Address by Director of Consumer Protection Bernard Sheridan to the Insurance Ireland Customer 360° Conference

02 December 2014 Speech

The Role of the Regulator in the Customer World


I would like to thank Insurance Ireland for inviting me to speak this morning and for hosting this conference on a topic which is very close to my heart. I would like to take this opportunity to outline the role that the Central Bank plays in the area of consumer protection. I would also like to highlight some key issues which I believe are important for regulators, the firms we regulate, and our key partners to consider and address in the context of the future challenges we face in embedding a culture which has the consumer at its heart - ensuring that consumers are being treated fairly, that firms are acting in their best interests and are dealing with them with dignity and respect. Overall I believe that while there are significant challenges and risks to delivering on this, there are also positive signs and developments that progress is being made by policy makers, regulators and industry in moving towards a more consumer focused environment that should be recognized and encouraged – a theme that I will pick up throughout my comments to the conference this morning.

So first to the role of the regulator in the customer world; the importance the Central Bank places on consumer protection is reflected in our mission statement of “Safeguarding Stability – Protecting Consumers”. This places the consumer at the heart of the Central Bank’s overall wider strategy, including our prudential supervision mandate and financial stability goal, in line with our statutory objective of effective regulation of financial service providers and markets while ensuring that the best interests of consumers are protected. Within the Consumer Protection Directorate we have set ourselves a clear mission – to get it right for consumers. Achieving this can be easier said than done and represents a challenge to us as regulator to continuously strive to be more connected, evidence-based, forward looking and outcome-focused. In order to get it right we need to listen to what consumers are saying (both directly and through key stakeholders) to identify current and emerging risks.

We need to respond by prioritising and committing our finite resources within a risk-based approach within the three broad areas of responsibility i.e. gatekeeper, supervisor and policy developer. We also need to be the consumer protection advocate at home and abroad, and to be clear in our expectations of regulated entities to demonstrate how the consumer interest sits at the heart of all that they do.

Delivering on the existing and future consumer protection challenges

Financial products and services play such an important part in the lives of all consumers from paying for goods and services, to saving for retirement, to insuring against future events, to borrowing money for short or long term purposes. They provide many benefits as well as meeting our needs to live our daily lives. However the use of financial products and services can also bring certain risks to consumers arising from the products and services themselves, the behaviour of firms and the individuals who run them as well as risks arising in the wider market. The environment where we make our financial decisions is constantly changing where new innovations and emerging technologies present opportunities as well as risks to consumers and where new business models, products and services can lead to greater choice for consumers but also greater complexity.

It is within this backdrop that we seek to deliver our regulatory mission of “Getting it right for consumers” through what we call the 5 Cs Framework which helps us keep a clear focus on the risks facing consumers and the outcomes we are trying to achieve on their behalf. I intend to set out under each of the 5Cs, Consumer, Culture, Compliance, Confidence and Challenge some thoughts and challenges to delivering better consumer outcomes.

I will start with the consumer C. Our 5Cs framework has the consumer at its centre which reflects our primary aim to ensure that the focus of our work as well as that of the firms we regulate is on delivering the best outcomes for consumers. A key element of our role is ensuring that the consumer protection framework is fit for purpose and working for consumers.

Alongside the existing consumer protection legislation, the Central Bank has used our code making powers quite extensively over the years including introducing the Consumer Protection Code and the Minimum Competency Code which cover cross-sectoral issues e.g. complaints handling and advertising rules, as well as sector specific rules. For me, the Minimum Competency Code is a key element of the overall framework as it has a direct impact on the quality of the engagement between firms and consumers. I would like to acknowledge the role played by the education bodies, including the Insurance Institute, the LIA as well as the other education bodies, in ensuring the successful role out of the standards.

International organisations such as the World Bank and OECD have also adopted a greater focus on consumer protection and the Central Bank has positioned its role firmly as influencing these developments in order to hold on to the protections we have in Ireland, to enhance and develop them where possible, and to share learning and best practice on regulatory approaches.

The OECD has been active in the consumer protection field over the last few years working with policy makers and regulators to develop and share best practice through a core set of principles and accompanying effective approaches in areas such as the equitable and fair treatment of consumers and responsible business conduct of firms and their authorised agents. This is an exercise that the Central Bank has engaged in fully as a member of the OECD Task Force and we have benefitted greatly from the learning and sharing of best practices.

