heels on these points or brings the compliance aspects of the IFSRA Bill into line with the provisions of the Auditing and Accounting Act.

In addition to the main provisions set out above the legislation also seeks to expand the scope of IFSRA’s powers with respect to the regulation of money transmission service providers and Bureaux de Change.

In an era dominated by controversies over the level of regulatory oversight and corporate governance this Bill bring fresh perspectives to the debate over how to institute an industry wide regulatory scheme without compromising Irish competitiveness. With rising concerns over the level of regulation imposed on Irish entities, the big question is do these new proposals get the balance right?

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