CENTRAL BANK FEEDBACK STATEMENT – CP116
Wed Sep 25 2019
The Central Bank has also published a Feedback Statement in relation to the CP116 Intermediary Inducements today. A copy of the full feedback statement is available here.
The feedback statement provides clarification in relation to decisions taken by the Central Bank and also highlights areas that they will be conducting further research on over the coming year such as:
– Commissions linked to the size of a mortgage loan
– Restrictions on advising where there is a difference in commission rates for products across different providers
It is clear from the feedback statement, that the Central Bank took on board Brokers Ireland’s submission and acknowledge the many benefits to consumers from the operation of Intermediaries in the Irish market, including access to advice, better competition in the market and a wider choice of products.
They also took on board Brokers Ireland’s opposition to the application of MIFID standards wholesale across the industry and proposals which would significantly increase the regulatory burden on consumers with questionable benefit to them.
The Central Bank have confirmed that they do not propose to introduce a ban on commission payments and acknowledge that once properly designed, commission arrangements can be beneficial for consumers by providing them with access to advice without having to pay a direct and/or upfront fee for this service. Such commission structures serve to ensure that all consumers can avail of advice on financial products and services, whilst eliminating the risk of an advice gap emerging in the event that a consumer is unable or unwilling to pay for advice.
However, the new provisions in the Code will prohibit certain types of commission payments to remove clear conflicts of interest, and will result in additional transparency around commission arrangements, the aim of which is to reduce information asymmetries between consumers and intermediaries.
Clarification – Ban on override linked to volume and retention
Further to my earlier email, the Code has been amended and now certain types of commissions are no longer permissible. This includes the specific examples as set out in CP116 such as commissions based on targets relating to volume and bonus payments linked to business retention.
In relation to profit-based overrides, the Central Bank have advised that the change is not intended to interfere with the operation of the MGA distribution channel. Instead, the aim is to address the potential commission and product producer bias that can arise because of particular commission arrangements. Consequently, the previous reference in the consultation paper to ‘profit’ has been removed.
However, it should be noted that MGAs must avoid conflicts of interest relating to targets that do not consider a consumer’s best interests.
Outlined below are two areas where the Central Bank has indicated that they will carry out further research as part of their upcoming review of the Consumer Protection Code.
Inducements linked to the size of a mortgage loan
With regard to the points made in submissions received that intermediaries do not have influence over lender policy or mortgage approval decisions, the Central Bank indicate that they consider that this does not mitigate the risk identified. The Central Bank has indicated that they propose to postpone taking action on this particular measure until further research is undertaken in this area. It is expected that this research will be undertaken within the next 12 months with a view to it being considered as part of the next full Consumer Protection Code review, which is expected to commence in 2019.
Restrictions on advising where there is a difference in commission rates for products across different providers
The Central Bank state that having reviewed the responses received; it is clear that the intention of the proposal was widely misunderstood in the submissions. Many respondents highlighted that the proposal would interfere with the concept of suitability if intermediaries could not recommend a product that attracts different levels of inducement.
They advise that the intention of the proposal was for intermediaries to find a way of equalising the levels of total remuneration available in order to remove product provider bias.
This provision will not be implemented at this time, however, the Central Bank plans to re-evaluate this measure as part of the planned full review of the Consumer Protection Code, to determine whether further action is warranted in this particular area.
We will stay on top of these issues over the next 12 months and advise you accordingly.
CEO, Brokers Ireland