Delivering on Consumer Protection - the Role of the Central Bank  

16 February 2017

Director of Consumer Protection, Bernard Sheridan

Delivering on Consumer Protection - the Role of the Central Bank

BIPAR Mid-term Meeting  


I am pleased to have the opportunity today to address Members of the European Federation of Insurance Intermediaries.  You are most welcome to Dublin and I hope you have an enjoyable and productive visit. I plan to outline for you the role played by the Central Bank of Ireland (Central Bank) in protecting the interests of consumers particularly as it relates to brokers and intermediaries.  In particular, I will set out three important areas, which are very relevant for brokers, and which are very important in shaping the consumer protection framework in the future i.e. how intermediaries are paid, the minimum competency standards for staff dealing with consumers and finally the new product oversight and governance requirements which are coming into force.

Brokers and other intermediaries have a very important role to play in helping consumers make the right financial decisions.  Consumers rely on them to recommend the most suitable product from the range on offer as well as having a role in handling claims and complaints.  There are approx. 2,500 intermediaries in Ireland, reflecting the importance of the sector, which engage in a range of activities including insurance, re-insurance, investment and mortgage intermediation, varying in size from subsidiaries of large multinationals/insurance companies/banks to one-person operations or tied agents.

Central Bank and Consumer Protection

Ensuring that the interests of consumers of financial services are protected continues to be a key priority for the Central Bank as reflected in our mission statement of “Safeguarding Stability – Protecting Consumers”.  The Central Bank has a statutory objective of effective regulation of financial service providers and markets, while ensuring the best interests of consumers are protected.  We aim to deliver on this, not only through our consumer protection mandate but also by working to ensure the financial system is stable and the firms which operate within it, which are authorised by the Central Bank, are financially sound and safe.

In order to support this mission, our Consumer Protection Strategy is based on the ‘5 Cs’ framework.  This framework puts the Consumer at its centre, where the focus of firms must be on delivering positive consumer outcomes within a regulatory framework that is fit for purpose.  This can only be achieved where firms have a consumer focussed Culture which enables consumers to have Confidence in the financial decisions they are making and the firms they are dealing with.  Firms need to Challenge themselves and be challenged by the regulator where their focus is not on those consumer outcomes.  There is a need and appetite for appropriate regulatory action where Compliance standards are not being met.

We adopt a risk and evidence based approach in prioritising our work, which ensures that we are focussing our resources on those areas where we consider there to be a significant threat to our consumer protection objectives.  This includes carrying out a comprehensive annual consumer risk assessment, whereby we examine each of the retail sectors regulated by the Central Bank to identify current and emerging risks.  Coincidentally yesterday we published our latest Consumer Protection Outlook Report (CPOR) which highlights a number of those consumer risks all regulated firms need to consider.  These risks include the low interest rate environment, the continuing high level of arrears and indebtedness, the increase in new lending as well as the risks from poor product design.  The CPOR also outlines those priority areas which the Consumer Protection Directorate within the Central Bank will be focusing on over the next couple of years in the context of our consumer protection mandate.

In terms of delivering on our consumer protection mandate, it revolves around three core functions of gatekeeper, policy maker and supervisor supported by consumer risk analysis and research.

1.  Gatekeeper:  The granting of a new authorisation is a key element of the Central Bank’s regulatory framework as it is where it exercises the statutory ‘gatekeeper’ role to permit/refuse an applicant firm to provide financial services to the public.  Our gatekeeper objective is to raise standards through a robust approach to determining what firms and practices are permitted in Ireland and in turn which can then be sold and distributed throughout the EU. This means that only those firms who demonstrate to us that they meet the authorisation requirements will be authorised.

2.  Policy Maker/Influencer:  A key element of our role is ensuring that the consumer protection regulatory framework is fit for purpose and working for consumers and will continue to remain so.  This is particularly important in the face of emerging trends and products, including in the context of the pace and scale of technological innovation in the delivery of products and services to consumers.  The framework is influenced by domestic issues, European initiatives as well as wider international developments.  The influence of European legislation on the shaping of the regulatory framework continues and the three European Supervisory Authorities (ESAs) continue to play an important role in shaping the consumer protection framework across Europe.  The Central Bank is actively participating in the work of the ESAs to influence and contribute to their agendas, particularly in those areas that align with our own priorities.

