Oireachtas Joint and Select Committees
Wednesday, 9 October 2024
Joint Oireachtas Committee on Finance, Public Expenditure and Reform, and Taoiseach
Engagement with the Central Bank of Ireland
1:30 pm
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Today we engage with the Central Bank. I remind members of the note on privilege. Members are covered by privilege if they are on the campus of Leinster House. If not, they may only have limited privilege. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable.
I have taken indications from Deputies Tóibín and Boyd Barrett and, I presume, Deputy Conway-Walsh who will speak after the Governor of the Central Bank gives his opening address. Mr. Makhlouf and his colleagues are welcome to the meeting. I invite him to make his opening remarks.
Mr. Gabriel Makhlouf:
I thank the Chair, and good afternoon to him and the committee. I thank them for the invitation to appear today. I am joined by deputy governors Mr. Vasileios Madouros and Ms Derville Rowland.
I begin by giving a brief overview of the economic outlook in the EU and in Ireland before I touch on some consumer protection issues. Growth in the euro area as a whole slowed in the second quarter of 2024, driven by weaker investment and consumption. Having said this, the latest projections are for a consumption-led growth recovery, albeit marginally weaker than was previously expected. Employment growth is projected to be somewhat weaker than its pre-pandemic average. We remain on track to reach our 2% inflation target in the fourth quarter of next year, although some uncertainty remains around this baseline forecast. In particular, more persistent services inflation and stronger than expected wage growth could impact the forecast.
At the most recent ECB Governing Council meeting, my colleagues and I decided to lower the deposit facility rate by 25 basis points, to 3.5%. This was informed by the euro area inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission. Last month, we also implemented changes we had announced in March to the operational framework for implementing monetary policy, which sees the spread between the main refinancing operations rate and our main policy rate, the deposit facility rate, set at 15 basis points.
I turn to the Irish economy, which continues to grow at a strong pace supported by the buoyancy of domestic economic activity. Our latest quarterly bulletin, published last month, paints a picture of a resilient domestic economy poised to grow in the region of 2.5% annually through to 2026. Headline inflation has eased considerably to below 2% and is expected to remain between 1.5% and 2% out to 2026.
However, challenges to maintaining such performance are becoming more evident. Stronger than expected growth, over and above the economy’s potential rate, has brought into sharp focus domestic supply and infrastructure constraints. These in turn present a situation where globally determined inflation in Ireland is declining substantially, while more domestically driven inflation, as reflected in services price inflation, remains significant at around 4%. Given current conditions, the continued expansionary fiscal stance adds unnecessary stimulus to an economy at full employment. Against the current macroeconomic backdrop, increasing net spending in excess of 5% over an extended period implies that the fiscal stance will aggravate price inflation and wage pressures, undermining competitiveness and creating risks that could damage sustainable economic growth.
As my pre-budget letter of 4 July to the Minister for Finance and the paper on the housing market we published last month observed, higher levels of public investment are likely to be required over the coming years given known deficits in housing and to meet longer-term structural challenges linked to the climate transition. Therefore, while the projected increases in public investment are necessary, careful management of the overall fiscal stance is needed to avoid overheating. With the economy already at full employment, there is a risk that increasing public investment on the scale envisaged fuels overheating pressures and results in poor value for money. To avoid this outcome, it would have been preferable if the upward revisions to public investment had been accommodated while keeping overall net spending below 5%. Undoubtedly, this would have presented difficult choices and trade-offs to be made in other areas of expenditure and on taxation.
Furthermore, to ensure that additional Government expenditure yields real improvements in services and that infrastructure investment is delivered efficiently, essential change outside of fiscal measures is needed in broader public policy areas. This includes in particular addressing delays and bottlenecks in the planning system, the building regulation process and construction. Progress in these areas would also help to further incentivise and crowd-in private investment.
Let me turn to consumer protection. The Central Bank’s mission is to serve the public interest by maintaining monetary and financial stability while ensuring the financial system operates in the best interests of consumers and the wider economy. All of our work is aimed at serving the public interest and protecting consumers of financial services, whether it is through the consumer protection code, the mortgage measures, monetary policy, our oversight of payments systems or supervising to ensure firms are resilient and are acting in the best interests of their consumers.
The environment in which we operate is changing rapidly, driven by technological change and consumer preferences. The ways in which we as consumers buy, use and engage with financial services have changed hugely, leading to new risks in the sector we supervise and for the consumers we protect. As outlined in my two recent letters to the committee, the Central Bank is making changes to the way we are organised to deliver our financial regulation responsibilities. Consumer protection remains a core part of those responsibilities. However, in order to continue to deliver on our mandate both today and into the future, we are changing our approach to ensure that consumers of financial services are protected in an increasingly complex environment. This enhanced approach is based on accumulated experience, insight and best practice and is built for a faster moving and more complex financial services sector. We are making the most fundamental strengthening of our consumer protection approach for more than a decade.
In terms of frameworks, as members know, we will shortly be introducing an updated consumer protection code. This follows the largest, most in-depth review of the code since it was introduced to ensure that it is fit for purpose into the future, reflective of the changed nature of financial services and strengthens protections for consumers. It is a tangible demonstration of our ongoing commitment to the protection of consumers of financial services right across the country, and we have consulted widely on it to ensure we hear consumers’ and other stakeholders’ views directly.
To implement the rules, we need the right operational approach internally. This includes moving to an integrated framework where, at an operational level, directorates with oversight of banks, insurance companies and capital markets will be responsible for the supervision of all the functions of their respective sectors as opposed to separate directorates undertaking supervisory activities for consumer protection, prudential regulation and market supervision.
The new approach will make it easier to direct our supervisory resources to the areas of most risk to consumers or the system more widely. Importantly, we are taking the existing team that stood in a single consumer protection directorate and placing them where their expertise is most required, directly in supervisory directorates across banks, insurance and funds. Mainstreaming consumer protection activity in this way will enable us to dedicate greater attention and resources to where the particular risk is at a point in time. A new approach will allow us to do more, not less, to protect consumers.
Let me give an example of how we see the interconnections in our work with regard to consumer protection. Next week, we will publish our analysis of the shortfall between the cost of flooding in Ireland and that portion of the cost which is not insured. We know that Ireland will face more frequent and severe floods as the effects of climate change continue to crystallise and as we approach critical tipping points in a range of significant areas that increasingly require urgent action. Climate change has implications for the economy and for the financial system and floods in particular will impact directly on communities and consumers as well as the balance sheets of insurance companies. We cannot require insurance companies to provide flood insurance cover, but our analysis can help everyone to understand the risks and can support the co-operation and co-ordination required from the many stakeholders involved in building flood resilience in Ireland.
Finally, as set out in my letter, the internal operational changes we are making will not change the focus on consumer protection at the most senior levels of the Central Bank. Ms Derville Rowland, as deputy Governor, consumer and investor protection, will continue to have consumer protection at the core of her responsibilities. The Central Bank Commission’s consumer advisory group will also continue to operate as it does now and the entire senior leadership team, led by me, will continue to have a focus on consumer protection. The changes will come into effect in January, and we are convinced that they are the best way for the Central Bank to continue to deliver on its mission of ensuring the financial system continues to operate in the best interests of consumers and the wider economy. We are happy to take members' questions.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I thank Mr. Makhlouf very much. I call Deputy Tóibín.
Peadar Tóibín (Meath West, Aontú)
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Cuirim fáilte roimh na finnéithe agus gabhaim buíochas leo as na cuir i láthair. There are a couple of issues. First of all, Mr. Makhlouf mentioned the potential inflationary impact of the budget and of spending yet the European Central Bank, ECB, reduced interest rates. On one level, obviously, there is too much money going into the economy according to the constraints there, but the reduction of interest rates will have the same effect, will it not?
Peadar Tóibín (Meath West, Aontú)
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Therefore, it is fair to say that the Irish economy's cycle is not in sync with the other European economies, so while the reduction of interest rates is favourable for the other European economies, it is not actually favourable for the Irish economy at the moment.
Mr. Gabriel Makhlouf:
I have two things to say to that. Importantly, monetary policy operates at the euro area economy, and we do not spend much time analysing what it means to the 20 different economies within the euro system. What that means is that in individual economies, fiscal policy actually has to play a bigger role in supporting monetary policy. I would be careful about going as far as Deputy Tóibín's statement went because it is not as if we are making judgments at the ECB about the Irish economy itself.
Peadar Tóibín (Meath West, Aontú)
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Does the Central Bank push back against the decisions of the ECB in terms of the experience of the Irish economy around interest rates?
Peadar Tóibín (Meath West, Aontú)
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It just strikes me that one of the key components of the big housing crash we had a number of years ago was the fact that interest rates were made low for the German economy's sake and our economy was obviously overheating at a significant rate.
The lever the Central Bank would have pulled, in monetary policy, had it had interest rates at the time would have been to cool down the Irish housing sector with that interest rate but we could do not do that because that tool was not in our hands. It feels contradictory. The Government is obviously under pressure due to its extra investment in the economy, which because of constraints could overheat it, but at the same time the decision by the ECB will have a similar effect.
Mr. Gabriel Makhlouf:
First, I am not sure I would completely agree with the Deputy as to why we had the housing crisis when we did. Monetary policy at the time, as it is now, was being set for the euro area as a whole. One of the things we have learned over time is that it is important that fiscal policy supports monetary policy. That is one of the reasons we have had the EU Stability and Growth Pact, which is now being redesigned. Also, in the context of financial stability, one of the things we learned was we did not have the right set of rules in place at the time, which we do now. Those rules probably play a slightly more significant role in a macroeconomic framework like that in the EU, where there is one monetary policy and lots of fiscal policies, than in some other economies. I emphasise that monetary policy is set and has to be set for the euro area as a whole.
Peadar Tóibín (Meath West, Aontú)
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I appreciate that there were lots of reasons the housing crisis happened. It would be my view that the ECB would have a closer eye to Germany's needs economically in setting the interest rate than it would in respect of Ireland. That is a another day's discussion but that is strongly my view.
There are constraints within the Irish economy. If investment goes in that is too large in the context of those constraints, it will lead to inflation and overheating. Would one of the solutions be for the Government to increase capacity? If we had more capacity within the sector - for example, if we had more construction workers - it could act as a valve to offset some of the overheating aspects of extra investment.
Mr. Vasileios Madouros:
On the overall capacity constraints that we are seeing in the economy at the moment, as the Deputy mentioned we have seen in recent years in the labour market the imbalance, which is easing, between the demand for and supply of labour. Part of the release valve has been labour coming from abroad. The increase in net migration is filling some of the labour shortages we have had. Increasingly, this means we are seeing capacity constraints in other elements of our infrastructure, including housing and other supporting infrastructure for housing. Our overall advice, as the Governor mentioned, is that within an overall fiscal envelope that does not add too much stimulus to the economy, investment should be prioritised because ultimately that has a positive effect on the supply side of the economy, including into the future.
Peadar Tóibín (Meath West, Aontú)
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Given that housing is probably one of the biggest constraints within the economy, would it not be logical for the Government to really focus on increasing the labour supply in terms of housing? Hundreds of thousands of Irish construction workers left for Australia and Canada just after the last crash. If a concerted effort was made to bring home a significant number of those workers, that would act as a valve for those constraints.
