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					                               JOHN A. BRESLIN
                                   Barrister-at-Law


                                                                         20th September 2002
D. Salter, Esq.
IFSRA Legislation Unit
Department of Finance
Upper Merrion St
Dublin 2


Dear Mr Salter,

Financial Sector Regulation: Consultation Document July 2002

I am writing on behalf of the Irish branch of the European Association of Banking and
Financial Services Lawyers (AEDBF). The AEDBF is an informal association of lawyers
throughout the European Union, having its head office in Luxembourg, for the promotion
of discussion and research into European banking and financial services law. Its members
include specialist practitioners from major law firms throughout Europe, and in-house
lawyers from major international financial institutions.

There were three issues in the consultation document which we in the Irish branch of the
AEDBF would like to comment on. The first is the proposal to extend regulation of
moneylending to loans by moneylenders to non-consumers. The second is the proposal
with regard to annual certification by directors of financial institutions as to compliance
with tax, company, and financial regulatory laws and directives. The third is the
requirement that the auditors of the institution review such certificates by directors.

Non-consumer loans by moneylenders

Part 6 of the consultation document (at page 13) proposes as follows:

       ‘Non-consumer moneylending should be treated in the same way as consumer
       moneylending…

       All lending by Moneylenders should be subject to the conditions laid down in Part
       VIII of the Consumer Credit Act 1995 (which at present only applies to lending to
       individuals)…’

At page 14 the question is put to consultees:



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       ‘Is a simple extension of the system provided for in Part VIII of the Consumer
       Credit Act to cover all lending by licensed Moneylenders sufficient? If not, what
       alternative can be proposed?’

We assume that what is proposed is that where a moneylender licensed under the
Consumer Credit Act 1995 makes a loan to a person who is not a ‘consumer’ for the
purposes of that Act, then the regulatory requirements in Part VIII of the Act will none
the less apply to that provision of credit.

We have assumed that what is not proposed is that loans by lenders who are not licensed
moneylenders under the 1995 Act (such as, for example, foreign banks or Irish
incorporated special purpose vehicles) to non-consumers should be subjected to
regulation under the 1995 Act. Our view is that the status quo whereby such credit
provision is completely unregulated should remain: such lending should not be the
subject of any regulation whatsoever. Non-consumer borrowers obtaining finance from
banks and finance houses should be free to negotiate their own terms with their lenders
and do not require the same level of protection that consumers enjoy. Regulating such
finance provision would be anti-competitive and make it unattractive for foreign entities
to lend to Irish businesses, thereby depriving Irish businesses of the opportunity of
availing of alternative finance. It would also be damaging to the IFSC and send the wrong
message to foreign entities wishing to do business with Ireland.

We would be most grateful if you could confirm that our understanding of what is
proposed is correct. If our understanding is correct, we would have no specific comments
with regard to extending the regulatory provisions in Part VIII of the 1995 Act to non-
consumer loans by licensed moneylenders.

Annual certification by directors of financial institutions as to compliance with tax,
company, and financial regulatory laws and directives

The AEDBF has grave concerns with regard to the proposals, at page 8 of the
consultation document, with regard to annual certification by directors that their
institution has complied with all tax, company and financial services laws. In particular,
the following proposal gives us cause for concern:

               ‘Head 26 provides that the Directors of a financial institution must each
               year prepare a Compliance Statement showing compliance, not only with
               general company, taxation etc. law, but also with financial services
               legislation and directives etc issued by IFSRA

Our concerns, and the reasons for them, are as follows:

   1. The scope of the duties to be covered by the annual compliance statement is not
      clear. Is it to extend beyond taxation, company and IFSRA/regulatory provisions
      to matters such as compliance with employment law, health and safety,




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    environmental laws and equal treatment laws? We would be grateful if this could
    be clarified.

