Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach debate -
Tuesday, 28 Nov 2017

Scrutiny of EU Legislative Proposals

Chairman

We will deal with scrutiny of EU legislative proposals - COMs (2017) 536, 537, 538 and 539, inclusive - collectively referred to as the "ESA package". Representatives from the Department of Finance, the Central Bank of Ireland and the Irish Funds are before us for this session.

I advise witnesses that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to this committee. If they are directed by the committee to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.

Members are reminded of the long-standing parliamentary practice to the effect that members should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable.

I invite Mr. Oliver Gilvarry, Department of Finance, and Mr. Gerry Cross, Central Bank of Ireland, to make their opening statements.

Mr. Oliver Gilvarry

I thank the committee for the invitation to discuss the European Commission's legislative proposals to reform the European system of financial supervision otherwise known as the ESFS review. I am accompanied today by Ms Iqra Zainul Abedin, Mr. Alex Costello and Mr. Shane McNamee from the Department of Finance who work with me on this file.

I would like to remind the committee of where we have come from in terms of the European model. The European system of financial supervision, ESFS, was introduced in 2011 to strengthen the supervision frameworks in Europe. The system as it is includes the European Systemic Risk Board, ESRB, the three European supervisory authorities, namely, the European Banking Authority, EBA, the European Securities Markets Authorities, ESMA, and European Insurance and Occupational Pensions Authority, EIOPA, along with national supervisors.

Earlier this year, the Commission published a consultation paper on the framework. Member states, including Ireland, submitted views with many signalling that at this point, targeted amendments to the framework comprised the preferred approach, rather than a more fundamental change with additional new roles for the various supervisory bodies. Following that consultation, the Commission is now proposing legislative measures to amend the ESFS with the stated aim of strengthening the Union's integrated supervision framework in order to promote the capital markets union, market integration and financial stability, and to respond to the new challenges which the Union is facing following the decision of the United Kingdom to leave the Union.

The Commission's proposal is amending a number of pieces of existing legislation and introduces new powers and roles for the European supervisory authorities, ESAs, a number of which will have a significant impact on our financial services sector and on the work of our relevant competent authorities in here in Ireland. The Commission's proposal maintains the board of supervisors' position as the main body of the ESAs in charge of its overall guidance and decision making. However, the proposal seeks to change the composition of the board to include full-time members of the relevant ESA. These full-time staff members will be part of a new executive board, the main function of which will be to examine, give an opinion, and make proposals on all matters to be decided by the board of supervisors. It would also be the decision-making body for certain tasks of a non-regulatory nature, such as dispute settlements, breach of Union law and independent reviews.

We have previously supported the concept of introducing permanent staff members to the board of supervisors of the different European supervisory authorities, ESAs, but the executive board as proposed by the Commission dilutes the power of the national competent authorities too far. These are the people with the required expertise and knowledge of their local markets.

The proposals also aim to significantly strengthen the existing powers of the ESAs through independent reviews of national authorities' activities and early intervention in cases of possible supervisory arbitrage. The Commission has argued that these extra powers are required to ensure European rules are applied equally by all member states or, in other words, that we ensure supervisory convergence across the union. We fully support a move towards a greater focus of the ESAs on supervisory convergence, but the Commission is introducing new powers for them which will, in effect, provide them a role in the day-to-day authorisation and supervision of relevant entities. This is not warranted. For example, one of the new powers envisaged for the ESAs is the ability to co-ordinate the supervisory actions of national competent authorities in the area of outsourcing and delegation of activities to third-country entities. The Commission's proposal will compel national regulators to notify an ESA every time they receive a request for authorisation by a firm that delegates part of its activities outside the union. We see the framework being proposed for the delegation of activities to third countries as adding further unnecessary complexity, when the existing powers available to the ESAs could achieve the same result of ensuring supervisory convergence. The European Securities and Markets Authority, ESMA, issued an opinion in July 2017 to support supervisory convergence in the area of asset management which highlighted what national competent authorities should consider when allowing an entity to delegate functions such as asset management. This is a good example of how the ESAs can use their existing powers to help ensure supervisory convergence across the union.

With regard to direct supervision roles, the Commission's proposal intends to give further direct supervisory roles to the ESMA, as it believes the only way to ensure supervisory convergence is to provide a direct supervisory role for ESAs in certain cases. The Commission's proposal will give the ESMA supervisory responsibility for the approval of certain categories of prospectuses. They are wholesale non-equity prospectuses, those drawn up by specialist issuers, those of asset-backed securities and those by third country issuers. In addition, the ESMA will be given responsibility for the authorisation and supervision of certain types of investment funds structures - European venture capital funds, European social entrepreneurship funds and European long-term investment funds.

As we highlighted in our response to the Commission consultation paper, we see no need for the ESMA to be given a direct supervisory role in the area of investment funds. We stated in our response that the existing powers of the ESMA are sufficient to ensure the European rules applicable to all investment funds and also to prospectuses are applied equally across the Union and thus ensure supervisory convergence between member states.

The use of peer reviews is a very powerful tool to ensure the single rule book is applied equally. The existing toolkit should be used more frequently by the ESAs before the Commission considers such a fundamental change as moving supervision of some investment funds and approval of certain prospectuses to a central European body.

Along with a majority of member states, we have voiced concerns over the scale and impact of the proposals at council. In particular, the increased role being proposed for the ESMA has been criticised by a large number of member states. This file will be progressed under the Bulgarian presidency and we expect further meetings at a technical level to commence in January. We will continue to engage, make our valid points known, work with other member states and seek to have a more proportionate outcome from this review.

To conclude, in this proposal, the Commission has introduced significant changes to the European supervisory authorities' framework with the stated aim of creating a stronger and more integrated European financial supervision system for the capital markets union. Ireland has been an enthusiastic supporter of the capital markets union project, as we see the provision of more non-bank financing would be of significant benefit to the real economy, not only in Ireland but across the union. However, we believe the proposed changes will not help to achieve the aim of developing Europe’s capital markets. They will instead add further complexity and costs for entities engaging with European markets. In addition, we also fully believe in the need to prevent regulatory arbitrage and to ensure the rules agreed between the co-legislators are applied equally across the union. That does not mean we believe in a significantly reduced role for national competent authorities.

The proposed changes to the ESAs will dilute the input of national competent authorities in decision-making processes. We must remember that these are the people with the expert knowledge of local markets and, in particular, who have the corporate knowledge of the firms operating there.

Mr. Gerry Cross

I thank the committee for its invitation to appear before it today to discuss the European Commission’s proposed package of measures on the European supervisory authorities, ESAs, and the European systemic risk board, ESRB. I am joined by my colleagues Gráinne McEvoy, head of securities and market authorisations, and Martina Kelly, head of markets policy at the Central Bank.

The proposed measures, if implemented in full, would bring about significant changes to the regulatory and supervisory architecture in the EU. The three ESAs – the European Securities and Markets Authority, ESMA, the European Banking Authority, EBA, and the European Insurance and Occupational Pensions Authority, EIOPA – and the ESRB form part of the European System of Financial Supervision, ESFS. The ESAs were established as independent EU agencies in January 2011 under the 2010 ESA regulations.

The ESAs are tasked with a range of regulatory and supervision-related responsibilities. The principal decision-making bodies of the ESAs are their respective boards of supervisors, which consist of heads or alternates of the national competent authorities and are chaired in each case by a chairperson elected by the boards of supervisors for five years, a position which is renewable once. The proposed changes to this supervisory architecture would affect the governance, role and funding of the ESAs and include an enhanced role for ESMA as a direct supervisory authority over certain activities. The European Commission’s proposals are under consideration by the Council of Ministers and the European Parliament. The Department of Finance is representing Ireland at the negotiations in the Council. The Central Bank’s role is twofold. It is to provide the Department with technical assistance and analysis in support of its engagement in the negotiations and to examine the proposals from a regulatory and supervisory perspective and communicate appropriately in that regard. The proposals are broad and consequential and analysis by the Central Bank is ongoing. Our comments today should be taken in that context.

In carrying out our work in respect of the proposals, the Central Bank will be guided by a number of considerations that, from a regulatory perspective, are important when considering proposed changes to the ESAs. First, the European supervisory architecture was reformed substantially following the crisis. Since its introduction in 2011, the ESFS framework has in general worked well. The ESAs have delivered well on their objectives based on a good balance between centralised and local responsibilities. Therefore, the baseline should be that we are starting from a good position. Second, reforms to the ESAs should be in line with the broad objectives of financial supervision. These are the achievement of financial stability; consumer and investor protection and orderly, fair, and well-functioning financial markets, all supporting a sustainably growing economy. Third, while increased supervisory convergence is desirable, this is distinct from the centralisation of powers. It is very important that the integrity of supervisory responsibilities and decision-making processes is maintained in order to ensure effectiveness and appropriate accountability of decision-makers. The introduction of fragmentation or uncertainty in this regard that leaves any doubt about the decision-making authority of the relevant supervisor should be avoided.

I will mention some aspects of the proposals the Central Bank is focusing on. On the question of governance, the proposals would entail significant reform to the current functioning of the ESAs. The main proposed change in this regard is the introduction of an executive board for each of the ESAs. The executive boards would have powers including the development of three-year strategic supervisory plans, with which NCAs should comply; preparing decisions of the board of supervisors; carrying out binding mediation between national competent authorities; reviewing arrangements for the activities of national competent authorities; and assessing third-country delegation and outsourcing by EU-regulated entities.

As we have said, in our response to the European Commission’s consultation on ESA reform earlier this year, we consider the current governance arrangements to be working well. We are concerned by the breadth of powers that would be conferred upon the proposed new executive boards. This would represent a significant shift in responsibilities and risks confusion as to respective roles and competencies.

