The Competition Authority yesterday expressed "grave" concern about new structures for the supervision of banks because special panels representing the business might have too much power.
In a submission to the Government on the adoption of the new regulatory system, the authority expressed reservations about aspects of the structures around the Irish Financial Services Regulatory Authority (IFSRA) and the Central Bank and Financial Services Authority of Ireland.
Chaired by Dr John Fingleton, the authority expressed concern about the involvement of the banking and financial services industries in the consultative panels with whom the new authority will consult. It also questioned the funding by IFSRA of the industry panel because market players were generally well-resourced. In addition, it wanted to ensure that its responsibility under the Competition Acts to assess bank mergers was not diminished by any powers granted to IFSRA.
While a philosophy of consumer protection underpinned market regulation, the authority said consumers were generally a diffuse group, often unable to represent their interests effectively. This was in contrast to firms, which were skilled in representing their own needs and interests, focused and well-resourced.
The paper said: "The authority wholly welcomes the provisions in the Bill relating to the consumer consultative panel but has grave reservations about the industry consultative panel.
"The authority also has competition concerns relating to provisions that encourage industry participants to form a common view on issues where consumer welfare would be better served if each responded individually."
The authority said a requirement for the consultative panels to present a joint view to the regulator introduced an extra layer to the process in which the interests of consumers might be diluted.
"It may be more appropriate to allow the consultative panels to present their views independently," said its paper.
On mergers, the authority said it was unclear when any test by IFSRA of a proposed merger might take place and said this should be defined in statute.
It said: "If there are two simultaneous regimes for bank merger evaluation, it is best that they operate independently from each other. In practice, this requires a transaction to surmount two 'regulatory hurdles'.
Neither should one test dominate the other: if a merger is harmful to competition, then it should be prevented on those grounds. Similarly, if a merger is harmful to orderly banking regulation, then it should be prevented on those grounds."
The authority said the possibility of any ultimate decision on bank mergers resting with the Minister for Finance was unworkable but said it would be open to the Minister to give his or her views on the merger.
Still, it noted that a section of the Competition Act was devised partly to avoid any impression of political interference in merger evaluation.
Any notification to the European Commission was also intended to proceed independently of political scrutiny.