Mr. Vasileios Madouros:
Labour from abroad, including the return of people who have emigrated, could ease some of the supply constraints in the labour market. As the Governor mentioned, one of the areas we focused on in the analysis we published a few weeks ago was the productivity of the construction sector. Due to the long tail of the crisis, investment by the construction sector in machinery and equipment has been a lot lower than in other countries. The outcome is that construction productivity in Ireland, relative to other euro area countries, is at the lower end. Non-fiscal interventions that can support productivity in construction can also help to ease some of the trade-offs because you can produce a greater output with a small labour input.
Peadar Tóibín (Meath West, Aontú)
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Is waste inflationary? One of the big issues in this country is the level of waste that is happening. I refer to the overexpenditure on capital projects and budgets running wild, etc. That has an inflationary impact on society. Has the Central Bank quantified whether inefficiencies in capital provision are causing overheating of the economy?
Mr. Vasileios Madouros:
The closest analysis I can think of - it does not quite speak to the point made by the Deputy - was published in June. As part of our quarterly bulletin, we published a piece of analysis that tried to look again at some of macroeconomic trade-offs associated with the increased investment in the economy that we need. We need that increased investment, including infrastructure. One of the potential frictions is potential delays, including frictions in the planning system. What some of this analysis showed - it did not quite speak to the point made about inflation - was how this can affect the impact of additional public spending infrastructure. For example, greater delays in the system can affect the degree and efficiency of private investment that might be coming in.
Peadar Tóibín (Meath West, Aontú)
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Okay. I would like to ask about the exposures of the Irish economy at the moment. I understand that if we stripped out corporation taxes, there would be a budget deficit this year to the tune of €5 billion, which is a significant exposure. One of the people involved in the election that will take place in the United States in a couple of weeks has stated that he wants to introduce a 15% corporation tax to be applied to those who onshore labour there. Has there been an analysis on the threats that exist to the budget around that exposure?
Peadar Tóibín (Meath West, Aontú)
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In general. Right now, corporation tax is playing a bigger role in day-to-day spending. That has its own exposure profile-----
Peadar Tóibín (Meath West, Aontú)
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-----never mind the other elements.
Mr. Gabriel Makhlouf:
Yes. The Deputy mentioned corporation tax, but there is a fairly significant income tax dimension to it as well. A lot of corporation tax is paid by corporates that employ a lot of people who pay a lot of income tax. On the tax side, the concentration we have on those multinationals, which we have spoken about before, is a structural vulnerability in Ireland. That remains an issue. In the past I have said that the Government should be looking to reduce its vulnerability in two ways in particular. First, it should put surplus corporation tax away in a fund. The Government is setting up, or has set up, two funds which I have welcomed. Second, the set of proposals made by the Commission on Taxation and Welfare to broaden the tax system or tax base are worthy of consideration again. I suggest one needs to consider those sorts of issues. Generally speaking, one of the biggest risks that we worry about at the ECB and here at the Central Bank is geopolitical risk, which comes in many forms. Geopolitical risk stems from the fact that we have had for quite a number of years a fragmentation of the global trading system, which is not working in the way we would want. The rules-based system, which is governed by internationally agreed rules and overseen by the World Trade Organization, has been breaking down probably for the past seven or eight years.
Increasingly, we are seeing the use of tariffs, for example, by various countries to protect their own industry or for other political reasons. These risks are real for Ireland's economy and for the European economy. We need to think about managing for those risks. We have not done any particular analysis as to what might happen if one party or another wins the US presidential election. I know that in some countries in Europe some of that analysis has been done but at the moment it is just speculation. It would not be helpful to invest in it. The reality is that the world we are living in today has already fragmented compared to the world we were living in not that long ago. All the signs are that there will be further fragmentation ahead. Ultimately, that is not a good thing for economic growth and development, financial stability and, ultimately, the living standards of communities around the world.
Peadar Tóibín (Meath West, Aontú)
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I have two final questions. I understand that there are still some 60,000 mortgage holders paying inflated rates on their mortgages because they are with vulture funds. What can be done to help those people? We mentioned the bubble and the banking crisis that happened some 15 or 20 years ago. One of the ways credit has increased in the Irish housing sector has been through international investment companies. They own a big portfolio of housing. Obviously, their decisions will be led by market projections, etc. Does that potentially cause a risk in the housing sector? In other words, if all of them were to leave the market at once, would that have an effect on house prices if there was such a shock to the economy in the near future?
Mr. Vasileios Madouros:
I will start with international capital moving into housing but more broadly into property. We have seen a big increase in international capital in the past decade or so in the commercial property market, offices and retail spaces. We have also seen in recent years an increase in international capital in elements of the residential property market, especially in the context of apartments and build-to-rent properties. There are a couple of dimensions to this. Part of the analysis I mentioned earlier that we did on housing and housing supply a couple of weeks ago looked at some of the key factors that will determine housing supply in the future. One of those was related to the issue of financing. Fnancing is not the main issue but it is relevant because construction is highly dependent on financing. One of the points we made is that the diversity in financing we have seen is really important. Diversity domestically and globally is positive overall from a macro-financial perspective. Looking to the future, it will be important to maintain this diversity of financing.
I will make one last point on this. There is an element of this international capital because leverage was also mentioned. Some of this is actually pure equity capital, which is really helpful from a risk-sharing perspective. However, some of this capital is intermediated through property funds that are authorised here in Ireland. This occurs in both the commercial segment of the market and some elements of the residential market, but to a lesser extent. Because we want this form of financing to be resilient - so that it can ultimately serve its purpose in providing financing to the economy in good times and in bad - about two years ago we introduced measures to guard against leverage-related vulnerability by restricting the degree of leverage. This basically means that when adverse shocks hit, they will be less likely to amplify any stresses, which addresses the Deputy's earlier point. These are still being implemented.
Peadar Tóibín (Meath West, Aontú)
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I ask Mr. Madouros to provide an outline in writing to the committee of what those measures are.
Ms Derville Rowland:
The Deputy asked about customers on higher interest rates, specifically in the non-bank sector. We are vigilantly watching this as an area of focus. It has been one of our highest priority areas in consumer protection for a number of years. Our focus is on affordability and choice. We want to make sure, first and foremost, no matter who owns a customer's loan, where they have difficulty or may be concerned about going into difficulties in the future in repaying a loan, that early support is offered. That is right across the system and we see that it is working. We know, unfortunately from our previous experience, that early engagement can actually support families to avoid longer term arrears. We remain vigilant because it is true that a family, no matter who owns their loan, can have difficulties paying, no matter what the rate. It depends on their personal family circumstances. We remain very focused on supports for families. We have also remained very focused on when customers have choice to move to other providers, that there are no barriers in the system to prevent them doing so.
Rates are decisions for the lenders themselves but we expect a symmetry in behaviour with the factors and the information they have given us, that drives their strategies and approaches. We are already engaging with firms about this. The Deputy will have noticed that in Ireland there was somewhat of a delay in passing on, say, where it is a tracker mortgage product, some of the rate increases. However, we would expect to see, according to the different pricing strategies and approaches, a symmetry in behaviour that when rates reduce those reductions are passed on to the customer. We are engaging with the firms on that basis.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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On the housing issue, I fully agree with the comments about the labour shortage and bottlenecks and the need to address these issues as a matter of urgency. They need to be addressed in multiple ways. We need more apprentices and more people trained in the construction trades. Immigrants or returning Irish people can help us solve this issue. The Irish might come back if we can incentivise them in some way.
The witnesses mentioned two other things which I am not so sure about and I would like to see evidence for them. The first was the reference to planning bottlenecks. This is a controversial political area and the controversy around it will be seen fairly clearly in the Dáil tonight over the ramming through of the planning and development Bill. I ask the witnesses to consider that they should be a little bit careful about using that refrain of "planning bottlenecks", without evidence to back it up. I would say that the evidence is that there are way more granted planning applications than there are commencements. In other words, if we actually look at planning permissions given for residential properties, there is no shortage of them. They are way in excess of what is actually being built. Yet, the refrain is used by certain people from certain quarters that there is a bottleneck and problems with planning. This then becomes an excuse for ramming through Bills, such as the one tonight, that potentially subvert public consultation and concerns about sustainable planning. I would like the witnesses to back up, with evidence, their assertion that there are planning bottlenecks. I put it to them that there are other bottlenecks but not planning bottlenecks.
Second, diversification of finance was mentioned in the context of international investment funds investing here. It was suggested that this was a good thing in trying to address the housing crisis.
I would challenge the witnesses to give us some evidence of where that proposition has shown itself to be a good thing. There is an equally credible argument that it has not at all been a good thing and that rather than really stimulate the sort of housing construction we want to see, what it has actually done is profiteer off the housing shortage and take control of the housing market, manipulate the availability of zoned land and sites that could be developed, manipulate the prices, drive up rents, crowd out ordinary people from buying and generally exacerbate the housing crisis.
I would like to hear the witnesses' response to that because we need to be careful what we say in this space. There is at least a credible argument, and it is one I would hold, that we would be better off not having this diversity of international investors that are primarily driven by commercial and profitability concerns and instead have a more State-directed approach in terms of the control of building land and development of suitable building land for the sort of housing that is needed rather than what certain people think is a profitable enterprise.
There is a surplus of commercial property. To me that is evidence of the problem with people who are just chasing profits. We now have a massive surplus, and that then exacerbates the labour problem because people should be building social and affordable housing. Local authorities are struggling to get labour and tell us they are having procurement problems. Part of the problem is that they are building commercial property, which is not a priority, and, in fact, there is a surplus of it. I would be interested to hear the witnesses' comments on those. I have a few other questions about consumer protection and so forth, but they might comment on those.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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No, I know that.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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It is just coincidence.
Mr. Vasileios Madouros:
I will take the questions in reverse order. On the commercial reliefs to that market adjustment we have seen, which the Deputy is absolutely right about, first of all, it is a global pattern. Part of it is because of the changing patterns of working following the pandemic. There has been a big shift in terms of lower demand for office space leading to different levels of occupation and different demand for space by companies. To the Deputy's point, that is also because the pipeline of activity in the commercial segment and office segment has reduced as the market is adjusting. There is the potential that some of this labour capacity can now be reallocated towards housing construction, which is very positive, and where some of the acute labour shortages are most needed.
In terms of the diversity of financing, I was referring to a macro-financial perspective in terms of the benefits of that but let me perhaps put it differently. A big difference between where we are now and where we were in the run-up to 2007 is that diversity in financing. Back then, it was entirely concentrated on the domestic banks funding domestic developers and, of course, the lending standards of that. Then, however, there was a lot of exposure and concentration. When the cycle turned, there was lot of domestic concentration. We have seen the benefits of a more diversified source of financing, and I do not just mean domestic versus international. We have seen increased diversification in terms of financing for construction even within Ireland with a role for banks, the State and non-bank lenders. That diversification has benefits when adverse shocks hit.