The Central Bank welcomes the proposed measures to increase the mandates of the ESAs in the area of consumer protection. The proposals include the obligation to carry out in-depth thematic reviews of market conduct in order to identify potential problems and their impact, as well as developing retail risk indicators for identifying emerging risks of consumer harm.

The Commission is proposing an enhanced role for the ESAs in respect of third country equivalence processes. In particular, the ESAs will be required to monitor regulatory and supervisory developments and enforcement practices where equivalence decisions for particular third countries have been adopted. Monitoring ongoing compliance of equivalence decisions would be new and would be welcome. The Commission’s proposal would give the ESAs a significant role in reviewing delegation and outsourcing arrangements by EU regulated entities to third country entities. This proposal is the focus of considerable scrutiny by stakeholders and raises a number of concerns for the Central Bank.

These include the risk of introducing artificial barriers to well-functioning products such as undertakings for collective investments in transferable securities, UCITS, and adopting a disproportionate or inconsistent approach in respect of particular aspects or practices related to the authorisation processes of the national competent authorities, NCAs. It is proposed that approval of European venture capital funds, European social entrepreneurship funds and European long-term investment funds be transferred from national authorities to the European Securities and Markets Authority, ESMA. We have concerns about the logic of singling out these types of funds as the approach could result in a confused allocation of responsibilities between authorities.

Finally, it is proposed that significant prospectus approval powers be moved from national authorities to ESMA. The Central Bank is the second largest approver of prospectuses in the European Union, EU. We have developed an approach and a level of experience that is world-leading and which serves issuers and investors well. Against this backdrop we will be assessing closely the technical detail of the proposals to understand their justification, practicality and implications. I thank the committee for its attention.

Deputy Pearse Doherty

I have a question on the governance structure. The witness identified the different responsibilities that the executive boards of these ESAs would take on. Will he explain that in comparison with the governance structure at this time? The witness mentioned he is concerned about the breadth of powers conferred on these bodies. Is he referring to all the powers or is it a certain amount of power that could be conferred on them?

Mr. Oliver Gilvarry

The Central Bank can come in on this. With the current framework there is a board of supervisors, with a chair who is a permanent member of staff and a non-voting member. There are also very senior people from the relevant competent authorities sitting on it, and there are 28 competent authorities. Decisions would be made in different ways. Some would be on a simple majority and some would be with qualified majority voting.

What has been proposed by the Commission is that we would have an executive board. To take a step back, we have a management board structure within the ESAs made up of the chair of the relevant ESA and a certain number of members from the board of supervisors elected. I cannot remember the exact number. The European Commission representative would sit on that as well as a non-voting member. That really deals with more administrative issues. The Commission is proposing an executive board, which in the case of the European Banking Authority and EIOPA, the insurance authority, would be made up of three permanent members, with the chair of the relevant ESA and the European Commission delegate as an observer. It will make certain decisions, whether it relates to binding mediation or a breach of Union law, for example. The way it is phrased, it looks as if the papers are being prepared for the board of supervisors. It would be another group where we have no national competent authorities present with any views being put forward. In some cases it makes decisions without national competent authorities having a say and prepares papers put forward to the board of supervisors.

Our response in the consultation paper to this in April and May this year was that we saw a need for potentially some permanent members to be on the board of supervisors to give a pan-European view. This is so a domestic or parochial view could be broken. We always said there needed to be a majority of supervisors on the board because they are on the ground making decisions and engaging with firms. They will also be implementing the rules. We feel it is important they have a strong say. As I said, we saw a view for a more pan-European focus but the national competent authorities should remain in the majority. This executive board up-ends that.

Deputy Pearse Doherty

What would the Commission say in response to that? What is the counter-argument?

Mr. Oliver Gilvarry

The Commission's response is that this is required to give a more pan-European view and ensure supervisory convergence. There are significant powers for the ESAs today but they have not been used in a major way. Part of the reason is because the ESAs are also responsible for doing what is called "level two". These are the regulatory technical standards that put the flesh on the bones of a directive or regulation. There have been a significant number of these in the past five years, including the capital requirements directive, the capital requirements regulation, and the MiFID II has been completed recently and transposed. We have seen the market abuse frameworks. There has been a large raft of legislative proposals and these ESAs must focus on them to create the rules around them. They have not been as focused on supervisory convergence so our argument is, rather than creating these new structures and diluting the power of national competent authorities, they should focus more on supervisory convergence. If there are issues following that, a fundamental reform can be carried out. As Mr. Cross outlined, the framework came into place in 2011. Let us give it a bit of time to see if we need fundamental reform.

Deputy Pearse Doherty

We can look at the Department of Finance background paper. I am no supporter of the centralisation of these supervisory powers but I must ask these questions. When we cut through this, is the fact not that we would lose competitiveness? The divergence currently benefits certain funds in certain member states and Ireland is one of them. Is that not the real issue behind this? If this is introduced, a bit of the competitive edge we have could be lost.

Mr. Oliver Gilvarry

We have been clear with regard to entities moving here that we have no interest in brass plates. We have a framework in place here that we see as a strong framework. The Central Bank will speak in a moment about active engagement. We have called for a greater use of the powers that the ESAs have to ensure the rules applied are agreed by the co-legislators, the Parliament and Council, and applied equally across the Union so we avoid this regulatory arbitrage. We want to see a position where those rules are applied properly and stringently and we do not have a case where other member states might not apply them to their full degree.

There was an ESMA opinion on delegation and outsourcing on asset management. The Central Bank was heavily involved with that, as were other national competent authorities. This was to provide a structure on delegation and outsourcing the likes of asset management. We need greater focus so the rules in the directive or regulation, and brought down via level-two measures, are applied equally. This is so we are all on a level playing field. Ireland is not a jurisdiction people would pick in the hope of a light-touch regime but people could pick another jurisdictions because it would not apply certain rules in certain ways. We want to see rules being applied equally across the Union so people make decisions not based on regulatory arbitrage but on whether they are cost-efficient.

Deputy Pearse Doherty

If the rules are applied equally across the Union, as the witness wishes, what difference would it make if it was a national agency or a more centralised agency applying those rules and supervising their implementation?

Mr. Oliver Gilvarry

We have a framework and the prospectus example is good. Ireland is seen as a location for prospectus approval; we are the second-largest destination in that respect in the Union. From the European framework we have set timelines for prospectus approval. Ireland works to a tighter timeline due to the resources applied and systems used. Our concern is-----

Deputy Pearse Doherty

Could it be Ireland is a wee bit more lax and has a light touch?

Mr. Oliver Gilvarry

A peer review was done of Ireland and other competent authorities in the application of the prospectus directive. It outlined the pluses and minuses. That report was positive overall in how the Central Bank operates but there was one issue relating to resourcing and the need for greater resources. That was dealt with. It is an example of the process demonstrating that we are a good regime and applying the rules in an appropriate way. Our concern, which is not purely from the Irish perspective, is that if the process is centralised to ESMA, will we see those timelines slipping? From an Irish perspective we will lose the listing business but the Union will also lose. That feeds into the desire to build a capital markets union.

However, the process damages this because decisions will be made not to list debt instruments or equity in Europe and instead to use another jurisdiction where companies will know the timelines and framework and have certainty.

Another issue is that changes to the prospectus framework were only agreed by co-legislators in recent months and the Commission is now proposing further changes. This creates uncertainty regarding the framework in Europe and, again, does not help us to develop a capital markets union.

Mr. Gerry Cross

I agree with much of what my colleague, Mr. Gilvarry, said. I will add a couple of thoughts. The Central Bank approaches this matter very much from a regulatory and supervisory perspective. We have stated we are very strong supporters of the objective of creating a capital markets union. The idea of enhanced sources of funding, investment opportunities and diversification funding are highly valuable. The first question we ask, which is the same as the question being asked by the Department, is whether it is necessary to do what is proposed to achieve these objectives. In many respects, as Mr. Gilvarry stated, some of the examples of convergence, even in the past few months, are quite striking, in particular, what the European Securities and Markets Authority, ESMA, has done around Brexit. ESMA established a supervisory co-ordination network which has significant oversight of how some of these decisions are being made.

Deputy Doherty asked whether we are concerned about the establishment of the board or the powers it would have. To take one example of these powers, the three-year strategic supervisory plan, we are very much concerned that we may somehow end up with an inconsistent allocation of powers and responsibilities. The Central Bank has responsibility for supervision in the context of Ireland, accountability to the Oireachtas and securing financial stability and consumer protection in Ireland as well as in the European context. This becomes complicated and potentially conflicted if the plan we have to follow is set at the European level and we have to stick closely to it and be assessed on it. One of the concerns that we have, which we also observe in the discussion on funds authorisation, is about different allocation of responsibilities between the national and European authorities in respect of approvals around third country delegations. Across the piece, what concerns us is the risk of fragmentation and inconsistency of approach which may ultimately result in a divergence between powers and responsibilities.

Deputy Pearse Doherty

There is no consumer protection organisation in financial services at European Union level. The European supervisory authorities perform this role along with the European Systemic Risk Board. Should there be a separate consumer protection organisation as part of this process? Is there any divergence of opinion between the Central Bank and the Department or is it the position similar to that between the Garda Commissioner and Department of Justice and Equality to the extent that everything is worked out between the Central Bank and the Department beforehand? That is not a serious question. I am interested, however, in hearing whether there is a divergence of views between the Central Bank and Department. The various officials will be familiar with the position of their counterparts on this issue.

