The Central Bank is set to lose all its authority over financial institutions under proposals due to go to Cabinet. It is envisaged that the bank will retain only its monetary policy functions and its role as a member of the European System of Central Banks.
The advisory group on the establishment of a Single Financial Regulator has recommended that all of the bank's duties in respect of financial institutions be given to a new body, including authorisation and prudential and consumer regulation.
The Departments of Finance and of Enterprise, Trade and Employment are drawing up a memorandum to present to Cabinet on the issue within the next two weeks.
The proposals, contained in an almost 100-page document prepared by the committee, provide for an all-powerful new body taking over the regulation of insurance companies and brokers, credit unions, credit intermediaries and the Post Office Savings Bank.
The Central Bank, headed by its Governor Mr Maurice O'Connell, would retain its role under the ECB as lender of last resort, printer of new money and overseer of money market or monetary policy.
It is understood that efforts are under way to fast-track the proposals in order to allow the new authority to be open for business within one year, following the required legislative changes.
One of the main reasons the Central Bank lost the battle to retain control of financial regulation was the decision that a single regulator ought to be in charge of all financial institutions. This was the basis of a recommendation by the Dail's finance committee which was later adopted by Government and formed the basis of the terms of reference of the advisory group which examined the issue.
No EU member-state has its central bank regulating the entire sector including insurance companies.
However, the Organisation for Economic Co-operation and Development has recently told the Government that it would be "logical and beneficial" that the function of supervision of insurance companies be transferred to the Bank.
But the main issue, according to the report of the committee, is the lack of accountability of the Central Bank. Under law, the governor cannot be removed from office and thus the Oireachtas cannot ensure accountability.
The Attorney General is also understood to support the move to set up a new regulator, arguing that a regulatory authority has to accountable.
The report argues that the Central Bank has little power over the banks, compared with its control over the investment firms and intermediaries. The bank itself argues that legislative change is needed to give it greater control over the banks.
The report also recommends that the new chief executive of the single regulatory authority should be appointed for a fixed term and should be deemed under his contract to be accountable to the Dail. It is also understood it suggests that he or she should have personal responsibility should any lapses in regulation occur.
The memorandum dealing with the issue is expected to come before Cabinet in two weeks. However, it is understood to be presenting difficulties for the Minister for Finance, Mr McCreevy, who, along with the Tanaiste, Ms Harney, is thought to be personally in favour of the new agency . However, his Department, along with the Central Bank, opposes the creation of the new regulator. The governor of the Central Bank is usually appointed from the top ranks of the Department.
It is also believed that a minority report within the main body of the document is backed only by the Central Bank and the Department of Finance. The other seven members of the committee all approve the majority line in favour of a new regulator.
