27 April 2012
‘Getting it right for consumers’
Getting it right for consumers is something we all probably subscribe to but what does it mean for a Central Bank, particularly one with a statutory responsibility for Consumer Protection? Consumer protection is such a broad subject and can mean different things to different people. I am pleased to have the opportunity to outline the Central Bank’s approach to consumer protection, and to share our experience in developing our strategic direction and priorities for delivery over the next few years. The European Supervisory Authorities have all been given new consumer protection responsibilities. This represents many challenges for those bodies, but I believe that National Authorities should use their experience and expertise to shape and support their work in this new area. Having a clear strategy and framework for delivering it is an important starting point.
The Central Bank of Ireland’s mission statement very clearly and succinctly sets out the current and future regulatory direction and challenge of “Safeguarding Stability Protecting Consumers”. This mission reflects the fact that financial stability, financial regulation and protecting consumers while distinct in their own right are also interconnected and interdependent.
It is within this context that we undertook a review of our consumer protection strategy in 2011 to ensure that we are getting it right for consumers now and, crucially, in the future. We went out to engage with our key consumer stakeholders as well as industry and other interested parties with the primary objective of listening to their views on existing and emerging consumer risks and interests, and how consumers could be best protected.
One of our key stakeholder groups is the Consumer Advisory Group or CAG which we set up in 2011 to provide us with the benefit of their expertise and experience. The CAG’s role is to advise us on our strategy and to inform our thinking on key policy issues. It currently consists of five members coming from different consumer backgrounds, including consumer groups, education bodies as well as international financial consumer regulation. Their input to date has been invaluable and having an external panel to challenge and shape our strategy and its rollout is critical to its success.
Most others we consulted with voiced genuine surprise that the Central Bank was asking for their input, and the feedback we received from our meetings proved very useful to us in shaping our strategic priorities and approach. While each of our key stakeholders had specific points to raise – consumer groups told us they would like more ongoing engagement with us while industry bodies sought more support from us to help them be compliant – I was struck by the common consumer protection issues and themes that were raised.
Our new Consumer Protection Strategy is based on what we now refer to as the 5 “C”s frameworks – the CONSUMER is at the centre of our thinking alongside CONFIDENCE, COMPLIANCE, CHALLENGE and CULTURE. These 5“C”s emerged throughout our discussions – both internally in the Central Bank and externally – and they have presented us with a robust and defined agenda over the next few years. But they also presented us with significant challenges – we have had to think hard about what we need to do as the Central Bank to deliver effectively and meaningfully on the 5 “C”s as they are all interconnected.
We have now developed our work programmes and are implementing them within this framework – we are clear in our commitment to deliver in the consumer protection areas we have direct control and responsibility for through:
- conduct of business code developments,
- policy development and
and also to play our full part working in partnership with stakeholders at home, in Europe and further afield, to help shape, influence and deal with the wider issues and developments that impact on consumers. I would like to give you a flavour of how we are delivering on our agenda.
DELIVERING ON THE 5 “C”S
CONSUMER – Playing our part in putting consumer protection on everyone’s agenda
Key to our overall strategy is the regulatory framework within which we deliver protection for consumers. The Central Bank’s Consumer Protection Code (“Code”) is a central part of this framework. First introduced in 2007, our Code contains fundamental principles including requiring firms to act in the consumer’s best interests, to act with due skill, care and diligence and to make full disclosure of all relevant material information in a way that seeks to inform the customer. These principles apply to all sectors of the financial services industry and are backed up by more detailed rules for banking, insurance and intermediary business.
In many ways the Code broke new ground in a number of areas. For example we applied the concept of “knowing your customer” and “suitability” to the sale of credit - including mortgages. We codified how complaints should be handled and set out specific requirements governing advertising.
In 2011 we completed a full review of the Code. While we had to amend a number of provisions to accommodate the introduction of the Consumer Credit and Payment Services Directives, we also strengthened the framework in a number of key areas:
- A number of consumer groups asked us to consider how particularly vulnerable consumers could be better protected. The Code now requires that such consumers are provided with necessary assistance to facilitate them in their dealings with the firm.
- The requirements in relation to the sales process have been strengthened with specific requirements for assessment of affordability for credit products including mortgages and new requirements on how borrowers in arrears must be dealt with.