Mr. Oliver Gilvarry

As my colleagues from the Central Bank have outlined, the bank is still going through issues. On the points that I have raised, we are aligned on concerns about diluting the power and role of the national competent authorities in the proposed framework and moving supervision of certain parts, for example, prospectus approvals. We can definitely say we are fully aligned in terms of our desire to have the rules applied equally. From the Department's perspective, while we operate a stringent regime for applying the rules that are set out, we want a level playing field to be applied across the European Union.

On consumer protection at EU level, the European supervisory authorities, from my understanding, all have a conduct or consumer protection area within them. The issue is not one that we have considered as part of this process. Again, this flows back to the point that if this were to move back to a European level, an issue would arise regarding expertise and how it would work. However, we have not considered whether consumer protection should be included as part of this process and it was not included in the Commission's consultation paper. That did not prevent the Commission bringing forward some of the proposals but this was not in the original paper.

Mr. Gerry Cross

We approach this very much from the regulatory and supervisory perspectives. We ask whether it will work and where it will leave our regulatory objectives. I do not believe there are major divergences between where the Central Bank ends up and the Department's position but any divergences are probably on matters of gradation. There are some issues on which the Department probably has firm views and the Central Bank's position would be more agnostic, and vice versa. There is significant convergence on some of the main issues we have discussed today.

On the issue of the consumer protection mandate, the Central Bank raised this matter in its submission to the consultation on the ESAs in May. We considered that there was a gap in the sense that there was not a clear and consistent mandate for the ESAs in respect of consumer protection. It was not always the case that they could operate very well together across sectors. There were divergences and differences in definitions across different sectors and we called this out in our submission. To reply directly to the Deputy's question, we called for the establishment of a cross-sectoral committee with consumer protection responsibilities.

The Commission's proposals probably reflect a slightly different view of the issue. We believe they move in the right direction, call out more clearly the consumer protection mandate in the case of ESAs, and add to their mandates in terms of carrying out in-depth thematic reviews and developing risk indicators. The package goes in the right direction, although more could probably be done and it approaches the issue slightly differently from the way we suggested in our submission. It goes in a positive direction, however.

Deputy Pearse Doherty

The Central Bank carried out an assessment of the fund industry either last year or the year before that. It quantified the size of the industry for the first time and its potential impact on stability in the State. Has the risk presented by the industry increased in the meantime and has the sector experienced growth since the assessment was carried out? Are there any serious risks? We are all familiar with the risks posed by excessive lending by banks. The shadow banking sector is massive in this country. We can talk about the perspective and times and so forth but what we are discussing here is a substantial chunk of the market. While the Central Bank's report did not identify any significant risks at the time, has anything changed or are the risks becoming greater or smaller?

Mr. Gerry Cross

I will be pleased to respond and my colleagues may also wish to comment. The Financial Stability Board, FSB, which is the international G20 organisation, carries out an annual survey of shadow banking across the globe. We participated in that process for the first time two years ago, although we are not an FSB member. The Deputy is correct that the funds industry in Ireland is sizeable and this comes through in the figures reported by the FSB. While I do not have figures with me, the funds sector has continued to grow at a moderate pace, rather than exponentially.

Two crucial facts should be noted. First, because much of the so-called shadow banking sector in Ireland - others use the term "market-based finance" - is actually in the funds space, it is regulated. The risk profile of that must, therefore, be viewed in light of the fact that it is a regulated concept.

Second, the Central Bank has been very engaged in leadership ways, for example, regarding the work of the International Organization of Securities Commissions around risks and potential systemic risks in the funds sector. The work there is continuing but is moving in a good direction. The sense is that a good understanding is now developing of how risks might materialise in the funds sector. It is fair to say that this is in a good place and that our participation in the FSB exercises has been very much driven by the desire for us to be transparent about the size and nature of the Irish funds industry. We continue to participate. It is also worth noting that the interconnections between the shadow banking sector in Ireland and the domestic economy are also quite limited. My colleague might want to add something on that.

Ms Gráinne McEvoy

I have nothing specific to add other than to comment on growth. I do not have the 2016 figures but according to the most recent figures in terms of size, the assets under management exceed €2 trillion in Irish regulated funds and the number of funds we have authorised to date is in the region of 6,800, which is a ballpark figure.

Deputy Pearse Doherty

Is that increasing with Brexit in the horizon? Is there an expectation that we will see far more authorisations?

Ms Gráinne McEvoy

Not exceptionally. There may be a certain amount of relocation of funds from the UK to Ireland, but we do not expect that there will be huge growth. I think growth will be in line with normal market trends over the past number of years in terms of fund numbers.

Deputy Pearse Doherty

In respect of Brexit, one of the major concerns I have involves the Central Bank and the staffing profile. I will not go into that but I know the Central Bank is understaffed and has authorisation. My understanding from internal reports in terms of what it should have is that even if it was filled to the authorisation, it would still be understaffed. I understand that a major concern does not involve the number of entities that may locate here as a result of Brexit, but the complexity of the type of activities in which some of them are engaged. In respect of the City of London, the complexity and uniqueness of some of those entities are completely unique in an Irish setting and, therefore, the experience may not exist within the Central Bank because we are unfamiliar with that type of territory. How much of a challenge does that pose or is it just the case that authorisation would be refused in those circumstances?

Mr. Gerry Cross

To add to what Ms McEvoy said, it is fair to say that because of the way the funds sector is organised globally and the fact that it is very international and already very diversified globally and geographically, it is quite different from other sectors. The advent of a range of firms relocating activities to Ireland in the context of Brexit, some of which we are familiar with and some of which are new, poses a challenge that we need to address and be ready for. My sense within the bank is that we have planned well for it and have scoped what is expected well. In our planning for 2017 and ongoing planning, we have foreseen what was expected and have made recruitment and contingency decisions, which we have implemented.

In terms of resourcing, we have kept well apace of the challenge that Brexit is posing in that respect. It means we must think about and respond to new activities, but that is a challenge with which we are comfortable and about which we are confident. We have a great wealth of experience within the organisation and are able to deploy resources across different sectors so one of the benefits of the one-bank approach, which is very much at the heart of how we operate now, is that we can use resources from our banking experience in the context of asset management and, therefore, when one is looking at broker or dealer activities, it allows both of those perspectives to be brought together. It is a challenge because these are new activities but it is a challenge for which we have planned well and are in good shape in respect of and things are going as they should.

Mr. Oliver Gilvarry

The Central Bank and the Department are working together on this closely. The Central Bank provides technical advice. As it has said, it has the expertise on the ground concerning the supervisory function and what these changes do. It attends the Council working parties with us. As the file progresses, we will continue to work closely, get advice from the bank and take that on board as we are making policy decisions on the way to go in this area.

Deputy John Brassil

I have a few questions for Mr. Cross. Will the changes enhance the issue around regulation of insurance companies, specifically, the freedom of service insurance companies? Mr. Cross will be well aware of the issues that arose around Setanta and Enterprise Insurance. In his presentation, he mentioned enhanced consumer protection. Will it be in this specific area?

What role will the European authorities have in respect of consumer protection issues regarding banking and mortgage scandals? I refer specifically to the tracker mortgage scandal that happened recently. Would the Central Bank have a role in protecting consumers in the event of a similar scandal in the future?

Mr. Gerry Cross

In respect of insurance and freedom of service, it is certainly the case that there has been-----

Chairman

There may be a mobile phone somewhere on a desk. If there is, can someone please take it away from the desk or turn it off? It may be Mr. Cross's phone.

Mr. Gerry Cross

On freedom of service and insurance companies, one of the issues that lay behind the suite of problems has been the ability of host authorities, for example, the Irish Central Bank in the case of Setanta, to engage effectively with the home authorities. This means where an insurance company is set up in another jurisdiction and provides services in Ireland. One of the challenges has been the fact that we as a prudential regulator have not had sight of that. and we have not had the prudential responsibilities or other authority. That has been a concern. The European Insurance and Occupational Pensions Authority has taken material steps to try to address that problem recently. For example, what was previously called the Siena Protocol and is now called the General Protocol and has now become a decision of the European Insurance and Occupational Pensions Authority sets up a framework and a set of requirements for authorities to engage with each other to provide information that allows them to ask each other questions. As well as that, the European Insurance and Occupational Pensions Authority has developed so-called platforms of co-operation so that where an insurance company in one jurisdiction is doing business in another jurisdiction and issues arise with that, the European Insurance and Occupational Pensions Authority will host a platform through which authorities can engage with each other about what is or may be happening and how it may be resolved. Those are steps that have been taken within the current framework to address that issue.

Another route to go might be centralisation, which is the route proposed by the Commission. That is a way of saying that we are going to bring the problems away from the local to the centre. One then faces the question of how much of that one does. For example, in the context of proposals, it is proposed that the European Insurance and Occupational Pensions Authority would have the power to approve models of cross-border insurance companies but that is just one aspect of their business so does one end up with a situation where responsibilities are less clear?

At least we now have clarity on responsibilities and we can work around the convergence, co-operation and co-ordination. Progress has been made in that respect. The question remains as to whether the centralisation route provides the most effective way of addressing the issue.

Deputy John Brassil

Is there any move on the cost of liquidation?

Mr. Gerry Cross

That relates to the question of whether responsibility for the policyholder protection scheme should be borne by the host state or home state. In insurance, unlike banking, the cost is borne in the host jurisdiction, which is what we are seeing in the Setanta case. One could move to a different model in this regard. The Commission has considered and discussed this from time to time but there has been limited appetite for it in the insurance sector because there are such differences between insurance models. It is more a question for the political sphere than for the Central Bank to express a view on.

