Address by Bernard Sheridan, Director of Consumer Protection, at the Irish Banking Federation seminar on stengthening customer relationships 

10 May 2012

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Getting it right for consumers

Opening remarks 

Getting it right for consumers is something we would all subscribe to as regulated entities and regulators alike.  It’s an important and vital concept for us all particularly at this time when there is a pressing need to rebuild consumer trust and confidence in a stable, sustainable financial system supported by an effective and efficient consumer protection and empowerment framework.   I commend the Irish Banking Federation for choosing “Strengthening Customer Relationships” as the central theme of this conference, and I welcome the opportunity to explore how the banking sector can better empower consumers by putting their interests centre stage in all that you do, and to outline the Central Bank’s new consumer protection strategy which sets out the framework and focus over the next few years to support our aim of getting it right for consumers.

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 our twin focus of financial stability and consumer protection in building a sound and sustainable financial system – both are required if we are to achieve optimum success.

It is within this context that we undertook a review of our consumer protection strategy in 2011.  We sought to actively and openly engage with our key consumer and industry stakeholders, including the IBF, and other interested parties with the primary objective of listening to their views on existing and emerging consumer risks, expectations and interests, and how consumers could be best protected. 

It is fair to say that many of the people we met with and talked to voiced genuine surprise and appreciation that the Central Bank was asking for their input.  The feedback we received has proved very useful to us in shaping our strategic priorities and consumer protection approach based on what we now refer to as the 5 “C”s framework – the CONSUMER is at the centre of our thinking alongside confidence, challenge, culture and compliance.

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 present us all with significant challenges. 

In order to deliver better consumer protection and empowerment, we are committed to developing a greater understanding of consumer behaviours and experiences, and to building a strong evidence and market intelligence base to guide our decision making and priorities.

Our new consumer protection strategy recognises that there are significant consumer risks and issues to be addressed over the next few years which will require new and concerted ways of working by ourselves, with others and with those we regulate in order to build mutual trust and confidence with consumers.   

I have recently been reading with interest the history of Apple Computers.   In the 1970’s there were three key elements of their philosophy and strategy:

  • Empathy – having an intimate connection with the feelings of their customers and truly understanding their customers’ needs.
  • Focus – to do a good job and the importance of focussing on core products.
  • Impute – quality of presentation of the product.

This strategy resonates with me in terms of what the financial services sector should be focusing and delivering on if consumer empowerment is to be achieved.  While good work is being done within the banking sector to become more customer-focused, much more needs to be done to develop and maintain sound and trusted relationships with them. 

It is my firm belief that true and lasting consumer empowerment can only come about through a significant step change in industry culture, business conduct and engagement with consumers.  A singular focus on the consumer has to be part of the industry’s DNA.  People working within your organisations at all levels, from the bank branch counter to the board room table, need to understand all their customers’ needs, keep their best interests at the heart of their business, focus on the key needs of customers, provide clear and transparent information to enable consumers to make the best choices for themselves and their families, deliver suitable products in a professional manner and put things right when they go wrong.    

And that is the backdrop of our new consumer protection strategy and our forward-looking, more intrusive regulatory approach which we work to achieve on a day-to-day basis through:

  • inspections,
  • conduct of business developments,
  • supervision,
  • policy development,
  • sanctions and enforcement,
  • consumer research and market intelligence,
  • stakeholder engagement, communication and information.

I’d like to give you a flavour of some of the priorities for action we have committed to within our 5 “C”s framework which will be of relevance to your conference today.

Delivering on the 5 “C”S

 1.   CONSUMER – Playing our part in putting consumer protection on everyone’s agenda

The World Bank’s 2011 publication “Good Practices for Consumer Protection” states:

“Clear rules of conduct for financial institutions, combined with improved financial literacy, will inevitably increase trust in financial markets and will support the development of these markets”.

Key to our overall strategy is the regulatory framework within which we deliver protection for consumers.  The Central Bank’s Consumer Protection Code is a central part of this framework alongside our Code of Conduct on Mortgage Arrears and the Minimum Competency Code.  Our Codes contain 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.   

