Recent Case: Financial Services Ombudsman
On 21 January 2015, the High Court handed down Judgment in the statutory appeal of Law –v- Financial Services Ombudsman and New Ireland Assurance plc. The case concerned a couple in their 70’s who had invested €800,000 in a New Ireland Investment in 2007. When the investment fell in value over the course of 2008-2010, they encashed their investment at a value of circa €600,000 and brought a complaint to the Financial Services Ombudsman claiming that the product had been mis-sold on the basis that it was a wholly unsuitable product for their needs and did not reflect their express instructions as regards the risk they were prepared to bear. During the course of the hearing Counsel for the Appellants focussed on the vulnerability of the Appellants by virtue of their age at the time of the investment, as well as the description of the risk category in arguing that the product was wholly unsuitable for their needs. The particular investment documentation referred to “growth” as opposed to “risk” throughout. Whilst the Financial Services Ombudsman acknowledged in his Finding that this description was unsatisfactory, he relied upon the fact that the Appellants had signed declarations to the effect that they had read all of the documentation and that their attitude to risk had been accurately recorded in dismissing the complaint.
The High Court held that the FSO erred in placing so much weight on the declarations signed by the Appellants, particularly in circumstances where the FSO had also stated that the description of the risk in the documentation was unsatisfactory. The Court held that “the signature of a customer must be taken as one of a number of indices, but is not always determinative of the question of whether the product sold was suitable and fully explained or understood.”
Whilst the Judgment can be largely limited to the facts of this particular case, it is clear that the Court was of the view that investigative bodies such as the Financial Services Ombudsman must look behind the fact of signatures and declarations and decide whether the evidence supports the declarations being made.
European Cross-Selling Practices
On 22 December 2014, the Joint Committee of the three European Supervisory Authorities published a consultation paper on draft guidelines for cross-selling practices in the EU financial sector.
The guidelines are intended to enhance the protection of EU customers by establishing a clear and consistent approach to supervising firms offering cross-selling options (joint purchases of different products or services) across the EU. The Joint Committee in its paper has noted that while cross-selling financial products can benefit customers, for example in the form of initial cost savings or reduced search costs, it can also result in customers purchasing products that they do not necessarily want or need. The aim of the guidelines is to achieve enhanced and improved disclosure and transparency around prices, costs and certain other non-price features when different products are cross sold with one another.
Submissions on the draft guidelines may be made up to 22 March 2015 and a final report and the final guidelines are expected to be published in the final quarter of this year. A copy of the Joint Committee consultation paper is available here.
Consumer Protection (Regulation of Credit Servicing Firms) Bill 2015
The Government has published the Consumer Protection (Regulation of Credit Servicing Firms) Bill. The Bill seeks to provide protection for borrowers whose loans that are held by a regulated entity and then sold to an unregulated financial services enjoy the same regulatory protections. This includes the Central Bank Codes and in particular the Code of Conduct on mortgage arrears. The legislation will require firms who service credit (credit servicing firms) to be authorised and regulated by the Central Bank and will ensure that all borrowers have access to the Financial Services Ombudsman in the event of a complaint. A copy of the Bill is available here.
Code of Conduct for Business Lending to Small and Medium Enterprises
The Central Bank of Ireland has published a consultation paper regarding its review of the Code of Conduct for Business Lending to Small and Medium Enterprises (the “SME Code”).
The SME Code was introduced in 2009 and provides protections for SMEs when they avail of credit or experience financial difficulties. These measures comprise conduct of business rules for lenders, which relate to matters such as applications for credit facilities, declining/withdrawing credit facilities, financial difficulties of borrowers, the provision of information to borrowers, and handling complaints of borrowers. The Central Bank is proposing additional and improved protections to enhance the existing SME Code. The Central Bank will accept submissions from interested parties until the consultation period concludes in April 2015. A copy of the Consultation Paper is available here.
The Banking Inquiry
The Banking Inquiry (the “Inquiry”) is the first inquiry conducted pursuant to the Houses of the Oireachtas (Inquiries, Privileges and Procedures) Act 2013. The Inquiry is being carried out by the Joint Committee of Inquiry into the Banking Crisis (the “Committee”) and will take place from December 2014 until approximately November 2015. It will be conducted in two phases, namely the Context Phase and the Nexus Phase, both relying on public hearings with a spectrum of relevant witnesses. The Committee will investigate relevant matters relating to banking systems and practices, alongside regulatory and supervisory systems and practices. It will also examine the crisis management systems, policy responses and preventative reforms implemented in the wake of the financial crisis. A dedicated website has been set up for the Banking Inquiry and is available here.