Press Release: Central Bank Washes Its Hands of Intervening in Negative Interest Rates on Client Accounts
Tue Mar 23 2021
21 March 2021
Consumers could face increased charges arising from the imposition of negative interest rates by banks on client accounts that brokers and other professionals are compelled to hold for client monies.
The Central Bank has confirmed in a letter to Brokers Ireland that it regards such accounts as ‘a commercial matter for individual banks and other lenders to set their own lending and deposit rates.’
Brokers Ireland had sought the Central Bank’s intervention following the imposition by lenders of negative interest rates on client accounts. These are separate accounts from the Insurance Broker’s own business affairs whereby the Insurance Broker is compelled to hold client monies before onward transmission to the consumer, or to insurance companies on behalf of the consumer.
New negative Interest rates of typically -1.1pc have been applied to such accounts.
Cathie Shannon, Director of General Insurance Services at Brokers Ireland said for many brokerages charges will be thousands of euro per month. “The size of the brokerage and the nature of the business means that for some inevitably millions of euro are held in the client account, which will now be subject to negative interest rates. One Brokerage has advised that the cost to them for the month of February alone was €10,000. Lenders are now seeing such accounts as an income stream for themselves even though Insurance Brokers are required by law to hold such accounts. This is grossly unfair and we believe that the Central Bank of Ireland (CBI) ought to intervene.”
She said almost all of Ireland’s Insurance Brokers are Micro or SME businesses.
“As an organisation, we welcome the government’s acknowledgement of the importance of SMEs to the economy and to Ireland’s recovery post-pandemic, as well as the renewed focus on relieving the unfair burden placed on small businesses as a result of the cost of regulation, which is particularly high in financial services. We welcome the Report of the SME Task Force, which is trying to plot a way forward for SMEs,” she said.
“It is truly regrettable that the CBI has adopted this stance, even though it has said SMEs will be central to economic recovery; publicly stated that it is focused on ensuring supports are available to SMEs and have estimated gross operating losses in the sector for nine months to year-end 2020 at between €10.3 and €11.7 billion” .
Ms Shannon said it simply will not be sustainable for all Insurance Brokers to absorb these new charges. “Unless the situation changes some will be left with no option but to pass on some or all of the additional cost to consumers,” she said.
Brokers Ireland will be raising the issue with the Department of Finance over the coming days and are engaging with ISME whose members are also being negatively impacted.