Address by Head of Consumer Protection, Colm Kincaid, to the Association of Compliance Officers in Ireland

18 March 2015 Speech

“Ethical Conduct and Consumer Protection”


Good afternoon. It is a great pleasure to be here today to speak to you about ethical conduct and consumer protection.

I want to start by commending the ACOI for organising this event. I know that the topic of ethics is high on the Association's agenda. This is evidenced by ACOI initiatives such as the MA in Ethics (Corporate Responsibility) and the extent to which ethics features in your public communications and the virtues you instil in your LCOI graduates. By focusing your members on this subject you are emphasising the need to go beyond tick-box compliance to ensure that regulated financial service providers play their proper role in delivering benefits to those who need their services. You are also highlighting the fact that good compliance can only be expected to happen if the basic ethical perspective of the firm is right.

This topic is especially pertinent at this time. As the financial system starts to recover from the shocks of recent years, established financial institutions are thinking about what their business should be in the years to come and others are looking to get into the market with novel products and services. Amongst other things, this thinking is influenced by continuing low yields on traditional products and the opportunity technology presents to do business in a different way. Compliance officers need to be in the room when these strategic discussions are taking place and their voice needs to be heard. You are the professionals at anticipating the risks of unethical behaviour. You understand the damage that can be done if this risk is not managed and you know what works to manage this risk, and what does not.

The very fact that financial services are regulated itself evidences a long-recognised reality that, while financial services provide important benefits, they also present risks that require a higher standard of ethical behaviour than a free market might otherwise dictate. History also shows the need for a public body to police compliance with these ethical standards across a range of prudential and conduct of business headings. This system of regulation is there to make sure that firms do in fact provide these important benefits to those who consume their services and that is what I want to focus on today: the ethic of ensuring that the best interests of consumers are protected; in short, the ethic of "Getting it Right for Consumers".

Our 5Cs Consumer Protection Framework

Recognising the link between ethical conduct and the provision of financial services of real value is at the heart of Central Bank's mission of "Safeguarding Stability - Protecting Consumers". This is the context within which we strive to deliver our consumer protection mission of "Getting it Right for Consumers" through our 5Cs Consumer Protection Framework.

Our 5Cs Consumer Protection Framework puts the CONSUMER at its centre; and this is our first 'C'. This means that, in everything we do, we start from the perspective of the risks and benefits to the consumer and we finish with the outcome for that consumer. To give us a structure for doing this, the other four Cs provide the pillars of how we do our work:

  • Culture – Promoting a consumer-focused ethos among ourselves, those we regulate and others
  • Challenge – to ourselves, those we regulate and others
  • Compliance – through effective supervision and credible deterrence and enforcement
  • Confidence – in financial services, products and regulations

Our Consumer Protection Outlook Report

In February, we published our first Consumer Protection Outlook Report. This report sets out our assessment of the key existing and emerging risks for consumers. We will look to firms to demonstrate to us that they have understood these risks in the context of their business and taken concrete steps to deal with them.

The report also lists some of the initiatives we will be taking to deal with those risks in the coming years. This includes:

  • ensuring that borrowers do not lose key protections when their loan is transferred to an unregulated entity;
  • enhancing protections for SME borrowers;
  • contributing to the development of a strong consumer protection framework at European level; and
  • challenging firms in our supervisory work and at authorisation stage to demonstrate delivery of meaningful consumer outcomes based on a better understanding of the needs, expectations and experiences of their customers.

We will continue to target how firms incentivise front line staff and ensuring that firms can demonstrate to us that they comply with the letter and spirit of the rules. Mortgage arrears will continue to be a focus for us as we complete our review of compliance with our Code of Conduct on Mortgage Arrears. We will also be extending our work into the areas of product oversight and governance, responsible lending and an increased focus on the suitability of the sale of long term products such as pensions and the sale of certain products on an execution-only basis. This work will be informed by our market intelligence, including data supplied by your firms, qualitative and quantitative data from other sources and our own research and that of others. We will place the core responsibility for internalising the letter and spirit of our requirements squarely with the board and chief executive.

