Dáil Éireann - Volume 511 - 23 November, 1999

Written Answers. - Banking Sector Regulation.

194. Mr. Dennehy asked the Minister for Finance if he has satisfied himself that there is sufficient protection for consumers availing of the facilities provided by internet based banks; and if he will make a statement on the matter. [24365/99]

195. Mr. Dennehy asked the Minister for Finance if the same rigorous standards of compliance and liquidity requirements are applied to financial institutions offering services over the internet as apply to traditional high street banks; and if he will make a statement on the way in which he sees the future regulation of this developing area. [24367/99]

Minister for Finance (Mr. McCreevy): I propose to take Questions Nos. 194 and No. 195 together.

The innovation that the internet brings to financial services lies in the method of linking the – service provider and client rather than in the nature of the service itself Although the internet may raise specific issues with regard to the banking application and supervisory process, there is no fundamental difference between the process as it applies to institutions operating via the internet and those providing services by more traditional means.

The provisions of the second banking directive, (89/646/EEC), which was implemented in Ireland by S.I. No. 395 of 1992, European Communities (Licensing and Super-vision of Credit Institutions) Regulations, 1992, provide for the mutual recognition of banking services within the European Union. This means that any credit institution already licensed in another member state can undertake banking business in Ireland without the need for a licence from, or prudential supervision by, the Central Bank. Such institutions will be supervised by the home member state. The use of these “passporting” arrangements are likely to become increasingly advantageous to financial service providers with the advent of internet banking. Non-EU banks are required to obtain a licence from a member state [652] before they can provide services within the EU, whether via the internet or otherwise.

The protection of the interests of clients of financial institutions, whether the service is provided via the internet or through more traditional channels, operates on two basic levels.

The first addresses the protection of consumers' interests in the context of the solvency of the regulated entity and is part of the legislative remit of the Central Bank of Ireland in regard to Irish licensed banks and of the home supervisory authority in the case of internet-based banks that are licensed in another EU member state. The national banking supervisory authority regulates the activities of banks and investment firms with a view to the protection of clients' funds. In all cases, the institutions are subject to a stringent licensing/authorisation process and ongoing supervision that involves the use of both on-site and off-site mechanisms to determine compliance with the requirements imposed on those institutions, including detailed capital adequacy and liquidity requirements. This applies regardless of whether the institution provides the service over the internet or in a more traditional way.

The second aspect relates to the protection afforded to clients in their role as consumers of financial services. At national level, financial service providers, whether Irish-based or offering services from abroad through the internet, are required to comply with the Consumer Credit Act, 1995. This Act covers, inter alia, the formal content of credit agreements, certain provisions relating to housing loans, bank charges, etc. Statutory responsibility for these issues lies with the Director of Consumer Affairs under the auspices of my colleague, the Tánaiste and Minister for Enterprise, Trade, and Employment, Deputy Harney, and her Department.

In addition, at EU level, a draft directive on distance marketing of consumer financial services is currently under discussion. The proposal reflects the creation of the single market and anticipates the likely increase in cross border selling of financial services following the introduction of the euro. Against that background, the purpose of the draft directive is to establish a legal framework at EU level for the distance selling of financial services which takes into account the nature of these services. Consumers would be entitled to certain information in advance of entering into a contract, whether by fax, telephone or the internet, including the identity of the supplier, the total price to be paid for the financial service, the arrangements for payment and for performance, and the existence or absence of a right of withdrawal. The draft directive also contains provisions regarding the exercise of right of withdrawal, and exemptions from that right, and ancillary provisions such as payment by credit card, unsolicited services and unsolicited communications.