I will echo the Governor's point in terms of planning. To put it in the broader context, we covered a range of dimensions in the report. It was not the only one. We talked about the availability of serviced land as being particularly important, which, of course, relies on infrastructure around water, sewerage and electricity and planning and building regulation. Then, of course, as I mentioned earlier, there are issues around productivity in the construction sector and how we can support greater productivity and scale in the construction sector.
The Deputy is right; it is difficult to quantify the role of delays in the planning system. Some of the analysis I mentioned earlier is analysis based on macro modelling. However, there are different estimates out there that point to planning playing a role in adding to friction, not just in terms of the construction of housing but in some of the other broader big infrastructure projects that are needed.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Okay. I have made my point. I would just ask Mr. Madouros to look a little bit closer into the evidence on that last point. Among others, the Department of Finance and the Department of Public Expenditure, NDP Delivery and Reform have done studies on this in which they did not really find planning as a major problem. The Irish Government Economic and Evaluation Service, IGEES, report, for example, showed that there was significant evidence of speculation over planning permissions, land hoarding, procurement problems it cited and so on, but planning was not really an issue. If we look at the actual numbers, the vast majority of planning applications are approved. I do not think the evidence holds up. We should-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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We are running out of time if the Deputy wishes to ask another question.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I would also raise the question of finance other than domestic banks limiting our exposure., but it also has other impacts. Mr. Madouros should consider them when he is making those comments. There are clearly other impacts of that, and I am the view that they are, arguably, seriously detrimental to our ability to resolve the housing crisis.
On the consumer issues I wanted to ask about, the committee secretariat sent the Central Bank some correspondence on an issue I asked it to bring up with the officials. It is an issue that was covered in some media discussion in 2023 about the mis-selling of financial products by insurance companies, in particular the fund around which there was much controversy, that is, the global absolute return strategies, GARS, fund. I will put it in context for people who might be interested in why I am asking about this. The Government in this country encourages people to put money away for their pensions, so people do. They have savings and they go to brokers and put them into funds for their old age. One of these funds was the GARS fund. There is quite extensive coverage on it if this is not immediately familiar, but the bank did respond to our committee on it. It was sold to people as a low-risk product with a guaranteed 3% to 5% return irrespective of market conditions. Standard Life was the main organisation pushing it. Of 50 different products it had, it said it was the second lowest-risk product. It was aimed at very ordinary people - retail customers, if you like. It was marketed at them as a low-risk pension investment type product where they were guaranteed returns that were modest, but it was a low-risk product regardless of market conditions. They made very significant losses. That was covered in the press and so on at the time. The question arises as to where the regulator was in assessing how this product was being presented to retail consumers. Insurance companies said they are selling a low-risk product that in fact turned out to be a high-risk product. Some of the financial experts who looked at this said this was an incredibly complex product.
People did not really know what they were selling. Anybody who looked at it would discover it was a far higher risk than hedge funds and so on, yet it was being sold to large numbers of Irish consumers. Does the Central Bank have any idea how many people in Ireland were exposed to this? It was being sold in Britain and elsewhere but quite a large number of people made significant losses. If you invest in the market, you take risks, but the Central Bank has a role in assessing how things are sold. If they are presented as low risk and turn out to be massively high risk and products are being misrepresented to those who buy them, it seems to me that is an issue within the Central Bank's remit. Are the witnesses familiar with this story? Have they any comment on it? They replied to our-----
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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We got a reply from the Central Bank's director of consumer protection in May.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Great, I would appreciate that. As part of answering that, will Mr. Makhlouf state whether there has been an investigation into this and the number of Irish people potentially exposed?
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Thanks, last question-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Deputy, you are out of time.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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The previous member had a lot more time, so I will have one last question.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I am chairing the meeting, not you. If you have a question, please ask it.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I will. It is on the selling of Israeli war bonds. I think the Central Bank response to the concerns raised about its facilitating the sale of bonds that are being clearly sold as war bonds and supporting the Israeli military action in Gaza and so on is that there is nothing it can do about it because it relates to the framework of what it has and has not remit over at EU level. I think that is more or less the bank's response. Do the commitments of the European Union on issues like human rights, trade agreements with Israel which have human rights clauses and domestic and international legal obligations to things like the Genocide Convention, to which this country is a signatory, not have some impact on Central Bank policy on facilitating the sale of products such as these? If not, it seems there is literally no morality or ethical framework to the facilitation or non-facilitation of certain financial products. That seems pretty horrendous, if it is the case. Are there no ethical or moral limits to what a bank can facilitate in the sale of financial products that may have gross consequences for human rights, the killing of people, genocide, breaches of international law, war crimes and crimes against humanity?
Mr. Gabriel Makhlouf:
I, like many people in the country, share the same sentiments of horror and revulsion at the death and destruction we have seen in the Middle East in the past year and want to see an immediate end to hostilities by all parties. As I said on Monday when we launched the coin to commemorate the centenary of Óglaigh na hÉireann, we are thinking of the bravery of our personnel serving abroad during a clearly challenging and dangerous time. Those people are remaining steadfast in their peacekeeping duties far from their families and loved ones. Those sentiments, however deeply felt, cannot be a substitute for what the law requires. The law is pretty clear in this case that we have to approve a prospectus that offer securities to the public as long as the prospectus meets the standards of completeness, comprehensibility and consistency. The law is also clear that our approval should not be considered endorsement of the issuer or of the securities. The Deputy mentioned treaty agreements, etc. There is nothing that links them directly to overriding the regulations we have to follow. It is a question for lawmakers as to how they want that to happen. At the moment, we are obligated to follow the rules, as I have set out in my letter to the Deputy and his colleagues.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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So, in one sentence, there is no ethical or moral framework that impinges on the rules governing the selling of these things. I am not pointing a finger at Mr. Makhlouf.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Thank you.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Deputy Tóibín was first with 19 minutes. Deputy Boyd Barrett had 20 minutes. That is to make sure members understand I am a fair Chairman.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Thank you. I never doubted it for a second.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Deputy Conway-Walsh has switched her time with Deputy Doherty. I call Deputy Doherty.
Pearse Doherty (Donegal, Sinn Fein)
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To stay on that theme, the Central Bank has now divested from all companies that operate in the occupied territories. Is that the case?
Pearse Doherty (Donegal, Sinn Fein)
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Okay. Four of those were Israeli banks, were they?
Pearse Doherty (Donegal, Sinn Fein)
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Will the witnesses outline the Central Bank's rationale for that decision? It was not forced to take it. It was not a legislative issue. I welcome the decision, obviously.
Mr. Vasileios Madouros:
Of course. I will give a little context as it is more complicated, but I will be quick. We have a stock of investment assets we use, the returns from which fund our operating expenses - our operations, basically. The majority of those are invested in sovereign bonds in the euro area and the US. About 4% of our total assets are invested in a portfolio of equities. These equities are managed on what is called a passive basis, so we are not an active investor. We do not choose the individual stocks. Instead, we ask an external asset manager to track an index on our behalf. We have, as we said in response to the letter from the committee last time, a sustainability policy, part of which is based on exclusions. The exclusions are very much based on global norms. As we said in the letter to the committee in May, our exclusion policy did not have an exclusion for the occupied territories. There is no global norm for exclusions for investment in companies with potential activities in the occupied territories. We looked at this following the questions raised here. There were different risk considerations but one was that it was a high risk that the four banks we divested from were associated with the financing of settlements in the occupied territories. It was a risk-based judgement so we took the risk-based decision to divest of those four companies.
Pearse Doherty (Donegal, Sinn Fein)
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I welcome that and thank Mr. Madouros for acknowledging that the questioning in this committee, including my own, has led to this. This is a positive outcome and the Central Bank needs to be acknowledged in relation to that. It is to be hoped the NTMA will follow suit and divest from the rest of its holdings in companies involved in the occupied territories. However, it leads me to the issue of the war bonds being sold through the Central Bank. Do the witnesses acknowledge Israel is calling these war bonds, advertising them as war bonds and asking people to support the war effort? It is on their website. I can show to the witnesses that these are war bonds. Do the witnesses acknowledge these bonds are primarily to fund the war, or at least that is how Israel is advertising them?
Pearse Doherty (Donegal, Sinn Fein)
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I understand this prospectus does not say that, but does Mr. Makhlouf accept that Israel itself is marketing these as war bonds?
Pearse Doherty (Donegal, Sinn Fein)
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If Mr. Makhlouf or any of his colleagues opens their mobile phone and goes to israelbonds.com, the front page is very clear about supporting the war effort by buying Israeli bonds.
Pearse Doherty (Donegal, Sinn Fein)
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I will come to that in a minute. The Governor made that point in his opening statement, in response to questions from Deputy Boyd Barrett and indeed in the letter to the committee. However, I ask him to acknowledge that Israel is promoting these as war bonds. It is really important to understand where this financing goes to and to what efforts. We know that Israel has killed more children, UN personnel and journalists than any war ever. They had our soldiers, our peacekeepers, whom Mr. Makhlouf rightly described as the bravest of the brave, pinned down for the past number of days in Lebanon. These are war bonds. It is important at this moment in history as we are seeing what is unfolding that we acknowledge what Israel is calling them. Irrespective of whatever prospectus it has given, does Mr. Makhlouf acknowledge that Israel is asking people to support the war effort by purchasing these bonds?
Pearse Doherty (Donegal, Sinn Fein)
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That is fair enough. Is it correct that Ireland is the home country for Israeli bonds?
Pearse Doherty (Donegal, Sinn Fein)
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That allows people in Germany and Spain to purchase these bonds because Ireland is the home country and we are part of the European Union.
Pearse Doherty (Donegal, Sinn Fein)
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Did anybody in the Central Bank reach out to Israel after Britain left the EU and therefore could not be the home country for these bonds?
Pearse Doherty (Donegal, Sinn Fein)
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Will Mr. Makhlouf check in terms of-----
Pearse Doherty (Donegal, Sinn Fein)
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Mr. Makhlouf has said very clearly that his hands are tied. He did not use those words but there is a legal responsibility on the Central Bank to authorise the sale of these bonds through the Central Bank in Ireland, as the home country, by approving the prospectus. Is that correct?
Pearse Doherty (Donegal, Sinn Fein)
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Mr. Makhlouf has said that comes from the 2017 European regulations. Is that correct?
Pearse Doherty (Donegal, Sinn Fein)
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Okay. In those same regulations paragraph 8 reads:
The disclosure requirements of this Regulation do not prevent a Member State or a competent authority or an exchange, through its rulebook, from imposing other particular requirements in the context of the admission to trading of securities on a regulated market...
Is that not the case?
Pearse Doherty (Donegal, Sinn Fein)
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This regulation is about the requirement to provide a prospectus and then for a competent authority to authorise that prospectus. It states very clearly here that the Central Bank as a competent authority can impose "other particular requirements in the context of the admission to trading of securities". Does Mr. Makhlouf acknowledge that the Central Bank has the powers under this regulation to add additional conditionality on Israel's selling of war bonds in the middle of a genocide through the Central Bank of Ireland?
Mr. Gabriel Makhlouf:
I am not sure I do because, at the time we made the decision, I do not know if they were promoting things as war bonds. In addition, our role is to a certain extent circumscribed partly by what the law says, by the facts in front of us and what the expectations of us are as the national competent authority working within the European Union and within its framework.
