THE FINANCIAL regulatory system will be strengthened as the result of new powers that will be granted to the proposed Central Bank Commission, according to the Department of Finance.

The comments came yesterday as the Government published the new Central Bank Reform Bill, which will dissolve the Irish Financial Services Regulatory Authority and place most of the regulator’s functions inside the new Central Bank Commission.

A key provision of the Bill removes the statutory responsibility of the Central Bank to promote the development of the financial services industry in the State. The Department of Finance said this role was “inconsistent with the enhanced regulatory focus” of the new regime.

The new system of regulation will help maintain financial stability and safeguard the interests of both consumers and investors, according to the Department of Finance.

Under the new integrated structure, an Oireachtas committee will receive an annual regulatory performance statement. This new mechanism is designed to increase accountability in respect of the Central Bank’s regulatory obligations.

The Central Bank Commission, which was first proposed a year ago, will be chaired by the governor of the Central Bank, Patrick Honohan.

The Bill also gives legislative backing to the creation of two newly configured positions – a head of financial regulation and a head of central banking.

Matthew Elderfield was appointed as head of financial regulation late last year, while Tony Grimes is his counterpart on the prudential side. Both men will act as ex-officio members of the commission.

The Bill gives the commission new powers to vet people appointed to senior positions within financial institutions. Mr Elderfield will have the power to suspend senior bank executives if he believes there is sufficient reason to suspect that the person concerned is not fit for the job.

“This initiative will help restore confidence in the management of financial institutions both domestically and in international markets,” the Department of Finance said in a statement.

The Bill also transfers responsibility for consumer information and education to the National Consumer Agency and abolishes both the post of consumer director within the Financial Regulator (a position previously occupied by Mary O’Dea) and the two statutory advisory panels on consumer and prudential matters.

The Bill states that the Central Bank Commission will have to answer to the Oireachtas on consumer protection issues.

The commission will be obliged to establish a group to advise it on its consumer-related functions and powers. It will also have the authority to set up other advisory groups.

“The changes will enable increased co-operation and co- ordination between prudential supervision of individual institutions, conduct of business regulation and maintaining financial stability overall,” the Department of Finance said.

The Bill also contains measures that will allow a higher proportion of credit union loans to be scheduled over longer periods, in order to alleviate the financial stress of credit union members who have got into difficulty on their loans.

A consultation will take place on the Bill over the coming weeks.

The Bill is the first of three pieces of legislation that will effectively demolish and reconstruct the Irish system of financial regulation following criticism of its handling of the banking crisis. Details of the legal framework under which the commission will operate will be contained in the forthcoming legislation.

The removal of the Central Bank’s role as a development agency for the financial sector reflects concerns that the regulatory authorities had favoured a system of light-touch regulation in order to enhance the appeal of Ireland as a host for global financial institutions.

It was argued that this approach may have been at the expense of overall regulatory standards.