Sale of financial products may be licensed, says ESRI

Financial products could be made subject to licence if tougher inspections, bigger punishments and the publicising of violations fail to protect consumers, said ESRI research officer Pete Lunn.

Mr Lunn will tell attendees at this morning’s ESRI Conference on Economic Renewal: Financial Stability After the Crisis that parallel efforts to educate the consumer and to get vendors of financial products to put customers’ interests before their own profits have been unsuccessful to date. He says the regulatory environment needs to get tougher.

Mr Lunn said: “Tougher regulation is happening internationally. In the US, the Consumer Financial Protection Bureau is considering licensing financial products as a last-ditch attempt to protect the consumer.

“In the UK, the Financial Conduct Authority is also getting tougher. This is because, as we know from the financial crisis, the consequences of poor financial product choices made by consumers spill over from the individual to society as a whole. Ultimately, this may lead to licensing financial products.”

Ireland brought a revised Consumer Protection Code into force on Jan 1. Its provisions will help consumers, but the ESRI argues that the code will need to be backed up by “mystery shopper” inspections to ensure consumers are adequately protected.

Mr Lunn cites studies showing that 15% of Irish adults cannot give the rate of inflation within 2% points; and male consumers are markedly more likely to buy financial products which are accompanied by images of attractive women.

Mr Lunn adds: “In reality, most consumers lack the knowledge needed to choose the better deals from among the many mortgages, credit cards and other financial products on offer.”