Banking

Banking in Ireland has changed significantly in recent years, With EU and domestic legislation enhancing liberalisation of the banking and financial services market and facilitating the expansion of a growing number of undertakings. This expansion has been accompanied by increased regulation, offering greater protection to both consumers and commercial undertakings.

The Irish Financial Services Regulatory Authority (Financial Regulator) was established on 1 May 2003 and is responsible for the supervision and regulation of all financial institutions operating in Ireland, including banks, building societies, credit unions, insurance companies, investment intermediaries, mortgage brokers, exchanges, stockbrokers and mutual funds. The Financial Regulator operates as a distinct component of the Central Bank and Financial Services Authority of Ireland with clearly defined regulatory responsibilities. The Financial Regulator also monitors the provision of financial services to consumers and holds significant consumer protection powers.

Additional legislation has been enacted to establish a Financial Services Ombudsman for all financial services provided by regulated bodies, to address and, if possible, resolve consumer complaints.

For the purposes of Irish law, banking business is defined as:

the business of accepting, on own account, sums of money from the public in the form of deposits or other repayable funds whether or not involving the issue of securities or other obligations, however described.

the above business and any other business normally carried on by a bank, which may include the granting of credits on own account.

Examples of activities carried on by banks and credit institutions include:

syndicated and bilateral lending
deposit taking
swaps and derivatives
hire purchase
leasing
secured lending
structured and corporate finance.

The definition excludes, amongst others, the following activities:

life assurance business and the acceptance of premiums for life assurance policies
hire purchase or credit sale agreements
the acceptance of deposits or instalments in respect of leasing, hire purchase or credit sale agreements
pension schemes and payment of contributions in respect of pension schemes.

Authorisation and Ownership of Credit Institutions/Banks

In order to carry on banking business in Ireland an undertaking must, subject to certain exemptions, be the holder of a licence from the Financial Regulator or be authorised in a member state of the EU pursuant to the Banking Consolidation Directive.

To obtain a licence from the Financial Regulator an undertaking must establish appropriate policies and procedures relating to funding their activities relative to the size and the nature of its assets. An undertaking must also meet a minimum capital requirement of €6,348,690. The Financial Regulator must also be satisfied with the structure and composition of the board and senior management. In addition to these strict requirements, the Financial Regulator has issued certain guidelines, the more important of which are summarised below.

Applying for a Banking Licence

The “Licensing and Supervision Requirements and Standards for Credit Institutions” issued by the Financial Regulator stipulate that an applicant for a license must satisfy the Financial Regulator that:

it has an acceptable legal form;
the corporate structure of the group of which the applicant is part, or its relationship with other undertakings under common control, should be clear and transparent and is not such as may result in the bank being unable to effectively exercise its supervisory responsibilities;
it has clearly defined and adequately researched objectives and proposed operations which are consistent with the safety of depositors' funds, prudent banking practices and fair trading in banking;
it is independent of dominant personal and commercial interest;
there is cohesion, continuity and consistency in the manner in which the business of the credit institution is directed by its owners;
the credit institution’s beneficial ownership is such as will ensure a capacity to provide such new capital for the credit institution as may be required in the future;
the credit institution is willing and able to comply with the bank's licensing and provision requirements on a continuous basis.

In considering an application where ownership of a bank would vest in an industrial/commercial undertaking, the Financial Regulator will consider a number of matters including:

any additional risks arising from the ownership structure and, in particular, from relationships with non-bank elements of the group;
the degree of independence accorded to the applicant and the degree of decision making to be located within the State;
the level of integrity and financial soundness of the commercial entity, as evidenced by its trading record and international credit rating;
evidence or confirmation that there is already in existence within the group, a separate financial entity, with its own management and financing structures and with skills and experience appropriate to banking;
the principles of consolidated supervision will be applied by the Bank to the applicant group in an appropriate manner.

It is important to note that even where these guidelines are met, the Financial Regulator still has discretion as to whether or not to grant a licence.

The Passport Concept

The EU Banking Consolidation Directive provides that any credit institution authorised by the relevant supervisory authority of an EU member state (the Home State), can do business in any other Member State without obtaining a licence/authorisation from the supervisory authority of that member state (the Host State). The licence/authorisation issued by the Home State essentially constitutes a “passport” to operate within specified parameters in the Host State. Having passported in, the bank may (i) set up a branch in the Host State; or (ii) provide banking services in the Host State without formally establishing a branch in the Host State, depending upon the scope of their application. The authorisation must address all the of the applicant’s relevant proposed activities.

Nevertheless, the credit institution must lodge certain information with the national supervisory authority of its Home State, which will be notified to the Host State regulator. The position of the Financial Regulator is that the relevant institution should not carry on business in Ireland (as the Host State) until the Financial Regulator has received notification from the Home State. Once the notification is received, the relevant credit institution is placed on a list of authorised entities and can start to do business in Ireland.

Money Lending

Money lending is defined as “credit supplied by a money lender to a consumer on foot of a money lending agreement”. In Ireland, this is governed by the Consumer Credit Act, 1995 (the 1995 Act). Money lenders may be corporate entities or entities other than banks and licensed credit institutions. They are required to hold a licence and pursuant to the provisions of the 1995 Act, a person shall not engage in the business of being a money lender unless he is the holder of a licence granted by the Financial Regulator.

There are several exclusions from the definition of money lender, which categories are governed by specific legislation, namely:

pawnbrokers
mortgage lenders
credit institutions
registered friendly societies
persons who supply money for the purchase, sale or hire of goods at an APR which is less than 23% (or such other rate as may be prescribed).

Before applying for a money lender's licence, an applicant must publish notice of his intention to carry on the business of money lending in the national or local newspaper which circulates in the district in which he proposes to carry on that business.

The application must be accompanied by a fee of €1,269.74 and, if the licence is granted, it will entitle the applicant to operate within the district in which it carries on business. An applicant will have to lodge a further fee of €634.87 with an application for each additional district.

A money lender is required to keep proper records of the business and keep the borrower informed of his rights and of any outstanding liabilities.

Money Laundering

Ireland has implemented the first and second Money Laundering Directives (91/308/EEC and 2001/97/EC) in the Criminal Justice Act 1994 as amended. This regulation introduced the offence of Money Laundering in Irish Law and also established a Money Laundering Compliance Regime for, broadly, financial and professional service providers. The third Money Laundering Directive 2005/60/EC has not yet been implemented in Ireland. On 12 February 2008, the general scheme of the Criminal Justice (Money Laundering Bill) 2008 which will give effect to the Third EU Money Laundering Directive in Ireland was published by the Minister for Justice, Equality and Law Reform.

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