On the question of tracker mortgages, I am not briefed to address the issue in detail. The question of culture and conduct within banks and financial firms is a key issue for supervisors. It is something on which we can work together at European level. For example, in the context of the SSM, there have been quite important discussions on how culture may be effectively supervised within complicated organisations. These particular proposals are not specifically aimed at addressing that question. I have mentioned the consumer protection aspect. That is as far as they go in that regard.

Deputy John Brassil

From reading Mr. Gilvarry's submission, it seems he is not very supportive of these proposals. Do other countries share his views? What arrangement would the Department like to see?

Mr. Oliver Gilvarry

Ireland and a large number of other member states flagged earlier this year, in light of the Commission's consultation paper, the need for targeted amendments. As I said earlier, we called for permanent members with voting rights to be on the board of supervisors, with a view to trying to bring a greater European focus, rather than a domestic focus, to the ESAs. We saw much greater use of peer reviews to ensure supervisory convergence across the Union, but we have seen the authorities going much further. Rather than focusing on targeted amendments, they have opted for a very broad-brush approach, which, in our view, is ignoring the positives of having supervision at national competent authority level in respect of investment funds and other areas. What is occurring is adding complexity, cost and delays in certain parts.

Within the Council, only the French and Dutch support the proposal. Therefore, a large number of other member states have concerns over the broad reach. We voice those concerns also. Ireland and others have voiced our disappointment that the amendments are not targeted to achieve some fixes. As I stated, the framework is in place only since 2011. We have seen some areas that might need more focus. Powers may need to be exercised in regard to the breach of Union law, including in respect of more mediation. I have referred to peer reviews already. Let us see how we can do as I describe rather than saying it is not working and bringing it all into the centre without seriously considering the impact on European capital markets and consumers.

Deputy Joan Burton

I want to ask about consumer protection in the context of the various roles set out for the Central Bank. With regard to the five or six roles identified, consumer protection and investor protection come last. We would be interested in knowing how consumer protection manifests itself when a person has a relationship with a bank or investment vehicle of any kind for pension or other purposes. Most people and SMEs find it very difficult to understand where the bank stands in this regard. People understand that the Central Bank is absolutely interested in the stability of the banking system, its recovery and meeting international standards and norms, but costs and charges in Ireland, across a range of items, are extraordinarily high by comparison with those in most other countries. When people fail to meet agreements, the penalties can be extremely high. People are often left without recourse.

One of the main points for consumers and SMEs is that when they are investing in pension products, it is very difficult for them to evaluate the products properly. As the witnesses know, very significant sections of the workforce are now in defined contribution structures for their pensions. Unless an individual really keeps up with the financial press or financial information, how is he or she safeguarded in terms of ensuring his or her investment is as wise and least costly as possible and produces returns that are commensurate with other options? That is a tall order but, as a society, we have moved from a quite paternalistic defined benefit pension scheme that gave people the advantage of a lot of security at the end of their investment period, provided the pension fund was well managed, although I acknowledge that many were not. Now there are hundreds of thousands of individuals, and there are to be more in the future, who are managing their own pension funds. Regarding the ordinary banking arrangements and investments of the ordinary customer or SME owner, what is the Central Bank's concept of consumer and investor protection?

Mr. Gerry Cross

The Central Bank does not have responsibility for pensions supervision. Nonetheless, the broad thrust of the Deputy's question is relevant. As she knows, consumer protection is one of our core mandates and one to which we have been and continue to be completely committed. There has been a discussion at a meeting of this committee. We try to articulate clearly that we are focused on ensuring consumers are treated fairly. Our role is not capping premiums or controlling prices per se but, rather, ensuring consumers are treated fairly.

That is essential. From the point of view of the Central Bank, not only is the mandate of protecting the consumer in itself a key requirement but that also goes directly to the level of confidence in the financial system, which goes to how the financial system supports the economy. That is core to our mandate and central to how we go about things.

The Deputy mentioned that it is clear that we have a great interest in prudential and financial stability issues. Those are driven by a wish for consumer protection. There is a consistency of thought there. I would also mention the recent establishment of the new two pillar structure within financial regulations. Whereas previously we had financial regulation, we now divide it into prudential regulation and financial conduct. Each has a deputy governor or director general in charge of it. There are many reasons for that, including the proliferation of workload, but it clearly calls out that commitment to addressing conduct.

With regard to these proposals, as we have said in our response to the commission's consultation on this earlier in the year, we called this out. We asked for more effectiveness in this space, stronger mandates and a more consistent mandate. The proposal does not go directly on that route but it includes aspects which enhance the profile and mandates with regard to consumer protection. It calls out consumer protection specifically which is important because a past issue was where different European Supervisory Authorities, ESAs, gather their consumer protection mandate. Now that is clearly called out, as are some of the practices. We think this goes in the right direction but there is more to be done.

Deputy Joan Burton

To follow up on that, how is this manifested? How does a consumer find out whether or not the service the consumer is getting from a bank is more or less expensive than other banks? It is extremely difficult to compare them. How are consumers represented in the process in the Central Bank? How many representatives of consumers are there? I include small and medium enterprises, SMEs, as "consumers" because the people who often get the roughest deal are SMEs looking for loans and seeking to buy credit for varying durations and finding that if they enter into a deal and something is varied, the cost can rise enormously. How are consumers represented, particularly at a time when face-to-face banking relationships are disappearing from a consumer and small business point of view? It has moved to online banking and there is nothing wrong with that but it can be expensive to meet, speak to or contact somebody. What is the response of the Central Bank and its European colleagues? The impression there, which many people believe, is that because Irish banks collapsed, the role of the Central Bank has been to bring the banks back to a point of prudential security, safety and that at the same time consumers, a term which I use widely as I set it out, are gouged with charges, penalties and costs. This even happens in the case of simple things.

The Central Bank instructed banks to confirm who account holders are, which is ongoing. That can be extraordinarily difficult from the point of view of consumers because banks come out with a bewildering range of things that people have to confirm with regard to the accounts. Is there somewhere that banks can go? Does the Central Bank have any contact with services such as the Citizens Information Board or the Money Advice and Budgeting Services, or indeed with credit unions where many people have sought recourse? I do not think credit unions fit into this section. Is there an easy way of explaining it? If somebody has a serious complaint, does that person still have to go through all the bank processes or can he or she get relatively quickly to some kind of ombudsman service where action may be required sooner rather than later? Many people give up on complaining because it is a lengthy process which takes a lot of personal resource on the part of people to be able to deal with it.

Chairman

We will have the opportunity to deal with all of those issues on 7 December. While Mr. Cross may reply, as I said, those issues will be on the agenda on that day.

Mr. Gerry Cross

I thank the Chairman. I felt this was going slightly beyond my brief for today. The point about what consumers are able to understand in respect of different products and offers is important and it is central to the work that goes on in Europe and the Central Bank. An example from the recent past is the packaged retail investment products, PRIPs, framework, which has been a long exercise to try to have one or two pages on what exactly the terms of the product on offer are and how to make that meaningful for consumers. There are many examples. The Deputy mentioned the issue of online banking. One thing we published in the recent past is a discussion paper on how to achieve consumer protection in the context of financial services in a digitalised context. How does it work if people do not read terms and conditions any more because they press "I agree" as we all do? How would that work? That is a discussion paper which I think has been well-received and which lays the foundation for us to engage further in that. The issues the Deputy raises are important and exercise us and colleagues on a European level. The PRIPs example is one that took place across three ESAs and was a reason why we called for a single committee. It was quite difficult to have the same discussion across three different ESAs but it was done across all three ESAs. Noting the concerns the Deputy articulated, which are very familiar to us, those are things we are committed to addressing.

Deputy Joan Burton

How are consumers represented?

Chairman

Sorry, Deputy, Mr. Gilvarry wants to speak.

Mr. Oliver Gilvarry

There have been changes with regard to charges and such. They have been brought in at a European level, we have transposed them and they will come into effect on 3 January. Under the markets in financial instruments directive, MiFID 2, we have a situation where the information provided to a consumer has to be understood by the consumer. We will see changes coming through. As part of that process, the Central Bank has changed its consumer protection code to bring in this concept of what we call inducements. An issue seen across Europe is provision of services to people. It may not be the best product that is being provided because one is paying a higher commission. We are seeing greater disclosure. There is more disclosure by people about what inducements they are getting paid for selling the product. That is all looking forward to the future but there have been changes and we have also seen changes with regard to what one might call instruments from the legislation that has gone through the houses in recent times with relation to the Financial Services Ombudsman and the Pensions Ombudsman. There have been changes in addition to those Mr. Cross has highlighted with regard to PRIPs, which is supposed to give simple language to people that they can understand. It specifically says in the regulation that it must be in plain English in a very small number of pages.

Senator Kieran O'Donnell

I have two quick questions, the first of which I am asking to seek clarification. In his presentation, Mr. Gilvarry said that "the ESMA will be given responsibility for the authorisation and supervision of certain types of investment funds structures - European venture capital funds, European social entrepreneurship funds and European long-term investment funds". I am seeking clarification with regard to so-called investment funds that are investing in Ireland. They are known by the ordinary person on the street as "vulture funds". The regulation of such funds happens by means of the regulation of their agents which are operating in Ireland. Does that fall in under this ambit? Is that what we are talking about here or is it something completely different?

Mr. Oliver Gilvarry

It would be different. I ask the Senator to correct me if I am wrong in my understanding of what he is saying. If an investment fund buys a portfolio of mortgages, it is separate. For example, EuSEFs involve social entrepreneurship. I accept that EuVECAs involve venture capital. They are very restricted in their frameworks. Our requirement to have a servicer within the State would not be affected. That is separate.

