Key to the functioning of the Central Bank of Ireland (the "Central Bank") is its role as gatekeeper for the consumer. In recent years, we have seen the Central Bank play a particularly active role in ensuring consumer interests are protected when Regulated Financial Service Providers ("RFSPs") have fallen foul of that obligation. It gradually became evident that the Central Bank believed, on the back of these interventions and the overall changes and evolution in the form and delivery of financial services, that the Consumer Protection Code (the "CPC") would need to be reviewed.
On 3 October 2022, the Central Bank released its plan for the review of the CPC (the "Review"). In this note we relay the high level details of the Review but focus primarily on the first component of the Review – "The Consumer Protection Code Review - Discussion Paper" (the "DP").
There are three phases to the Review which will take place between October 2022 and sometime in 2024.
Phase 1: The DP which has just been published. The DP is open to submissions until 31 March 2023. Feedback will to be provided in Q3 2023.
Phase 2: A Public Consultation Paper to be published in Q4 2023. This will set out the specifics of the proposed updates and improvements to the CPC, along with the necessary draft regulations. As with all consultation papers, the aim is to seek views from interested parties on the proposed changes.
Phase 3: Described by the Central Bank as the "Finalisation of a revised retail conduct framework", the updated CPC and supporting regulations will be published, along with a feedback statement clarifying the Central Bank's approach to the updated CPC. It is unclear at this point if anything additional will form part of the "revised retail conduct framework".
The DP is described in Governor Makhlouf's foreword as engagement which "will ultimately inform our detailed review of the Consumer Protection Code". Given this statement, all interested parties (consumers and RFSPs alike) should engage with the DP and the submissions process, to ensure their view point is considered. Unlike some other discussion papers which the Central Bank has previously published (most recently, DP8 Outsourcing - Findings and Issues for Discussion), there are little or no references to the specifics of the CPC or details of the Central Bank's proposal in respect of changes, with the exception of guidance on the principle of "Consumers' Best Interests" (which will be discussed below). In fact, the DP appears to have been drafted particularly with the consumer in mind, with large sections of the DP providing background information and significant contextualising of comments ,which would not usually be the approach taken. We believe that this is perhaps largely due to the desire to illicit consumer engagement. This approach is further evidenced in the wording of the questions posed, with many of them appearing to be more targeted at the consumer.
Section 1 – Consumer Protection: Framework and Landscape
Section 1 is written for the consumer and outlines the purpose of financial regulation and consumer protection. These concepts are explained through the use of a "Consumer Lifecycle" while outlining international best practice standards for consumer protection as set out by the Organisation for Economic Co-operation and Development (the "OECD"), the interactions between European Union ("EU") law and domestic legislation and the role of additional regulatory guidance provided by the Central Bank.
Section 2 – Securing Consumers' Best Interests
Section 2 introduces the Central Bank's two "Broad Themes" which it believes are "central to securing consumers' best interests". These are "Availability and Choice – Effective Market Functioning" and "Firms Acting in Consumers' Best Interests".
Availability and Choice – Effective Market Functioning
The first broad theme considers the impact of appropriate levels of product and service availability and choice on consumers. Within these parameters, the Central Bank looks at:
- the influence of a consumer's ability to switch RFSP with ease (with significant references made to the current withdrawal of KBC and Ulster Bank for the retail banking sector);
- ongoing changes in financial services;
- new delivery channels being used by RFSPs;
- the impact of regulation and competition; and
- more recently, the impact of innovation on financial services.
Three questions are then posed on the back of the scene setting above to assist the Central Bank in "understanding the interaction of regulation with effective market functioning and availability of choice". The questions posed, are phrased in such a way as to emphasise the desire for the consumer's view but not exclusively.
Firms Acting in Consumers' Best Interests
The second broad theme focuses on the need for firms to act in consumers' best interests. In this section the Central Bank reflects on the various interventions which it has had to introduce on the back of actions and behaviours which have fallen short of the required standards when it comes to consumers' best interests. The Central Bank acknowledges that " firms do not have to have exclusive regard to the interests of their consumers above all else….nonetheless, firms need to put consumer interests at the heart of all they do".
