CP116 – OUTCOME OF CONSULTATION PAPER
Wed Sep 25 2019
The Central Bank published its response to CP116 (Commissions consultation) this morning.
Brokers Ireland welcome that the Central Bank of Ireland took on board our comments made in our submission about how the commission system facilitates the widespread availability of advice to consumers and creates choice competition in the market which greatly benefits consumers.
Proposals NOT GOING AHEAD by the Central Bank (CBOI):
- Did Not introduce the term inducement to replace the term commission.
- Did Not proceed with the proposal to ban mortgage commission linked to the loan amount.
- Did Not proceed with a restriction on advising on products from a range where there is a difference in commission rates for the range of products involved.
- Did Not introduce the concept of enhanced quality of service for all commission payments.
- Did Not introduce the requirement to document conflicts of interest at each transaction.
WHAT IS PROCEEDING:
- The ban on using the term independent or a similar term in your name / description of service where you take commission.
- The ban on overrides linked to volume and retention. Interestingly the ban on profit-based overrides (important to Insurance Brokers in certain business lines) is not mentioned and we will clarify the CBI’s position on this in the coming days.
- A list of all your commissions across all providers you deal with is made available to your consumers in your office or on your website and brought to the attention of your consumer. Originally CP116 proposed that this “commission summary document” be given to all your consumers.
- Hospitality benefits from providers such as golf trips and sporting event tickets will be banned.
There is a 6 month time frame for implementation with the addendum coming into effect on the 31st of March 2020. A copy of the Addendum is available here.
Below is an outline of the key changes to the CPC. We are continuing to research this issue and will bring you further updates over the coming weeks. A membership meeting is planned for Thursday the 24th of October in Portlaoise – details of the event will follow.
We are disappointed over ban on the term “independent” and the yet further increase in bureaucracy with the requirement to set up and maintain a commission summary document. However, the overall result must be seen as positive for Brokers compared to the commission ban in other jurisdictions and what the Central Bank initially proposed in CP116.
This reflects the work of many people – staff and members – not just in the last 3 years but over the last decade when changes to the commission system were first mooted. Together we have successfully argued that advice makes a real difference in peoples’ lives and that commission facilitates the widespread availability of such advice along with more competition and innovation in insurance and financial services.
We would love to hear your feedback and queries (to email@example.com). This will help us refine our analysis over the coming weeks.
Addendum to the CPC 2012 (September 2019).
The Addendum outlines changes stemming from:
- the Central Bank Consultation on Intermediary Inducements CP116 and
- changes arising from the transposition of the Insurance Distribution Regulation 2018.
The key changes are:
In order for commission to be acceptable, it must:
- not impair compliance with the regulated entity’s duty to act in the best interests of consumers;
- not impair compliance with the regulated entity’s obligation to satisfy the conflict of interest requirements of the Code or the Insurance Distribution Regulations 2018;
- not impair compliance with the regulated entity’s obligation to satisfy the suitability requirements of the Code or the Insurance Distribution Regulations 2018;
- in the case of a non-monetary benefit, be designed to enhance the quality of the service
Conflicts of Interest
Regulated entities must avoid conflicts of interest relating to the following:
- fees, commission, other rewards or remuneration linked to the achievement of targets that do not consider the consumer’s best interests e.g. targets relating to volume (including override commission) and bonus payments linked to business retention; and
- agreements under which the regulated entity receives a fee, commission, other reward or remuneration in the form of goods or services, in return for which it agrees to direct business through or in the way of another person.
Use of the term Independent or any other word/expression that is a derivative of, or similar to the term
Firms will no longer be permitted to describe themselves and their regulated activities as ‘independent’ where they accept and retain commission where advice is provided.
An intermediary may use the description “independent” or use any other word or expression that is a derivative of, or similar to this term –
- in its legal name, trading name or any other description of the intermediary, only where regulated activities provided by the intermediary are all provided on the basis of a fair analysis of the market; or
- in any description of a regulated activity provided by the intermediary, only where that regulated activity is provided on the basis of a fair analysis of the market,
and, only where the intermediary does not accept and retain any fee, commission, other reward or remuneration where advice is provided in respect of regulated activities provided by the intermediary, other than –
- i) a minor non-monetary benefit that includes, for example, attendance at a conference within the State, IT software or platforms, or hospitality of a reasonable de minimis value such as food and drink during a business meeting or conference; and
- ii) a fee paid by a consumer, or a person acting on behalf of a consumer to whom the advice is provided.
Information about Remuneration
An intermediary must make available in its public offices or on its website, in a manner that is easily
accessible to consumers, a summary of the details of all arrangements for any fee, commission, other
reward or remuneration paid or provided to the intermediary which it has agreed with product producers.
Where an intermediary operates a website, it must publish the summary on its website. The summary
must include a minimum of the following:
- a) an indication of the agreed amount or percentage of any fee, commission, other reward or
remuneration where the payment is made to the intermediary on this basis;
- b) an explanation of the arrangement including details on the type of fee, commission, other reward or
remuneration paid or provided to the intermediary, for example, sales commission or trail commission,
and details affecting the fee, commission, other reward or remuneration paid or provided to the
intermediary, for example, clawback provisions;
- c) details of any other agreed fees, administrative costs, or non-monetary benefits under such
arrangements, including any benefits, which are not related to the intermediary’s individual sales.
An intermediary must bring this information to the attention of the consumer, and provide any clarification of the information if requested by the consumer, before concluding a contract for a financial product or service. An intermediary must retain records demonstrating that it has complied with this requirement.
Minor non-monetary Benefit means such minor non-monetary benefit that is capable of enhancing the quality of the service provided to a consumer and is of a scale and nature such that it could not be judged to impair compliance with a regulated entity’s duty to act in the best interest of the consumer.
25th September 2019