Financial Services Regulation
In the Spring Horizon Tracker we discussed the introduction of the regulatory regime on crowdfunding in Ireland and focused on the move from an unregulated environment to a regulated one for impacted firms.
In a period of only a few weeks, we have seen further business areas also become subject to regulation by the Central Bank through the enactment of the Consumer Protection (Regulation of Credit and Credit Servicing Firms) Act 2022. These developments speak to the identified need for better protection for consumers in financial services. Bringing previously unregulated firms within the scope of the regulated environment has become a key method of ensuring such protection.
However, the move from unregulated to regulated does not automatically ensure better protection for consumers, which is why the reiteration of consumer protection obligations and the monitoring of compliance with such obligations remains a key strategic priority for the Central Bank. In this space, we have in recent weeks seen further communications from the Central Bank regarding its consumer protection expectations in the context of the changing retail banking landscape, along with additional clarifications made to Pre-approval Controlled Functions ("PCFs") classifications.
We consider the above developments under a number of headings in the following sections, along with the current state of play of the proposed Central Bank (Individual Accountability Framework) Bill which also has consumer protection at its core.
Key Themes in Financial Services Regulation
The Consumer Protection (Regulation of Credit and Credit Servicing Firms) Act 2022 (“CP Act”) requires the providers of hire purchase and hire agreements to consumers to be authorised by the Central Bank as Retail Credit Firms where these providers are not otherwise authorised by the Central Bank to provide credit, or authorised as a Credit Institution in the EEA. This includes providers of indirect credit to consumers, for example, providers of buy-now-pay-later agreements. The CP Act also extends the scope of credit servicing to hire-purchase and consumer-hire agreements, which means that persons holding title to, or otherwise servicing, such agreements would also require a Central Bank licence.
For many firms which provide these services, the requirements imposed by the CP Act will require root and branch operational and procedural changes to how they conduct their business, all of which will need to be considered in tandem with seeking authorisation as a Retail Credit Firm or a Credit Servicing Firm, whichever is relevant. Firms carrying out these newly in scope activities are now also required to comply with the Central Bank's Consumer Protection Code ("CPC"), Minimum Competency Code ("MCC") and Minimum Competency Regulations ("MCR").
For a full consideration of what this entails, read our insight on the Central Bank Notice of Intention regarding upcoming changes following enactment of the Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Bill 2021
While transitional arrangements are in place, they extend for a short three month period only (until 16 August 2022), by which time, firms that are impacted by this legislation must apply to the Central Bank for the necessary authorisation. As the preparation of an authorisation application itself can alone take this length of time, relevant firms should notify the Central Bank of their pending application without delay. Additionally, compliance with the Central Bank’s CPC is also required by 16 August 2022. While, lengthy transitional arrangements are in place for newly in-scope firms to comply with the requirements of the MCC (up to 16 May 2026), it is important to note that the Central Bank expects firms and individuals to meet the necessary minimum standards at the earliest possible opportunity from the date of commencement of the CP Act (16 May 2022).
“The passing of this Act by the Oireachtas, and now its commencement, is an important development as it will permit the Central Bank to apply its Consumer Protection Code to the providers of a wider range of credit and hire purchase type agreements to consumers. This will significantly improve the level of protection available to the consumers of such agreements”.
Minister for Finance, 23 May 2022.
In the Spring Horizon Tracker we advised that the Joint Committee on Finance, Public Expenditure and Reform and An Taoiseach (“Joint Committee”), which conducted the pre-legislative scrutiny (“PLS”) of the General Scheme of the Central Bank (Individual Accountability Framework) Bill 2021 (“IAF Bill”), was due to finalise its report. This report has now been published and while it runs to some 68 pages, it makes only four recommendations, none of which will fundamentally alter the corner stones of the proposed legislation.
In the normal course, the text of the finalised IAF Bill would be expected to follow publication of the PLS report but we have yet to have sight of it, despite suggestions that the IAF Bill would be published in May. However, an issue has arisen which may have an impact on the timeline for its publication. That is the adaptation of the IAF Bill to reflect the outcome of the Supreme Court decision in Zalewski v Adjudication Officer and Others. In this decision, the Supreme Court held that elements of the operations of the Workplace Relations Commission were unconstitutional.
As a result of the judgment and the subsequent examination of ‘administrative bodies’ with adjudicatory powers by the Attorney General’s Office, we understand that the Central Bank’s powers could be impacted. We would expect that any amendment necessitated to the Central Bank’s powers would be reflected by an amendment to Part III C of the Central Bank Act 1942 (as amended) which deals with the Administrative Sanctions Process. However, the Minister for Finance recently explained that the IAF Bill itself has also had to be extensively adapted to take account of the decision but until the IAF Bill is published we have no clear indication of what those adaptations are. We await further clarification on this point.
Read More Links:
- Individual Accountability Framework and SEAR: Observations from Pre-Legislative Scrutiny
- SEAR: One Step Closer
- The Central Bank establishes an Inquiry into a person formerly concerned in the management of a Regulated Financial Services Provider
- Joint Committee on Finance, Public Expenditure and Reform and Taoiseach Report on Pre-Legislative Scrutiny of the General Scheme of the Central Bank (Individual Accountability Framework) Bill 2021
- Supreme Court decision in Zalewski v Adjudication Officer and Others
In light of the scheduled exits of Ulster Bank and KBC from the Irish retail banking market, the Central Bank identified as one of its regulatory priorities for 2022, the need for retail banks to ensure a customer-centric approach to protect customers’ interests. In April and May 2022, the Central Bank took two additional steps on this front. The first was the issuing of a Dear CEO letter to the large Irish retail banks in which it identified five core issues of which it expects firms to be aware, in order to “protect consumers amid the profound structural changes taking place in the retail banking landscape.”
The second step taken by the Central Bank was the hosting of a roundtable meeting to discuss the contents of the Dear CEO letter and an earlier letter issued in June 2021 in which the Central Bank had set out its expectations of relevant firms, following the initial announcements of Ulster Bank and KBC respectively. In a press release following the roundtable meeting, the Central Bank described the meeting as “constructive” but explained that additional efforts are needed in a number of areas. Once again, the need to protect the consumer underpinned these additional efforts. Impacted firms should, without delay, take the necessary steps towards meeting these additional requirements and take particular note of the Central Bank’s statement that it intends to repeat its review of call wait times on customer support phone lines in the main retail banks in Q2 2022.
"We acknowledge the work undertaken to date by the banks and the continued efforts of staff to support customers in challenging circumstances. It is clear that a lot of work is being done. But we must also accept that the customers affected by these issues did not ask to be in this situation. They have rights which must be protected and expectations built up through their relationships and interactions with the banking system that must continue to be met as this exercise proceeds"
Derville Rowland, Director General, Financial Conduct at the Central Bank of Ireland.
Read More Links
- Consumer Protection expectations in a changing retail banking landscape 2021
- Central Bank reinforces consumer protection expectations in context of changing retail banking landscape
- Statement – Retail Bank CEO Roundtable