The Irish Bankers' Federation (IBF) has warned that a proposal from the financial regulator that banks inform the regulator of all errors made in dealings with customers could cause the banks serious legal problems.
In a submission to the Irish Financial Services Regulatory Authority (Ifsra) on its proposed consumer protection code, the IBF argues that the disclosure requirements could force members to incriminate themselves.
Ifsra is proposing that the banks and other financial services providers inform it of all errors or issues that negatively affect customers as soon as they become aware of them. It follows last year's revelation that AIB had overcharged foreign exchange customers by as much as €25 million because it had mistakenly applied the wrong rate to non-cash transactions.
Breaches of the code could lead to administrative sanctions such as fines and public naming and shaming.
The IBF response to the regulator's proposals states that the code, "in its interaction with the administrative sanctions regime, creates a serious legal problem for members in the area of self-incrimination".
"The code requires banks to inform the regulator of any error, however minor, as soon as they become aware of them. At the same time, the act of doing this exposes the bank to the sanctions regime. This is contradictory if the objective of immediate disclosure is to encourage a transparent and open regulatory regime."
The IBF submission is one of a number made to the regulator in response to its call for feedback on the draft code. Ifsra is opting for a principles- rather than rules-based system.
The financial services industry and its representative bodies favour the principles-based approach, which will be married with the administrative sanctions system.
However, the IBF submission argues that the code is not principles-based and describes it as a "prescriptive and constraining" set of rules that fails to meet its objective, which is to provide consumers with transparent and competitive financial services.
A number of the bodies also complain in their submissions that there is no assessment of the cost of implementing the code. The IBF criticises the fact that there is no cost/benefit analysis.
The Irish Insurance Federation (IIF) says that it fears the code will add new regulations as well as unifying existing rules that do not necessarily benefit consumers. It also argues that it goes beyond the principles-based approach.
"Insurers are concerned about the level of prescriptive detail in a number of sections of the code, specifically, but not exclusively, advertising, the complaints procedure and the claims procedure," it states.
Ifsra has also suggested regulating credit unions in the draft code. However, the Irish League of Credit Unions, the largest representative body in that sector, is opposed to being regulated in the same way as banks, insurers and investment advisers.
It claims that Ifsra has not properly assessed the impact of its proposals on credit unions and did not involve their current regulator, the Registrar of Credit Unions, in the process.
The Competition Authority's submission argues that, as credit unions vary widely in size and levels of service, it might not be appropriate to apply the same regulations to all of them.