Pearse Doherty (Donegal, Sinn Fein)
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When did the Central Bank last approve the prospectus?
Pearse Doherty (Donegal, Sinn Fein)
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I am sure Mr. Makhlouf is familiar with this even though it is a big regulation. Article 32 reads:
In order to fulfil their duties under this Regulation, competent authorities [which is the Central Bank] shall have, in accordance with national law, at least the following supervisory and investigatory powers: (a) to require issuers, offerors or persons asking for admission to trading on a regulated market to include in the prospectus supplementary information, where necessary for investor protection.
Does that not allow the Central Bank to say in this prospectus to protect investors, to protect people who are buying Israeli bonds, that these bonds are for a war where the International Court of Justice has found that there is plausible cause that Israel is committing a genocide and that the Central Bank should not be authorising a prospectus that does not have those words or terminology in it? This is not shares in Coca-Cola. This is to kill kids. This is the destruction of an entire state. This is incursions into Lebanon and elsewhere. This is carpet bombing. This is ethnic cleansing on a massive scale. The Central Bank has the power to require supplementary information where necessary for the protection of investors. Did the Central Bank look at that clause under Article 32? Will it look at that clause? Will it state that these bonds are now being used as war bonds and that the International Court of Justice has found there is plausible cause to believe a genocide is being carried out by Israel which is using these bonds to fund its war effort? I think it should do that at least.
I would imagine that nobody in the Central Bank wants Ireland to be selling these bonds through the Central Bank, given what is happening. I put it to Mr. Makhlouf that he has enough wriggle room through this regulation to ensure that does not happen. War bonds for this genocide should not be sold through Ireland and should not be sold through the Central Bank. There is enough in this to ensure the Central Bank tells Israel it needs to carry that language or it will not approve it. If the Israelis do not like it, they can take a hike. It is not acceptable. Where in this is there any sanction to the Central Bank of Ireland if it did not approve prospectus? It does not exist.
Mr. Gabriel Makhlouf:
I am very happy to take this away, look at it in the way the Deputy has described and think very hard about the ability I have to do the sorts of things he wants me to do. I will not today accept some of the statements he has made because I feel that would be going way beyond what is reasonable. I wish to be absolutely clear about what I said to the Deputy earlier about my own views here, which I am pretty sure represent the views of the people of the Central Bank but also most of the people in the country. All of us are absolutely appalled at what is happening in the Middle East. However, we have to work within certain parameters. If those parameters allow us to do things we have not done, we will look at it deeply and carefully.
Just to be clear, this is different, for example, from the sanctions that have been imposed on Russia where what we can do and have to do is clear. Those sorts of moves have not been taken by the European Union or by the State in this instance, and the case remains that however deep-felt are the feelings we have about what is happening in Middle East, we have to work within the framework of the law as it exists.
Pearse Doherty (Donegal, Sinn Fein)
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I appreciate that, and the European Union should move on this. They should move-----
Pearse Doherty (Donegal, Sinn Fein)
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I welcome what Mr. Makhlouf has said and I would not expect him to say anything else bar to take what I have said in a serious way, which he has acknowledged, and to go back and look at this and look at what is in the regulation and whether there is a way not to have Ireland as a home country selling these war bonds. I have made my point strongly and often in relation to this. I argue that it is the sentiment of the Irish people and the sentiment of the Central Bank as well. I will leave it at that.
In the time remaining to me, I will raise two other issues, the first of which relates to consumer protection. I need clarity on this. Mr. Makhlouf mentioned that the deputy governor, Derville Rowland, will still have consumer protection functions as a core area. The deputy governor's area is consumer and investor protection. Is that title changing?
Pearse Doherty (Donegal, Sinn Fein)
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No. At the minute the deputy governor has three directors who operate under that structure. Is it the case that those directors will remain?
Pearse Doherty (Donegal, Sinn Fein)
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So those three directorates are gone.
Pearse Doherty (Donegal, Sinn Fein)
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Will the director of consumer protection go?
Pearse Doherty (Donegal, Sinn Fein)
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I understand. So the director of consumer protection unit is gone. Is the director of enforcement and anti-money laundering still remaining?
Pearse Doherty (Donegal, Sinn Fein)
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That will remain. Is the director of securities and market supervision gone?
Pearse Doherty (Donegal, Sinn Fein)
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But is the directorate gone? I am looking at the structure of the Central Bank of Ireland.
Pearse Doherty (Donegal, Sinn Fein)
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It is the existing structure.
Pearse Doherty (Donegal, Sinn Fein)
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I want to know what is going to change. We know there is a director of consumer protection at the minute. That is going.
Pearse Doherty (Donegal, Sinn Fein)
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So, will there be a director of enforcement and anti-money laundering?
Pearse Doherty (Donegal, Sinn Fein)
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A director of enforcement of what?
Pearse Doherty (Donegal, Sinn Fein)
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Will that fall under the deputy governor's role?
Pearse Doherty (Donegal, Sinn Fein)
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Will there be a director of securities and markets supervision?
Pearse Doherty (Donegal, Sinn Fein)
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I have butted heads with the Central Bank many times over different consumer protection issues where I thought the Central Bank was slow off the mark, got there eventually, and played a very good role at different times. We have had far too many scandals in financial institutions, not least the tracker mortgage issue but there have been many more. The issue here, for which there is a strong argument, is whether consumer protection should be with the Central Bank anyway because it has that dual role of consumer protection and supervision. Now we do not even have a director of consumer protection any more.
Pearse Doherty (Donegal, Sinn Fein)
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We have a deputy governor of consumer protection at the minute and we have a director. We have a unit of consumer protection. When whistleblowers came to me about money lending, I knew who to go to. I went to the directorate of consumer protection and I sat down to meet them. When we want to talk about defective blocks we can go to the director of consumer protection. Is it not the case that there will be no director of consumer protection any more?
Pearse Doherty (Donegal, Sinn Fein)
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There is a deputy governor.
Pearse Doherty (Donegal, Sinn Fein)
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But there is a deputy governor with consumer protection at the minute-----
Pearse Doherty (Donegal, Sinn Fein)
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-----and there is a unit that has specific responsibility in terms of director of consumer protection, and that is going.
Mr. Gabriel Makhlouf:
Let me make it clear. The director of banking, the director of insurance, the director of capital markets and funds, and the director of horizontal risk will all have roles to play in consumer protection. The director of banking, for example, will be absolutely responsible for all the consumer protection issues that arise in the banking sector.
Pearse Doherty (Donegal, Sinn Fein)
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Did the director of banking have no responsibility for consumer protection up until now?
Pearse Doherty (Donegal, Sinn Fein)
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We currently have a director of consumer protection, notwithstanding that it is a deputy governor with responsibility who does a fine job in relation to that, and long may that continue. I know there are a lot of media reports in relation to Ms Rowland's future but good luck to her wherever she ends up. We have a director of consumer protection. These are people who are supposed to get up in the morning and go to work with a focus on consumer protection. There is nobody in Mr. Makhlouf's bank any more who will have that role.
Pearse Doherty (Donegal, Sinn Fein)
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But the role is being absorbed into other functions.
Mr. Gabriel Makhlouf:
I am sorry but I do not accept that. It is going to be Ms Rowland's responsibility to make sure that our consumer protection responsibilities, which are at the core of our role and which continue, are delivered appropriately. The directors in all the sectors I mentioned are absolutely going to have consumer protection at the core of their deliverables. I do not agree with what the Deputy is saying.
Pearse Doherty (Donegal, Sinn Fein)
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In his letter, why did Mr. Makhlouf say that the reporting, which was in the Irish Independent, may be misleading? I cannot see anything that is misleading, given what Mr. Makhlouf has said today.
Pearse Doherty (Donegal, Sinn Fein)
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Point out to me one thing in the article that was misleading, in Mr. Makhlouf's view.
Pearse Doherty (Donegal, Sinn Fein)
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First of all, it actually quotes the Central Bank on the senior leadership and it mentions Ms Rowland in relation to that piece.
Pearse Doherty (Donegal, Sinn Fein)
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I will ask just one final question. I wrote to the Central Bank in 2022 about the sale of properties and the banks requiring a test for mica content in relation to the blocks. At the time the Central Bank said it was not aware of that during its engagement with lenders. It is clearly now an operational policy. We have a situation where people who have mica content of 5.5% or 6% are being refused mortgages even though all of the science knows that this arbitrary number is not what one is supposed to be looking at. One needs to be looking at sulphides and pyrrhotite. People cannot get mortgages now or sell their homes but they still cannot get on the Government scheme because they do not satisfy that either. This is a consumer protection issue. Before Mr. Makhlouf disbands the consumer protection unit maybe he could ask about this issue. There are many people who cannot get a mortgage or sell their house because of this arbitrary practice by banks, which is outdated and does not follow the science. There are people who need to sell their house, cannot sell the house to anybody but a cash buyer, and at the same time cannot go on the scheme, as they do not satisfy the criteria since their blocks are considered not to be defective because of the way they are being attacked by pyrrhotite.
Ms Derville Rowland:
At a risk of further irritating the Deputy, I just want to be clear that from my point of view the work we are doing today, on mica or anything and no matter what the Deputy thinks of it, is not going to change in the new year.
If the Deputy speaks to us today or in January, he will have the same level of interest, engagement and concern regarding issues related to those whose homes have been affected by mica, whether they are inside the scheme or outside it. We met representatives of the mica scheme very recently. As far as I understand the situation, there is genuine concern over NSAI’s protocol. It is an engineering issue. It is being examined and will be subject to consultation. I am very happy, and so too is Colm Kincaid, to engage with the committee further on this issue to understand whether it is different from the other one.
Pearse Doherty (Donegal, Sinn Fein)
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There are two parts to this. The Bank of Ireland has had extensive engagement on mortgageability with people rebuilding their houses through the scheme. These are not the people I am talking about. I am referring to people who will not get on the scheme because they do not meet the criteria. The banks are saying that if there is mica content, which is the wrong measurement to use, and if that content is above 5%, they will not provide a mortgage.
Ms Derville Rowland:
To be clear, we are happy to engage now on that. As of 1 January, the right person to engage with – there is no confusion about this – will be the director of banking or me. The work we have been doing, at which we have been better in recent years, is multidisciplinary; it is not consumer protection on the side. It is data driven, analytical and supervisory and it blends all the skills together. We intend to build on the strength or muscle we have developed and put it into the heart of what we do. I would want the committee to hold us to account on that and expect more effective consumer protection measures in a changing external landscape. We are very happy to engage. There should be no confusion in January. To be super clear, the Deputy can engage with me, the director of banking and, if it is an insurance issue, the director of insurance.
Pearse Doherty (Donegal, Sinn Fein)
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Maybe an updated chart for the committee would be helpful.
Rose Conway-Walsh (Mayo, Sinn Fein)
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I want to refer to the pyrite issue in Mayo. I am seeking a breakdown. Will a house be mortgageable once it is remediated and once the Department of housing certificate is issued? Can Ms Rowland give assurance to people on that?
