Aligning Financial Supervisory Structures with Country Needs. Making the Structural Decision World Bank, 4 December 2003

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Aligning Financial Supervisory Structures with
Country Needs.Making the Structural
DecisionWorld Bank, 4 December 2003

• Liam O Reilly
• Chief Executive Officer
• Irish Financial Services Regulatory Authority

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Outline of Decision Process

• Government Sub-Committee
• Government decision to establish a new regulatory
  structure
• Setup of Implementation Advisory Group
• Report of Government Implementation Advisory
  Group
• Subsequent Government decision

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Reasons for review of Existing Structure

• Internal
• Taxation Issues
• Consumers of Financial Services not being
  adequately protected.
• External
• International move towards single regulators
• Increasing emergence of complex groups

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Decision to establish new Regulatory Structure

• October 1998, Government agreement in principle
  to establish a single regulatory authority
• Agreed to the establishment of an Implementation
  Advisory Group to progress the necessary work.
• Membership of this group included representatives
  from existing regulators, other government
  officials and senior legal and Accountancy
  representatives.

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Primary Issues Discussed

• How Consumer Protection could be improved
• Overall integration of consumer protection and
  prudential supervision
• Relationship between a new regulatory structure
  and the Central Bank
• Addressing perceived gaps in existing regulatory
  systems (insurance, credit unions, reinsurance)

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Recommendations of Advisory Group

• Differing views from
• Majority
• Separate Green Field regulator
• Minority
• Locate SRA within a re-structured Central Bank
• Where
• A separate independent division of the existing
  Central Bank would be established to undertake
  prudential and consumer protection functions

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Advantages of locating within a restructured
Central Bank

• Addressing the need for change while preserving
  the functions working well
• Extending the existing wide regulatory functions
  of the Central Bank to include Credit Unions,
  Insurance and Consumer Protection

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Subsequent Government Decision

• Following the report, many representations made
  and much consideration given to the best way
  forward.
• Government decision in February 2001
• To set up a restructured Institution linking the
  monetary policy / ESCB related functions and
  regulation of financial services into a new
  structure.

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New Structure

• Central Bank restructured and renamed Central
  Bank and Financial Services Authority of Ireland
  (CBFSAI)
• Irish Financial Services Regulatory Authority
  to be single financial services regulator within
  the Central Bank (IFSRA)
• Single pool of staff and coordinated approach to
  financial stability

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Our New Structure

Central Bank
Financial Services Regulator
Monetary Policy
Financial Stability
Safety Solvency
Consumer Issues
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Main Changes

• One Regulatory Authority for Insurance, Banking,
  Credit Unions and Intermediaries
• Integration of Consumer Protection and Prudential
  Regulation
• New Structure for coordinating financial
  stability function and financial services
  Regulation
• To provide a one stop shop for consumers

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Institutional Remit


Firms / Legislation Former Regulators Today
Investment Insurance Intermediaries, Funds, Banks, Building Societies, Investment Business Firms, Stockbrokers, Exchanges, Bureaux de Change Central Bank of Ireland Irish Financial Services Regulatory Authority
Insurance Companies Department of Enterprise, Trade and Empolyment Irish Financial Services Regulatory Authority
Mortgage Intermediaries, Money Lenders, Bank Charges, Consumer Credit Act Office of the Director of Consumer Affairs Irish Financial Services Regulatory Authority
Credit Unions Registrar of Friendly Societies Irish Financial Services Regulatory Authority
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Strategy

• Legislation provides for preparation of strategic
  plans by IFSRA, Consumer Director and Registrar
  of Credit Unions
• Minister for Finance to approve form of plan.

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Prudential Aims

• Solvency safety of individual institutions
• Reputable financial sector
• To have a sound Financial system
• Contribute to financial and economic stability

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Achieving Our Prudential Aims

• Emphasis on guiding principles
• Strong Corporate Governance
• Accountable boards and management
• Well managed industry honesty and competence
• Owners/stakeholders of good standing
• Clear business mission and objectives
• Risks clearly identified, measured and controlled

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Consumer Protection Aims

• To equip consumer with sufficient information and
  understanding but
• Consumer retains personal responsibility for
  choices and decisions
• To have a Safe and Fair Market with solvent
  institutions operating contractual agreements in
  an honest, competent and diligent way.

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Achieving Our Consumer Aims

• Industry Role
• Product design
• Mechanisms to address information gap
• Compliance with conduct of business rules
• Consumer Role
• Take greater responsibility for financial affairs
• Seek to secure better service
• Demand better service
• Regulator Role
• Promote and be a strong voice for consumers
• Design and enforce conduct of business rules
• Provide consumer information and education
• Monitor competition

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Enforcement

• Fines / Reprimands / Other Sanctions
• Enforcement powers to be broadened in the context
  of IFSRA
• Work ongoing on developing framework for
  imposition of sanctions

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Confidentiality Rules

• Significant changes to previous rules
• Still under general obligation not to disclose
  confidential information but
• New obligation to report to Revenue Authorities
  and police where there is a suspicion that any
  regulated institution may have committed a
  criminal or company law offence.
• New obligation which effectively forces a
  regulated institution to disclose information to
  another agency if the disclosure of the
  information by IFSRA is prohibited under EU law
  (Disclosure Issue Notice).

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Accountability

• IFSRA Chairman, Chief Executive, Consumer
  Director, Registrar of Credit Unions, etc. will
  appear before Parliamentary Committees.
• Budgets, Strategic Plans, Annual Reports require
  approval of Minister for Finance.

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IFSRAs Agenda Funding

• Legislation provides for industry funding
• Aim to be Effective, Efficient, Accountable
• Consultation paper published the funding burden
  should be generally proportionate to the
  regulatory risk and burden

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IFSRAs Vision for 2007

• By fostering Irelands standing as a well
  regulated place to do business, we will have made
  a real impact on
• Consumers who will be more satisfied with
  financial services, through more and better
  information and a fairer market that gives better
  value.
• Industry who will have a cost effective and
  responsive regulator, that facilitates
  innovation, competitiveness and growth.
• We will have achieved a fully integrated
  organisation and through our own high levels of
  efficiency and effectiveness will be a reference
  point of best practice for comparable countries.

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Thank you
Thank you