Opinion of the European Central Bank of 19 November 2003 at the request of the Irish Department of Finance on a draft Central Bank and Financial Services Authority of Ireland Bill (No. 2) 2003 (CON/2003/24)
Date: 2003-11-19
Institutions: European Central Bank
Subjects: Ireland, disclosure of information, financial stability, financial supervision, national law

OPINION OF THE EUROPEAN CENTRAL BANK

of 19 November 2003

at the request of the Irish Department of Finance on a draft Central Bank and Financial

Services Authority of Ireland Bill (No. 2) 2003

(CON/2003/24)

1. 

On  24  September  2003  the  European  Central  Bank  (ECB)  received  a  request  from  the  Irish

Department of Finance for an opinion on the draft Central Bank and Financial Services Authority of

Ireland Bill (No. 2) 2003 (the ‘No. 2 Bill’).

2. 

The ECB’s competence to deliver an opinion is based on the second indent of Article  105(4) of the

Treaty, the second indent of Article 4(a) of the Statute and Article  2 of Council Decision 98/415/EC

of  29  June  1998  on  consultation  of  the  ECB  by  national  authorities  regarding  draft  legislative

provisions1.   The  ECB  is  competent  to  deliver  an  opinion  as  the  No.  2  Bill  contains  provisions

concerning  a  national  central  bank  and  rules  which  materially  influence  the  stability  of  financial

institutions. In accordance with the first sentence of Article 17.5 of the ECB’s Rules of Procedure,

this opinion has been adopted by the ECB’s Governing Council.

3. 

The No. 2 Bill is to a large extent follows on from issues arising as a result of the first Central Bank

and  Financial  Services  Authority  of  Ireland  Act  2003,  enacted  earlier  this  year  (the  ‘No.  1  Act’),

which established a new Irish Financial Services Regulatory Authority (IFSRA) as a constituent, but

autonomous,  part  of  the  newly  restructured  Central  Bank  and  Financial  Services  Authority  of

Ireland.  Specifically  the  No.  2  Bill  contains  seven  main  elements.  First,  the  establishment  of  a

Financial  Services  Ombudsman  to  deal  with  consumer  complaints  about  financial  institutions.

Second, the establishment of consumer and industry panels for the IFRSA to consult with interested

parties. Third, new reporting and auditing obligations for financial institutions. Fourth, IFRSA powers

to  impose  penalties  on  financial  institutions.  Fifth,  regulatory  requirements  for  informal  money

transmission  services.  Sixth,  regulatory  requirements  for  certain  firms  providing  home  loans.

Seventh, miscellaneous amendments to financial services legislation. The ECB would like to confine

its comments on the No. 2 Bill to a number of discrete points, as set out in this opinion.

4. 

As part of the follow-up to the No. 1 Act, the ECB would like to highlight a technical, drafting point

in connection with one specific  provision  which  the  ECB  considers  to  be  important.  It  is  recalled

that in the ECB’s Opinion of 5 June 2002 at the request of the Department of Finance on a draft

Central Bank and Financial Services Authority of Ireland Bill, 2002 (CON/2002/16), the ECB noted

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OJ L 189, 3.7.1998, p. 42.

                                                                
that the  IFSRA  is  under  an  obligation  to  consult  and  obtain  the  approval  of  the  Governor  of  the

Central Bank and Financial Services Authority of Ireland (the ‘Governor’) over matters relating to

the  stability  of  the  financial  system,  including  the  issue,  revocation  and  suspension  of  a  licence  or

authorisation.  As  noted  in  the  ECB  Opinion,  this  provision  is  fundamental  in  the  ECB’s  view  and

should  be  made  the  most  of  in  practice  to  allow  for  the  continued  close  involvement  of  central

banking  functions  in  supervision  matters,  as  was  previously  the  case  within  the  Central  Bank  of

Ireland.  Indeed,  this  involvement  is  seen  as  a  necessary  condition  to  allow  the  Eurosystem  to

contribute  adequately  to  monitoring  the  risks  to  financial  stability  in  the  euro  area.  In  addition,  this

provision also safeguards smooth coordination between the central banking functions exercised at a

Eurosystem level and the supervisory functions carried out at national level.

5. 

The  ECB  notes,  however,  that  the  final  wording  of  the  new  Section  33C(9)  of  the  Central  Bank

Act,  1942  (as  introduced  by  the  No.  1  Act)  now  provides  that  where  the  IFSRA  considers  it

prudent in the circumstances, it may send a report to the Irish Minister for Finance on any matter

relating  to  the  financial  stability  of  the  Irish  State’s  financial  system,  and  that  the  IFSRA  may

‘otherwise’ act on such a matter only with the agreement of the Governor. This minor change in the

wording may inadvertently infer that the IFSRA is only under an obligation to obtain the Governor’s

approval on matters relating to the stability of the financial system in circumstances where it has not

reported on such matters to the Minister for Finance. The ECB understands that this interpretation

does not represent the intention of the drafters, as it was intended to ensure that the  IFSRA  may

only act on any matter relating to the financial stability of the Irish State’s financial system with the

agreement  of  the  Governor.  The  ECB  would  therefore  appreciate  it  if,  as  part  of  the  current

opportunity to ‘tidy up’ afforded by the No. 2 Bill, this provision could be re-drafted to reflect the

true underlying intention in a clearer manner.

6. 