These are the items we have prioritised. However, each of you face distinct individual challenges in your firms to enshrine an ethic of positive consumer outcomes. How does your firm demonstrate:

  • a customer- focused culture and behaviour amongst all its staff?
  • that customers are treated fairly, with dignity and respect?
  • that it is acting in its customers best interests from strategy to product governance to sales and customer service?
  • that conduct risks are identified to senior management and systemically mitigated?
  • that customers are informed and that your firm understands their needs and expectations?
  • a culture of constructive regulatory engagement from top and middle management?

I know these sorts of questions are in your minds as you look to navigate the wealth of written material that now exists on the consumer protection or conduct risk framework you should look to implement. However, the fundamental point remains to base the business proposition of the firm on real consumer needs and how best to deliver them from the consumer's perspective. Therefore what represents the right internal framework will depend on the business of your firm and its customers' needs and expectations. There is no off-the-shelf package or regulatory guidance that will deliver ethical conduct in your firm. Nevertheless, I thought it would be helpful to cite a few key features we consider essential to any consumer protection framework if it is to be effective.

Consumer Protection Frameworks in Firms

The responsibility of senior management

We expect all firms to develop internal consumer protection frameworks appropriate to their business based on the ethic of positive consumer outcomes. Our Consumer Protection Outlook Report therefore calls for firms to make the essential cultural shift to putting the consumer first and to demonstrate that this shift is deeply rooted and sustained throughout the organisation. This process of change has to start at the board and chief executive level with a strong leadership message that places positive consumer outcomes at the heart of the business proposition of the firm, backed up by a detailed programme of work to embed this in day-to-day practices. A signature feature of how embedded this is can be seen in how resolutely firms deal with unethical behaviour by staff. It is also seen in the extent to which firms act in a transparent manner that places the interests of the consumer at the heart of the issue. It is also evident in the nature of a firm’s engagement with the Central Bank, where the outcome for the consumer should also be central and demonstrated in the actions of the firm.

Compliance officers have a key role to play to support the senior management team and ensure that this is done in an ethical and professional manner, supported by the resources and network of the ACOI. The ACOI's strategic objective to create a 'Compliance Community' testifies to the potential of compliance officers' work in this field, as does the work of its Ethics Committee with whom I and colleagues at the Central Bank have sat down to discuss these issues.

But firms have to support their compliance officers too. This means continued investment in resources, including human resources, so that the compliance function can deliver on its mandate. It is surprising to read the statement in Deloitte's 2014 Compliance Survey that compliance resources in Ireland remain static at a time when, in the same survey, compliance officers cite managing upstream compliance and remediation projects as their top two challenges.

Knowing your customer

You cannot deliver a positive consumer outcome if you do not know what your customer needs and expects. Consumer research and testing is important here and at the Central Bank this will become an increasingly prominent aspect of our work and what we expect from firms. This is evidenced by our review last year of annual pension statements (where we included consumer testing in our assessment of firms' compliance with the Code), our co-funding of the PriceLab initiative to conduct a deep study of how consumers in Ireland make value choices and our involvement via the ESA Joint Committee in Europe-wide consumer research to inform the design and content of the KID for PRIIPs. We will do more such research this year and in the years ahead and we will look to see firms place consumer testing at the heart of their frameworks, especially when it comes to product design and delivery, so that your firm truly understands the needs and expectations of its customers.

Product oversight and governance

Having set positive consumer outcomes at the heart of the business proposition and with consumer testing as a regular feature, the next key component for the framework is a system of product oversight and governance with positive consumer outcomes at its heart. This means the business is aimed at designing and selling products that serve an identified consumer need, have been tested to see that they serve this need properly and are targeted at and sold to the people who need them. This also means that these products are explained and sold to the consumer in a manner that is fair and respects the best interests of the consumer, with documentation that is clear and post-sale monitoring to make sure the product is delivering as expected.

We are working with our European Supervisory Authority colleagues and other competent authorities across Europe to finalise European product oversight and governance standards. We will look to see these standards met by firms in the years ahead.

Staff training and incentives

How staff are onboarded and rewarded are key drivers of their behaviour. Again, these are areas where compliance officers play a crucial role, whether it is making sure that staff meet the Central Bank's Minimum Competency Code to checking that it is quality sales that are rewarded, not just quantity and short term gain (which all too often results in long term loss for the firm).

