Address by Head of Consumer Protection Colm Kincaid to the the Institute of Banking's Certified Bank Director Continuing Professional Development Seminar

06 May 2014 Speech

Ladies and Gentlemen,

It is my pleasure to be here today to speak on the topic of consumer protection and I am grateful to the Institute of Banking for this opportunity to do so.

The Central Bank’s mission of ‘Safeguarding Stability, Protecting Consumers’ places the interests of the consumer at the heart of our work, and I am delighted therefore to see the Institute of Banking taking the initiative to include the topic of consumer protection in its programme of continuous professional development for certified directors. There is a renewed recognition of the importance of a customer-centric focus to the provision of services and I know that several of your institutions are taking steps in this regard through the establishment of committees, appointment of specific management roles and product simplification and post-product implementation reviews.

I have worked on both sides of the regulator/industry interface, practising in the City of London as a legal adviser to regulated entities from around the globe and also in Dublin, before moving to the Central Bank of Ireland's Legal Division and then, last year, to take up my current Consumer Protection role. Throughout, I have been struck by the extent to which firms are called upon to make judgements about the application of a given rule to a given set of circumstances and the fact that financial services regulation cannot prescribe detailed steps for every circumstance, nor should it try to do so. I have also seen how the particular judgment made can have profound implications for a firm’s customers and the responsibility that directors bear in that regard.

Such judgment calls are not always easy to make, nor is it always easy to see the seeds of future consumer harm at the time they are being sown. It can be even harder to press your own judgment against the views of others, especially where the short term incentives support a particular proposal or practice. Nevertheless, the role of directors and senior managers is to do just that and the role of financial services legislation is to prescribe the framework within which you must do so, supervised by the Central Bank as regulator. The purpose of my talk today therefore is to share with you a structure to assist in making these judgments and to flag for you a few of the Central Bank’s consumer protection priorities for banks. I hope this will help make sure that your approach to what can sometimes appear to be dry technical rules is properly oriented to the public interest that lies behind these rules: namely, to provide for a stable and transparent financial system where firms and consumers can operate with confidence and are treated fairly.

Ensuring Consumers’ Best Interests are Protected

When it comes to understanding rules, I always start at the beginning and ask myself why was the rule introduced in the first place? In the case of the Central Bank, the beginning is the Central Bank Act 1942. Section 6A of that Act describes the Central Bank’s regulatory objective as being “the proper and effective regulation of financial service providers and markets, while ensuring that the best interests of consumers of financial services are protected”. This Act of the Oireachtas places the protection of consumers’ best interests at the heart of the Central Bank’s mandate in supervising the array of domestic and EU rules that fall within our remit, and all those rules must therefore be interpreted against the objective of ensuring that the best interests of consumers are protected.

Put simply, the correct interpretation of Irish financial services legislation is the one that ensures that the best interests of consumers are protected.

This placement of the protection of consumers’ best interests at the heart of the regulatory framework is no more than is mandated by international benchmarks such as the G20 High Level Principles on Financial Consumer Protection. The G20 principles include that financial consumer protection should be an integral part of a jurisdiction’s legal, regulatory and supervisory framework along with having oversight bodies explicitly responsible for financial consumer protection, with the necessary authority to fulfil their mandates.

The 1942 Act draws no distinction between ‘prudential regulation’ or ‘consumer protection’ in this regard, and the principles of consumer protection we are discussing here today are as integral to the consideration of the prudential component of the regulatory framework as any other. The recent global banking crisis and its ongoing fallout show just how prudential instability can directly affect consumers’ best interests. It also shows the extent to which a prudent interpretation of the rulebook can form the bedrock to sustainable success.

