What’s the rationale for the review?
The Code was developed by the CBI under section 117 of the Central Bank Act 1989 and other sectoral legislation and there has not been a substantive review of its provisions since 2012 (aside from a number of addendums). Since then there have been a number of consumer protection enforcement decisions issued by the CBI including, most notably, the tracker mortgage examination decisions, many of which were underpinned by the General Principles in the Code.
The financial services industry in Ireland has substantially changed since the previous Code review, driven, for example, by technology, innovation, an ageing population, climate change and a global pandemic.
What’s in the discussion paper?
The discussion paper is focussed on the theme of securing consumers’ best interests in the themes of availability and choice and firms acting in consumers’ best interests.
The former theme explores how efficient and effective markets can support availability and choice for consumers and focuses on:
The impact of change in retail financial services (including the withdrawal of a number of retail banks from Ireland, branch closures and the emergence of new entrants in spaces such as buy-now pay-later (BNPL));
New delivery channels;
Regulation and competition; and
Regulation and innovation.
The latter theme explores how firms operating within an effective financial services market must appropriately balance their shareholders’ interests with the interests of their customers.
The discussion paper suggests that the CBI may develop guidance on what it means (and does not mean) for a firm to act in the best interests of its customers and potential customers. In assisting in its development of such guidance, the CBI calls out a number of broad themes, including:
- Firms need to satisfy themselves that their actions further the interests of their customers, not simply comply with the rules;
- This means firms should focus on the outcomes for customers and whether those outcomes are what would be expected where firms are acting in the customers’ best interests;
- In deciding what it means to ‘act in the best interests of customers’, a key determinant is the legitimate expectations of those customers;
- The firm must maintain an appropriate balance between the interests of shareholders and the interests of customers;
- Asymmetries (of resource, information and expertise) must be identified and recognised, and deployed to the benefit of customers;
- A high level of contractual clarity must be provided to customers. Where material ambiguity arises, this must be interpreted in favour of customers;
- Firms must not take undue advantage of customer behaviour or habits to the benefit of the firm and/or at the cost of the customer; and
- Where failures or weaknesses are identified in the treatment of one customer or a group of customers, an impact assessment should be undertaken so that issues are addressed for all customers in a similar position.
Regulated firms dealing with consumers should not wait until the finalisation of the proposed guidance but rather should consider their existing dealings and documentation with consumers in light of the above themes. One also wonders how close the final guidance will be to the UK Financial Conduct Authority's Consumer Duty, which requires firms to act to deliver good outcomes for retail customers.
Other topics raised by the discussion paper are centred around the themes of:
- Innovation and disruption;
- Unregulated activities;
- Informing effectively;
- Financial literacy; and
- Climate matters.
The deadline for feedback on the discussion paper is 5.00pm on Friday 31 March 2023.
The CBI intends to publish a summary of the feedback in Q2 2023.
The public consultation phase will see the publication of a consultation paper setting out specific proposals on how the Code should be updated and improved. This will be accompanied by draft regulations. It is likely that the revised Code will be issued as a new set of regulations under section 48 of the Central Bank (Supervision and Enforcement) Act 2013.
Authored by Eimear O’Brien and Bill Laffan