The publication of the long-awaited report on the implementation of a single regulatory authority for the financial sector means a full-scale debate can now commence. It is clear that change is required. The string of scandals in recent years including offshore accounts, overcharging, mis-selling and the theft of clients' funds, highlight the inadequacies of the current regime and the low priority given to consumer protection.
The main body of the report has recommended that a new "green-field" regulator be established to undertake all prudential and consumer regulation of financial services from banks and building societies to insurance companies, stockbrokers and solicitors. This authority would be an entirely new independent organisation, separate from the existing main regulator, the Central Bank.
The report has recommended that this new organisation should be responsible for all prudential supervision, including decisions on licensing and authorisation of financial services and should also be given statutory responsibility for consumer issues. Critically, the report also argues for a customer protection director within the new regulator, as well as the establishment of a statutory ombudsman scheme for all financial services.
The committee which produced the report, also looked at two other options. The Department of Finance and the Central Bank representatives proposed setting up a new authority within the existing Central Bank. They argued that this would preserve the Bank's prudential role and would retain the confidence of financial markets, as well as the banks and other institutions currently regulated by the Bank. Another proposal was put forward by the Department of the Taoiseach. This so-called "twin towers" approach would retain regulation in the Central Bank but under an entirely different board.
Fortunately, the Government appreciates the importance of consumer protection and it is dealt with at length in the committee's report. While the new structure must ensure continued strong prudential supervision, which is vital in terms of the stability of the banking system, a new focus on consumers is equally valid.
The proposal that a single regulator would look after all areas of financial regulation makes sense. The boundaries between different types of financial institutions are breaking down and the traditional division of regulation between different institutions is no longer appropriate. The Government is correct not to be rushed into a decision on the issue. All sides now have a chance to comment on the report. But equally a decision should not be delayed too long. It is clear that the current system has its shortcomings and a better structure needs to be put in place as quickly as possible. The challenge for the Government is to maintain the strengths of the existing system, while ensuring that consumer protection takes a much higher priority than it has in the past. The danger is that the debate will degenerate into a turf war and that these key issues will not be given sufficient attention.