APPENDIX

APPENDIX I

Range of financial services providers to be overseen by the SRA:

Collective Investment Schemes

Credit Unions

Friendly Societies & Industrial and

Provident Societies - those providing financial services

IFSC entities

Insurance Undertakings

Insurance Intermediaries (incl. insurance agencies and insurance brokers)

Investment Intermediaries (incl. investment business firms and RAIPIs)

Moneybrokers

Moneylenders (both consumer and non-consumer)

Mortgage Intermediaries

Mortgage lending

Mortgage Lenders - unlicensed

Reinsurance companies

Reinsurance intermediaries

Solicitors - incidental investment business (via their professional bodies)

Solicitors - significant investment business regulated as investment intermediaries

Stockbrokers

Stock Exchange / Futures Exchanges

Appendix II

Minority's Alternative Model

This model provides for the establishment of an SRA, with consumer protection functions, within the Central Bank. The model provides for a high level of accountability for regulation to the Minister for Finance and the Oireachtas. Accountants - incidental investment business (via their recognised professional bodies)

Accountants - significant investment business treated as investment intermediaries

Accountants - investment business but not members of recognised professional bodies treated as investment intermediaries

An Post/POSB

Banks

Building Societies

Bureaux de Change

In parallel with the central banking function carried out as part of the ESCB in the euro zone, a separate Division would be established, headed up by a person with the same rank as the current Director General of the Central Bank. This person would be responsible for the implementation of the functions of the Bank concerning all the prudential and consumer regulation assigned to the SRA and could be known as the Commissioner for Regulation. The functions of the Commissioner would be provided for by statute. However, a person reporting directly to him, to be known as the Director for Consumer Issues, would also have specific statutory responsibility for consumer issues. The Board would retain responsibility for policy in relation to regulation as provided in statute. The Commissioner for Regulation would have autonomy insofar as the operation of the regulatory system would be concerned and would only report directly to the Board in respect of policy aspects of his regulatory and consumer affairs functions. The Commissioner would only report to the Governor in respect of organisational (e.g. staffing, finance etc.) issues. There would be free flow of information between the regulatory and consumer divisions.

With regard to accountability, the Commissioner for Regulation would be appointed by the Board of the Bank with the consent of the Minister for Finance for a fixed term which could be renewable. The post would be filled by open competition to be conducted by an independent body on a basis to be agreed by the Minister for Finance and the Minister for Enterprise, Trade and Employment. Both the Governor and the Commissioner for Regulation could each be required to appear before the relevant Joint Committee of the Oireachtas whenever requested and, in any event, at least once a year, to answer questions in relation to regulatory and consumer affairs matters in the context of the Bank’s Annual Report and a specific report by the Commissioner.

In addition, under the law at present, the Minister for Finance can oblige the Board of the Bank or the Governor on behalf of the Board to consult with him in regard to the execution and performance by the Bank of any function or duty imposed on it other than those related to monetary policy. This power would continue under this model to apply to regulatory and consumer issues, thus emphasising the accountability to the Minister of these functions.

This model also envisages the establishment of a panel representative of consumer and industry interests which would be chaired by the new Commissioner for Regulation and which would provide a forum for reviewing the performance of the Central Bank in carrying out its financial regulatory duties as well as providing an opportunity for the industry and consumer interests to suggest initiatives which they wish to see pursued. This model also envisages the establishment of a single statutory Ombudsman scheme for financial services, fully independent of the Central Bank. Complaints raised by customers of regulated entities would be referred to the relevant financial institutions in the first instance. In the event that a customer is unhappy with the institution’s response he/she would be able to refer the matter to the Director for Consumer Issues in the Central Bank who, depending on the nature of the complaint, could deal with it himself or refer it to the Ombudsman. In any event, any decisions of the Central Bank in relation to customer complaints, would be appealable to the Ombudsman.

Advantages associated with this model are that:

it addresses the need for change by providing operational autonomy for the regulatory function, while preserving what is already working well;

it would extend the statutory remit of the existing regulatory role of the Central Bank to include consumers who are at present provided for separately;

it provides a high level of accountability;

the relationship between the monetary authority and the regulator would not be disturbed if the SRA were located within the Central Bank; it is important that co-ordination between the two functions is maximised;

the track record of the Central Bank in regard to its regulatory functions is extremely good and the confidence of the financial markets, both foreign and domestic, it has earned and retained is high;

there is very considerable support among the entities currently regulated by the Central Bank for it to become the new regulator; criticism of the Bank in relation to the exercise of its statutory functions, as prudential regulator, has been non-existent in the context of the submissions received;

it would provide for continuity of expertise;

it would help to minimise industrial relations difficulties.

