At a time when consumer/client protection practices within certain Irish financial firms have been highlighted, the Central Bank of Ireland (CBI) has published its Consumer Protection Outlook for 2021 which sets out its 2021 priorities.

The CBI has made clear, that they view consumer protection as beginning within financial services firms. Firms are responsible for selling products and services to consumers and it is their obligation to ensure that they meet their needs both now and into the future.

The CBI identified six key cross sectoral risks namely:

  • Absence of consumer focus culture
  • Unfair practices and behavioural vulnerability
  • Consumer protection during the COVID-19 pandemic
  • Risks from technology
  • ineffective disclosure
  • mis-selling and inadequate suitability assessment

The CBI indicated that it has six key consumer protection priorities in 2021 namely:

  • Delivery of intrusive risk-based supervision
  • Influence, shape and deliver key policies for regulation
  • Enhancement of the consumer protection framework
  • Ensuring fair treatment of borrowers in financial distress
  • Driving regulated firms to embed effective consumer focused cultures
  • Enhancement of its gatekeeping process

CBI envisages, implementing these as follows:

Delivery of intrusive risk-based supervision

  • Implementation of enhanced firm specific supervisory approach for firms that have the greatest potential impact on consumers
  • Continue risk based sectoral supervision of retail intermediaries
  • Continue a review of the practise of differential pricing of the Irish private car and home insurance markets
  • Commence thematic reviews on the use of telematics by insurers and assess how the suitability of long-term insurance products is monitored
  • Progress resolution of business interruption insurance issues
  • Monitor the use of complex products by retail investor clients

Enhance the consumer protection framework

  • Continue a substantial review of the Consumer Protection Code (the CPC) to evolve and strengthen protections for consumers and investors
  • Complete a targeted review of the Standard Financial Statement under the CCMA seeking to make it more user friendly for borrowers
  • Develop a proposal to extend minimal competency rules to credit unions

Drive firms to embed effective consumer- focused cultures

  • Challenge boards and leadership teams to continue the transformation towards a consumer-focused culture
  • Increase its supervisory focus on the behaviour and culture of firms and those individuals who run them
  • Continue to monitor and challenge the levels of diversity of senior appointments in the Irish financial services sector
  • Enhance its existing supervisory framework and processes for assessing behaviour and culture in all regulated sectors

Influence, shape and deliver key policies for regulation

  • Influence and shape domestic policy initiatives on system wide improvements supporting customers and investors
  • Provide technical advice on the planned legislation to introduce a regulatory regime for Hire Purchase/Personal Contract Plan (PCP) on all forms of credit in the Irish market
  • Progress the introduction of an Individual Accountability Framework
  • Influence and contribute to the review of EU Directives relating to consumers of financial services
  • Support the development of policy initiatives on climate risk and the financing of a sustainable economy

Ensure the fair treatment of borrowers in financial distress

  • Challenge firms to have sustainable strategies and a range of appropriate solutions to support borrowers in or facing financial distress
  • Work with entities within the national consumer protection framework to ensure the wider system facilitate as many borrowers as possible can return to meeting their commitments
  • Continue to challenge regulated firms to work with borrowers to sustainably resolve longer- term financial distress

Enhancement of gatekeeping process

  • Continue to act as a robust gatekeeper by rigorously assessing applications from firms and individuals who manage them
  • Develop new authorisation processes as legal frameworks develop for sectors such as crowdfunding
  • Upon the enactment of legislation, evolve authorisation processes for firms engaged in hire purchase/PCP finance
  • Continue to evolve its approach to gatekeeping to further enhance and streamline processes for applicant firms

The CBI highlighted six key cross sectoral risks for 2021

Absence of consumer-focused culture

  • The CBI has emphasised that it expects regulated firms to go beyond consumer protection obligations under law and be proactive and meticulous in ensuring they do business in a way that protects consumers and investors and to ensure that consumer focused cultures are evident and demonstrable throughout the entire structure
  • To regularly track and monitor the behaviour and culture in an organisation and reflect on any shortfalls in the collective understanding of what "consumer focus" actually means
  • Actively pursue diversity and inclusion in all levels to improve decision making and increase effectiveness of internal challenge
  • Demonstrate trustworthiness and focus on making sure that staff are clear about the standard that is expected in relation to individual accountability

Consumer protection during the COVID-19 pandemic

  • CBI made it clear that it expects firms to act in the best interests of consumers and investors and engage in a fair, efficient and sympathetic manner during the COVID-19 period of continued distress
  • Adopt interim measures to support borrowers experiencing temporary income shocks when the financial position of the borrower has not yet been assessed or where more permanent solutions are being determined
  • Be clear in terms of what cover is provided by insurance policies and what cover is excluded
  • Engage with borrowers experiencing financial distress on a case by case basis and in line with CPC, the CCMA and SME Regulations to deliver appropriate and sustainable solutions
  • Where there is a doubt about the meaning of a term in an insurance policy, interpret the policy in a way that is most favourable to the customer

Ineffective disclosure

  • Ensure that the information is provided in a way that is not too complex and does not overload the consumer
  • Disclose the key information upfront of the products and services offered in order to support consumers and investors to make informed decisions
  • Design communications with consumers and investors in mind, effectively drawing their attention to the risks and costs of financial products
  • Recommend the most suitable product from their suite of products where consumers and investors ask for advice
  • Take care to design and provide financial products and services that are suitable for the consumer and investors buying them
  • To facilitate customers to switch products and services through clear and simple processes

Unfair practices and behavioural vulnerability

  • CBI expects firms to avoid behaviour and practices that unfairly take advantage of consumers' behavioural biases and operate in a fair and transparent manner
  • To implement and strengthen consumer focused culture in relation to pricing decisions and practices and ensure that consumer and investors are at the heart of all decisions
  • To support consumers and investors in making good financial decisions and to facilitate consumers shopping around in the fullest manner
  • To have strong internal governance arrangements and oversight of algorithms

Risks from technology

  • CBI expects firms to have a comprehensive, documented, information technology and cyber security strategy that is approved by the board of directors and in line with the overall business strategy of the business and supported by sufficient resources to enable firms to achieve sufficient resilience and protection
  • To ensure there is a well-defined comprehensive IT and cyber security risk management framework in place
  • To prioritise the development of a strong organisational culture of cyber security at board and senior leadership level
  • To have a documented cyber security incident response and recovery plan in place
  • To have adequate safety nets in place to protect consumer and investor information
  • When an incidence occurs that impacts on consumer and investors to ensure that consumers are treated fairly and put back in a position, they would have been had the incident not occurred

Mis-selling and inadequate suitability statement

  • CBI expects firms to design, market, and sell products in a responsible way ensuring the consumers individuals needs are central to decisions
  • To ensure that they only design and bring to market products with features, charges and risks that meet the needs of the individual consumers and investors identified for the product
  • To ensure that they have sufficient information on the needs and objectives of the consumer and investor, their personal circumstances, financial situation, and their attitude to risk
  • To comply with the CPC requirements to assess the suitability of their products and services for each individual consumer and investor
  • Be clear on the reasons why a product or service is being offered to a consumer and why it is suitable to that consumer or investor
  • To ensure that consumer information is used appropriately in any sales context

Summary

CBI is clearly conscious of ongoing issues in the insurance industry. It has indicated a focus on certain aspects of practice in that industry in terms of supervision, the challenges that have been wrought by the Covid 19 pandemic and more generally a continuous focus on driving change in culture in the financial services sector. These will no doubt require detailed guidance and ongoing discussion regarding how those principles can be implemented in day to day engagement by authorised firms.