The new financial services regulator will seek the power to fine banks which have mis-sold products, according to its incoming chief executive.
Dr Liam O'Reilly has said obtaining such powers will be a top priority and that he sees them as crucial instruments in securing a better deal for the customers of banks, insurance companies and other financial institutions.
"One of the first priorities is that we would have a graded option in terms of penalties. Currently the only thing the Central Bank could do was to withdraw its [the bank's] licence but then you throw all of the depositors onto the street and that is no good to anyone. The graded option is better than having to go for the nuclear option," he said.
The power to impose such penalties is expected to be included in follow-up legislation. It will not be included in the Bill to formally establish IFSRA which is currently making its way through the Oireachtas.
IFSRA will take over the regulation of all banks, building societies, credit unions and insurance companies. At the moment the regulation of these sectors is carried out by a range of bodies that will be unified and located close to the Central Bank of Ireland on Dame Street.
Dr O'Reilly says the main difference for customers of financial institutions will be that they will have access to a one-stop-shop where they can make complaints about products and services offered by these companies.
The authority is currently in the process of recruiting a consumer director who would deal with all such complaints. Dr O'Reilly envisages that the consumer director will have substantial resources, with between 60 and 80 people to support their work. The consumer director is due to be appointed in the new year.
"What we want is a person who is a good communicator, who has a fair knowledge of products and how they are sold within the financial services industry. We want the consumer director to be hitting institutions hard but we don't want a situation where they cause the reputation of the institution to get so bad that it would cause a run on the bank which would then upset the depositors."
The authority will expect the consumer director to launch educational initiatives that will help consumers to have a better understanding of the products on offer.
"There is a certain level of self assurance that consumers need to develop. We will be trying to ensure that the consumer is aware of what is being offered, that they ask the right questions."
Dr O'Reilly says the authority will have to carefully assess the educational strategy as there is evidence that initiatives taken in the UK proved to be very expensive and were not wholly successful.
He believes there is a great deal of work to be done before consumers can be confident they are getting a good deal. "The kindest way of putting it would be that we have not reached Nirvana. There is a perception that banks are giving a bad deal. Perception is reality."
The Central Bank has grappled with some areas of sharp practice issuing codes of conduct to the various financial institutions which are followed up by inspections to ensure they are being adhered to. The new regulatory authority will be putting the responsibility for the implementation of these codes on everyone working in a financial institution, from the board of directors to the sales staff.
"There is a huge danger if you don't put the onus on boards and management of institutions nothing may happen at all.
"There is a huge responsibility on the authority to make sure that we don't overburden the industry because the first thing that we will do is to drive these institutions off shore. If it is expensive to do business here, they will move."
The Credit Union movement has expressed some concerns about the new authority's role although Dr O'Reilly suggests such reservations are misplaced.
Credit Unions will continue to be regulated according to the 1997 Credit Unions Act. The only difference will be that the Registrar will now report to the regulatory authority.