The Code, alongside our wider suite of consumer-based codes of conduct which include statutory codes on
- Mortgage arrears,
- Switching bank accounts,
- Small Business lending and
- Minimum Competency
and combined with the various European Directives, particularly MiFID, CCD and PSD, delivers a very comprehensive consumer protection framework.
However, we do not believe that this alone is sufficient. We also need to be able to identify the current and emerging risks facing consumers and assess how we best respond to them. A key part of understanding these risks is to continue our open engagement with consumer groups, the industry and other bodies which have the knowledge, data and experience to help. These include the Financial Services Ombudsman, National Consumer Agency and the Money Advice and Budgeting Service.
One of the big challenges we face in delivering our strategy, a challenge which is also faced by the European Supervisory Authorities, is the gathering of meaningful data in an efficient way that helps to identify emerging consumer risks.
We are building our strategic focus on the development of information and market intelligence to help inform our work and make the best possible decisions taking account of consumer needs now and in the future.
For example, in order to understand the retail intermediary sector better, the Central Bank now seeks an annual return online from all 4,000 retail intermediaries. This includes not only financial data but also information on the type of business they conduct, number of clients, how much business they conduct with different insurers/banks, level of complaints and also what other unregulated activities they engage in.
A conduct of business return, including information on the products they offer, customer numbers and complaints is also under development for other firms, such as banks and insurers. This will complement intelligence from our Ombudsman, National Consumer Agency and indeed the Central Bank’s own Public Contacts Unit.
It is important to recognise that there is not one single key source of market intelligence, but a combination of factors which need to be assessed and judged together. While quantitative data can help to identify trends, sometimes quality single indicators can highlight emerging risks. For example, a practice in one firm, sector or indeed jurisdiction can appear in another fairly quickly and therefore having the capability to identify this and to quickly react is paramount.
CONFIDENCE – in financial services, products and regulations
A clear message from our strategy meetings with external groups is the need and the wish to instil a true sense of confidence in the financial services system and to be assured that it is being well regulated and the consumer interest protected. While it is recognised that transparency in our work, particularly in relation to our regulatory and enforcement actions, is important to deliver, there is an inherent challenge for regulators when bound by confidentiality provisions. There is a strong and growing media and public desire that we name and shame individual firms but the Central Bank is prohibited from public disclosure unless we take formal enforcement action against a specific firm. We follow with interest the developments, learning and experience in this area currently being pursued by the Financial Services Ombudsman through new legislation which will ultimately allow the Ombudsman to name firms against which he makes adverse findings in certain cases. We have worked very closely with our colleagues in the Enforcement area to help deliver strong enforcement actions against a number of firms for mis-selling, overcharging and poor complaints handling. We have been able to publicise the outcomes of these enforcement actions letting the public know we take these matters seriously. Our enforcement and consumer protection strategies are well aligned to deliver effective outcomes for the consumer.
We believe that we can do more to inform consumers of our work and our new strategy commits us to being more proactive in delivering clear, targeted and timely public communications and more consumer-friendly information explaining what we do, in addition to building relationships and encouraging interaction through our external engagement strategy.
Industry also has its part to play in terms of the clarity of information provided to consumers. There is a challenge to striking the right balance between information overload and too little information. Through our Code we have set down rules against the inappropriate or overuse of small print for example, and also require all information to be written in plain language. The only way firms can ensure they comply with this is to check with their customers seek feedback and look at complaints made. Our Code now requires all firms to undertake an appropriate analysis of the patterns of complaints on a regular basis.
COMPLIANCE – through effective supervision and credible deterrence and enforcement
Monitoring and enforcing compliance has always been essential to ensuring industry is delivering appropriate products and services to consumers. This remains an important part of our work and we continue to devote considerable resources to inspections and reviews.
In February, we published the list of themed-based inspections which we are conducting this year. These have been determined on the basis that they pose the most significant risks at this time to consumers, and cover a broad range of issues across different sectors. These priorities for inspection include how lenders are dealing with mortgage arrears, how payment protection insurance has been sold, how stockbrokers are complying with best execution requirements, targeting non-compliant retail intermediaries as well as how the retail insurers and banks are implementing the revised Code.
Assisting industry to be compliant is also part of our strategy. We have taken a number of initiatives recently which have received positive feedback from industry including:
- having a dedicated team in place to deal with specific queries from firms on the implementation of the 2012 Code and the Minimum Competency Code,
- rolling out the 2012 Code through a series of industry presentations and workshops;
- Newsletters and road shows, for smaller firms based around the country, to help them be informed of current regulatory issues.