3.  Supervisor:  Intermediaries are supervised by a combination of on-site and off-site (desk-based) monitoring. While our supervisory teams do not conduct regular face-to-face meetings with every firm, we continuously monitor the sector through desk-based analysis of financial returns, thematic reviews, ‘trigger-based’ supervision and spot-check inspections. 

‘Trigger-based’ engagements which arise when issues which come to our attention through whistle-blowers, public contacts, or from our own supervisory work are assessed. This may result in an on-site inspection, desk based engagements or further investigation depending on the issue.  We also carry out themed inspections, where priority themes and firms for review are chosen after consideration of market intelligence from a range of sources.  Themed inspections are usually carried out on a number of firms for which the topic/risk is applicable, or on those which represent a significant proportion of the market.

The Central Bank monitors the two key prudential requirements, i.e. the requirement to remain solvent and the requirement to hold adequate Professional Indemnity Insurance. We monitor the overall financial health of firms on an on-going basis through the review of on-line returns.  Where we have identified firms that are in breach of a regulatory requirement as a consequence of their financial positions, we have used our powers to direct them to prepare and implement credible capital plans to resolve the breaches within reasonable timeframes.  Holding the required level of Professional Indemnity Insurance (PII) is a key prudential and consumer protection safeguard.  Where necessary we take appropriate supervisory and enforcement action against firms in order to protect consumers’ interests and to ensure that all firms are meeting the standards and requirements. 

The Central Bank also believes it is important that we help firms understand their regulatory obligations and our approach to key issues.  The annual CPOR, as mentioned above, is published to help firms identify relevant consumer risks and also the areas we will be focussing on.  We organise Roadshows to highlight topics of interest and current regulatory issues. This year, our topics included Anti-Money Laundering, Cyber Risk and IT and developments on the regulatory landscape.  We also regularly publish an industry newsletter called The Intermediary Times three or four times a year.

Current Issues Relevant to Brokers and Consumer Protection

1.  Commission payments to intermediaries.

One issue that we are currently working on is the way intermediaries are remunerated.  Remuneration structures, by their very nature and intent seek to drive the behaviour of those engaging with consumers and reflect the inherent culture within a firm or industry.  It is important therefore that firms ensure that their remuneration structures are designed to encourage responsible business conduct, fair treatment of consumers and to avoid conflicts of interest. This is why the Central Bank decided to conduct research into the payment of commissions to intermediaries in 2016.  We published a discussion paper in July and asked for feedback on the risks and benefits of a commission-based remuneration model.  The outcome of the feedback was that, generally, industry supported the commission model and argued that there are advantages to consumers in having this model in place.

Based on our analysis of this topic, including the responses to this Discussion Paper, the Central Bank will now examine proposing additional measures to strengthen protections for consumers under the following headings:

  • the acceptance and retention of commissions by intermediaries describing themselves as “independent”;
  • ways to mitigate product and producer bias where commission is paid; and
  • where commission amounts are based on the volume of the product sold, including override commissions. 


We plan to publish a consultation paper on our specific proposals later in 2017.

2.  Minimum Competency Standards

In recent years, professional knowledge and competence requirements have been increasingly introduced or updated in various EU Directives and Guidelines including the Mortgage Credit Directive, the Markets in Financial Instruments Directive II (MiFID II) and the Insurance Distribution Directive (IDD).  Within the European Union, Ireland was one of the first countries to introduce a mandatory Minimum Competency Code (MCC) in 2007. The MCC established minimum professional standards for staff of financial service providers with particular emphasis on staff dealing with consumers in relation to retail financial products.

The MCC applies to persons exercising a controlled function on a professional basis, the exercise of which includes providing advice to consumers on retail financial products, arranging or offering to arrange retail financial products for consumers, or the exercise of a specified function, which includes dealing with insurance claims, reinsurance mediation, providing debt management services, adjudicating on complaints, and direct management or supervision of accredited persons.  Persons carrying out any of these functions must either hold a qualification recognised for the purposes of the MCC, be a grandfathered person in respect of the function being exercised, be a new entrant participating in a training process under the supervision of a qualified or grandfathered person or be operating in accordance with a prescribed script.

