The Cabinet is to be asked tomorrow to establish a new independent regulator to police the financial services sector. The plan is part of a response to the controversy in the financial sector, most recently over non-resident accounts at Allied Irish Banks. The Tanaiste, Ms Harney, and the Minister for Finance, Mr McCreevy, are jointly tabling the proposals. They agree that a new regulatory body should be established, separate from the Central Bank, to supervise the banks and other financial institutions.
Although on the drawing board for some months, the process is being speeded up as a direct response to the latest financial controversy which has erupted over AIB and the inquiry into its handling of DIRT tax liabilities.
Senior ministers have expressed concern that the current regulatory structure is not equipped to deal with such situations. It is understood that Ms Harney and Mr McCreevy want to move swiftly to offset criticism of the Central Bank.
The Central Bank has said that its primary role is to oversee the overall health of the financial system. It is expected that the new body will be asked to focus much more directly on consumer protection and on the proper running of the financial institutions.
The presentation of the joint proposal means that Cabinet approval for the new regulator is practically guaranteed.
It is the result of the conclusions of a joint working group between the Department of Enterprise and Employment and the Department of Finance, which was set up earlier this year. But it will be next year before the new authority is set up. If approved by Cabinet, it will be a severe setback for the Central Bank. The bank is already to lose its monetary policy decision-making functions as part of the move to the single currency and the supervisory side of its role has been the fastest growing part of its brief for some time.
When he appeared before the Dail Committee of Public Accounts last week, the bank's governor, Mr Maurice O'Connell, said the bank could see the logic of bringing the regulation of the insurance sector into the same organisation as the banks. However, he insisted that there was no point in bringing taxation supervision into the same body, saying such a move had not worked anywhere in the world.
Mr O'Connell also admitted it was necessary for consumer protection to take on a more clearly defined and transparent role. He said the bank would be prepared to take on such a role if legislation was changed. Speaking on RTE Radio's This Week programme yesterday, Mr McCreevy said the bank was not at fault in the AIB affair and insisted it had done an excellent job within its remit of prudential regulation.
The bank has been in charge of banking supervision since 1971, but in recent years significant extra responsibility has come its way through the regulation of the IFSC, the Stock Exchange as well as investment intermediaries.
Meanwhile, the Dail Committee of Public Accounts continues its investigation of the AIB affair this week and is to have a conference of its legal advisers along with those of the Comptroller and Auditor General, Mr John Purcell, today, to consider its next steps.
AIB's former group internal auditor, Mr Anthony Spollen, is among the witnesses who have been invited to appear before the committee and is likely to appear shortly. He will defend his estimate that the bank's outstanding DIRT tax liability was around £100 million. Mr Spollen may also tell the committee about criticisms of the bank's handling of the non-resident account issue and other issues, contained in a lengthy memo which he submitted to the bank's audit committee in 1991.
Another former senior executive, Mr Jimmy O'Mahony, group head of taxation, was quoted by AIB executives as saying that the £100 million estimates - derived from figures which he originated - were off-the-cuff figures designed to get the attention of other managers. He has also been invited to appear before the committee.