The Director of Consumer Affairs, Ms Carmel Foley, said yesterday the current system of financial regulation has failed consumers and agreed with a contention by Fine Gael TD, Mrs Nora Owen, that the existing regulatory situation was farcical.
Addressing a Dail committee on the issue of financial regulation, Ms Foley said that following the series of scandals which rocked the financial services sector in recent years, the only way to regulate the industry properly was through the establishment of a single regulatory authority (SRA) as a new greenfield organisation, and not through a restructuring of the Central Bank.
However, governor of the Central Bank, Mr Maurice O'Connell, speaking to the same committee - on the issue of enterprise and small business - strongly questioned the necessity of dismantling a prudential regulatory system.
Ms Foley claimed the current regulatory framework has failed consumers and that after much debate, the majority of the implementation advisory group, which had examined the issue, had favoured the greenfield organisation option.
Ms Foley, who was a member of the advisory group chaired by Mr Michael McDowell, added: "I believe that such a new, dedicated organisation will ensure that it is possible to achieve the singularity of purpose, which is needed, with regard to both prudential supervision and customer protection in financial services."
Ms Foley said there was no conflict in making any new single regulatory authority responsible for both prudential regulation and consumer protection once the two parts were complementary. The real problem in the past had been that there was no sharing of information, with her own office not being able to obtain information from the Central Bank about alleged wrongdoing by certain individuals.
The Central Bank is restricted under EU law as to how it can disclose information and Ms Foley said it was unacceptable that any State agency did not pass information on wrongdoing to other appropriate authorities.
"I believe prudential supervision and consumer protection are two sides of the same coin and too often this has not been recognised," she said.
"I'm not saying the consumer issue should outweigh or replace the prudential consideration. They should both have corresponding status in a system in which the maintenance of that parity can be both considered and exercised."
Ms Foley said she was not surprised that those representing the status quo and industry interests were reluctant to embrace change but that they should not be allowed to paralyse the debate.
"Let us remember that consumers rather than the institutions have been victims of all-too-common malpractices. It is the rich and powerful institutions in our country that can afford to lobby, employ spin doctors and have articles and research commissioned."
However Mr O'Connell, who defended the role of the Bank in earlier scandals, pointed to a possible conflict between prudential regulation and consumer interests and advocated the case for appointing the Central Bank as the new regulatory authority.
"Our record on prudential supervision is very good. In contrast to the position elsewhere, bank failures in this country have been small, few and far between and any cost to the taxpayer has been minimal. I think we should be proud of our banking system," he said.
Up to now, he added, the responsibility for consumer interests in dealing with banks had not been within the remit of the Central Bank, which was now ready to assume the consumer role under a new authority. The findings of the McDowell report were criticised by Mr O'Connell who said a false argument on accountability should not be advanced as a reason for establishing a separate authority outside the Bank.
"The Bank is accountable and, if the Oireachtas should require at any time a higher degree of accountability in regard to regulatory functions, we are ready to comply," he said.
"Why, in the legitimate interests of consumer regulation, should it become necessary to dismantle a prudential regulatory system that has an excellent record, and that by common consent is working well? There are other ways."
He said on that condition, that there was one person in overall control and a clear chain of command, he supported the minority report of the implementation advisory group which suggested a twin pillar approach to financial regulation within the Central Bank.