Rose Conway-Walsh (Mayo, Sinn Fein)
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Could Ms Rowland just answer the question?
Ms Derville Rowland:
I am trying to deal with that. We are not inside the scheme. When we meet the group of people affected and who are raising issues, we have to work off the best information we are given by those charged with fixing this. My understanding is that the issues with regard to mortgageability or the sale of homes so others can obtain mortgages to purchase them is now linked in with the NSAI assessment protocol, which is subject to consultation. I understand that is a barrier. Once it is addressed, it becomes possible to sell an affected home and get a mortgage to purchase one, as well as support the homeowner in the home. That is my understanding but, not being inside the scheme, I may not know everything. That is our best and most recent information.
Rose Conway-Walsh (Mayo, Sinn Fein)
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The Central Bank needs to have a more definitive take on it to answer the question of whether remediated houses are mortgageable in principle.
Ms Derville Rowland:
We have played our role to marshal the financial system insofar as insurance companies, those in the banking sector and BPFI can support homeowners so problems across the system are solved. That is my understanding but I have a degree of humility in that I am not inside the scheme in the Department of housing. However, we have met the homeowners and are working off the information and issues raised with us.
Rose Conway-Walsh (Mayo, Sinn Fein)
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Ms Rowland can see that people just want very simple answers to the questions----
Rose Conway-Walsh (Mayo, Sinn Fein)
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-----of whether their homes can be sold once they are remediated and whether they will be mortgageable.
Rose Conway-Walsh (Mayo, Sinn Fein)
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They want somebody in a consumer protection role, like Ms Rowland, to give them advice.
Regarding the duty of banks that gave people mortgages to ensure they were lending against properties that had a real and proper value, what would Ms Rowland regard to have been the role of the banks? Did the banks or financial institutions have any responsibility? What happens? Is a surveyor or engineer sent out by the bank? How does one know that what one is lending against is of sound value?
Ms Derville Rowland:
That is the relevant question. As we know, the lending rules in place now require valuation reports. That was not always observed in the past. A State scheme has been put in place to deal with the terrible circumstances affecting homeowners precisely because nobody did the kind of testing that detected the contamination.
Rose Conway-Walsh (Mayo, Sinn Fein)
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What does a bank do differently now, by comparison with the time in question, to ensure a home for which a mortgage is being given is of sound value?
Ms Derville Rowland:
-----that there is now a different issue. We are happy to look into this and of course we will; however, as far as I understand it, the system of recourse lending we have still requires valuation. I am not an expert on engineering test reports. I will look into this, but the banks are still required to do proper valuations.
Rose Conway-Walsh (Mayo, Sinn Fein)
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Given that the home valuations were carried out originally by the banks, surely they had a responsibility, having done those valuations, to admit they got it wrong and were culpable in respect of lending the money.
Ms Derville Rowland:
These are legal issues involving litigation-style thinking. What we can say definitely is that it is precisely because the contamination of homes by pyrite was not foreseen that a State scheme has been put in place to support the owners and help them. It is obvious that this problem should not have arisen. It was due to the building materials used and it was not detected. Therefore, the State has moved in to support the families, and I am glad of that.
Rose Conway-Walsh (Mayo, Sinn Fein)
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I understand all that. What I am trying to get at while Ms Rowland is here – I really appreciate her being here – is the role of the banks. I hope we will have a public inquiry. We absolutely need one. Within a public inquiry framework, I would want to ascertain the role of the banks in lending the money – they obviously demand it back – and their responsibility in that regard.
Ms Derville Rowland:
If there is to be a public inquiry, I am sure it will delve into that. Some of this is a question of science and the extent to which construction materials are tested. I am sure that is a new issue that would be examined. However, this is an exceptional case. I acknowledge that I do not have a perfect answer for the Deputy, but that is realistic because it also required an exceptional response by the State to deal with this novel and unforeseen event.
Rose Conway-Walsh (Mayo, Sinn Fein)
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I know, but the problem is that everybody abdicates responsibility and nobody is accountable and responsible. We could talk about this all day and I am not going to get definitive answers on it.
I want to talk about the here and now. Many of the homeowners are obviously in their fifties, sixties and seventies and are going to the banks to bridge a gap because there is no 100% redress. A woman I met in Westport the other day needed €80,000. That would not fill the gap, so it is to be combined with her savings. The banks are basically saying the woman is too old to take out a mortgage and all that. Is there something the Central Bank can do in such circumstances to ensure – “instruct” is probably the wrong word – that banks co-operate and work with homeowners to bridge the gap until such time as we have 100% redress?
Rose Conway-Walsh (Mayo, Sinn Fein)
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Basically, Ms Rowland is saying there is nothing the Central Bank can do-----
Rose Conway-Walsh (Mayo, Sinn Fein)
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-----and that is why-----
Bernard Durkan (Kildare North, Fine Gael)
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Just a second. When a question is raised, we have to allow the answer, and then supplementary questions may be asked.
Rose Conway-Walsh (Mayo, Sinn Fein)
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Yes, but I am conscious of my time.
Bernard Durkan (Kildare North, Fine Gael)
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Otherwise we will be going on all night.
Rose Conway-Walsh (Mayo, Sinn Fein)
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If it is the case that there is nothing that the Central Bank can do to enable homeowners to bridge the gap financially, that is the answer.
Ms Derville Rowland:
I have been really clear. Under no circumstances, in Ireland or any other country, can the regulator tell a financial institution what business to write or not to write. We can work with the institution to take a consumer-centric point of view to problem-solving, but that can never go so far as to tell it what to charge or who to lend to.
Rose Conway-Walsh (Mayo, Sinn Fein)
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No, just as it could not instruct the surveyors who were going out to the banks to approve all these mortgages for assets that were worthless. That is fine.
I want to go on to the tied agent situation here and the fact of the EBS scandal still not being resolved. They were excluded or underserved by the compensation scheme. A small number of them believe they were forced to accept a solution which did not compensate them adequately for the damage that was caused to them. What role can the Central Bank play in that? Why has it not intervened in that situation? How can it encourage the banks, AIB in particular, to meet with those victims to get a resolution? What part can the Central Bank play in resolving it?
Rose Conway-Walsh (Mayo, Sinn Fein)
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Yes, because it has come before us. I am very surprised that Mr. Makhlouf's take on it is that it is over because it has been on the books of this committee.
Rose Conway-Walsh (Mayo, Sinn Fein)
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I thank Mr. Makhlouf. I appreciate that. I will leave my questions at that.
I just want to say that the facilitation of the Israeli bonds is absolutely atrocious. I am glad that Mr. Makhlouf, at the request of Deputy Doherty, is going to investigate what can be done there. There must be consideration of what needs to be done by the Central Bank, what we need to do as legislators, or what the Government or the ECB needs to do to prevent that problem.
Rose Conway-Walsh (Mayo, Sinn Fein)
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I appreciate that. Will Mr. Makhlouf raise our concerns with the ECB on it?
Rose Conway-Walsh (Mayo, Sinn Fein)
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We are certainly doing that but the door is shut again, as it is in so many cases. We are told it is not possible to do it. We need to look at all the possibilities and the role we all have in this. At the end of the day, it is the Central Bank that is obviously facilitating the sale of these bonds.
Bernard Durkan (Kildare North, Fine Gael)
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The next name on my list is Senator Higgins. We want to try to keep to the time constraints.
Alice-Mary Higgins (Independent)
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I begin by saying I share the regret that others have expressed regarding the Central Bank's poor decision to remove its unit of consumer protection and regulation. I understand the functions. I do not need to have the elaboration again. The functions are taken up across different areas. However, very often in this committee, key issues of financial regulation that need to be highlighted, such as poor practices within the banking, insurance or other sectors, have come to our attention because of the engagement of individual consumers who have led the way. They have brought through and highlighted systemic problems and this has led to the examination of those issues. While it may be fine for Ms Rowland, knowing the thoroughness and professionalism with which she approaches her work, the general public do not know the individuals involved. It is not simply enough to say these people will still be employed. It is really important for a body like the Central Bank, with such public interest and public responsibility, that any member of the public who may never have looked at legislation and may not be looking at the organogram can ask who they contact. Something like a consumer protection unit is a clearly identifiable point at which they may begin their engagement on a matter that may then be referred to an office dealing with a specific area like insurance or banking, or indeed to the level of the deputy governor. It is worth deeply considering whether the removal of a visible and front-facing consumer protection unit makes engagement with the structures of the bank less accessible and less engaging for those individuals who have often driven the challenging of systemic problems.
Of course, it is not enough to refer simply to banking and insurance. There are other forms of consumers too, including those who, through the bank, are being offered the opportunity to buy bonds, including the Israeli bonds that are being discussed today. There are duties there as well. We need to dive a little deeper into EU Regulation 2017/1129. The bank was very clear and upfront on this regulation in relation to the recent issue of an arts exhibition that was cancelled at the Central Bank and the studies and articles highlighting the concern. The answer very much involved going back behind this regulation under which it has an obligation to sell unless the prospectus does not meet the "standards of completeness, comprehensibility and consistency". When you dive into the regulation, you see that quite a lot of powers and responsibilities sit on the Central Bank as a competent authority. There are very serious questions regarding these bonds around the question of the completeness of the information provided by the issuer and the comprehensibility of that information. For example, senior figures from the Central Bank have said they were not aware that they were being marketed as war bonds. That, in itself, raises the issue of the completeness of the information being provided in the prospectus and the comprehensibility of the information in question. If those who are responsible in the Central Bank as the competent authority are saying that the information may not have been in the prospectus, that becomes an issue of completeness and comprehensibility. There are also questions of consistency with other areas of EU law and, of course, the EU law which sits within the wider international law context. There are responsibilities that need to be re-examined. If there has been a failure to fully apply those responsibilities, that needs to be learned from. There are also possibilities and options that are available as of today to the bank which we need to examine.
Going back to that question of the prospectus, it is clear in paragraph 28 of the regulation that the prospectus should have the "key information that investors need in order to be able to decide which offers and admissions to trading of securities they want". It should have "the essential characteristics of, and risks associated with, the issuer, any guarantor, and the securities offered". That is part of what is expected in the prospectus. Further on, paragraph 40 refers to the quality of the prospectus and the quality of the engagement. It states that the "competent authority" - the Central Bank in this instance - can decide the frequency of reviews, that is, how often there will be a review in relation to these issues, in terms of "its assessment of the risks of the issuer, the quality of its past disclosures".
These are factors the Central Bank is able to take into account when determining whether there should be a review on the decision to accept this prospectus and offer these bonds.
There are two questions. There is the question of right now and we have talked about the absolute horror, illegality and disregard for law, including international law, which binds the European Union. Let us go back to 2021, which is when the last issuing took place.
Alice-Mary Higgins (Independent)
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At any point in the past few years there is a question as to whether the prospectus assessing risks and offering issues of bonds from Israel, in asking that its bonds be carried, included assessments of the risks in terms of geopolitical risk, which Mr. Makhlouf mentioned we should all be thinking about. It seems to be a clear area. Leave aside the risks in terms of international law, compliance with international law, the issue of the occupied territories and the fact they were already recognised as illegal. The recent International Court of Justice ruling did not make the occupied territories illegal; it confirmed the fact they were already illegally occupied, for example. There are numerous areas of international and human rights law where Israel was already in breach at the time of the last issuing of bonds. Was that information in the prospectus that the Central Bank considered?
