Ireland Reforms Its Financial Regulation - Or Does It?

Jason Gorringe, Tax-News.com, London

21 February 2001

In a somewhat convoluted compromise, the long-standing discussion - not to say row - between Ireland's Finance Minister Charlie McCreevy and Tanaiste Mary Harney over the shape of the country's financial regulatory authority seemed to have been resolved yesterday by the creation of a new 'independent' Financial Services Authority which will yet have its roots inside the Central Bank, and will share a Chairman with the Irish Monetary Authority, which clearly remains inside the Central Bank.

The row had its origins in several financial scandals, including the notorious DIRT and Ansbacher affairs, which led Mary Harney to accuse the Central Bank (Charlie McCreevy's responsibility) of incompetence, and to demand the creation of an independent regulator.

The Central Bank yesterday claimed that the new regulatory structure for financial institutions leaves it in charge of regulating financial institutions. A Bank spokesman said that the organisation would continue to carry out the same functions as before, but would be divided up differently internally.

It certainly looks as though Mr McCreevy and the Central Bank have 'won', although both the Finance Minister and the Tanaiste did their best to present the hybrid they have created as being a really new structure. Mr McCreevy said the changes would develop a renewed focus on consumer issues, while facilitating the development of a competitive, modern financial system. Mary Harney said the central bank had been "transformed and reformed".

The Central Bank will become 'The Central Bank of Ireland and Financial Services Authority' (CBIFSA) and will have two 'pillars' (someone has been to Brussels - pillars are very popular there) one dealing with monetary policy and the other with regulatory matters. Mr McCreevy said the government had decided to integrate prudential regulation and consumer protection regulation to ensure effective communication between the two.

Monetary policy will be handled within the new structure by the Irish Monetary Authority, which under Maastricht rules will report to the European Central Bank and will effectively be its Irish arm. It will share a chairman, or governor, with the CBIFSA, and the first holder of the post will be Mr Maurice O'Connell, the current Central Bank Governor. The Financial Services Authority will handle regulation and consumer protection. It will have a great deal of independence and its own chairman directly accountable to the Minister for Finance, but it will have to work with the CBIFSA and IMA in many areas.

Well that's clear then.

Labour's finance spokesman, Mr Derek McDowell, reported in the Irish Times, described the arrangement as a "classic fudge".

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