Sanctions threat to investment firms

The Central Bank has said it will consider sanctioning investment firms if they fail to heed warnings over poor levels of communication of costs and charges to their customers.

The regulator yesterday published the results of a themed review into the provision of information on costs and charges by investment firms. In it, the bank noted a number of “unfair contract terms”, where companies had “unreasonably sought to limit their liability to clients”, but said that following correspondence, the firms had removed the terms.

Elsewhere, it identified weaknesses in the presentation and content of information provided to clients on costs and charges, prior to the provision of services. Also noted were failures to provide information prior to the provision of services and a failure to do so in the required formats, such as being displayed on their websites.

The probe centred on MiFID-authorised firms — those that come under the EU’s ‘Markets in Financial Instruments Directive’ regulatory regime for investment services and financial markets throughout Europe. There are 100 such firms in Ireland and a sample number of 16 firms were reviewed — four of them being on-site reviews.

The Central Bank, however, did not say how many of the 16 showed poor levels of communication with their customers. It did stress, however, that none of the firms failed to comply with MiFID rules, technically speaking, but some didn’t fully embrace the “spirit” of the regulations.

It will engage with firms where issues have arisen and will “consider use of any regulatory power” within its remit if the companies don’t rectify their problems.

“Overall, the findings of the inspection raised concerns from a consumer protection perspective,” commented Bernard Sheridan, director of consumer protection at the Central Bank.

“The Central Bank expects the board of directors and senior management in regulated firms to ensure that they embed a culture of treating consumers fairly within their firm. The Central Bank expects all regulated firms to have appropriate governance arrangements in place to ensure that any costs and charges applied to consumers are disclosed in a fair, clear and transparent way throughout the business relationship with the consumer,” he said.

The Central Bank said the aim of its inspection was to evaluate the arrangements MiFID-authorised firms had in place on the provision of information on direct costs and charges, adding such information plays a “crucial role” in enabling consumers to make informed decisions.