Mr. Gabriel Makhlouf:
I am not able to add anything to everything I said to Deputy Doherty earlier. I will look at this and do so comprehensively and address whatever questions the Senator has. If she wants to put some of them in writing ,we will look at those as well. I want to be clear, again, that there are parameters we are required to work within and some of the considerations many of us would like to have when we have to approve prospectuses we are not actually allowed to have.
Alice-Mary Higgins (Independent)
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I am explicitly going into the parameters, with respect.
Alice-Mary Higgins (Independent)
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Sometimes the three words we are told are, "Don't go here", where we are told these are the three parameters. Let us go within them. I am explicitly speaking to the powers and responsibilities that, as a competent authority, the Central Bank had and has. I am not looking at what the Central Bank can do now solely. It would useful, in the analysis, to look to and examine the question as to what extent there was a proper examination of the prospectus in 2021 prior to the case where we now have the International Court of Justice being very clear on the risk of genocide and the responsibility of all states to ensure they are not contributing to that risk.
In respect of that, and the International Court of Justice to which the EU subscribes and is bound, Mr. Makhlouf will be aware there have been reports from the human rights authorities within the European Union explicitly pointing to the fact that the European Union should not be contributing to the supply of arms. There are a lot of pieces now but back in 2021, 2019 or whatever the year of issuing the bonds, this was a really important issue because this points to a systemic issue.
Alice-Mary Higgins (Independent)
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Is there a proper examination of human rights, international law and geopolitical risks in answering the request - and it is a request - for Ireland through the Central Bank to facilitate the sale of Israeli state bonds? Was the information examined? Was it appropriately examined? These are clear powers. If the information fell short, was further information sought? If not, why was further information not sought at that time? Now we go to the powers under paragraph 40 of the regulation, which determines that if we have the situation where the prospectus does not mention these are war bonds-----
Bernard Durkan (Kildare North, Fine Gael)
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We have the answer.
Alice-Mary Higgins (Independent)
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I want to have a set of six pieces, because I know the response will be, "We will review it."
Alice-Mary Higgins (Independent)
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With respect, Chair, I want to be clear on it, others have-----
Bernard Durkan (Kildare North, Fine Gael)
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We have to concentrate the meeting into segments we can manage. For instance, there are two more speakers and we do not want to be here all night.
Alice-Mary Higgins (Independent)
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With respect Chair, I have also listened to others and I am within my timeframe.
Bernard Durkan (Kildare North, Fine Gael)
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The Senator put her questions one, two, three, four, five and six.
Alice-Mary Higgins (Independent)
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I have a whole separate set of questions on a different issue.
Bernard Durkan (Kildare North, Fine Gael)
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Please, could we get to this.
Alice-Mary Higgins (Independent)
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Apologies, Chair. I need to finish this set of questions because if we are going to receive-----
Bernard Durkan (Kildare North, Fine Gael)
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The Senator is already ten minutes into time. It will not run for another ten minutes.
Alice-Mary Higgins (Independent)
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The time given to other speakers was 20 minutes, with respect.
Bernard Durkan (Kildare North, Fine Gael)
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That is debatable. We have to facilitate other speakers as well.
Alice-Mary Higgins (Independent)
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These questions are really clear because I do not want the witnesses to simply go away and see what they can do. We need an examination of the process to date that goes through all of those factors I have said-----
Bernard Durkan (Kildare North, Fine Gael)
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Can we get the answer to that?
Bernard Durkan (Kildare North, Fine Gael)
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Just one second, now. Hold on.
Alice-Mary Higgins (Independent)
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Excuse me, Chair, with respect.
Alice-Mary Higgins (Independent)
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I am within my 20 minute period.
Bernard Durkan (Kildare North, Fine Gael)
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I want an answer to the question. The Senator is entitled to the answer to the question and to put the question.
Bernard Durkan (Kildare North, Fine Gael)
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We have to ensure, well the next question that comes out we get the answer to that.
Mr. Gabriel Makhlouf:
What I said to Deputy Doherty is what we will do is look at what we did, understand what we could do, come to a view and communicate it to the Committee. I observe that these particular bonds in the past used to be issued in the United Kingdom when it was a member of the European Union and they just moved to us.
Alice-Mary Higgins (Independent)
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I will point out two other areas we need a response on because I knew the response would be that we will have a written response. This is something that needs a public response so we request the response be given very soon.
There are two other pieces. I have asked Mr. Makhlouf to examine the process so far but I also ask him to examine under paragraph 40 of the regulation if it is the case that the information has been inaccurate or incomplete, are there concerns about the opportunity to request a review, which is a power under paragraph 40 as I understand.
I want to mention two more specific powers under Article 32, the power "to prohibit or suspend advertisements". Given there was an article that told the Central Bank that these bonds were being advertised as "war bonds", this is very significant as Mr. Makhlouf stated he was not aware of that advertisement and had not looked at it, but he had an actual responsibility in terms of how these bonds are advertised. Explicitly, the Central Bank has the power to prohibit and suspend the advertisements, if those advertisements may be in breach of the regulations if, for example, the information provided in the prospectus is not complete or comprehensible. Again, it is not simply a matter of the advertisements floating in space while the Central Bank does the issuing and selling. The bank has an oversight in respect of the advertisements and a power it can exercise in that regard. That is something to be looked at. It is not really acceptable to say, "I have not seen the advertisement", when this issue has been in the public domain and when so much concern is expressed about the "war bond" framing of the bonds. There are the previous decisions and the current capacities and responsibilities and these are really relevant not just in relation to Israel but in terms of oversight of how we engage in the question of international bonds and their sales and international law.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Can the Governor respond?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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To Deputy Doherty's----
Alice-Mary Higgins (Independent)
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I will go to my second point, which is the second area I would like to discuss.
A lot of discussion has taken place with regard to the fiscal rules and fiscal policy. Ireland is about to submit a new five-year net expenditure plan to the European Commission later this month. This is very significant, of course, and it replaces, effectively, the semester process. This will be a five-year piece and is underpinned by a number of assumptions both in terms of projections and assumptions such as demographic projections and assumptions that allow Ireland to make its case in terms of debt sustainability. There are a couple of pieces to this. One, has the Central Bank had engagement with the Government, the Department or the European Commission in respect of the five-year net expenditure plan?
Clear opinions and recommendations in respect of fiscal policy were made in the testimony we heard earlier. What engagement has the Central Bank had regarding the five-year net expenditure plan and the assumptions that will underpin it?
Mr. Gabriel Makhlouf:
We have not had any direct engagement with the Department as it is the Department's responsibility. Obviously, we have regular contact with departmental colleagues, but this is not in the Central Bank's ambit. It is for the Department and the Minister to come to a conclusion and to then submit it to the European Commission. It is not part of the ECB process. At some point, we will know what the answer is, if I can put it that way, or not.
Alice-Mary Higgins (Independent)
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It does seem to be within the ambit because one of the key elements in it risk, which Mr. Makhlouf talked about. A lot of opinion is being given on fiscal policy and investment strategy, some of which would be useful to have the underpinning, as others pointed out. For example, the assumption of multiple investors benefiting, when we see what has happened with commercial property. Debt sustainability is also a core element of that, and part of that is assumptions of what the roll-out will be in terms of financial security and so forth. For example, an area mentioned where there has been a shortfall of adequate risk assessment is in terms of bonds, geopolitics and human rights. Another area I had previously engaged with the Central Bank on, and I am glad to see it has been touched on, is climate risk and environmental risk. Mr. Makhlouf mentioned the need to have greater consideration of that factor. Where that points to, in some ways, is the need for preventative spending.
Alice-Mary Higgins (Independent)
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When we consider the sustainability of risk with regard to debt sustainability, risk is core to that. When we look at debt sustainability, is it the view that there is a need for an assessment of climate risk and potentially looking to the area of preventative spending, namely, the need to spend now in order to avoid significant cost that may be of damage to the Exchequer down the line as a result of climate issues not being addressed? Mr. Makhlouf touched on that. Where does that fit into the risk analysis the State should be doing when thinking about debt sustainability?
Mr. Gabriel Makhlouf:
I will ask Mr. Madouros to comment, but to make a general proposition, it is for the Department to take a view of what the State should be doing and to make its recommendations to the European Commission. Our role is to understand the risks as we see them and to contribute to national economic development, it other words, to make sure our views are understood and known by as many people as possible. I have spoken about the importance of building what I call "economic resilience", which spans not just the addressing of climate risk, on which I completely agree with the Senator, but also thinking about the risks to the real economy from demographic change, what that means and whether we are planning adequately for it. The official debt sustainability assessments are ultimately made by the European Commission. I know the IMF does its own assessments as well. We have views, but we do not lead on this.
Alice-Mary Higgins (Independent)
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The input the Central Bank of Ireland offers is significant, however. Mr. Makhlouf mentioned demographics. As I understand it, one of the assumptions there seems to be at the moment is that there will be a flat line on immigration. That does not seem to be plausible in a geopolitical context. As I said, I know the Central Bank does not do the debt sustainability assessment, but it has, as Mr. Makhlouf said, been open in various views about long-term financial and fiscal planning. It would be useful to know what input is going in because we, as a committee, hope to engage on and scrutinise the Government's five-year expenditure plan. I believe we have written to request an opportunity for scrutiny of it. It would be useful to have the Central Bank's examination of those risk factors.
Mr. Vasileios Madouros:
We conduct and publish a lot of analysis on many of the issues raised by Senator Higgins and engage with our colleagues in the Department on these things, even if they are not framed, as Mr. Makhlouf said, in the context of the specific net spending rule in the discussion of the Commission. The Senator mentioned preventative investment for climate. We had an article in our June quarterly bulletin that spoke to the additional investment needed to reach our net-zero target relative to what is already planned. That is an input to that kind of discussion.
The Senator also raised demographics. In the housing analysis we did recently, we included different scenarios around potential migration patterns which could help inform judgments on this. We do analysis on the supply side of the economy now and into the future, which again is a key element of thinking about a spending rule because we typically think of the potential growth of the economy plus 2% inflation as one way of anchoring it. It might not all be in a single place, but we do a lot of individual pieces and publish them. As part of the working relationship with the Department, we will be discussing a lot of different assumptions about these points and issues.
Alice-Mary Higgins (Independent)
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I ask the Central Bank to share the two published articles Mr. Madouros highlighted.
Jim O'Callaghan (Dublin Bay South, Fianna Fail)
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I welcome the Governor and the two deputy governors. I have a number of questions for Mr. Makhlouf. I will start by looking at the Central Bank's function, which is in respect of providing analysis on national economic policy. Does Mr. Makhlouf agree that the Irish economy is in good health at present?
Jim O'Callaghan (Dublin Bay South, Fianna Fail)
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Would Mr. Makhlouf say that the factors that made him conclude it is in good health are full employment, a large surplus, which a lot of countries do not have, and lowering inflation? Is there anything else he would add to that as a symptom of the healthy Irish economy?