The Central Bank’s 5Cs Consumer Protection Framework

At the Central Bank, we have developed a 5Cs Framework to support our mission to safeguard stability and protect consumers:

Consumer – is at the heart of the Central Bank’s focus;

Confidence – working to help consumers have confidence in financial services, products and regulation;

Compliance – monitoring and enforcing compliance with consumer protection rules;

– being prepared to challenge firms and ourselves to get a better outcome for consumers; and

Culture – promoting a consumer-focussed approach to the provision of financial services.

This was framed with our role as regulator in mind. However, it can also help you in your role by providing a reference point to gauge whether your institution is indeed making the judgments that ensure that the best interests of consumers are protected. To assist in this, I want to say a little about how this framework informs our strategic priorities at the Central Bank and I hope this will help you in couching your own strategic thinking within our 5Cs Framework.

Enhancing the Regulatory Framework

One strategic priority for the Central Bank has been the enhancement of the regulatory framework, both at a domestic and an EU level and we place consumers’ best interests and our 5Cs at the heart of this work.

In Europe, we have identified the consumer protection initiatives of the Mortgage Credit Directive, Payment Accounts Directive and Regulation on Key Information Documents for Packaged Retail and Insurance Based Products (PRIIPs) as priorities which we will continue to support at European Supervisory Authority and national implementation level. At a wider international level, we played a leading role in the recent foundation of FinCoNet as a new international organisation of financial consumer protection supervisors, chaired by the Central Bank’s Director of Consumer Protection, Bernard Sheridan.

At a domestic level, we have worked hard to devise and implement a series of consumer protection codes which provide a high degree of protection to the consumer when dealing with financial service providers, such as the Consumer Protection Code, Code of Conduct on Mortgage Arrears and the Switching Code. We witness how developed our regime is in this regard in our engagements at an EU and international level, where we typically have a lot to add in terms of our rulebook (and our interventions to enforce it).

In recent years our domestic focus has turned more particularly to enhancing our supervisory and enforcement powers, building on reforms such as the introduction of the Administrative Sanctions Regime. The introduction in the Central Bank Reform Act 2010 of a statutory fitness and probity regime reinforced our standards for senior staff behaviour and culture and our regime of minimum competency for staff dealing with consumers. More recently, the Central Bank (Supervision and Enforcement) Act 2013 has given the Central Bank robust cross sectoral powers to demand information, require third party reviews and issue directions. It has also given us the explicit power to direct redress in cases of widespread or regular defaults ranging from breaches of financial service legislation to providing consumers with inaccurate information or selling them unsuitable products. In the case of our powers of direction and redress under this Act, we now also have the explicit power to publish these directions where appropriate. This theme of transparency to consumers and clear powers to intervene to protect their interests and secure redress is a reflection of the impact of our 5Cs Framework. Our new powers of direction under section 45 of the 2013 Act, for example, now include the explicit power to act where a regulated financial service provider or one of its related undertakings is conducting business in such a manner as to jeopardise or prejudice the rights and interests of customers.

Mortgage Arrears

The Code of Conduct on Mortgage Arrears (CCMA) is an especially important part of our framework in the current environment and we placed considerable importance on the implementation of the revised Code over the course of the second half of last year. You will know that we required sign off on this implementation at board level and we will continue to look to the boards of banks to scrutinise their institution’s adherence to this Code. In the CCMA, the Central Bank has prescribed a framework that reflects best practice in arrears management and steers the course between the rights and responsibilities of both parties in a way that is fair, transparent and focused on long term solutions. Its basic principles are clear, as are the steps it requires regulated lenders to take, and I hope the 5Cs I have listed above will help you in reinforcing in your institutions the standards set by this Code.

