We all want ‘tough regulation’, I would argue it doesn’t need to be tougher, rather it needs to be more pragmatic and enforced, and of those two criteria enforcement being the greater.
The Central Bank Reform Bill 2010 is going to give God powers to the Central Bank/Financial Services Authority of Ireland. Essentially it sets out a framework whereby they can call all of the shots, right down to how companies promote people.
In Part 3 s20(2) they can determine either by their interpretation of title or their interpretation of a persons role, whether they have any controlling function, and if so they require CB/FSAI authority in order to do their job, this is an additional layer of HR activity that will be injected into financial services companies.
Part 3 s35(i) states that a function requires pre-approval if the CB/FSAI deem it to be so on grounds of ‘size or complexity’, yet they don’t state any parameters for same, meaning a mom & pop shop could fall under these rigours based upon the brand of financial services they perform and inadvertently break the law in giving somebody a promotion!
Part 3 s22 (5-6) allows the CB/FSAI to classify industry based on any common theme that they determine without parametric rigour, they may define a class by ‘any common characteristic of the class’, meaning a mortgage broker dealing in mortgages can be put in the same boat as a mortgage provider [common theme being mortgage provision], and therefore be open to similar sets of rules which may or may not be appropriate to the company.
The issue with regulation is that when it gets to a certain point or ‘weight’ it becomes a layer of taxation, an embedded cost, and that cost is ultimately born by the consumer. I am confident that we are headed down a road of more costly regulation (and we already have one of the most expensive regulators in Europe [see our previous post on cost comparisons]) that will not prevent systemic shocks to the system. The frustrating element of this is that the prevention of systemic shock is the very justification of the cost of regulation.
Part 3 s23(2) Requires an application process for internal staff promotion to be made to the Central Bank, essentially telling a company who they can and can’t promote based upon the Central Banks opinion of their fitness and probity, with requirements going as far as interviews and extensive document provision. Is this a good idea? I doubt it, if you have two people for a job, the one you actually want and then the one that the Regulator deems to be ‘more suitable’ (bearing in mind that the Regulator has never had to pursue a commercial agenda), then they are distorting the inner business of a firm, their ability to make choices regarding their team, and the labour market, or more correctly – they have the ‘ability’ to do so, and where the ‘ability’ exists, the actuality often soon follows.
They will also have the ability to suspend people from vital posts (Part3 s25), and if that happens they must be removed immediately from performing any controlling functions. What if the ‘controlling functions’ were the very job the person was hired to do? Does a company end up with zombie staff paid not to work but who equally can’t be fired? (Part 3 s26(4) specifically states that it doesn’t alter the contractual rights to an individual to receive remuneration). What happens in a situation where this could apply to a key member upon whom the function of the company rests? The answer ‘nobody should be allowed to have that power’ is not sufficient, in a capitalist society there tends to be ‘key people’, that extends right up the line to politicians, presidents of countries and roles in both the public and private sector, finance is no different.
The clause doesn’t interact very well with employment law, and while it becomes mandatory upon passing, it doesn’t undo old contracts of employment which exist prior to it. I can see some very messy and public problems arising from this in the future.
Part 3 s44(7) allow the courts to impose an ‘indefinite’ ban on a person from working in financial services, and this is in a world where even murderers have a set end date to their internment.
The enforcement that I am so fond of then falls short.
Chapter 5 S46(a&b) – If you provide false evidence to the CB/FSAI upon summary conviction you can be fined up to €5,000 – not exactly a deterrent for CEO’s who earn half a bar a year and more, or a prison term of up to 12 months.
My favourite bit, buried on page 34 is Part 3 s50(1) ‘The Minister may, in respect of any difficulty that arises
in the operation of this Act during the period of 2 years beginning on the date this section comes into operation, make regulations to do anything that appears necessary or expedient for bringing this Act 20
into operation.’ And there you have the carte-blanch ‘do anything’ clause, where the means justify the end, and it is wide open to one sided interpretation.
While the spirit of the bill is spot on, the implementation is likely (when enforced) to be messy, and likely to be open to abuse on both sides. Obviously, it is the aim of lawmakers to eventually take out any loop holes, to make equitable and fair laws, but the rights of the individual and company are a far second in this bill, and it doesn’t have to be that way, rather, we would be better off with ethical guidelines, ethical requirements, and laws that back them up with open interpretation to allow judicial process to prevail.
A large downfall in Irish society is that of ethics, you can make any rule you want, but there is often a way around it, however, this is not the case when it is approached from an ethical standpoint, ethics don’t allow ‘bending to suit purpose’, they are perhaps the better form of regulation and in that respect this bill totally misses the point. Personally I regret reading it, it only copper-fastens my belief that we are on the same road but with some new scenery. One way or another I’m sure we are still in for quite a ride.