| Industry reponds to call by Government for simplification of financial law and proposes new strategy |
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| Government moves to consolidate and simplify financial services legislation and regulation are very welcome but the overall process requires a strategic approach, writes Enda Twomey, adding that Irish Bankers Federation, in conjunction with other industry groups, have proposed a high-level strategic model. |
One of Charlie McCreevy’s last initiatives before heading to Brussels was to invite comments on ‘how best to achieve consolidation and/or simplification of the legislation governing the regulation of the financial services sector’. It was the Minister’s intention to develop a Bill for presentation to the Oireachtas in 2005 which would complement the Central Bank and Financial Services Authority of Ireland Acts (2003 and 2004). With legislation dating back many years and a continuous stream of measures flowing from the EU’s Financial Services Action Plan, the task of simplifying and consolidating is by no means an easy one. However, this goal is certainly worth pursuing in the view of Irish Bankers Federation and many of the other stakeholders in the financial services industry.
The Minister intended that the Bill would achieve the following objectives:
• Bring forward in a single modern legal text all the primary legislation governing the regulation of the financial services sector - apart from the legislation relating to accounting and tax matters
• Provide a legal framework for achieving the Government’s consumer protection and financial stability objectives in a way that does not impose a disproportionate burden on regulated entities
• Facilitate the international competitiveness of the sector
• Conform to the principles set out in the Government’s white paper, Better Regulation - necessity, effectiveness, proportionality, transparency, accountability and consistency
• Reflect in as far as possible the single regulatory structure which has been put in place, achieve a balance between high-level principles appropriate to primary legislation and more detailed requirements that should be laid down by the regulator using statutory powers
• Comply with the State’s obligations under EU law
Comments and submissions were invited on a range of questions. Among these were whether the Bill should lay down general regulatory principles applicable to all sectors or continue with the modified version of the present sector-based approach; whether and how the overall burden on regulated entities might be reduced, while at the same time ensuring effective regulation and consumer protection; how best to ensure a balance between the principles of the Bill and requirements as laid down by the regulator; and whether any technical deficiencies arise in existing legislation.
Financial industry’s response
In a cross-sector submission prepared under the auspices of the Inter-Association Network, the financial services industry has welcomed the consolidation and simplification initiative as a step in the right direction while also stressing the need for a strategic approach to be taken. The initiative is seen to be in line with the Government’s own white paper, Better Regulation, and with the Enterprise Strategy Group’s report on Ireland’s place in the global economy which stated that the vision of an effective ‘agile Government’ was a key
competitive advantage for the Irish economy.
Industry believes that the legislative and regulatory framework must aim to promote stability and confidence in the financial services market and also help to develop and promote the Irish market as one of the most reputable, competitive and innovative in the EU and globally. This objective is underpinned by the importance to the Irish economy of the financial services sector, which employs nearly 53,000 people right around the country (CSO 2004) and which contributes nearly 5.2 per cent of Irish GNP (at current prices, 2003). The desired outcome would be an environment which is flexible and responsive, transparent and inclusive, which truly reflects the objectives commonly shared by the key stakeholders and which incorporates the six principles of better regulation.
The financial services industry is also anxious to ensure that the regulatory burden is appropriate and has regard to economic cost-benefit analysis undertaken in respect of any new regulations. There needs to be clear responsibility and accountability for the delivery of the legislative and regulatory environment. The thinking underpinning this approach reflects a more proactive and collaborative approach on the part of the key stakeholders in anticipating and understanding future regulatory trends and challenges, particularly in respect of the EU and also multi-lateral, non-Governmental governance institutions such as the International Accounting Standards Board and the Bank of International Settlements. This would also allow for better resolution of the practical issues relating to the transposition of EU Directives particularly in the context of the Lamfalussy process.
Proposed high level strategic model
The industry proposes that the principles-based, legislative approach should be adopted which would consist of three distinct legislative and regulatory frameworks as follows.
This proposal amounts to a composite measure that stands or falls on the basis of all the constituent parts being adopted. The most innovative element is the cross-sectoral policy body. It is proposed that this policy formulation body would have the following key features.
1. It would have clear vision, objectives and strategy.
2. It would ensure alignment with the principles of Better Regulation.
3. It would be fully resourced in terms of experience and professional people at both operational and management level.
4. The scope of the functions would include the following within the overall legislative framework:
• formulate macro regulatory policy for the financial market;
• formulate detailed cross-sectoral policy in sector specific rules and regulations as necessary;
• resolve operational issues relating to policy and rules;
• transpose EU Directives in the Lamfalussy context into appropriate cross-sectoral policy details and/or sector specific rules.
• The scope of the policy formulation group should relate to all financial services legislation, including legislation that is currently under the jurisdiction of other Departments other than the Department of Finance.
Checks and balances would be in place to include: key stakeholder representation across both the public and private sector;
• reporting lines to the Minister for Finance; ability to operate only within the framework established by the primary legislation.
• Optimal regulatory burden would apply in that any new rules and regulations would be subject to economic cost-benefit analysis and market impact analysis.
These proposals are both innovative and practical. They provide an appropriate balance between the need to ensure financial stability and consumer protection on the one hand and the need to maintain a competitive advantage for the financial services industry in Ireland. This allows our industry to continue to compete for international business and also to fulfil its crucial role in ensuring the continuing economic well being of the Irish economy. |
Enda Twomey is deputy chief executive of the Irish Bankers Federation, the leading representative body for banking and financial services in Ireland.
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| Article appeared in the January 2005 issue.
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