Senator Kieran O'Donnell

I would like some further clarification. Why is it the service provider within the State that is regulated? Why is there no regulation of the actual fund itself that provides the fund and-----

Mr. Oliver Gilvarry

This does not really fall under my area. My understanding is that from a funds perspective, the fund could be outside this jurisdiction. The fund could be in Belgium, France or the UK. I do not know whether it could be outside the Union. Potentially, it could be in the US, which would mean it would not be caught by the competent authority here. My understanding is that in such circumstances, the servicer would be caught here. I am not very heavily involved in this area. I know that a fund does not need to be in this jurisdiction to be investing in Irish assets or Irish-domiciled assets. That could be the reason the servicer is caught.

Senator Kieran O'Donnell

This would be slightly different. If these funds look to invest in Ireland at the moment, they are authorised by the Irish Central Bank. Is that correct?

Mr. Oliver Gilvarry

The first thing I should say is that there are very few of them. There are no European venture capital funds, or EuSEFs as we call them. There are ten or 11 European long-term investment funds, ELTIFs, across the Union.

Senator Kieran O'Donnell

Would it be fair to say that at this moment in time, none of those categories has been regulated or authorised in an Irish Central Bank context? Is that correct?

Ms Martina Kelly

That is correct. We do not have any EuSEFs or ELTIFs. There are five EuVECA venture capital funds. These products are not authorised by the Central Bank. Their managers are registered here. They are Irish entities. They existed for quite some time before this regulation came in.

Senator Kieran O'Donnell

Is this type of arrangement similar to-----

Ms Martina Kelly

As I understand it, the vulture funds to which Mr. Gilvarry has referred are not Irish entities. If they were collective investment undertakings and they were established in Ireland, they would probably be regulated by the Central Bank under investment fund legislation, or their managers would have to be subject to our regulation. If they are outside Ireland and investing into Irish assets, they will not come under the scope of the legislative and regulator framework.

Senator Kieran O'Donnell

They will not come under the scope of it at all. Okay. How long will it take to reach the end game? When will we know where it is at? How much time are we looking at?

Mr. Oliver Gilvarry

We have had two Council working parties so far - one in October and one in November. The Bulgarian Presidency has announced two meetings in January. As I said earlier, very few member states are in favour of this proposal. The question of how far it goes will need to be revisited. Along with other member states, we have called for a step back to be taken in this regard. We need to look at whether targeted amendments can be introduced. We have not yet mentioned today that there will be changes to the European Systemic Risk Board. Those uncontroversial and very targeted changes will move much more quickly. It is possible that those changes will be made within the European Council in the coming months. It is like asking how long is a piece of string. This is not going to move that fast in the current framework. If it remains as it is-----

Senator Kieran O'Donnell

The likelihood is-----

Chairman

How long is a European piece of string?

Senator Kieran O'Donnell

Yes.

Mr. Oliver Gilvarry

The parliamentary elections are due in 2019, which potentially gives a kind of timeline.

Chairman

We will all be retired.

Senator Paddy Burke

I welcome the delegation. I have been in and out of this meeting to vote in the Seanad, so I am not sure whether some of the questions I intend to ask have been asked. Why does the departure of the UK from the EU mean that some of these changes and new measures need to be introduced? Why would it have such a big impact on the financial business of Europe? When one of the 28 member states leaves, would it not just be a matter of downsizing everything?

Mr. Oliver Gilvarry

We have seen some discussions on this within a number of the European supervisory authorities. The point the Commission is making in this regard is that due to the large number of entities moving out of London and looking to set up subsidiaries or other entities within the EU so they can continue to offer their services to their customers within the 27 remaining EU member states, there is significant concern about supervisory arbitrage, or people looking for jurisdictions with a lighter touch framework. The Commission is saying the only way we can achieve supervisory convergence is by moving supervision of these entities to a centralised level within Europe. The UK's departure from the EU is advancing that change by acting as a catalyst to force it to happen. We are countering that by arguing that although the UK is leaving, we do not see why the existing tools - maybe with some modifications - cannot be used to ensure we do not have a situation where one jurisdiction has a light-touch regime and another jurisdiction has a hard-touch regime. Rather than saying the only way to achieve this goal is to bring everything to Paris or Frankfurt, we are saying the existing powers can be used.

Mr. Gerry Cross

I agree with what Mr. Gilvarry has said and I would like to add to it by mentioning another two aspects of this matter. As Mr. Gilvarry has articulated, we will have a very large financial services centre right beside the EU but just outside it. For that reason, over the past year a great deal of concern has been articulated about the risk that firms will pretend to be in Europe while actually being in the UK, which could allow them to get around European rules. One of the arguments that has been made is that we need to stop firms outsourcing outside Europe as a way of getting around European rules. We would not agree with that. From our perspective, it is important that outsourcing is done well and that there is substance in Europe and in the Irish jurisdiction. Over the past three years, we have built a whole framework to ensure there is significant presence within the Irish jurisdiction in the case of the funds industry, for example.

The second aspect of this matter I would like to mention is that when the UK decided to leave the EU, the Commission and many other interests asked what the capital markets union would look like without the UK. That galvanised lots of thinking about the possible need to create a more centralised supervisor as a counterpart to the UK authorities. I understand that is part of the thinking behind some of the proposals to move powers to the ESMA. We would say that the right route for this probably involves convergence under the current model rather than significant centralisation.

Senator Paddy Burke

Mr. Cross is saying the Commission is afraid that a lighter touch could be taken in the UK, which will be right on the doorstep of the EU. Is that what the Commission is basically afraid of?

Mr. Gerry Cross

It does not have to be a light touch. It can just be different. If we establish a body of rules as the way to protect consumers in Europe, and another jurisdiction decides to do the same thing differently, we will want to have a framework to work out whether the approach being taken in the other jurisdiction meets our standards and achieves the same outcomes.

So far we have had that third country regime with the equivalence assessments which have applied in respect of countries such as the US, but they are not as clear and present on our doorstep as is the UK. That has caused people to consider how it works in that context. It is a question of difference rather than light touch.

Senator Paddy Burke

I have a few questions on the full time members of the new executive board. How many members will the board have in total?

Mr. Oliver Gilvarry

Regarding ESMA, I am open to correction by my Central Bank colleagues, it is five members on the European Securities Markets Authority Board and three on the European Banking Authority and the European Insurance and Occupational Pension Authority with a chair from the authority, also, and an observer from the Commission.

Senator Paddy Burke

So that is ten or 11.

Mr. Oliver Gilvarry

There are four or five from the EBA and EIOPA together, which is ten and an additional seven makes a total of 17. Some of those are Commission observers. That number includes three Commission observers and three chairs which are already in existence.

Senator Paddy Burke

Are they all full time executive members?

Mr. Oliver Gilvarry

The numbers would be five and three, so 11 would be full time members.

Senator Paddy Burke

Do those involved already have jobs and if so, are they full-time?

Mr. Oliver Gilvarry

These will be new appointees.

Senator Paddy Burke

Will they be full-time executive board members?

Mr. Oliver Gilvarry

Yes.

Senator Paddy Burke

Will they have no functions in any of the specific areas or will they be working for the ESRB?

Mr. Oliver Gilvarry

No, not the ESRB, it will be either the European Banking Authority, the ESMA or the EIOPA.

Senator Paddy Burke

They will be working for the European Banking Authority, for example.

Mr. Oliver Gilvarry

Yes.

Senator Paddy Burke

They will be working for it as well as being an executive.

Mr. Oliver Gilvarry

No, they will be a full-time member of, for instance, the European Banking Authority. They would be a full-time staff member of that authority.

Senator Paddy Burke

When that executive board makes a decision, is it responsible to anyone? Is it responsible to the Commission or who supervises it?

Mr. Oliver Gilvarry

There is a framework for oversight by the Commission. It is there as an observer but it is a point that we have flagged within the Council working party that these people are making decisions without involvement in a national competent authority, so if a decision is made that has an impact on an entity, where does the cost fall if there is compensation? It is a point we have raised and we await a response from the Commission.

Senator Paddy Burke

There has been no response.

Mr. Oliver Gilvarry

Not yet.

Senator Paddy Burke

But Mr. Gilvarry is not sure about where decisions go after being made by the executive board. It is copper-fastened then by the Commission. What about the member states?

Mr. Oliver Gilvarry

I would not say that it is copper-fastened. There are certain roles where, for instance, there could be what we refer to as binding mediation where a decision is made by a competent authority, whether it is the Central Bank of Ireland, or it could be the AFM in the Netherlands, would have to implement that decision.

Senator Paddy Burke

Who makes the decision now?

Mr. Oliver Gilvarry

If we take a binding mediation case, the decision is taken by the board of supervisors. It is a board with 28 members from competent authorities from 28 member states.

Senator Paddy Burke

Which will be the most complicated?

Mr. Oliver Gilvarry

The framework that the Commission has put forward with this framework of an executive board, still retaining a board of supervisors, is currently adding complication. The proposal raises a lot of questions. If a wrong decision is made by the executive board, where does the cost fall? If this board makes a decision, it is not clear who has oversight or who can counter or appeal the decision.

Senator Paddy Burke

Are the executive members lifetime members of the board, until they reach pension age? Are they on fixed contracts?

Mr. Oliver Gilvarry

I am not clear, I cannot remember from the proposal whether they are permanent members of staff or if they have a term of office.

Mr. Gerry Cross

I cannot remember either. The model is often five year terms, which may be renewable. Yes, it is five years renewable.

Ms Martina Kelly

It is renewable once.

Mr. Gerry Cross

It is renewable once.

Senator Paddy Burke

Including the chair.

Mr. Gerry Cross

Yes, that is the model for the chair at the moment.

Chairman

That brings this part of the meeting to a close. I thank the witnesses for attending.