Jim O'Callaghan (Dublin Bay South, Fianna Fail)
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Mr. Makhlouf mentioned in his statement that we have stronger growth rates than expected. Why is that?
Mr. Gabriel Makhlouf:
That would be for a variety of reasons. It is partly the fact that we have seen a recovery in the export of pharmaceuticals, which saw a dip after the pandemic. That has played a part in the growth of the economy. That is an example. Part of it is that demand remains pretty strong in the economy. There are a number of factors. Some of these, incidentally, have flipsides, which are risks.
Jim O'Callaghan (Dublin Bay South, Fianna Fail)
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Of course. Is the large surplus we have unusual in a eurozone context?
Mr. Vasileios Madouros:
In terms of assessing where the economy is and has been and the faster than expected growth rates, one of the big news items this year was the revisions by the Central Statistics Office about how the economy actually performed last year. The size of the economy excluding liberalisation effects actually grew by 5%, which was a lot higher than previously estimated. It speaks to the Governor's points about the kind of double-sided risk. We are now closer to the supply capacity of the economy than we thought.
Ireland's headline fiscal position relative to other countries is certainly much more positive than a number of other countries across Europe. Of course, as we always say, we need to look under the hood because this headline position incorporates excess or windfall corporate tax receipts. If these are excluded, there is an underlying fiscal deficit.
Jim O'Callaghan (Dublin Bay South, Fianna Fail)
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In terms of the risk to our receipt of corporation tax, is there anything on the immediate horizon, other than what the Central Bank has referred to as geopolitical risks, that pose a risk to the ongoing receipt of those revenues?
Mr. Gabriel Makhlouf:
Geopolitical risk in its broadest definition, or geo-economic fragmentation, is probably the central risk right now. On the other hand, any concentration risk that is clearly a risk does not require something major and significant. It could just require changes of policy on the part of individual corporates. That could have a direct impact. It is a combination of the two.
Jim O'Callaghan (Dublin Bay South, Fianna Fail)
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Is it too specific to say the Central Bank may have a concern about a change in policy in the United States which could have an impact on American multinationals in Ireland?
Mr. Gabriel Makhlouf:
The fact is we rely on American multinationals in the country. If there is change in the United States, that could have an effect but, to be frank, and I do not know if the Deputy was alluding to this about change after the US presidential election, I would not say that. There has been change which has led to the geopolitical tensions and geoeconomic fragmentation, as I said earlier, which has been happening for the past six to eight years. That, in itself, is creating greater risk here.
Jim O'Callaghan (Dublin Bay South, Fianna Fail)
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We are getting considerable receipts in from the multinational sector but what can be done to try to reduce that? We are not in a position where we want to try to reduce receipts coming in, but what does the Governor advise a government that it should do in respect of trying to lessen dependency on that? It is difficult to do that if one is very successful in a particular area, as we are.
Mr. Gabriel Makhlouf:
There are two things we have said to the Government. It has done one of them, which is that it has set up these funds to plan for the long term with the excess of a windfall corporation tax that was just mentioned. The other thing is to consider quite carefully the tax base as we have it and to look again at the report of the Commission on Taxation and Welfare report and consider what changes could be made to the tax base in order that our reliance on corporation tax in the medium- to long-term can be reduced.
Jim O'Callaghan (Dublin Bay South, Fianna Fail)
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On consumer protection, I note the point the Governor is making. He is stating to this committee that the banks' commitment and obligation to provide consumer protection will not be diminished in any way as a result of the changes.
Jim O'Callaghan (Dublin Bay South, Fianna Fail)
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I would have thought that one of the biggest risks to Irish consumers in respect of financial products, many of which are not regulated financial products, arises in the context of scam advertisements online, whether on Meta or coming over the Internet through other forms. What role should the Central Bank have in respect of that? What role does Ms Rowland play?
Ms Derville Rowland:
It is a really important question. In a speech I gave this morning to an international audience I made the point that, according to Garda Síochána data, there has been a 393% increase from 2019 onwards in financial scams and frauds in the context of Ireland. I hope I have not got that figure wrong. I am leading a group at global level to try to bring a coalition of all financial regulators together to act with one voice because it is cross-jurisdictional. It is not an Irish problem; it is a global problem. It is often the case that the bad actors are boiler room scams located in other countries.
The role of the Central Bank specifically is a statutory one where we have an obligation to work to take down and disrupt advertisements of fraudulent financial offerings - committee members will all be aware of them pretending and masquerading to be a regulated entity, misusing its name and misspelling it slightly - and we do that. We are globally dealing with such a problem that it cannot be dealt with in the way it was dealt with previously. We still work to web scrape. It is one of the AI technologies we have. We have technology to go on the Internet because that is mainly where they are found. Once upon a time, we used to read the newspapers in Ireland and look at the advertisements there, but that is now less prevalent. We partner with An Garda Síochána to support it to disrupt bad actors.
We have been to see Google, for example. The Deputy will have seen that it announced a new initiative today. I am delighted that it is doing that. We asked it to do it. The director of enforcement and I went to see Google because increasingly the scams are online. We have also gone to Coimisiún na Meán to partner with it to become a trusted flagger so if we see incidents we can tell an coimisiún and we will have a priority corridor to take down advertisements and get to them.
We see our role as the statutory role, but that will not be enough. We have to link in with others who have a role in this and try to be collectively more effective. One of the international approaches that we are leading on is to get all financial regulators that are a member of IOSCO, an international securities regulator organisation, to work together to have a global database held by it of all the bad actors with straight-through processing in order that it can be easier for the Internet service providers to access that information and for us all to have a global reach with the Metas and Googles of this world so that they can help us to strengthen the approach. We also have a role in the national payments strategy. There is fraud thinking going on there.
Of course, the Deputy will probably be aware of the Government-led initiatives. We participate in some of those. We are not directly fighting those financial crime issues but we have a role to play and we try to play that in a collaborative way as well as our direct way.
Jim O'Callaghan (Dublin Bay South, Fianna Fail)
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When the Central Bank identifies a scam advertisement, for example,who does it identify? Does it identify the Internet provider, such as Google or Meta, that has been publishing the advertisement?
Jim O'Callaghan (Dublin Bay South, Fianna Fail)
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Whom does the Central Bank contact when it finds one?
Jim O'Callaghan (Dublin Bay South, Fianna Fail)
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If the Central Bank realises an advertisement on Meta is a scam advertisement, will it contact Meta?
Ms Derville Rowland:
We will. Coimisiún na Meán has been set up to lead on regulation of key domains of weakness in online service provision. It is the key regulator but we know we have a role in that, which is to become a trusted flagger, and we are applying for that. If we get trusted flagger status, that means when we see an advertisement like that we will deal with the advertisement, get it taken down and go through the procedures. We could then contact, for example, Meta or Google, and be dealt with in a priority way to get them to take things down as well because these things can pop up in multiple ways.
Jim O'Callaghan (Dublin Bay South, Fianna Fail)
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How does the Central Bank get the advertisement taken down? Whom does it contact? Is it Meta?
Jim O'Callaghan (Dublin Bay South, Fianna Fail)
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The Central Bank has to request the Internet publisher-----
Jim O'Callaghan (Dublin Bay South, Fianna Fail)
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Does the Central Bank get a positive response from them universally?
Jim O'Callaghan (Dublin Bay South, Fianna Fail)
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Why would people not want to take down a scam advertisement?
Ms Derville Rowland:
I have absolutely no idea. Why would people not want big global Internet service providers to proactively be part of the positive coalition of actors who want to stop the opportunity to host fraudulent propositions on the Internet? Some of these are very straightforward and easy to identify. Today, Google has launched a really positive initiative. Before Google takes the money for a paid-for advertisement from an entity that says it is regulated by the Central Bank of Ireland, it needs to check with us. That is a straightforward way of doing it. It is welcome and right that it does so. We really support and welcome that.
With a lot of the advertisements, however, as the Deputy will know, the typologies are changing and getting a bit more sophisticated, driven by algorithms. Sometimes they are driving the engagement offline. An individual gets the introducer experience online where they say, "If you ring me or talk to me, this is a very interesting proposition for you." It is an algorithm-driven type of experience. The engagement with the individual then happens offline and that can be where the fraud occurs. These can be harder to detect but we all need to work really hard to clean up the marketplace.
Jim O'Callaghan (Dublin Bay South, Fianna Fail)
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I would have thought a relatively straightforward solution would be a rule, whether introduced by legislation or otherwise, which would prevent an Internet provider from taking an advertisement unless the financial services entity was regulated by the Central Bank.
Jim O'Callaghan (Dublin Bay South, Fianna Fail)
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Google has acted ahead of that.
Jim O'Callaghan (Dublin Bay South, Fianna Fail)
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Has Meta done so?
Bernard Durkan (Kildare North, Fine Gael)
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I welcome the Governor and his colleagues to the meeting. I am sorry I was not present for the initial statement but I was not idle at the time.
There are a couple of things that come to mind. The Governor mentioned fragmentation earlier on. He is correct.
There is considerable evidence of that fragmentation throughout Europe. Europe spoke with one mind, appeared to speak with one mind, boasted of its freedoms and cohesion and had its freedoms and cohesion, but it now appears it is intent on going, or is liable to go, in different directions both economically and politically at the same time, which will not work. It could lead to the total fragmentation of Europe. Our next-door neighbour has already left the Union. Other member states already have leanings towards countries outside the Union to which they believe they should have an alliance and allegiance. What is the answer to that? I will return to FDI, the impact of that and taxation. The renationalisation of Europe is likely to be the outcome, which has been feared for many years. If we continue in that direction, there will only be one outcome. Will the European people rediscover Europe and all that it entails in time to save it? If that does not happen, it will dissolve.
Bernard Durkan (Kildare North, Fine Gael)
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No, an economic one.
Mr. Gabriel Makhlouf:
Normally, I decline to get involved in political discussion but on this occasion, because it is Deputy Durkan, I will respond. The answer to his fundamental question is, in the end, that it is for political leaders to retell the story of Europe, to remind people why the European Union exists, why the countries of Europe decided they wanted to create this sort of union, and what the history is. It is not unusual for new generations to not be that familiar with what happened in the past. That is something to do with the way history is taught and explained, but ultimately it is for political leaders to explain it. The Schuman declaration by the French foreign minister in 1950, who talked about the creation of Europe, made the point that it would not be created according to a grand plan; it would be something that would essentially be done by actions that people in Europe would recognise and support.
In some respects, one of the things we have seen in recent years, notwithstanding what the Deputy said about some countries, and some politicians and political leaders, in Europe having slightly different views from the majority, is the fact that Europe has seen some remarkable crises and managed its way through them. The financial crisis, the sovereign debt crisis and the pandemic have seen Europe succeed and succeed well. We need to tell that story. When I think about the future, and this is certainly where people like me and my colleagues come in, we need to try to explain why the connectedness of economies in Europe and the world supported the growth in living standards, supported people's welfare, and made a huge difference to the lives that we lead, not just in Ireland or Europe but across the world, and what the cost of changing that would be. That is not to say that the sort of globalisation, although I tend not to use that term any more, we saw does not have its problems. It has its problems but many of them could be addressed. We have learned those lessons. In the end, my colleagues and I could help explain what is happening in the world and what the risks are but ultimately, as regards the political fragmentation the Deputy envisages, it is for political leaders to lead.