Another  related  issue  concerns  the  potential  jurisdiction  of  the  new  Financial  Services  Appeals

Tribunal (the ‘Appeals Tribunal’) over IFSRA decisions taken with the agreement of the Governor

and relating to the financial stability of the Irish State’s financial system (e.g. decisions to revoke or

suspend a license). Under the No. 1 Act the Appeals Tribunal has jurisdiction to,  inter  alia,  hear

and  determine  appeals  made  by  affected  persons  against  ‘appealable  decisions’  of  the  IFSRA.

After  finishing  the  hearing  of  an  appeal  the  Appeals  Tribunal  may  affirm,  vary  or  set  aside  an

appealable decision, or alternatively substitute any appropriate decision that the IFSRA could have

lawfully made in relation to the matter concerned. The No. 2 Bill defines an ‘appealable decision’ as

a  decision  of  the  IFSRA  that  a  provision  of  a  designated  enactment  or  designated  statutory

instrument  declares  to  be  an  appealable  decision.  As  noted  in  the  footnotes  to  the  explanatory

memorandum  accompanying  the  No.  2  Bill,  separate  legislation  is  being  prepared  to  substitute  the

Appeals  Tribunal  for  the  courts  in  relation  to  appeals  against  supervisory  decisions  of  the  IFSRA,

including notably decisions to refuse, withdraw or restrict a license or authorisation, with a full right

of appeal from the Appeals Tribunal’s decision to the courts. The ECB considers that a non-judicial

administrative review of any such IFSRA decision taken with the Governor’s agreement would be

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inconsistent with the independent discharge of the Governor’s ESCB-related task of contributing to

the stability of the Irish State’s financial system.

7. 

The  ECB  welcomes  the  proposed  amendment  to  Section  103  of  the  Irish  Companies  Act  1963

requiring  the  Irish  Registrar  of  Companies  to  enter  in  the  companies  register  particulars  of  any

provision of a floating charge that has the effect of prohibiting or restricting a company from issuing

further securities that rank equally with that charge. Mortgage-backed promissory notes secured by

floating  charges  over  pools  of  mortgage  assets  held  by  a  number  of  Irish  counterparties  to  ESCB

credit  operations  are  currently  eligible  as  ‘tier  two’  assets  for  the  collateralisation  of  ESCB  credit

operations. During the subsistence of the security, a negative pledge prohibits these counterparties

from  creating  or  permitting  any  encumbrance  whatsoever  over  the  charged  property.  Consistent

with standard market practices, this negative pledge is registered with the Registrar of Companies in

the case of companies, or in the public file maintained by the Central Bank and Financial Services

Authority of Ireland in the case of building societies. The legal security of the floating charge should

be  further  enhanced  by  making  the  standard  market  practice  of  registering  negative  pledges

contained  in  floating  charges  mandatory.  In  particular,  this  reform  should  reinforce  the  view  that

registration constitutes notice of the negative pledge restriction contained in the floating charge, and

that  a  fixed  charge  granted  to  a  party  which  had  notice  of  the  existence  of  the  negative  pledge

would not therefore have priority over that floating charge.

8. 

The ECB notes the extension in the No. 2 Bill of the authorisation currently applying to  bureaux de

change  to  persons  engaged  in  money  transmission  business,  defined  to  include  the  service  of

transmitting  money  by  means  of  a  clearing  network  from  persons  within  the  Irish  State  to  other

persons (whether such persons are within the State or elsewhere). The ECB understands that such

money  transmission  businesses  may  resemble  features  of  payment  and  settlement  arrangements

which should fall within the oversight competence attributed to the Governor, who is responsible for

promoting the efficient and effective operation of payment and settlement systems. The ECB would

welcome a legislative clarification of this point.

9. 

Finally, as also noted in the abovementioned  ECB Opinion of 5 June 2002,  the ECB notes that the

No. 2 Bill restates and reorders existing Irish legislation relating to the Irish central bank’s functions

and powers.  While  the  ECB  welcomes  the  partial  consolidation  of  Ireland’s  central  bank  statutes,

and  most  particularly  the  Central  Bank  Act,  1942,  the  ECB  notes  that  the  provisions  of  Irish  law

relating  to  the  basic  structure  of  Ireland’s  central  bank  and  the  performance  of  its  ESCB-related

tasks is still contained in a number of different laws including the surviving provisions of the original

Central  Bank  Act,  1942,  a  number  of  provisions  in  the  Central  Bank  Acts,  1971  and  1989,  the

surviving  provisions  of  the  Central  Bank  Act,  1998,  a  number  of  provisions  of  the  Economic  and

Monetary  Union  Act,  1998  (as  amended  by  the  Finance  Act,  2002),  the  No.  1  Act,  as  well  as  a

number  of  additional  laws  concerning  currency  matters.  The  lack  of  a  consolidated  central  bank

statute creates a structure for Ireland’s central bank that is somewhat lacking in transparency. The

twin  goals  of  clarity  and  transparency  would  suggest  that  at  the  first  suitable  opportunity  the  Irish

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Government should undertake a consolidation exercise. In addition, a full consolidation of Ireland’s

central  bank  statutes  would  greatly  assist  the  ECB  in  fulfilling  its  ongoing  task  of  responding  to

consultations from the Irish authorities on draft legislation within the ECB’s field of competence. In

this context it is noted that Ireland’s central bank statutes are the only central bank statutes in the

Eurosystem which have not been consolidated.

10.  The ECB confirms that it has no objection to the competent national authorities making this opinion

publicly available at their discretion. This opinion will be published on the ECB’s website six months

after the date of its adoption.

Done at Frankfurt am Main on 19 November 2003.

The President of the ECB

[signed]

Jean-Claude TRICHET

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