FinCoNet is a new international body of financial consumer protection regulators which I am currently chairing. Its aim is to promote sound market conduct and strong consumer protection through efficient and effective market conduct supervision with an initial focus on banking and credit. Its report on responsible lending highlighted the growing importance of financial consumer protection among the 20 countries which took part in the survey.

At a European level the influence of the European Commission in terms of introducing legislation and regulations on consumer protection issues is increasing. In the last year, for example, we have seen the publication of the Mortgage Credit Directive, the Payment Accounts Directive and Key Information Documents for Packaged Retail and Insurance-based Investment Products (PRIIPS). Of relevance to this audience also is the Insurance Mediation Directive II which was recently approved by the EU Council and is now set to enter the trilogue final negotiation process. A key priority for us is, in liaison with the Department of Finance as key partners, to support both the drafting, negotiation and transposition processes of legislation into Irish law. In addition, the three European supervisory authorities are now playing an important role in shaping the consumer protection framework. The role of the European Insurance and Occupational Pensions Authority (EIOPA) is to take a ”leading role” in promoting transparency, simplicity and fairness in the market for consumer financial products or services across the internal market. EIOPA’s mandate in the area of consumer protection and financial innovation is broad. Again the Central Bank plays an important role in influencing and contributing to EIOPA’s agenda.

However while the current consumer protection framework is comprehensive and working well, there are always challenges in ensuring that it remains effective and that gaps are closed when risks emerge. We aim to continue to commit our resources to contributing and influencing the international and European agenda. We also need to ensure that we retain the key protections we already have in place when new laws are being developed in Europe. New ways of distributing financial services are not bound by traditional boundaries particularly when business models are web based e.g. crowd-funding or virtual currencies, and the Central Bank is working closely with our peers in Europe as we seek to ensure the appropriate protections are in place.

One of the most pressing challenges at home is trying to ensure that the protections people currently have when they get into difficulties meeting mortgage repayments remain in place if the mortgage is sold to a third party. We are working closely with the Department of Finance as it develops the necessary legislation and we will play our part in implementing the measures when finally agreed. Our consumer protection framework is subject to ongoing review and development and, to this end, we are currently reviewing the protections in place for SMEs when accessing credit and how they are dealt with when they get into financial difficulty, and have just published additional rules for debt management firms. We are committed to continuing to monitor and respond to the changing consumer environment and ensuring that there are protections in place that help embed a consumer-based culture and practices within all regulated entities.

That brings me on to the second C - culture. I firmly believe that culture plays a critical part in driving the behaviour of firms and individuals within them. We can see as we engage with firms across the different sectors that a positive culture leads to more positive outcomes for consumers, as well as a more constructive engagement with the regulator. I have been engaging with a number of the boards of the largest retail financial services firms on the issue of culture and the embedding and measuring of firms’ own cultural change programmes, an exercise I intend to continue and expand.

Engagement to date has been positive and indeed we are seeing initiatives developing in the cultural space including around firms’ internal consumer protection risk frameworks to help deliver better in the consumer’s interest from product development and sales process to engaging in a meaningful way with customers and understanding their experiences, and listening to and learning from what their customers are saying. We have also noted the implementation and monitoring of performance metrics in some firms which are important in evidencing consumer-focused outcomes.

You will be aware of our ongoing work to embed a consumer culture on incentive structures which we see as a real driver of behaviour. We have seen a number of firms reviewing their variable remuneration incentive structures in advance of our review and since the issuing of our guidance to the financial industry which is a positive development. These are very welcome developments from the Central Bank’s perspective.

What are the challenges we face on the issue of culture? It is essential that firms get their culture right if trust and confidence is to be restored and maintained in the financial services industry, and it is fundamental to ensuring that consumers are treated fairly. For me, the firm’s board and senior management have a critical and central role to play; culture is set at the top and must permeate through every level in the firm right to the frontline delivery of consumer services if it is to be successfully embedded. The board must own the culture agenda and set a clear corporate focus on the delivery of meaningful and measurable consumer-focused outcomes and engagement. Embedding a strong consumer focused culture can be difficult but with the right values, governance and incentives in place it can be achieved. We recognise that cultural change takes time and focus and therefore it will remain as key element of our work over the next couple of years as we work to ensure that such a shift takes place, and firms demonstrate this shift in their everyday interactions with consumers.

