It's been a busy few weeks for the mandarins of the Department of Finance. In order to encourage a culture of savings and put the brakes on inflation, Finance Minister, Mr McCreevy, announced a five-year national savings plan that guarantees a Government return of 25 per cent on savings.
Then, on Tuesday week, the long-awaited Government decision on a single financial regulator was announced by the Tanaiste, Ms Harney, and Mr McCreevy. The establishment of a single regulatory authority for the financial services sector - a "one-stop shop" for the financial sector and its customers - was agreed by the Government in October 1998. The expert group chaired by Michael McDowell established to make recommendations on how the new body should be set up reported in May 1999. It has taken nearly two years for the Government to agree those recommendations. The purpose of the single regulatory authority is to oversee prudential regulation so that insurance companies, banks and other financial institutions and intermediaries remain solvent while protecting customers' rights.
The structure is an inevitable compromise between those who wanted the Central Bank to take over all regulation and the opposing view in favour of a new body with no historical baggage. The new structure, with a "Central Bank of Ireland and Financial Services Authority Board" and subsidiary bodies including the proposed Irish Financial Services Regulatory Authority (IFSRA), appears cumbersome.
But the only issue that matters is whether it will improve financial services regulation in Ireland. We are a long way from being able to answer that question yet, but at least we now have a clearer idea as to the road ahead. Despite lengthy speculation over who the regulator should be, the important issues are to do with how it will do its job, in particular:
How the solvency supervision and consumer protection functions will be balanced. The continued solvency of any financial institution is the single most important protection for the consumer, and this has to be recognised in the balance of the new regulator's set-up.
How consultation with the financial services industry and consumers will be handled - in addition to the separate consumer and industry consultative panels, it is important to create a forum where views can be discussed by both constituencies with the regulators.
How the IFSRA will be staffed and resourced - it has to have highly professional regulatory staff and the necessary resources must be provided. At the same time, the cost of regulation - whether met by the State, regulated firms or a combination of the two - ultimately falls on the taxpayer and consumer. To ensure value for money, IFSRA's funding, accountability and procedures must be open and be seen to be efficient.
Whether retaining the existing finance sector Ombudsman schemes would be better than attempting to "re-invent the wheel" with a new statutory Ombudsman. Providing a single point of contact for public inquires and complaints is not incompatible with the continued successful operation of the Credit Institutions and Insurance Ombudsman schemes, which have the great benefit of avoiding recourse to the courts, an advantage which could not be matched by a statutory scheme.
This week's decision is an important departure from the fragmented structure of regulation and consumer protection that currently exists. But it would be naive to believe that the most difficult hurdles lie behind us. It was only last June, for example, that the huge Financial Services and Markets Bill, which established the Financial Services Authority in the UK, was passed at Westminster. The passage of this legislation took two years to complete and was the most amended Bill in British political history.
Let us hope that the process here is less fraught, but let us get it right. An efficient, professional regulatory system is what the Irish financial services consumer needs and deserves.
Mike Kemp is chief executive of the Irish Insurance Federation