The MCC contains a number of appendices, setting out the:

  • retail financial products that fall within the scope of the MCC;
  • specified functions that fall within the scope of the MCC;
  • competencies that must be met by persons that fall within the scope of the MCC; and
  • qualifications that are recognised for the purposes of the MCC.


Regulated firms must ensure that persons exercising a relevant function on behalf of the regulated firm comply with the standards set out in the MCC.  Firms must also maintain a register of all accredited persons, acting as, for or on behalf of the regulated firm. 

The MCC is closely linked to the Central Bank’s Fitness and Probity Regime as it is one of the key factors in assessing whether a person is fit to exercise certain controlled functions in a regulated firm.  We consider the Minimum Competency Code to be a fundamental part of the overall consumer protection framework requiring staff to have the appropriate knowledge and expertise and also enabling consumers to have confidence that the person they are dealing with is capable and competent.

The Central Bank is currently engaged in a consultation process regarding proposed changes to the minimum competency standards.  Some of the proposed changes incorporate recently published EU requirements.  In this regard, a public Consultation Paper was published last November seeking views from interested stakeholders on the proposed changes.  The proposals will build on the existing platform of strong protections, with key new proposed enhancements including:

  • In addition to obtaining a relevant recognised qualification, a requirement on staff to also obtain at least six months’ experience carrying out a particular activity. 
  • A requirement for regulated firms to carry out an annual review of staff members’ qualifications, development and experience needs. 
  • A requirement for at least one key staff member involved in the design of a retail financial product to meet a prescribed standard of minimum competency.

3.  Product Oversight and Governance.

The Central Bank welcomes the Preparatory Guidelines on Product Oversight and Governance published by EIOPA in 2016.  These Guidelines will provide a sound framework for mitigating many of the risks faced by consumers.  Financial products and services can in themselves present risks to consumers. Most financial products can be complex and the terms and conditions can be difficult to fully understand.  The matching of the needs of consumers to the most suitable product or service, is critical for ensuring the right consumer outcomes but can also present significant consumer risks if not done properly.   Firms need to be able to demonstrate that their product oversight and governance processes take into account consumers’ ability to understand what it is they are purchasing. Robust product testing and controls before launching new products can help ensure that they are being sold only to consumers for whom they are suitable.  We strongly encourage intermediaries to familiarise themselves with the preparatory guidelines and to establish product oversight and governance arrangements in accordance with the guidelines. 

The Central Bank is enhancing how it assesses how firms are managing consumer risks through its Consumer Protection Risk Assessment (CPRA) Model. This model provides a strong framework to assist supervisors in carrying out assessments of how consumer protection risk is being identified and managed within firms. The model equips us to assess how the firms’ consumer risk frameworks are designed and also how effective they are in practice in delivering fair consumer outcomes. Product oversight and governance will be one area of focus for us, as part of our overall assessment for firms’ risk frameworks


The Central Bank is currently in the midst of preparing for the transposition of the IDD.  From the Central Bank’s perspective, we welcome the new conduct of business measures being introduced in the IDD.  Our own Consumer Protection Regulatory Framework has undergone substantial strengthening in the past ten years and many of the newer requirements in the IDD are already enshrined in our domestic framework.  For example, we already have conflicts of interest requirements, minimum competency and suitability requirements similar to those in the IDD and we apply them across all sectors.  

Will the IDD deliver better outcomes for consumers?  While it will present many challenges for brokers and intermediaries throughout Europe, we believe that it will.  However, it also needs to be supported by a positive consumer-focussed culture within firms where delivering the best outcome for consumers is at the centre of what they do. The Central Bank will continue to focus on our consumer protection mandate and priorities and will continue to challenge firms where this is not happening.  We will also continue to engage with industry to achieve better outcomes for consumers and in that regard I would like to thank you again for the opportunity to speak to you this evening and wish you a safe journey home.