Compliance is what I would like to turn to now. There is no doubt that compliance is a real challenge for firms as the regulatory framework is, as I referred to earlier, constantly changing. Themed reviews and inspections are conducted to examine different risk-based issues e.g. our recent review on pension statements. By looking across firms we can see how different approaches are being taken. It is fair to say that we often find good levels of compliance across the insurance industry with areas of good practice while at times discovering outliers where there are issues and poor practices to be addressed.

Firms are in the main open to feedback following inspections where we are highlighting areas for improvement. In terms of firms understanding our expectations it is important that we are open to engaging with the industry and explaining our strategy and approach. For the intermediary sector this represents a greater challenge and we have introduced initiatives to help firms understand their responsibilities better including road shows around the country and the publication of our Intermediary Times. We are also open to receiving specific queries from firms in relation to their compliance requirements.

What else can be done? We see compliance as the minimum standard. Firms need to go beyond the minimum legal requirements and move to looking at the consumer outcomes that they are seeking to achieve. Our own research on consumers understanding of the annual pension statements shows that the firms who are going beyond the minimum achieved better results in terms of consumers’ level of understanding. Our approach to checking compliance is also developing. Our expectation is that firms are not only compliant but are also able to demonstrate how they are achieving the consumer best interest principle in their practices and behaviours.

During the review of the sales of PPI we had a low tolerance level for firms which could not demonstrate how they met the Code requirements with many of the individual cases being classified as a fail requiring a refund because of this. One area that remains a concern and where all firms need to focus is where core activities have been delegated or outsourced to third parties. We expect that the standards of compliance are not impacted by outsourcing. Responsibility remains with the firm and we will take appropriate regulatory and enforcement action where we see this occur.

Confidence is the next C. Consumer confidence, like culture, can be difficult to physically see or measure when everything is functioning properly but can be very apparent when things go wrong. Consumers have a right to expect to be treated fairly, to expect firms to act in their best interests and also that their relationship with the firm will be based on dignity and respect. They also expect that the financial services industry will be well regulated with their interests being served. We saw how confidence in the banking sector was so badly damaged during the crisis but I don’t think it needs a crisis for consumers to lose confidence. We can see that delivery of financial services is changing with much greater reliance on web based interaction backed up by telephone support rather than face to face engagement. Although these developments offer greater convenience and many benefits for consumers, we must ensure that more vulnerable consumers are not left behind or suffer undue detriment or risk. We are also seeing more firms using technology to capture customer information and trends which are feeding back into providing a better service.

Complaints handling can represent a great opportunity for a firm to restore confidence in the consumer relationship where it is handled properly and to identify root causes to ensure that the whole problem is solved rather than solely solving the individual complaint. However up until recently the increasing level of complaints which were going to the Financial Services Ombudsman represented a worrying trend where firms themselves were not resolving their own customer complaints. This trend has been reversed and we see that as a positive development.

Although the trend in the level of errors and overcharging overall appears to be falling, one of the highlighted causes of errors in some sectors is accounts and systems not operating as intended. These types of issues really shake consumers’ confidence in the system and the firms they deal with and need to be addressed on an ongoing and systemic basis by all firms.

The need for all firms to have robust systems in place to deliver a reliable service is critical for consumer confidence. However when problems occur, the way in which the incident is handled can impact either negatively as well as positively on the consumer’s confidence in the firm. Often consumers complain about the lack of information when things go wrong with a service or a system for example. Keeping customers informed of what is happening and progress in resolving as well as being clear on what impact the systems issue or error will have on the consumer can help build a more trusting long-term relationship.

Confidence, once dented or damaged, can take significant time and effort to restore. So while there have been some positive developments a number of challenges remain. There are some financial decisions that consumers may only make once or twice in their lives e.g. taking out a pension or a mortgage. These are very important decisions which have long-term benefits and consequences for the consumer and it is critical that the consumer can have full confidence that their interests are being looked after. We expect that firms will be able to demonstrate to their customers in an open and transparent way how they are acting in their best interests. The sale of long-term products is an area which we intend to examine further and in particular to look to see how any conflicts of interest, in terms of how the seller is remunerated, is being resolved and is supporting the right outcome for the consumer.

