Central Bank to beef up consumer protection

The Central Bank has launched a new report on consumer protection which proposes a comprehensive overhaul of existing legislation in a number of key areas.

The new framework, known as ‘Getting it right for customers’ will focus on the five Cs — consumer, culture, confidence, challenge and compliance.

“Financial products and services play such an important part in the everyday lives of consumers and while they can deliver consumer benefits, they can also present risks if the right product is not sold in the right way to the right consumer,” said director of consumer protection, Bernard Sheridan.

“This report sends a clear message to all regulated firms of our expectations of them. This includes embedding a consumer-centred culture from the top of the organisation, right through to the staff delivering products and services to their customers. We expect firms to go beyond tick-box compliance and to be able to demonstrate that they are acting in the best interests of consumers at all times and treating them fairly and with dignity and respect.”

The international perception of Ireland in the lead-up to the financial crisis in 2008 is that it was that ‘wild west’ of the financial markets, as the New York Times famously claimed in a 2005 article about the IFSC.

The collapse of the financial system confirmed a lot of these suspicions, although primarily in the domestic banking sector. The IFSC was left largely unscathed by the downturn.

There was a lack of corporate governance and risk management standards among the banks, which was a huge contributory factor to the collapse of the sector which eventually cost the taxpayer €64bn.

The new Central Bank regulations look to develop a consumer-centred culture that permeates through every organisation from the top down.

“It is essential firms get their culture right if trust and confidence is to be restored and maintained in the financial services industry and is fundamental to ensuring consumers are treated fairly,” said the report.

The Central Bank intends to engage more with senior management to ensure there is a clear focus on cultural change programmes. Moreover, it will monitor how banks develop their consumer protection risk frameworks. How bank employees are remunerated will also be looked at as in the past short-term incentives were at the root of a lot of mis-selling controversies.

The Central Bank will have more intrusive probing of how financial institutions deal with customer complaints and it will ensure that proper procedures are in place. Responsible lending and how firms are abiding by the different codes will also be closely monitored.

The Dutch Financial Authority is currently peer reviewing Ireland’s framework, “with a view to ensuring that we are meeting our objectives and delivering on our mandate in the most effective way.”

Compliance among firms will have to go beyond the minimum legal requirements and move to delivering meaningful outcomes for consumers.

Boards will be asked on a regular basis how they are going beyond the minimum legal requirements.

“One area that remains a concern is the delegation and outsourcing of core activities to third parties,” said the report.