This messaging will not be new to RFSPs, this underpins RFSPs' day to day supervisory interactions with the Central Bank and has been to the fore front of many of the "interventions" which the Central Bank has taken such as the Report on the Behaviour and Culture Report of the Irish Retail Banks and more recently, in the adoption of the Business Interruption Insurance Supervisory Framework. In light of the foregoing, the Central Bank states that it "thinks that it might be helpful to 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".
The Central Bank asks whether interested parties are in agreement with this proposal and goes on to broadly outline what such guidance might look like. From the perspective of RFSPs, this is one of the key areas which they should consider responding to. It should be noted that the Central Bank would not be the only regulator to have made the decision to provide guidance on what constitutes acting in the consumers' best interests, however approaching it from the perspective of a standard applicable to all RFSPs, is more unusual.
Section 3 – Specific Discussion Themes
Section 3 considers eight additional discussion themes. The Central Bank indicates that they have chosen these themes based on the OECD's high level principles on consumer protection, changes in the financial services landscape and lessons from its recent interventions to address "widespread consumer detriment". The eight themes include:
- Innovation and Disruption;
- Unregulated Activities;
- Pricing Matters;
- Informing Effectively;
- Financial Literacy; and
- Climate Matters.
Each of these themes are considered from a high level perspective, setting out the Central Bank's observations and in some instances, skeleton proposals on actions which might be taken, followed by a number of questions. As with Broad Theme One above, the questions appear to be more targeted towards attaining the views of the consumer than RFSPs. However, this should not serve as a barrier to RFSPs engaging with the themes, as they pertain to their businesses. The Central Bank has made it clear that the responses which it receives will "inform our future policy considerations".
Additionally, the observations made in respect of each of the discussion themes provides a useful insight into the Central Bank's views on each topic, which RFSPs should note for the purposes of any interactions it is having with the Central Bank on elements of its business which might be involve such topics.
Additional references to be noted
Throughout the DP, the Central Bank makes references to a number of ongoing matters and areas of interest which it is currently addressing. RFSPs should take note of these, to the extent that they are relevant to their businesses. Such references include:
- In respect of the Government’s ongoing Retail Banking Review, the Central Bank observes that it would like to consider more broadly across all RFSPs, a number of topics being addressed as part of that review. For example: "In regulating financial services, we must consider whether the market properly serves consumers’ needs in terms of effective market functioning", "the availability and choice for consumers of all financial services" and a wider discussion on the "significant social policy challenges".
- As the Central Bank reviews the activities of payment account providers connected with the ongoing account migration from Ulster Bank and KBC, areas for enhancement that are identified will need to be addressed by firms and across the industry. Once the current migration process concludes, this may also inform a future review of the ‘Code of Conduct on the Switching of Payment Accounts with Payment Service Providers’- in order to ensure the regulation framework addresses any gaps which emerge from that migration process.
- The Central Bank plans to consult on proposed enhancements to its Innovation Hub in 2023 with any changes to be implemented over the course of our current strategic cycle;
- The Central Bank is currently looking at the ethical use of data in the various stages of the insurance lifecycle while considering the range of potential risks that may arise for consumers and possible mitigants to risks, via a project funded by the EU;
- The Central Bank has recently undertaken a study on how improved methods of disclosure can enhance outcomes for consumers. The Central Bank indicates in the DP that it will shortly be publishing the results of a behavioural experiment that shows how presentation of information can improve the take-up by mortgage holders of cheaper options available to them – on the back of this the Central Bank will introduce proposals for enhanced guidance.
RFSPs have until 31 March 2023 to respond to the questions posed in the DP through the online questionnaire. As explained above, while many of the questions appear to be drafted with the consumer in mind, RFSPs should not be deterred from outlining their position through a formal response. In particular, RFSPs should take note of the proposal made in respect of guidance on "Consumers' Best Interests" and outline any difficulties which it observes with the proposal.