The revised 2012 Code further strengthens the consumer protection framework in a number of key areas including:

  • vulnerable consumers must be provided with necessary assistance to facilitate them in their dealings with the firm.
  • an assessment of affordability for credit products including mortgages has been introduced alongside new requirements on how borrowers in arrears must be dealt with.

Our suite of Codes combined with the various European Directives, particularly MiFID, CCD and PSD, delivers a very comprehensive consumer protection framework. 

On improving financial literacy I must also acknowledge the work of the National Consumer Agency in helping consumers make informed choices.   One of its key initiatives “Money Skills for Life” workplace programme has recently been launched and I know the banking sector has supported this initiative.   To me this is a real example of how the financial services industry can directly empower consumers.

2.   CONFIDENCE – in financial services, products and regulation

A clear and continuing message to you today is the need to instil a true sense of confidence in the financial services system.  A strategic focus on rebuilding consumer confidence will, in my view, deliver a win:win situation for both the industry and the consumers whom you serve – it’s in everyone’s interest at a time of increasing reliance on financial services and products to support our everyday lives from making purchases to paying bills, budgeting, saving for a rainy day and preparing for retirement. 

Transparency is a key factor in building confidence and empowering consumers which is embedded in the Central Bank’s regulatory framework.  We believe that financial institutions can and must do more to inform consumers, and be more proactive in delivering clear, targeted, easily understood and timely public communications and more consumer-friendly information. 

Consumers need the time, space and support to be able to understand and properly evaluate the information they receive in order to purchase financial products and services that best meet their existing and future needs. 

There is a challenge to striking the right balance between information overload and fully informing consumers.  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.   Already this year we have required a number of firms to amend or withdraw misleading “traditional” and web-based advertisements and information, and have recently issued a letter to the industry in this regard. 

Consumers should not feel or experience undue pressure when making financial purchases or dealing with an arrears situation.  We have made specific provisions to ensure that consumers are given adequate space and time to consider their choices and situation.  Our Codes seek to protect the consumer and provide them with the necessary information and support from financial firms to make the best choice for them and their household.

3.   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, a review of best execution practices, and how banks are implementing and embedding the revised Code at all levels of the organisation.   It is fair to say that we are seeing all banks devoting considerable resources to ensuring full implementation of the revised Code which is very positive.   A successful roll-out of the Code should ensure there is a sound basis for engagement with customers. 

Having the appropriate systems and controls in place to deliver for the consumer and to ensure ongoing compliance is critical.   The General Principles in the revised Code now refer to having in place the necessary compliance checks and staff training.   Many issues arise for consumers simply because of inadequate resources being assigned to compliance checking and front-line staff not being appropriately trained.    Also it is worth highlighting that the Code has been strengthened in the areas of errors and complaints handling.    It is now no longer sufficient to deal with errors and complaints as isolated incidents.   Firms must now undertake an appropriate analysis of the patterns of the errors and complaints and must also escalate this to senior management within the firm.   This proactive learning from past mistakes will work to the benefit of the firm in the longer run.

We have worked very closely with our colleagues in the Enforcement area of the Central Bank 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 and we will continue to take strong action where we see poor practices.

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, and
  • a number of regional roadshows for retail intermediaries  allowing us an opportunity to engage directly with them.

We believe we have been responsive to industry where specific issues have arisen.

4.   CHALLENGE – to ourselves, those we regulate and others

Developing our own internal challenge process is also part of our consumer protection strategy which links into taking a more assertive risk-based approach to supervision.   It is important that our staff robustly and fairly deal with firms and address compliance issues appropriately to achieve optimum consumer protection and empowerment.

One of the most current pressing issues for many families with mortgages is being able to keep up repayments.   Mortgage arrears are a top priority for us in the bank, and in consumer protection, and we are working hard in this space to ensure that it is a top priority within banks strategically and operationally through our Mortgage Arrears Resolution Strategy.   We are dealing with the mortgage arrears 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. 

