Almost three years ago, following successive failures by the Central Bank to identify or to deal with the Ansbacher and the DIRT scandals, an expert committee headed by present Attorney General, Mr Michael McDowell, recommended the establishment of an independent financial regulator, separate from the Central Bank, to deal with the weaknesses identified and to protect consumer interests. The proposal was opposed by various financial and insurance bodies, by the Central Bank and by the Department of Finance. As a consequence, the report gathered dust.
Fourteen months ago, evidence that the Central Bank had won an internal struggle to control the sector emerged when the Minister for Finance, Mr McCreevy and the Tánaiste, Ms Harney, announced details of a compromise. Two autonomous subsidiaries were to be established but under the overall control of the Central Bank, dealing with consumer and prudential functions. A Financial Services Regulatory Authority was to be immediately established to supervise the banking and insurance sectors, with particular responsibility for consumer protection. A director of consumer affairs was to be appointed, and a financial services ombudsman would arbitrate on disputes between customers and the financial services, replacing the existing arrangements that are funded by the banks and insurance companies.
Yesterday, the Minister for Finance, Mr McCreevy, finally published details of the Central Bank and Financial Services Authority of Ireland Bill, 2002. That may be seen as marking a concession to important interests, reversing last year's decision to appoint a separate, statutory monetary authority within the Central Bank, replacing it with a committee. The composition of the board of an interim Financial Services Regulatory Authority was, however, announced. And the Minister signalled his intention to publish legislation, later this year, to allow for the establishment of a Financial Services Ombudsman and to implement other recommendations in the McDowell report. Given the delays that have already attended the production of these limited reforms, however, such an undertaking should be regarded with considerable caution.
The big loser in all of this is the consumer. In the past, the Central Bank concentrated on its prudential responsibility to ensure that Irish banks and financial institutions were profitable. It was less interested in consumer charges and it largely ignored the application of tax laws and exchange controls. That approach led to Irish banks making double the profit of their European counterparts on average capital. The cost of lending to small businesses was, in particular, regarded as excessive. High credit card charges, a shortage of ATMs and the closure of branches fuelled public dissatisfaction. The Director of Consumer Affairs, Ms Carmel Foley, expressed concern to an Oireachtas Committee last year about a lack of competition in the sector and elevated charges. The Bill published by Mr McCreevy will go some way towards addressing these concerns. But it falls far short of the approach advocated by the McDowell report.