APPENDIX III

International Comparisons

The supervisory regimes of the following countries have been considered: regimes in other European Union (EU) Member States (Austria, Belgium, Denmark, France, Germany, Greece, Italy, Luxembourg, the Netherlands, the UK, Sweden, Finland, Spain and Portugal); and the USA, Canada, Australia, and Japan.

In general, no "standard" model for financial regulation is apparent. Models around the world vary in particular in the number of regulators included in each regime. However, there is a tendency for insurance companies and banks to be regulated separately. In the 11 member countries of European Monetary Union (euro-11), most central banks have a key role in the supervision of banks. In relation to consumer protection, the general pattern is that prudential regulators do not have wide-ranging mandates.

European Union Provisions for the Regulation of Financial Services Providers

A set of co-ordination Directives form the basis of financial regulation in the European Union. These Directives are designed to set common minimum standards of regulation to be applied across the Union. However, it is open to any Member State to apply higher standards. Although Member States have used different structures to implement the provisions of the same Directives, this has not impeded the achievement of a common minimum standard of regulation throughout the EU. A diversity of regulatory structures is also a feature of countries outside the EU that have comparable financial systems.

Regulatory Structures in Selected EU Countries

Eight of the euro-11 Countries (Austria, France, Germany, Ireland, Italy, the Netherlands, Portugal, and Spain) have a regulatory model in which the national central bank is the focal point for the supervision of banks.

Finland has a regulatory authority, independent of the Central Bank, which supervises banks, credit institutions and investment firms. Insurance companies are supervised by an insurance supervisory authority. The Ministry of Social Affairs and Health is responsible for legislation, licensing, and authorisation of insurance companies. The Central Bank of Finland, as a lender of last resort, monitors market activity and retains some supervisory staff for this purpose.

In ten countries of the Union (Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands and Portugal), banks and investment firms share a common prudential regulator.

Luxembourg has recently restructured its regime for the prudential regulation of financial services through the creation of the Commission de Surveillance du Secteur Financier (CSSF). The CSSF is the competent authority for the prudential supervision of credit institutions, other professionals of the financial sector, collective investments schemes, and stock exchanges, as well as for the supervision of the markets for financial instruments. Because of its relative importance to Luxembourg’s economy, the insurance industry is regulated by a separate regulator, the Commissariat aux Assurances. As a result of EMU, Luxembourg has had to establish a central bank, the Banque Centrale du Luxembourg (this role was previously filled by the Central Bank of Belgium because of the currency union between the two countries.)

Although Germany has a dedicated independent supervisory body (located in Berlin), the Deutsche Bundesbank also has a key role in supervision. It assists in ongoing supervision and ensures conformity with banking law. A similar situation exists in France, where, notwithstanding the existence of a Banking Commission, Credit Institutions Committee, and the Banking Regulatory Committee, the Bank of France plays a major role in banking supervision.

The regulatory system in the United Kingdom is in transition phase with the ongoing assumption of powers by the Financial Services Authority, which was established in l997. The British regulatory system is being transformed from a regime which was previously quite fragmented with a large degree of self-regulation to a system which will be one of the most concentrated in the world. Although direct supervision of banks now lies outside the Bank of England, the Bank has retained a significant number of staff on duties connected with the stability of the financial system.

Sweden has an independent supervisory agency. Nevertheless, the Central Bank of Sweden also retains a key role in relation to the banking industry. The Central Bank is consulted about regulations that are issued to banks, it is the lender of last resort and oversees financial stability, and Central Bank staff collect statistics from banks for transmission to the regulatory body.

In Denmark, a single regulatory body is responsible for the prudential supervision of all financial institutions. The Danish Central Bank is the lender of last resort and monitors the stability of the financial system. The Central Bank maintains regular contactwith the regulator, conducts analysis of individual institutions and sectoral trends, and participates in various national and international fora. It also employs some staff on supervision issues.

In Greece, the Central Bank of Greece supervises banks, the Ministry of Finance supervises investment firms, and the Minister for Commerce supervises insurance companies.

Financial Supervision in Countries Outside the European Union

In the US, the Federal Reserve system plays a central role in financial supervision through the direct supervision of most of the larger banks. In addition to the Federal Reserve, a range of agencies are involved in supervising American banks. Investment firms are primarily regulated by the Securities & Exchange Commission (SEC).