Sitting suspended at 9.05 p.m. and resumed at 9.06 p.m.

Chairman

I welcome Mr. Pat Lardner, chief executive, and his colleague, Mr. Declan Casey to the meeting. We have a copy of Mr. Lardner's opening statement which we can consider as read, or he may take out whatever aspect of it as he wishes.

Senator Paddy Burke took the Chair.

Mr. Pat Lardner

I thank the members for the opportunity to come before the committee this evening. We provided a comprehensive written statement in advance, and in the interest of time I will not go through all of it but I will note some of the salient points. First, as explained in the previous session, this package of measures is of significant concern given the potential impact on consumers, and on regulatory powers. While there are elements of the proposals that we welcome there are several areas that are of significant concern. Our association represents some 125 firms that collectively provide a range of services that enable savings. They do this by offering them through regulated services. In the process of providing these regulated services where we have investors using Irish funds from 70 countries, managers from 50 different countries providing expertise and the capital is being deployed around the world, there is an interaction and an interplay between local authorisation and supervision, which occurs by virtue of the Central Bank's activities. The committee heard from it earlier. It is also anchored in the European directives which facilitate EU market access, through passports and the ability to delegate activities and through equivalence and other requirements. This interplay between the national competent authorities and the European supervisory authorities, ESMA in our case, works very well because both entities have significant pre-existing powers and its own governance. This has all contributed to a long-standing ecosystem of regulatory and commercial activity.

It has been an outstanding success not only in an Irish and European context for over 25 years. The funds industry employs over 14,000 people and has very compelling proof of Ireland's ability to both develop and scale specialist international financial services. The ability to bring global expertise to investors is a topic that I will return to later in my comments.

Clearly, we are also very significant supporters of the Government's commitment, through the IFS 2020 strategy, to develop employment in the whole area of financial services. Separately, I have approached members of this committee to discuss the industry's long-standing request for legislative amendments in respect of the investment limited partnership legislation, which was agreed by the Government in July. I know the proposals need to come to this committee for pre-legislative scrutiny, as a matter of priority, because the opportunity for employment is being squandered. I wish to convey the good news that our clients want to do more business in Ireland. We are uncompetitive in the area of investment limited partnerships at this point in time. I apologise for my detour but given its key priority in my industry it would have been remiss of me to appear here this evening without mentioning the matter.

Both the Department of Finance and the Central Bank have talked about capital markets union and Brexit. Both of the topics are interesting backdrops. We, like others, are very strong supporters of the capital markets union. The union, as well as being linked to a single and strong supervisory network, focuses on fostering stronger connections with global capital, helping to attract investment and also makes sure that the EU is competitive. In that regard, we view some of the proposals in the ESA package as inconsistent and in sharp contrast with the idea of facilitating capital flow, particularly into the European Union, which badly needs same.

In addition, the disruption that may be brought about by Brexit is a topic that was discussed earlier today and I am sure will be the subject of many discussions here. It is worth noting, particularly around some of the potential for the relocation of activities and how activities are overseen, that the European Securities and Markets Authority has issued a number of opinions specifically on this area. It also created a supervisory convergence or co-ordination network earlier this year. All of those things are welcome and serve to emphasise its existing powers. Therefore, it is slightly surprising that just ten weeks after the opinions were supplied the Commission has made proposals that cover a lot of the same ground. We welcome some aspects of the proposals but there are some pieces that have the potential to disrupt.

We will confine our statements on the actual proposals to those aspects that are linked to the European Securities and Markets Authority, ESMA. We believe there are great benefits to be gained from bringing down barriers to things like cross-border distribution and ensuring consistency in the application of rules. When we consider these proposals overall we tend to consider them using the following three questions. What is the likely impact on consumers and clients? How do the proposals improve the functioning of the market? What is the evidence that supports the changes proposed? It is clear from each question that it is not in any way certain or obvious that there is anything other than potential risks to consumer choice, that there is scant evidence of anything that might compromise what is already a very well functioning, successful and globally recognised system for deploying capital through investment funds.

In terms of the additional powers that exist, the Central Bank and the Department of Finance referred to the areas of both delegation and outsourcing and the direct authorisation of investment funds. I will briefly deal with each of them. My industry delivers a wide range of regulated investment fund products, very much through the existence of delegation and outsourcing arrangements. That means we have different types of investment managers who employ various types of operating models and investment expertise. They are based in different parts of the world but submit themselves to EU regulation, authorisation and product rules in order to deliver those capabilities to the end customer. The fact that these types of arrangements are in place has been a key contributor to the success of undertakings for the collective investment in transferable securities, UCITS, and, more recently, alternative investment funds, that were referenced earlier. Delegation has worked extremely well historically and has been central in making UCITS, Europe and Ireland part of a very big global success story. It is a key to ensuring that EU investors can access the best international expertise and that capital can come into Europe.

The proposal, particularly as it relates to delegation and outsourcing, envisages an enhanced role for the ESMA. Specifically, all of the existing third country outsourcing, delegation and risk transfer arrangements, that might be pursued by member states, would need to be assessed and approved by the ESMA. It is important to note that there is an existing EU legislative framework that has robust standards in place for delegation and outsourcing whether it is internally or to third countries. Therefore, we believe that the proposals for delegation and outsourcing would lead to a more bureaucratic, costly and inefficient process and lengthen the time it takes to bring to market European fund products. There is lack of evidence of any market failure, which must be a key hurdle in terms of the proposals to introduce new measures. In addition, we believe there is less regulatory certainty under what is proposed. We also believe it would send a negative message across the globe about the openness of the European industry, particularly at a time when the Commission's capital markets union initiative seeks to attract global capital.

In addition to the burden, a centralised review of delegation and outsourcing arrangements could have a negative impact on the diversity of arrangements that have served investors and industry well for the past 25 years. The approaches taken to delegation and outsourcing, which operate within the associated EU and local rules, have developed over time via extensive consultation and scrutiny by the Central Bank of Ireland. We believe that has led to a robust system that has investor protection as a core principle. Earlier members here asked questions about investor protection. I can reassure them that investor protection is imbedded in many of our structures.

From our perspective, ensuring that the best funds expertise globally is available to investors and delivered via delegation and outsourcing arrangements has been key to the success of the European industry. From an Irish perspective, the European market access that we offer to global asset managers is a fundamental part of the success that has resulted in us employing 14,000 people in 15 different counties around the country.

In terms of powers that we would draw the committee's attention to, and that were commented about earlier, is the question about direct authorisation for certain types of fund products. I will name them and give the acronym. The European long-term investment fund, EULTIF, the European social entrepreneurship fund, EUSEF, and the European venture capital fund, EUVECA. The reason we have a particular concern about this matter is that it would move the direct authorisation and supervision of certain investment funds away from the model that is currently in place and operates with ease, efficiency and certainty.

The package proposed in terms of the authorisation of these products would set a precedent by creating a dual regulatory regime. For example, the ESMA would be the authorising entity for a European LTIF whereas the Central Bank of Ireland would be the authorising entity for the manager providing those services under the alternative investment fund manager's directive. Clearly, there is a consequential uncertainty as to which regulatory regime should prevail, particularly in the case of investor detriment. A dual regulatory regime for these types of investment funds would undoubtedly lead to a more complex, cumbersome and expensive fund authorisation and supervision process. Clearly, when one reflects on the 25 years that we have been involved in the authorisation and the supervision of funds, it would also require the ESMA centrally to accumulate all of the knowledge of local market prices and local conventions, and the investor protection mechanisms that exist nationally. It appears to us to be cumbersome and duplicative in terms of effort. We believe that the current system of supervision by national competent authorities, and in our case it would be the Central Bank of Ireland, are best suited to deal with these structures.

Much has been said about governance and accountability and we have commented on the subject in our written statements. We have always believed that while ESAs should be nimble and capable of efficient action, a balance must be struck between ESAs and the ability of the national competent authorities. NCAs are answerable to their national parliaments and local investors.

There is a legitimate concern, as expressed during the earlier questioning, around what is the nature of the representation. It is our view that some of the resistance and negative feedback on the proposals to date is around a concern about the lack of representational views by member states.

I will now move on to the funding question. It is absolutely the case that post the financial crisis there has been a build-up in financial services regulation and supervision. It created a real up-scaling in resources, including in the Central Bank of Ireland, over a number of years that was funded by consumers and industry. We have no issue with that. The proposals that are contained here suggest a recreating of this centrally in the ESMA, where we have already had significant ramping up. I also point to the fact that there is very little in the way of justification or detail regarding costs for these proposals. We would not endorse altering the current funding model. We believe that a reduction in EU funding potentially erodes the ESMA's accountability to the European institutions.

Much of what I have spoken about is concentrated on what we do not like about the proposals but - as I said earlier - there are elements we support. Clearly, the provision of information that would allow direct collection of information by the ESMA, which would incorporate the forwarding of data from the national competent authorities, would lay the foundations for common EU data reporting. With regard to some of the questions that were asked earlier, one of the methods by which one can assess what action might be needed from a regulatory or supervisory point of view is on the basis of the data that is actually available. The proposals would also support common data standards and comparability, and reduce costs also for all in the market. We also support greater use of open public consultations on guidelines and on recommendations. Ultimately, anything that enhances the practical use of the guidance that is available in the ESMA's existing opinions and in their questions and answers would be helpful. A national competent authority should be able to consult with stakeholders alongside the consultation that the ESMA does.

Well-meaning as the proposals are in terms of greater cohesion, we believe the package underestimates and ignores the fact that we have a very well-functioning market for cross-border funds. We have concerns about duplication of existing powers and the potential for confusion as to who exactly has the final ownership and responsibility in the existence of a problem.