2. The sanctions for failing to provide the annual statement are not set out in the
   main text of the consultation document nor in the draft heads of bill. Nor are the
   sanctions for providing inaccurate certification clarified in the document. If it is
   proposed that there be a criminal sanction for (a) failing to provide the
   certification when required, or (b) providing a certification which is inaccurate,
   then it appears to us that the requirement to certify is clearly in breach of the right
   against self-incrimination enjoyed both by the individual director and the
   institution itself. If the institution fails to certify breach by it of the provision then
   it is open to criminal sanction. Equally, if it complies with the duty to certify and
   discloses that it (and its directors) have committed a criminal offence, then it is
   opening itself to the possibility of criminal prosecution for commission of that
   offence. The IFSRA will be entitled to report the breach to the Director of
   Corporate Enforcement under the new ‘gateways’ provided for in the new
   legislation (see, in particular, Head 37 of the draft heads of bill). A provision
   which forces an admission of commission of a criminal offence is clearly in
   breach of that person’s right not to incriminate himself. This right is one that is
   long established in Irish jurisprudence. It is also an implied right under Article 6
   of the European Convention on Human Rights (‘the Convention’) dealing with
   the right to a fair trial: Saunders v UK (1997) 23 EHRR 313. The provision
   would, in our view, be open to constitutional challenge and would be inconsistent
   with the pending implementation of the Convention pursuant to European
   Convention on Human Rights Bill 2001 currently before the Oireachtas.

3. In our view the proposed provision would breach the director’s and institution’s
   rights against self-incrimination even if no criminal sanction is attached to failure
   to certify or inaccurate certification. This is because there would none the less be
   a statutory requirement upon the director and the institution to admit to the IFSRA
   if the institution or the director had committed an offence. In our view this
   impinges on the director’s and institution’s rights not to incriminate themselves
   because presumably there would be some regulatory sanction available to the
   IFSRA against both the director and the institution even if there is no direct
   criminal sanction. Either way, the director and the institution are obliged under
   statute to incriminate themselves.

4. The provision is, with respect, unworkable because in many instances whether a
   particular act or omission by an employee of the institution constitutes (a) an
   offence in the first place, and (b) an offence which is attributable to the institution,
   and (c) an offence attributable also to the board of directors by reason of alleged
   supervisory failures, are difficult value judgments to make in many practical
   instances. In our view it is unrealistic to expect directors routinely to be in a
   position swiftly to form a definite view on these issues, as appears to be
   contemplated by the proposal.




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   5. We also consider that the proposal is unworkable because it would require an
      unduly onerous duty on the part of the director to verify with the staff of the
      institution as to whether or not there had occurred during the preceding year
      anything which could amount to a criminal offence by the institution. It does not
      appear to be proposed that the certification be qualified by reference to ‘the best
      of the information and belief’ of the director. In our view it is unrealistic and
      unduly onerous to expect directors to give an unqualified statement in the form
      apparently contemplated by the proposal. We are concerned in this regard that
      such a provision will deter foreign institutions from establishing in Ireland.

Auditors’ review of annual compliance certificate

The proposals envisage that the annual compliance certification by directors be reviewed
by the institution’s auditors. In particular it is envisaged that the new bill provide as
follows:

               Head 27 provides that the Compliance Statement must be reviewed by the
               institution’s auditors and that, if the auditors are not satisfied that it is
               accurate, they must report this to IFSRA; this is in addition to the existing
               duties on Auditors to report to IFSRA when issues relating to the solvency
               etc of a financial institution come to their attention…’

Our concern here relates to the extent to which auditors must satisfy themselves that the
directors’ compliance certificate is accurate. It is not clear if the auditors are to rely on
information already in their possession as a result of their duties as auditors, or if it is
envisaged that the auditors would have a positive duty actively to verify the statements
contained in the directors’ certificate. Clearly the latter approach would be time
consuming and costly and would thereby have grave implications for the audit process.
We would appreciate if this could be clarified (whilst reserving our position that the
concept of a compliance certificate as to tax and company law etc is open to legal
challenge for the reasons set out above).

Thank you for the opportunity of commenting on the draft legislative proposals. If you
require any further information or clarification please do not hesitate to contact me.

Yours sincerely,



John Breslin BL.
For and on behalf of the AEDBF (Irish branch).




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