Both Canada and Australia have combined supervision of banks and insurance companies, but not investment firms:

In Canada, all banks are supervised by the federal regulator. Provincial regulation applies to investment firms, credit unions, and some insurance companies. The Bank of Canada is the lender of last resort. It is represented on three separate committees on which senior officials meet: the Senior Advisory Committee (SAC) which discusses changes in legislation; the Financial Institutions Supervisory Committee (FISC) which reviews problem financial institutions, trends in the industry and general supervisory concerns and the Board of the Canada Deposit Insurance Board. The Bank of Canada has the power to require the federal regulator to conduct special inspections of individual institutions and such institutions are required to provide the Bank with whatever information it may require at any time.

In Australia, a new body, the Australian Prudential Regulation Authority (APRA), was established in 1998 to undertake the prudential regulation of banks and insurance companies. A separate body has responsibility for investment firms and consumer issues in general. The central bank, the Reserve Bank of Australia, retains responsibility for systemic stability and a memorandum of understanding has been agreed with APRA in this regard. It should be noted that most of the banks in New Zealand are owned by Australian banks, which are supervised by APRA.

In Japan, the regulatory system is evolving towards the single regulator model. The Bank of Japan retains the power to inspect banks as part of the exercise of its responsibility for the maintenance of financial stability. The long term structure of financial regulation in Japan remains uncertain, however, in light of the continued fragility of the economy and the financial system.

Consumer Issues

The prudential regulators of banks in 10 of the 19 countries mentioned do not have a significant role in relation to issues of consumer protection (Australia, Canada, Denmark, Germany, Greece, Ireland, Italy, Japan, the Netherlands, and Sweden). In

six other countries (Austria, Belgium, France, Luxembourg, Portugal and Spain), prudential regulators have only a narrow mandate, and deal only with consumer complaints. In the remaining three countries (Finland, the UK, and the US), the prudential regulators’ consumer role is more extensive. The UK’s Financial Services Authority has a consumer panel that contributes to policy development. The US has an extensive body of consumer legislation, the implementation of which is monitored by prudential supervisors.

APPENDIX IV

Copy of Advertisement Inviting Submissions

APPENDIX V

List of Submissions Received

Mr Maurice Abrahamson BL,

An Garda Siochána

Association of Chartered Certified Accountants

Association of Higher Civil & Public Servants

Baillie Gifford Overseas

James Bowen & Associates Ltd

Central Bank of Ireland

Citibank, N.A.

City Life (Pensions) Limited

Civil and Public Service Union

Consultative Committee of Accountancy Bodies-Ireland

Consumers Association of Ireland

Credit Union Advisory Committee

Mr Albert Dawson, A E Dawson & Son, Insurance Consultants

Mr P M Deegan, B.L.

Deloitte & Touche

Department of Enterprise Trade & Employment

Department of the Environment & Local Government

Department of Finance

Department of Public Enterprise

Department of Banking & Finance, University College Dublin

Dublin Funds Industry Association

Ernst & Young

Financial Services Industry Association

Finex

IDA Ireland

IFSC Clearing House Group

IFSC Funds Group (Industry Members)

IMPACT

Institute of Certified Public Accountants in Ireland

Institute of Chartered Accountants in Ireland

Irish Association of Investment Managers

Irish Bankers Federation

Irish Banks’ Information Service

Irish Brokers Association

Irish Business and Employers Confederation

Irish Insurance Federation

Irish League of Credit Unions

Irish Life plc

Irish Mortgage & Savings Association

Irish Nationwide Building Society

Irish Stock Exchange

Professor Colm Kearney, Economic and Social Research Institute

Professor Ray Kinsella, University College Dublin

KPMG

Law Society

Mícheál Mac Cárthaigh Uas.

Ms Paulyn Marrinan Quinn, BL

Mr Basil McGill

MSF

National Treasury Management Agency

Norwich Union Life Insurance Ireland Ltd

Mr Gerry O’Leary,

Mr Fergus O’Rourke, BL

Office of the Revenue Commissioners

Eamonn Ó Flannagain Uas., ACMA

Pensions Board

Professional Insurance Brokers Association

Public Service Executive Union

Registrar of Friendly Societies

Society of Actuaries in Ireland

Society of Investment Analysts in Ireland

Mr Michael Stanley

Mr Jim Stewart, School of Business Studies, Trinity College Dublin

Appendix VI

C&AG Comptroller and Auditor General.

DCA Director of Consumer Affairs.

ECB European Central Bank.

EEA European Economic Area (all 15 EU member States as well as Norway, Iceland and Liechtenstein).

EMU Economic and Monetary Union.

ESCB European System of Central Banks (i.e. ECB and national central banks of the 11 countries in the euro-zone).

FSA Financial Services Authority (UK regulator of financial services).