I thank the Chairman for the opportunity to present to the committee. I am happy to take any questions that members may have.

Deputy John Brassil

I thank Mr. Lardner for the presentation. In his summary I believe he has answered what I wanted to ask. It seems that the Irish funds industry would not be entirely happy with the status quo of fund regulation at a European level. What changes would the association like to see?

Mr. Pat Lardner

I thank the Deputy for the question. The Commission is undertaking a number of measures that are in play at the moment, which are very positive. One of the things we have been great advocates for is looking at how we bring down the barriers to enable the cross-border distribution of product. I will explain what that means. The funds industry believes that broad choice of product encourages competition and encourages the reduction of costs. The Commission has been working on how, at a national level, we can bring down the barriers to allow that type of product choice to come in to the market. That is one practical example.

Earlier, reference was made by the Department of Finance and the Central Bank representatives to regulation. We have seen a continuous process of regulatory updating and adding to the corpus of regulation that exists. It is part of what we do as it is a regulated business. From our perspective, we want to make sure that entities are appropriately regulated, and we believe they are. We also want to ensure there is the ability to get good solutions in to investors' hands so they can save for retirement and age care. We want to try to do this in a way that reduces as much friction and duplication as possible. Ultimately, in providing services and in providing for compliance with regulation, there are costs. We want to make sure there is appropriate protection, but done in a way that is sensible for investors and the providers of services to the investors.

Deputy Pearse Doherty

Go raibh maith agat. On the funding mechanism, Mr. Lardner spoke of the proposal altering the current funding model, which is the 40%-60% split. Will Mr. Lardner explain to the committee the current funding model and where is the 40% and the 60%? I take it that 40% comes from the EU budget, and 60% is from other sources. Is that from member states?

Mr. Pat Lardner

It comes from the national competent authorities.

Deputy Pearse Doherty

Is that the Central Bank?

Mr. Pat Lardner

Yes.

Deputy Pearse Doherty

Does the package propose that the industry pays the 60% in the future?

Mr. Pat Lardner

It is suggested that it would go directly from industry and there would be a commensurate reduction in the funding of the local national competent authority. We are not clear how one would work out the maths on that.

Mr. Declan Casey

The proposal introduces a number of funding sources from those subject to supervision by the European authorities, through the national competent authorities. The proposals suggest a capping of the EU element - the 40% - but that becomes a balancing figure. We can then see the 60%-40% split altering in time, and then we would see a potential dilution of the EU institutions' influence over the authority.

Deputy Pearse Doherty

I am sorry but I have lost Mr. Casey there. Currently the funding model is 40% from the EU budget.

Mr. Pat Lardner

Yes.

Deputy Pearse Doherty

Does the 60% come from the national competent authority, in Ireland's case it is the Central Bank?

Mr. Pat Lardner

Yes.

Deputy Pearse Doherty

And the industry does not pay anything

Mr. Pat Lardner

Directly. The industry pays directly to the Central Bank of Ireland for its local supervision. The national competent authority takes a contribution to fund part of the centralised European supervision. It flows up that way.

Deputy Pearse Doherty

Does the Central Bank recoup the money for supervising the funds industry from the funds?

Mr. Pat Lardner

I cannot speak for the way the Central Bank does its internal recouping of the money?

Deputy Pearse Doherty

How is the funds industry charged by the Central Bank of Ireland?

Mr. Pat Lardner

We are charged through regulated entities based on their probability, risk and impact system, PRISM, ratings where. More recently we are charged around application processes we go through. This is for entities that are authorised and regulated by the Central Bank of Ireland.

Deputy Pearse Doherty

Is that an annual recurring charge?

Mr. Pat Lardner

Yes. It is in the form of annual charges.

Deputy Pearse Doherty

It represents the entire industry. Does this cover the costs of regulation from the Central Bank?

Mr. Pat Lardner

It is a portion of it. It has been increasing in time. At the moment I believe we are working at 60% funding.

Mr. Declan Casey

That is in our sector. Clearly if I am speaking of different sectors, they have different ratios.

Deputy Pearse Doherty

I understand that. Is it proposed for the future that the EU part of the budget would still be 40%?

Mr. Declan Casey

It would be capped at 40% but it would become a balancing figure.

Deputy Pearse Doherty

Where would the other 60% come from?

Mr. Pat Lardner

From industry participants.

Deputy Pearse Doherty

Is the industry already doing this through the 60% contribution? It would still be paying 100% in the future.

Mr. Pat Lardner

It presupposes that nothing additional is being paid. It makes an assumption that whatever funding might go centrally to Europe would then cease to be paid locally. Again, as has been explained, there is a movement of some powers. Clearly, there are entities that are authorised in Ireland and there is a responsibility on behalf of the local regulator, to Parliament and to local investors. It is outside my direct area of knowledge and the bank probably has a better understanding of that aspect. We have no question or comment on the fact that the industry should be involved in funding the regulator - that is not the point. The question is that in all cases there should be an element of who provides scrutiny and oversight of how that spending occurs and if there is an element of disconnect. With these proposals, one step is being, effectively, removed. This is one step back to the industry in lots of countries. It is about central power and who is actually looking at it. I believe there should be appropriate oversight, as with most things.

Deputy Pearse Doherty

Yes but this is not about appropriate oversight, it is about who pays the bill at the end of the day, as raised by Mr. Lardner in page ten of his submission. It seems to me that the concern from the industry is that it will have to put their hands in their pockets a bit deeper as a result of this package.

Mr. Pat Lardner

There are a couple of points there. To be clear about the layering and the order of magnitude, we have more significant concerns around the issues of delegation, outsourcing and governance, which I believe has been the topic of most of the discussion.

We mention funding because in the absence of seeing evidence of how that works, it is reasonable for us to raise a question about it. There is a 183-page impact assessment that went with the proposal but there is very little detail around how the mechanisms will work, hence our raising it in our comments on the proposals.

Deputy Pearse Doherty

Would the Irish Funds Industry Association be opposed to full recoupment of the cost of regulating the funds industry in Ireland?

Mr. Pat Lardner

That is probably not the subject of these particular proposals, so I should just make that clear. We do not have any issue with funding regulation. We think, though, that there are multiple stakeholders in that regulation, not just industry. The Government is a stakeholder in it, on behalf of its citizens. In responses to industry and Central Bank consultations on this, we have not objected to higher levels of funding. We tend to like to see two things. The first of these is that all stakeholders retain a level of supervision and accountability, "skin in the game", for want of a better expression. With the move to increase funding, we also believe that there should be appropriate scrutiny of the types of services and service levels provided, as would anyone who pays for, or contributes to the cost of a service.

Deputy Pearse Doherty

I think the skin in the game for the Central Bank is that if Mr. Lardner's industry colleagues get it wrong, they will wreck our economy.

Mr. Pat Lardner

I apologise if I was not clear. I meant that Government and policymakers also have skin in the game. We will have skin in the game, and the Government should also be a part funder of the Central Bank or the regulator, to a small extent anyway.

Deputy Pearse Doherty

Can the witness explain that to me, If he does not mind?

Mr. Pat Lardner

The supervision of the financial system has an impact on consumers. It has an impact on the State in which those consumers reside. It should have an impact on the providers of those services to the consumers. The three parties are all involved in it, with the regulator sitting in the middle. It is therefore reasonable to suggest that each of those parties should be involved in the funding.

Deputy Pearse Doherty

Very well. The witness mentioned that 60% of the cost of regulation is recouped by the Central Bank currently. Does he have any estimates, or guesstimates, of how much per annum that is? What does it amount to?

Mr. Pat Lardner

I have to say, I did not come armed with those numbers-----

Deputy Pearse Doherty

Is it tens of millions, hundreds of millions, what-----

Mr. Pat Lardner

No, it would not be hundreds of millions of euro. I suspect it is in the range of single millions to tens of millions.

Deputy Pearse Doherty

This is an industry that has €4.4 trillion in assets.

Mr. Pat Lardner

Yes.

Deputy Pearse Doherty

Yet, it does not generate a big role in terms of regulation.

Mr. Pat Lardner

I would look at it in two different ways. The first point is that the size of the assets that are in the funds reflects assets that are deployed all over the world. They are invested in global stock markets and bond markets all over the world. I would not equate the value of money in the funds with the amount of supervisory oversight. For example, a fund could invest in money market instruments, which are cash or cash-like and bear very little market risk, but could be quite sizeable by quantum of assets. The approach that the Central Bank takes is a prism whereby it risk-weights entities, and the extent to which regulatory time must be devoted to supervision and oversight is reflected in what is paid in regulatory fees. One cannot make a simple one-to-one or linear relationship between the quantum in a fund and the amount of effort that is required to supervise it. That also applies to an entity, for that matter.

Deputy Pearse Doherty

No, I am not making that point. I am making the comparison between the net assets, whether of Irish-domiciled funds or otherwise, which make up about half of all the funds in the State, and the amount of tax they pay. One of Ireland's big attractions for the fund industry, which has gone from assets of about €600 million in 2006 up to about €4.4 billion, is the tax structure. We also have good services for the fund industry. We have bespoke legislation, which the Irish Government are willing to facilitate. We have flexibility on regulation from the Central Bank, which goes to the heart of the issue that we are talking about.

One of my big concerns is the risk that this causes. The trajectory here is going in one direction, and going in one direction fast. I am not sure how much more ambitious the State can be on the size of administered funds that we are likely to have. However, there is obviously a risk with that. I believe in the idea of a national competent authority regulating the industry, but I also know how that has failed abysmally in the past. When the media talked about the "wild west", they were not talking about Anglo Irish Bank or AIB, but about insurance companies in the Irish Financial Services Centre, IFSC. Nobody really pays much attention to that part, and that is where the label came from. Does this proposal not make the industry which Mr. Lardner represents less competitive?