Small and Medium Sized Enterprises

We have heard this morning of the importance of credit to SMEs and the crucial role that sector will play in the recovery of our economy. For the Central Bank’s part, in addition to the work we have done to date in pressing banks to deal with SME arrears, this year we commence a review of another important pillar of our consumer protection framework in the current environment: the Code of Conduct on Lending to Small and Medium Sized Enterprises. Our review will be focussed on ensuring that the regulatory framework in the Code is doing all it can to:

  • Facilitate access to credit for sustainable and productive business propositions;
  • Promote fairness and transparency in the treatment of SMEs by regulated entities; and
  • Ensure that when dealing with financial difficulties cases, the aim of a regulated entity will be to assist borrowers to meet their obligations, or otherwise deal with the situation in an orderly and appropriate manner.
Ensuring Consumers are Treated Fairly

Ensuring that consumers are treated fairly is another of our strategic priorities that is informed by our 5Cs Framework. I mentioned our new redress powers already and many of your institutions will have been involved in our recent review of the sale of payment protection insurance policies.

The Central Bank will intervene where necessary to ensure that consumers are treated fairly. However, first and foremost, firms and their management bear the responsibility to be proactive in ensuring consumers are treated fairly by ensuring that proper treatment of consumers is incentivised from the outset in remuneration practices and at the stage of developing products and deciding how to distribute them. Our role as regulator here is to help to provide structure to this and to intervene where necessary. At a European level, for example, we contributed to and supported the recent Joint Position of the European Supervisory Authorities on Product Oversight and Governance Processes and we will shortly be publishing the findings of our recent review of sales incentives in banks, insurance undertakings and investment firms. Our findings will include guidelines for your institutions in the area of sales incentives, building on the work of the European Securities and Markets Authority in the area of securities and our own review of industry practices across the sectors. This matter of product design and targeting and the incentives that drive behaviour within firms is one where you have a special role to play in ensuring that the best interests of consumers are protected and where I believe the application of the 5Cs Framework in your business strategy is especially appropriate.

How firms deal with complaints also says a lot about a firm’s attitude to treating its customers fairly and this will be an increasing focus in our supervisory work.

Stakeholder Engagement

Stakeholder engagement is part and parcel of how we do our work and I would like to take this opportunity to make some points on how best to engage with us on the matter of regulation and consumer protection. It is legitimate for a firm to bring to a regulator’s attention that a proposal will impact on the firm’s practices or require the alteration of a firm’s individual systems and processes and we will consider in detail every representation we receive. Regulation carries with it a cost, and this is recognised. However, I hope it will be evident from today's presentation that the representations that will best persuade us are those that are couched in terms of our statutory mandate, including our objective to ensure that the best interests of consumers are protected. Again, the 5Cs I have listed above provide a framework for you to do so.


I hope this has provided you with both an insight into our perspective on your consumer protection responsibilities as managers of financial service providers and our role in that regard, as well as equipping you with our 5Cs Framework to provide a useful structure by which to benchmark your thinking and your bank’s performance.

The links between consumer protection and sustainable profitability and, indeed, the stability of the financial system as a whole are there for everyone to see in the financial crisis of recent years and its continuing fallout. No person managing a financial institution would wish to make those mistakes again. I hope our 5Cs Framework of placing the consumer at the centre of your thinking, together with compliance, challenge, confidence and (perhaps most importantly) culture will provide you with a structure within which to form your thinking on this subject and navigate the code of financial services regulation and your own personal responsibilities under that code.

But more than that, the 5Cs are a framework to drive a culture of high performance. Steve Jobs said:

Our DNA is as a consumer company – for that individual customer who’s voting thumbs up or thumbs down. That’s who we think about. And we think that our job is to take responsibility for the complete user experience. And if it’s not up to par, it’s our fault, plain and simply.”

And his company did quite well.

Your session today is about continuous professional development and the task of ensuring the best interests of consumers are protected is also one of continuous improvement. As we at the Central Bank face up to our challenging agenda, we will continue to reach out to stakeholders through forums such as today, our engagement with consumer bodies and our Consumer Advisory Group, as well as wider public consultation exercises. I look forward therefore to hearing your views on these topics and I encourage you all to embrace these consumer principles within your businesses.

I would like to thank the Institute of Banking once more for the opportunity to speak to you today, and to thank each of you for your attention.