Most lenders have offered a range of short-term forbearance measures which has given both borrowers and lenders time to deal with the situation.   We very much welcome this as many borrowers in arrears will recover over time.   However, as part of our strategy we are challenging banks to deliver more long-term sustainable solutions for those who have unsustainable mortgages.   Simply postponing this and pushing the issue down the line is not good enough for those borrowers or the lender.  In order to support our MARS Strategy:

  • 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 bans mortgage arrears charges when the borrower is co-operating with the lender, and prohibits lenders from forcing borrowers off low cost tracker mortgages.   It also limits the amount of unsolicited contacts a lender can make while at the same time recognising the importance of early contact with the borrower.   I believe that this is one area where we have really helped borrowers through strong consumer protection requirements at a time when they may be particularly vulnerable, under pressure and, often, feeling disempowered.   The essence of the CCMA is to provide a framework within which their arrears situation can be considered in a fair and transparent way.   Early engagement between the borrower and lender can really help the situation and provide the space and time for lenders to work with borrowers to come up with the best possible solutions in a supportive and appropriate way.   It is important that the initial engagement supports a constructive ongoing dialogue so that the lender can fully understand the borrowers’ circumstances.  The Central Bank has recently issued guidance to the industry to provide clarity in the area of contacts with consumers in order to support our consumer protection and empowerment objectives in this area.    
  • We 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;
  • We publish quarterly mortgage arrears statistics to provide a sound evidence base and are conducting consumer-based research on borrowers’ experiences in pre-arrears and arrears;
  • We plan to carry out inspections of lenders to ensure full compliance with our mortgage arrears code.

I should also acknowledge the work of the IBF in association with MABS in developing the Standard Financial Statement which is the critical document supporting the decision making process.   Lenders, however, need to help the borrower complete the document so that the quality of the information is reliable and sound.   It is a real opportunity for the lender to understand the borrower’s circumstances and to help them through the process.

5. 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 and accountability.

Financial institutions must develop and demonstrate a strong, positive, consumer-focused culture in all that you do.  This will undoubtedly require further development and investment in new and better ways of working – building on your learning to date and being innovative in developing sustainable solutions that promote trust and confidence.   

One example where we have been engaging with the banking sector and Government is on the introduction of a basic bank account.     This is one area where the banking industry has an opportunity to demonstrate that it is serious about customer empowerment.   Facilitating and encouraging those who are financially excluded to have fully operational bank accounts needs to be a priority so that these consumers can fully participate in an ever increasing cashless society.   I would encourage the banks to quickly follow up on the pilot scheme planned for later this year with a suitable account that demonstrates that it has been developed with the needs of these consumers firmly in mind.

Two other factors can help shape a positive culture in a financial services firm.   Since 2007 we have required staff providing advice on or arranging retail financial products for consumers and also those who adjudicate on complaints from consumers to meet minimum competency standards.   These standards require staff to undertake continuing professional development.      We have revised these requirements in a number of areas e.g. supervision of new entrants to help ensure that consumers experience a professional service.   Also these standards are now an integral part of the fitness and probity standards which places greater responsibility on the individual to ensure they are compliant.

How sales staff is incentivised can have a direct impact on how customers are treated.   The 2012 Code requires that 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 intend to commence a review of how this is being implemented later in the year.

Closing remarks

Our consumer protection strategy is premised on a growing understanding of consumer behaviour and risks, on business models and products and on our engagement with key stakeholders – all of which will guide our priorities for action over the next few years.  It will be important that we continue to review and refine our strategy over time, based on emerging consumer needs for greater protection and empowerment in an increasingly complex marketplace.   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, they may also resonate with financial institutions as you seek to address the challenges ahead and to grow your business and the confidence of consumers in it over the next few years.

Put simply, consumers need banks to develop and deliver the right product and service, in the right way, and for the right reasons, at the right time to meet their increasing needs in a rapidly changing and complex world - socially, economically, environmentally, culturally and technologically.

The banking industry really needs to be in the business of understanding and responding to your customers’ needs and providing them with the information, products, services and solutions that allows consumers to feel empowered to make the best financial choices and to restore their confidence and trust in the financial services industry to get it right for consumers.

Thank You