Mr. Pat Lardner

There are a number of questions in that, so I will break it down if I may. At this stage, Ireland represents about 14.6% of European fund assets, and a little bit less than 5% of global fund assets. We are significant, and thankfully, due to a number of the aspects that Deputy Doherty outlined, we have been competitive. However, it is important to say that the funds industry and investment in funds generally have been growing at a strong rate globally. For example, this year alone we have seen over €600 billion worth of additional monies coming into European funds, not funds in Ireland. That is because of two things. The first of those is people's need to provide savings. A Deputy referenced the move from defined-benefit to defined-contribution schemes. Clearly, people are making more provision for their own retirement. I would not want the committee to think that the upward trajectory of growth that we are experiencing is something different, or-----

Deputy Pearse Doherty

What is the European growth rate?

Mr. Pat Lardner

I do not have that to hand. I would be happy to provide the Deputy with that information afterwards. We have seen a growth rate over time of high single digits to low double digits. We are probably growing at a greater rate than Europe, but having said that, European funds generally are growing.

Deputy Pearse Doherty

The last seven years' growth of net assets was 27%, which is high. The yearly figures were 8%, 18%, 8%, 22%, 13%, 9% and 9%. I presume that is well above the European average over the same period.

Mr. Pat Lardner

I suspect it may be above the European average, but that does not mean that we are growing in isolation from the fact that markets in general are growing.

I would like to respond to the second question the Deputy asked, concerning the types of risk that exist. We are talking about deploying money into risk capital markets. Clearly, there is risk involved. However, to be clear, the risks that exist here are not the type of risks that exist within the banking sector, because the money here is not sitting on the balance sheet of an entity. It is held in trust separately, for clients, under rules around deposits and oversight of that money. That is not to say there is not investment risk in those monies. There is clearly investment risk. However, on the point raised by the Department of Finance officials about investment disclosure, etc., those are all parts of European regulation. I would not want in any way to characterise the types of risks that might be perceived around the banking industry-----

Deputy Pearse Doherty

No, it is a different risk. We know that, but there is a risk.

Mr. Pat Lardner

There are different risks. That is fair, and that leads on to the point that Mr. Cross of the Central Bank of Ireland was making. Both the Financial Stability Board, established by the G20, and the International Organization of Securities Commissions, IOSCO, have looked at the question of whether there are systemic risks or vulnerabilities associated with the asset management industry, which is a part obviously of what we do. They have not seen it as systemically risky in the way that one might see other sectors, but they are focusing on particular issues. They focused on questions about the liquidity of funds. How liquid are they are if one needs to take one's money out? They examined the extent to which things like leverage might be used. Clearly, there are risks which are incorporated within global, European and local supervision, and that is where we participate very actively, to make sure we provide the information.

The Deputy's last point raised a question about the extent to which the proposals make our industry less competitive or otherwise. Our primary problem with some of these proposals is that the orderly function of the market is one of the responsibilities of the European Securities and Markets Authority, ESMA. We already have a functioning market. We do not see any evidence provided in the proposals that suggests there is a lack of function, or a problem requiring some of the changes required. That is our primary objective.

If some of these proposals come through there might be less choice for investors in Europe around product, which is a bad outcome. It would also not be as easy to provide access to European investors, which is one of the reasons companies decide to locate funds in Ireland and other places. That would have a detrimental impact. However, we are not, in our comments on this, separating the fact that it would disrupt what is already a functioning market, distort investor choice, reduce competition and increase costs in the absence of significant evidence otherwise. That is the basis for our approach to this particular issue. Anything which impacts on the European funds industry generally, given the growth rates outlined, clearly impacts on us as well.

Deputy Pearse Doherty

My final question relates to the fund industry, the qualified investor-alternative investment funds and the Irish real estate fund, IREF, the new structure that has been in place since the Finance Bill last year. Did the witness's association lobby the Minister on the dividend withholding tax exemption for capital gains tax, CGT, the five year rule, last year when it was brought in? Did it lobby for the changes made in this year's Finance Bill?

Mr. Pat Lardner

We did not lobby at all this year. When the question of the IREF came up, we did not want to see anything that would discourage managers and providers of investment product investing anywhere in the world that was starting to see taxation or inappropriate leakage of return to investors. We made representations. They were made to ensure that the funds industry would not be damaged. Well over 90% of all assets in Irish domiciled funds have nothing to do with investment in this country. We are not making a virtue of that in itself, but it speaks to the whole point of what the cross-border funds industry is, which is to connect global investment managers with a range of global investors who want to deploy capital globally. Some of that money may find its way to Ireland. Well in excess of 90% of the assets of Irish domiciled funds that are sold on a cross-border basis invest globally. I am sorry that I cannot be more specific.

Deputy Pearse Doherty

I am familiar with that. I am talking about the couple of billion that is in Ireland, particularly the money connected to property. The first lesson in taxation is that property should be taxed in the jurisdiction it is in. However, the structures the Irish fund industry has been able to carve out for itself meant that this was not being taxed at all because of the qualified investor-alternative investment funds. When the new entity was set up we had an exemption from dividend withholding tax on the basis of holding the asset for five years or more. I am interested in whether the association lobbied for that exemption last year.

Mr. Pat Lardner

I do not believe we lobbied specifically for that exemption. I am happy to come back and clarify. The focus of our interaction with officials around that was to ensure that nothing would be done to jeopardise what is a much broader industry that is not focused on investing in Ireland and which employs 14,000 to 15,000 people in many counties, towns and constituencies around the country. That was one of our concerns.

The Deputy made a point about our growth rates earlier. Ireland has spent 25 very productive, appropriate and responsible years building up an industry which is rightly the envy of many places. It is not easy, it is just that we are very good at it. We would always be concerned, in terms of our members and the contribution back into the economy and society here, that having built the industry so well for 25 years we do not inadvertently - or otherwise - cause damage to it . The industry is something which is not only a national jewel for us in financial services. Undertakings for Collective Investments in Transferable Securities, UCITS, is a creation of the European Union, but UCITS funds are sold right around the world. There are relatively few areas across the European Union where there is a global brand such as UCITS. At the very time when the European Union is trying to attract capital into its borders for various things, why would it do anything which could complicate, confuse or frustrate the ability to build on this very big European success?

Senator Kieran O'Donnell

Much of the technical ground has been covered. I have a general question about Brexit. Since the Brexit vote took place, what impact has there been on funds coming in to Ireland? How does the witness perceive that whole area? Are there opportunities to expand? What were the witness's interactions with the Central Bank in terms of authorising various funds to work in Ireland? Northern Trust operates in Limerick, where I am from. It is a huge employer in a growth area, and is a great company. It is an employer I know which is working in that space. What is the witness's perspective on Brexit?

Mr. Pat Lardner

It is a big topic, and I will try and break it down into bite-size pieces.

Acting Chairman (Senator Paddy Burke)

The witness should be as brief as possible because we have another delegation coming soon.

Mr. Pat Lardner

Brexit has created uncertainty. The uncertainty is how financial services or product providers can access the European markets. The very fact that uncertainty exists is causing organisations and entities to re-look at how they structure themselves and how those services are delivered. That inevitably is providing opportunity, but there is also risk. Many Irish domiciled funds are sold into the United Kingdom and many UK based investment managers provide investment expertise to Irish funds. We have advocated strongly, both to Government and the Central Bank and they are well aware, from their own statistics collected from authorised entities, of the extent of this. It is important that there is a continued ability to distribute Irish domiciled funds into the UK, because it is a big investor market, and that there is the continued ability to delegate - which is the subject of these proposals - not only to the UK but also to third countries.

Senator Kieran O'Donnell

Can the witness explain that? Can he give an example?

Mr. Pat Lardner

If one wants to invest in a fund and wants to have exposure to emerging economies in the Far East, it is reasonable to assume that some of the expertise required to do that may not necessarily sit in Ireland. An Asia-based manager or US-based manager may be used instead. The whole idea is that delegation is used so that the right expertise can be used.

We have been very active in our promotional activity. We have done over 30 events around the world this year. The investment limited partnership legislation is key, not only to firms in Limerick but also around the country, because a lot of investment goes through English investment limited partnerships, and we foresee that if we can get our own legislation updated - we are very happy to work with this committee and Government to help do that - it would improve our toolkit and mean that we can hopefully ensure more activity and more employment.

Senator Kieran O'Donnell

In practical terms what will this legislation do?

Mr. Pat Lardner

When we provided the first figures on this in 2015 we reckoned that over five years - if it had been implemented immediately - it would have accounted for over 1,500 jobs.

Senator Kieran O'Donnell

Does the witness mean 1,500 jobs per annum?

Mr. Pat Lardner

No, 1,500 over the first three years. The point, as those who the Senator knows in Northern Trust would tell him, is that once a company starts doing business with a client in this jurisdiction there is then a base from which to do other things. As Deputy Pearse Doherty said, the €600 million which has grown to over €2 trillion is partially down to the fact that a manager came to Ireland, did a piece of business, liked what he or she saw and found us good to deal with and decided to do more things. We want to make sure that we can do that with private equity, investment in infrastructure, and through the investment limited partnerships.

Senator Kieran O'Donnell

I suggest that the Irish Funds issue a brief to the committee around the particular changes it would like to see.

Would that be in order?

Mr. Pat Lardner

Yes.

Acting Chairman (Senator Paddy Burke)

I thank Mr. Lardner and Mr. Casey. I propose that we suspend to allow the next witness to take his seat.

Sitting suspended at 9.50 p.m. and resumed at 9.51 p.m.