And finally in terms of consumers’ perceptions of how a firm is behaving we expect firms to monitor feedback from their customers to identify more systemic issues and also to respond in a more timely way to their concerns. It is also important that we as regulator keep up to speed on what the current issues are for consumers and intervene quickly where we have concerns. The Central Bank monitors social media for emerging issues as well as receiving market intelligence from key stakeholders including the Competition and Consumer Protection Commission and the Financial Services Ombudsman which helps make us aware of what consumer issues are arising and how firms are dealing with them.

The final C is challenge. I believe that it is essential that we challenge ourselves as regulators to ensure that we are achieving the Central Bank’s consumer protection objectives. Our challenge is to be sure that we are outcomes-focused; outcomes for consumers that is, that our work is risk and evidence based and that we work with our stakeholders to achieve this. The Central Bank is currently undertaking a reciprocal peer review of our consumer protection function with our colleagues in the Dutch Authority for Financial Markets. This is the first time that such a review is being undertaken using the OECD Consumer Protection Principles, as referred to above, as a guide to the work. The output of this review which examines not only our framework but also our strategy will be published in 2015.

It is also essential that we challenge industry when we believe that culture, practices, products or services pose or may pose a threat to our consumer protection objectives whether at authorisation stage or through the supervision process. We have demonstrated that we are prepared to challenge firms when we see potential consumer detriment taking regulatory actions, including consumer redress, directions and enforcement actions under our administrative sanctions procedures.

There are a number of areas which I believe will present challenges to firms and industry as well as the regulator in the future. For firms we expect a greater focus on looking at consumer outcomes and being able to demonstrate not only compliance but also how outcomes are being measured. The focus needs to shift to examining the business model driving how the business is shaped, how consumer needs are being met from development of products right through to the sales and the after-sales processes.

Ensuring the right business model with the proper product oversight and governance is in place will become a bigger part of our regulatory work, and this in turn will present greater challenges for firms. The role of product producers in monitoring their distribution channels to ensure that they are behaving in a way consistent with their way of working will become more important as product producers’ responsibility to demonstrate how they are delivering for consumers will be tested. And finally the need for all firms to really be satisfied that their products are fit for purpose - going beyond tick-box and disclosure to ensuring they are fully understood by their customers and are suitable for meeting the needs of their customers - represents a very big challenge but one which has to be addressed.

Product simplification, both in terms of the features of a specific product and reducing the range of similar products on offer, can help consumers better understand what they are purchasing. I believe firms need to move away from relying on legalistic terms and conditions which contain clauses which are either unfair or just simply impossible to understand. I know some firms are taking a lead in moving to a more plain English way of doing business and we can see the benefits from that in terms of their relationship with their customers.


In conclusion I have taken you on a journey through our 5 Cs and how they are shaping the approach to our role as regulator in the customer world. I have a firm belief that what is a good outcome for the consumer is also good for business and the wider financial system. While I have highlighted some positive trends under each of the Cs, significant challenges remain for both us as regulator and for firms. We need to be forward looking, anticipating and mitigating risks to consumers, as well as advocating for and influencing to address any weaknesses or gaps in our consumer protection framework at a national, European and international level.

The Central Bank will increasingly require firms and their boards to be able to demonstrate how they are going beyond the minimum standards and how their business models, products and services meet the underpinning principle of consumer protection – delivering outcomes that are in the consumer’s best interests. We intend to continue to play our part by promoting and supporting good practices and working to ensure that we are alert to the issues and prioritising our work in the areas that require the greatest attention.

Further progress is needed to firmly embed a positive consumer focused culture throughout the industry and I hope that what I have outlined to you today will stimulate your thinking about what needs to be done, and encourage you to be proactive in developing and implementing your own consumer protection framework and outcome measures. Put simply, we are encouraging you all to raise the bar; meeting and exceeding consumer expectation and experience and playing your part in building a strong and responsible financial industry with a focus on the central goal; getting it right for the consumer.