Bernard Durkan (Kildare North, Fine Gael)
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I agreed with Mr. Makhlouf but, very often, political leaders require signals from the statutory agencies that are there to protect the institutions of the state and so on. At this stage, there is a need for messages from them, directed at home and abroad, from time to time.
Bernard Durkan (Kildare North, Fine Gael)
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Mr. Makhlouf is coming close enough to it. I will move a step further, if I might. On the much-disputed FDI, the European court's decision was not meant to be of benefit to Ireland's foreign direct investment. That is not speculation; it is a fact. It is hoped by some people across the globe that it will have a lasting impact of a negative nature. I happen to know about that as well. I was glad to see Michel Barnier come centre stage again in France. He is clearly a committed European. However, there are other influences as well. What is the remedy for that? For instance, we now have a theoretical 15% tax on corporation profits, which is supposed to be agreed across the OECD countries. I am not so sure that will happen, but the longer the speculation goes on about it, the less helpful it will be. Foreign direct investors get spooked very easily and will go to a place where they do not have to contend with this kind of nonsense. That is the danger. I put that forward as one issue.
I have a problem with the following issue. We are informed on a fairly regular basis by foreign bodies of various descriptions, including NGOs and people in the House, that we should increase taxation in a number of other areas to compensate for a drop in foreign direct investment. To my mind, that is contradictory. If we pile on more taxation in anticipation of a drop in taxation in one area, it will not do any good for foreign direct investment or the economy in general. It would bring two crises together with an impact on the economy that would be much worse than we can now anticipate. That is a statement on my part.
I will raise a couple of other issues. I mentioned the matter of state aid and the possibility of it taking over. Of course, in an economic context, we are a very small player in the international community when it comes to state aid. The European Union has been very strict in ensuring that it stamps out state aid, but it is not doing it. It is happening, for a variety of reasons.
The last issue I will bring to the witnesses' attention - they know about it already and I have raised it in the House - relates to the activities of vulture funds. They are having an impact on our economy that is not of a positive nature at present. They are in the housing market and the property market. There is a fund around now to purchase almost anything, which is in turn raising the selling and buying price. That is good for the seller but what is happening is vulture funds are coming between the seller and the potential buyer who would normally be expected to buy property, depriving that buyer of getting a house, home, property or whatever the case may be, and driving up the price. The game is being played at a different level. I have to say that I am concerned about it. I have had occasion in the past couple of weeks to exchange not so pleasant pleasantries with one vulture fund, which I found bullying vulnerable people in order to collect the debt that it bought. That fund is doing this and it needs to be investigated. I told that vulture fund I would raise the matter in the House, which I did. I named that fund in the House and told it I would pursue this again. It is licensed by the Central Bank. That licence should be questioned. In order to do so, we need to know what is happening.
It is being alleged, and it is serious, that the impaired loans that were bought, very often in a bundle, were bought at a fraction of their face value. There was a write-down by the original lending agency to the buyer.
What is happening next is that the buyer, that is, the new lender, has decided to put pressure on people and to force, as quickly and insofar as it can, the original borrower, real men doing real jobs, to pay the face value of the debt, plus increased interest in many cases. That is a non-runner. That is an obnoxious thing to have happen in a free and democratic country. While it may well work in other countries, it should not apply here. These vulture funds have an attitude that they will find a way around it. My answer to that is that I intend to bring individual cases to the attention of the Central Bank. I will name them all in the House. I have no difficulty doing that because this has to be brought under control. If the vulture funds want a simple resolution, why do they not come forward and say how much they paid for the loans? I am aware that could be morally hazardous and mean less of a profit for them. They are not entitled to extract debt in that fashion through threats and force, nor are they entitled to completely ignore, as happened in a number of cases, third-party representatives completely. They just by-pass them and put pressure on the individual. That is not on and should not be allowed to apply. I am asking the Central Bank to investigate this as a matter of urgency and to challenge them. I will name them and I will give the Central Bank the details. I am aware the Central Bank has been helpful in this area in the past. I am not criticising it at all, but rather I am alerting it to what is going on happen at the present time. Those are all my comments. It is now up to the Governor of the Central Bank.
Ms Derville Rowland:
I am aware the Deputy has engaged with us previously on a variety of issues. We also had a productive meeting in the Central Bank. We have replied to correspondence in which he informed us of issues. I know Deputy Durkan will share that information with us. We scrutinise every piece of information with which we are provided. We look at how that lines up with requirements in the mortgage arrears code or the consumer protection framework. We will do that on this occasion as well. I will leave it there.
Bernard Durkan (Kildare North, Fine Gael)
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I thank Ms Rowland.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Going back to the opening statement, which is very comprehensive, there are a number of issues. The statement mentions the work the Central Bank is doing which is aimed at serving the public interest and protecting consumers and financial services. That has been discussed throughout this meeting. This committee is currently dealing with the Department with regard to the wind-up of IBRC and all of the mess around that time. New legislation is coming forward in this regard. I brought the case of Mr. Butler to the attention of the Central Bank. He alleges wrongdoing with his account and IBRC. I was anxious issues like this would be dealt with before the entity disappeared. He still maintains his position on how he was treated, how the loan was drawn down, etc. While I cannot say whether he is right or wrong, he has an interesting story to tell with interesting paperwork to provide as evidence. In the context of that statement, what can be done to assist this man, his brother and family, who are now elderly and sick, to try to deal with the issues he wishes to be dealt with?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I am not asking that.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I am not asking that.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Hold on one second. Let me be clear about this; I know the Central Bank cannot deal with an individual case.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I accept that.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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When someone comes to me, however, and alleges fraud and other activities, which may be bordering on criminal, I expect the Central Bank to look at that, in an overall sense relevant to the entity. While the entity may be changing and moving, the receiver is still there. I am not satisfied at all that the Central Bank, in this case any way, is serving that particular public interest. If it investigates this matter, it could possibly come up with other similar cases.
Ms Derville Rowland:
The Cathaoirleach is absolutely right. The Central Bank has statutory duties to disclose any suspicions it has to the relevant agencies. Those duties exist and the Central Bank takes all of its considerations seriously. I am happy to look at that issue again if he wishes us to do so.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I am not happy at all that the State can plough its way through the life of a family or families, as the case might be. I am not happy at all with it. I am not happy with the response received, with the IBRC or the receiver. There was sharp practice. I certainly wish for this matter to be examined. I will produce the paperwork and send it to the Central Bank.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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A lot has been said about consumer protection. Deputy Durkan raised the matter in the context of vulture funds. He is perfectly right. Vulture funds and banks have moved back to an old position. I dealt with one bank today. I have to say that banks are not as engaging as they used to be in sorting out issues for costumers. They generally reach for the standard letter telling people to go to the Financial Services and Pensions Ombudsman without investigating within their own corporate entities whether the person could be right or wrong. The person could be wrong, but they have to tell him or her that and produce evidence to that effect.
For example, I know of an elderly man who says he has €15,000 in the bank. He has his bank book. The bank, however, says it does not have that money and that he withdrew it. Is he not entitled to ask the bank for the documents to prove he withdrew the money? He is. The bank will not produce them and will not give him his €15,000. These are only small things which concern ordinary people trying to live difficult lives. I dealt with a similar case concerning AIB in which a young lady’s debt of €6,000 was passed from AIB through an interim bank to a vulture fund. She cannot cope with it. I engaged with all of those entities to try to solve that problem for her. I am going to send on those examples.
Recently, I came across a number of people who had applied for a mortgage but, because of ill health dating back maybe ten or 15 years, they were not given it, despite being almost over the line. Mental health issues were cited. The family in question holds down a job, has income and never had a problem with repayments. It is appalling for a bank to say that to people who are trying to get on with their lives under their own personal pressures. It is that kind of behaviour which brings them into disrepute. People turn to the Central Bank because they may not understand it does not investigate individual cases. I am raising these individual cases with the Central Bank on the basis that this practice is happening right across the board.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Yes, I have noticed a shift backwards. I find the banks' behaviour appalling. Deputy Durkan is right; vulture funds are shocking in the way they treat people. When they contact me to query me on a particular file which I may not have with me at the time, they will then write to me to say I am not co-operating with them. I do not walk around with 20 files under my arm waiting for one of the vulture funds to ring me. I engage with them, however. I try to work out the problems for those people. They have to be more tolerant when seeking information and getting the job done.
I ask the witnesses to listen to what I am saying and try to influence the vulture funds to be better not just for one person but for everyone. That is all I ask.
We have dealt with the matter of consumer protection adequately. I will raise an issue with regard to the bank. I have a reply in respect of the wards of court, and I accept that. Their point is that the firms that are looking after the investment or the courts that are providing the money for the investment should be aware of the statutory instrument of 2002 and ensure that the content of that statutory instrument, relative to the responsibility that it places on types of investment, is adhered to. I will send that on to the witnesses. I understand the Central Bank does not regulate wards of court. This is a deeper question and I will come back to the witnesses on it.
Is there are a plan to build a new €20 million Central Bank building?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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A cash centre.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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How will that be funded? Will it be funded directly from the Department?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Central Bank funding comes from the banks. Is that right?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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We will not have issues like those at the children's hospital in respect of the safe house for the cash. I presume teams of professionals will be working to ensure value for money and all of that.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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That is something the committee is conscious of.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I will also ask about the retreat.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I know. Mr. Makhlouf was perfectly right to do so and I was glad to see that the economy of Kilkenny benefited. Was it necessary?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Kilkenny was absolutely necessary. I read about the cost of the retreat in the Irish Independent. If it is an engagement, you circulate, mix and all of that. If politicians did it, we would be harassed by the general public for that kind of spending. Surely the work that was done could have been done without the elaborate spending that took place.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I must ask Mr. Makhlouf that question.
Mr. Gabriel Makhlouf:
It is a fair question and one can debate it. Once a year, the governing council hosts a retreat. This was not an ordinary meeting but a retreat. There are 20 member countries so this is a once-in-20-years type of event. We can debate whether or not we should have done it on the cheap but in inviting the guests that we invited, we decided to treat them well. That was the decision we took.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The Central Bank did a good job with the retreat.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Mr. Makhlouf means Kilkenny city, but he is pushing all the right buttons.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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How was the retreat paid for?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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It was not paid for by the contributions made by the banks.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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It was paid for out of the Central Bank's resources.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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It was brought to my attention as an extravagant event. I would like to know more about the purpose and what the Central Bank actually gets out of something like that.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is there sharing of policy ideas?
Mr. Gabriel Makhlouf:
Yes, in an atmosphere where we are not forced to make a particular decision. Next week, we will have one of our regular meetings and will be making a decision. The nature of the retreat is that it comprises the 26 members of the governing council plus some external guests we invited on this occasion. We discussed economic and monetary policy, the climate, our strategy and the review we are doing. I personally think it was-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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It is more than just a jolly.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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We will leave it at that. I thank Mr. Makhlouf and his colleagues for coming along.