IBA Irish Brokers Association.

IFSC International Financial Services Centre.

IICB Insurance Intermediaries Compliance Board.

NTMA National Treasury Management Agency.

POSB Post Office Savings Bank.

RAIPI Restricted Activity Investment Product Intermediary (i.e. an investment intermediary who is restricted by law in the type of business services they can provide and in relation to the institutions on whose half they act).

SRA Single Regulatory Authority.

UCITS Undertakings for Collective Investment in Transferable Securities.

Errata

Page iii

Minority position to become separate bullet at end of Chapter

Page iv

Chapter 8 - 6th bullet - amend to "The Group noted........"

Page 4

Para 2.5 - add new sentence after 2nd sentence - "Under the Investment Intermediaries Act, 1995, and the Stock Exchange Act, 1995, the Central Bank's function in relation to the proper and orderly regulation of firms and the protection of investors, is subject to such guidelines as may be issued by the Minister for Finance.

Page 11

Minor restructuring of paragraph 2.35

Page 30

Para 4.8 - amend 4th sentence to read "Particular emphasis has been placed recently on the relationship between these two levels and, in particular, on the obligations imposed, under EU law, on the Central Bank, as a regulator, which prohibits it from disclosing to the relevant authorities, information ..............".

Delete final two sentences (starting "In this connection......." ).

Page 34

Para 4.19 - delete 2nd and 3rd sentences (starting "Lack of transparency.........")

Page 36

Para 4.28 - amend 2nd sentence to read "It is essential that regulatory decisions, which might affect the stability of the financial system as a whole are subject to advance consultation with the monetary policy authority." and add new sentence " In addition, it is essential that monetary policy decisions, such as the imposition of sanctions on regulated entities, are also the subject of prior consultation with the regulatory authority."

Page 55

Add new sentence to para 8.3 as follows: "The cost of providing ancillary services within the SRA, which are currently provided from within the overall resources of the bodies involved, may also lead to some increase in the eongoing operating costs of the SRA."

Page 68

Para 6, 2nd indent - amend to read "........... to include consumers who are at present provided for separately"

Main amendments to draft Report circulated on 4 May, 1999

Chapter 2

Para 2.5: Insert new sentence after 2nd sentence

"Under the Investment Intermediaries Act, 1995, and the Stock Exchange Act, 1995, the Central Bank's function in relation to the proper and orderly regulation of firms and the protection of investors, is subject to such guidelines as may be issued by the Minister for Finance."

Chapter 3

Para. 3.13, add following text at end of section:

[The Group agreed that the registration function in relation to Friendly Societies and Industrial and Provident Societies should be transferred to the Companies Registration Office when the SRA is established.]

Para 3.14, 3rd sentence: Insert following text into start of sentence "The Pensions Board also has a role in relation to policy formulation and fulfils........." and Para 3.17, 2nd sentence: replace text at start of sentence as follows "In view of this, the policy aspects of the Pensions Board's functions and taking account ............"

Chapter 4

Para 4.8: Revise 4th sentence as follows: "Particular emphasis has been placed recently on the relationship between these two levels and, in particular, on the obligations imposed, under EU law, on the Central Bank as a

regulator, which prohibits it from disclosing........."

Delete final 2 sentences

Para 4.19: Delete 3rd and 4th sentences.

Para 4.28: Revised as follows:

"The Group did agree, however, from the perspective of being able to preserve stability in financial markets, that it is important that both functions are operated in close cooperation. It is essential that regulatory decisions, which might affect the stability of the financial system as a whole, are subject to advance consultation with the monetary policy authority. In addition, it is essential that monetary policy decisions, such as the imposition of sanctions on regulated entities, are also the subject of prior consultation with the regulatory authority. In this context, the Group noted that, unlike the case in relation to consumer protection issues outlined above, EU law does not prohibit the exchange of confidential information between prudential regulators and monetary authorities (see paragraph 4.12 above).".

Chapter 8

Para 8.3, add new sentence as follows:

"The cost of providing ancillary services within the SRA, which are currently provided from within the overall resources of the bodies involved, may also lead to some increase in the ongoing operating costs of the SRA."

Para 8.14: Reference to IFSC deleted.

Para 8.18 Text revised as follows:

"As the Central Bank is in competition with the private sector for supervisory staff, it must adopt a flexible approach to remuneration. While the Bank currently observes the public service pay guidelines, this does not preclude it from attracting staff with the required professional qualifications. Its multiple grade structure allows it to pitch individual salaries at levels required to recruit for various positions. The other bodies mentioned above are subject to normal civil service controls on pay and numbers."