CHALLENGE – to ourselves, those we regulate and others
One of the most current pressing issues for many families with mortgages is being able to keep up repayments. Mortgage arrears is a top priority for us in the Bank, and in consumer protection, and we are working hard in this space to deal with the regulatory issues as well as continuing to input into the wider debates and reports such as the Keane report and the Cooney report before that. From a consumer protection point of view, we:
- have put in place strong protections for borrowers through the Code of Conduct on Mortgage Arrears, which means that borrowers must be treated fairly and given reasonable time to deal with arrears. All lenders must have a mortgage arrears resolution process in place and must try to reach an appropriate solution. Our Code also banned mortgage arrears charges when the borrower is co-operating with the lender, and prohibit lenders from forcing borrowers off low cost tracker mortgages. It also limits the amount of unsolicited contacts a lender can attempt to make while at the same time recognising the importance of early contact with the borrower;
- are conducting a review of lenders’ strategies which is focussed on ensuring that lenders are now working through arrears cases which are currently on short term forbearance, in order to deliver longer term solutions. We have set a specific timeline for delivery which requires lenders to segment their mortgage arrears portfolios and to pilot appropriate solutions by the end of September this year, with the full roll out to commence in the last quarter of the year;
- have established quarterly mortgage arrears statistics to provide a sound evidence base and are conducting consumer-based research on borrowers’ experiences in pre-arrears and arrears;
- plan to carry out inspections of lenders to ensure full compliance with our mortgage arrears code.
As part of our strategy we have to challenge industry to deliver sustainable solutions for those who have unsustainable mortgages. Simply postponing this and pushing the issue down the line is not good enough for the borrower or the lender.
Developing our own internal challenge process is also part of our strategy which links into the organisations more assertive risk based approach to supervision. It is also important that our staff is clear on our objectives and robustly and fairly deal with firms and compliance issues.
CULTURE – Promoting a consumer-focused ethos among ourselves, those we regulate and others
It is widely acknowledged that changing culture takes time, leadership, direction and a strong set of values. During the development of our strategy we have spent much time discussing and defining our guiding principles in order to help us Get Consumer Protection Right for Consumers. Our work both internally and externally with those we regulate in partnership with others is underpinned by strong and challenging values of shared purpose, respect, courage, creativity, integrity, transparency, accountability.
Embedding a strong, positive, consumer-focused culture requires us to develop new and better ways of working – building on our learning to date and being innovative in building sustainable solutions. During our strategy discussions, consumer groups rightly expressed the view that they expect us to advocate for the consumers interest within the wider policy framework where we don’t have overall responsibility, but have a real contribution to make based on our learning and experience. We have been engaging with our stakeholders in this regard.
One domestic example where we have been engaging with the banking sector and Government is on the introduction of a basic bank account. Progress has been slow in my view, with reluctance from industry to quickly roll out a suitable low cost account, while at the same time increasing charges on their standard accounts. We will continue to engage with key stakeholders to keep their focus on delivering basic bank accounts that meet the needs of consumers, many of whom are financially excluded and have never held a bank account before. We should not have to wait for a European Directive on basic bank accounts to deliver on this.
Two other factors can help shape a positive culture in a financial services firm. Since 2007 we have required all sales staff across all sectors and also those who deal with complaints to meet minimum competency standards. These standards require staff to undertake continuing professional development. How sales staff is incentivised can have a direct impact on how customers are treated. The 2012 Code requires that such remuneration arrangements are not structured in such a way as to potentially impair the firm from acting in the best interest of the consumer, particularly in respect of appropriate sales.
We recognise and will continue to take account of and be connected into the dynamic, changing and complex environment which we are all delivering in at home, Europe and globally. We are not saying our strategy is perfect. We will continue to review and refine it over time. Our learning and experience to date leads us to believe that our 5 “C”s have real and ongoing future relevance for us and, I believe, may also resonate with European Supervisory Authorities as they seek to address the challenges faced over the next few years. In the same way the 5 “C”s are interconnected – so are we as regulators, consumers, financial firms – and the challenge and prize is to find real and meaningful ways to engage, share, coordinate and learn so that we can continue to get it right for consumers.