Firms can expect the Central Bank to target areas where we believe the incentives for staff have the capacity to impact adversely on consumers’ interests. I encourage firms therefore to get ahead of this issue in advance of forthcoming audits of compliance with our 2014 guidance on variable remuneration.

Firms need to look beyond financial incentives of course, to how staff are rewarded through promotions, performance reviews and matters as fundamental as their general behaviour and approach to their work. This is an area where compliance officers should play an increasingly influential role, together with their human resources colleagues, to define, internalise and reward good ethical behaviour that supports the long terms interests of the business.


It is a basic principle of regulation that firms cannot derogate from their obligations by contracting a third party to carry out activities on their behalf. It is disappointing therefore that we continue to see firms presenting the actions of their contractors as something outside their control or responsibility. A firm’s consumer protection framework must reach into its approach to outsourcing and the arrangements in place with its outsourcees. Proper terms and conditions must be in place, along with a programme of checking to make sure that the outsourced activity meets the firm's own standards (including its ethical standards).

This includes of course back-office outsourcing. It also means that we will look at how product producers engage with intermediaries, including monitoring complaints to those intermediaries about their products and making sure that the products are being sold to the correct target market.


Consumer protection frameworks should put substantial resources into monitoring key indicators that a product or service may not be performing as expected from the consumer's perspective and that properly designed staff reward structures actually have the effect intended. In the area of consumer complaints for example, how well firms monitor trends and conduct root cause analysis to fix the underlying issues will be a key indicator for us as to the effectiveness of their consumer protection framework. Of course, by the time a complaint is received it may be too late. So, we also expect firms to interrogate anomalies such as a spike in the sale of a particular product or unexpected returns that can indicate that business practices (or how they are being presented) may be diverging from what was intended.


It should go without saying that how a firm communicates with its consumers says a lot about its ethics and culture. However, we continue to see websites and other promotional materials that do not inform the consumer properly, terms and conditions that are difficult to understand or vague as to the rights and responsibilities of the parties and letters to customers that do not explain the position in simple terms that seek to fully inform the customer. It is important that a firm’s consumer protection framework is across these matters to make sure that the framework’s ethical foundation becomes embedded in how the firm communicates with its customers.

When things go wrong

We recognise that even with good intentions and a good framework in place, things can go wrong. We also recognise that spotting an emerging problem early is an indicator of an effective control system. And we recognise that, when things do go wrong, it is often the compliance officer who is sent forth to tell the Central Bank and handle the engagement with us.

How a firm deals with its customers in such situations says a lot about its ethics. First, it is important that firms tell customers what is happening and what will be done to resolve the issue in plain and simple terms, including when customers will next hear an update. Again, the approach must be to act in the consumer's best interests by a frank and full disclosure of the matter, coupled with a clear action plan that puts the right outcome for the consumer at the heart of the issue.


This is an opportune time for the ACOI to raise the profile of the ethics discussion, both in terms of what we require of firms but also in recognition of the ethical challenge that compliance officers can face in their firms. The Central Bank is challenging firms to place the best interests of the consumer at the heart of their business proposition. This means embedding it in clear systems and controls that assess consumers' needs, devising good products and selling them only to the right people with good information and sound advice when doing so. It also means acting swiftly and transparently when things go wrong and being transparent and fair in all actions and communications.

The ACOI is playing its part in developing the profession here in Ireland to help with this work. Firms must play their part too by resourcing their compliance function properly and making sure it is given prominence and authority in how that business proposition is defined and the consumer protection framework put in place to support it.

We will continue to implement our 5Cs Consumer Protection Framework and to hold firms to account in a forthright way where they fail to deliver to consumers the standards those consumers have paid for and have every right to expect. However, as we look to enhance this framework, we also want to hear from the compliance community where we can do better and how we can support those in industry who strive to provide better services.

I will conclude then by once again commending the ACOI for today's event and its earnest and professional work in this field. I encourage the ACOI and its members to lead the thinking in this area in their firms and wider industry and to hold both industry and the regulator to account to ensure that, together, we are indeed getting it right for consumers.