Watchdog to crack down on rip-off cash advisers

A NEW State watchdog is to crack down on banks and insurance firms who rip off their customers by selling them the wrong financial products.

The move follows allegations that customers are being misled into investing in high-risk products, such as insurance and endowment policies, by agents who are paid high commission rates.

The Financial Services Regulatory Authority will have the power to impose heavy sanctions and even shut down companies who flout the law.

Later this week it will release details of a new qualification for staff selling financial products as part of a drive to clean up this section of the industry.

The qualification, which will eventually become mandatory for all staff in the sector, will encourage salespeople to fully detail the risks and rewards of all products.

The chief executive of the regulatory authority Liam O’Reilly said some customers felt they were misled over a number of investment schemes.

“The perception is out there that financial institutions have not been giving a fair deal to customers. It’s up to us and the industry to end that, whether it’s real or otherwise,” he said.

Yesterday, the Consumers’ Association of Ireland said institutions had been allowed to get away with the mis-selling of investment policies and pensions linked to stock market performance for too long.

“This has been an issue of concern for a long time,” said CAI chief executive Dermott Jewell. “The big question is whether the new authority will be willing to take on the big financial institutions.”

Mr O’Reilly said it would be more productive initially to work in co-operation with the banking sector rather then taking them on in an open confrontation.

However, he warned that any firm which failed to comply with the new rules and standards would face penalties.

The new chief executive also warned that customers had a duty to be responsible when investing in products which carried a high risk.

“As well as having responsible sellers of products, you also need responsible buyers. The whole idea is to make sure the person buying a policy is empowered to ask the right questions, and the seller is obliged to ensure they answer questions as truthfully as they can.”

In the area of endowment policies, for example, some observers estimate that up to 60% of investments are not on track to cover the original loan.

Consumer groups believe these mortgages were mis-sold, many by financial advisers who promised clients their policies were guaranteed to pay off mortgages.

The Financial Services Regulatory Authority is expected to be up and running next month when legislation which provides for its establishment is passed in the Dáil.

The precise range of penalties at the disposal of the authority has yet to be finalised.

These will be contained in a separate piece of legislation due to be enacted later in the year.