The Central Bank may limit certain types of commission earned on the sale of financial products such as life assurance and mortgages later this year, as part of a review of commission payments. However it's unlikely that the regulator will opt for an outright ban, as other countries such as the UK have adopted.
In the regulator’s Consumer Protection Outlook Report for 2016, published on Tuesday, the regulator said that brokers earning commission by “product producers”, such as insurance companies and investment firms, can create “ an inherent conflict of interest for the intermediary which can result in harm to consumers and undermine consumer confidence”.
There have been moves in other countries, such as the UK and the Netherlands, to implement an outright ban on commision on the sale of financial services products, but there has been a reluctance to go down this road in Ireland.
“We will be cautious about what steps we will take, as it can be difficult to unravel. We’re not looking at whether we’d ban commission or not,” Bernard Sheridan, director of consumer protection at the Central Bank, said.
However, a ban on commission payments continues to remain an issue at European level, due in part to regulations such as MiFid II and the Insurance Distribution Directive.
The Central Bank expects to publish a discussion paper on the topic by July, and may take action thereafter.
Investment
Also on the regulator’s agenda this year is a review of the sale of structured investment products, such as capital guaranteed and tracker bonds, to retail consumers. Against a background of low interest rates, which “may influence consumers to take increased risks to secure the returns they need to provide for their future”, Mr Sheridan said his sense is that the volume of sales of these products is on the rise, but consumers may not be fully aware of the risks they can pose. As such, the bank will carry out a full review of the market in terms of the products out there, the scale of the market, the performance of past products, and assessing whether or not consumers are aware of the additional risks. It expects to publish this by year-end.
Health insurance
The regulator is also set to publish a review on the sale of health insurance in the coming weeks, with a particular focus on renewal, as well as “product proliferation”, given that the number of plans currently on the market, from just four providers, runs into three figures.
“How are they serving customers’ interests by having all these products?” Mr Sheridan asked. While the Central Bank is understood not to have a specific legislative provision which would allow it to limit the number of plans insurance providers can offer, it will be a topic examined.
“ Due to the large number of variations in products available on the market, this will continue to be an area of focus for us,” the Central Bank said in the report.
Culture
Culture was also identified as an area of focus by the Central Bank, and it is looking for a “ cultural shift” in financial institutions, which will enable staff “to feel that they can serve their customers’ needs in a better and fairer way”.
Indeed changing the culture of financial institutions in terms of consumer protection remains “the biggest challenge” for Mr Sheridan.
The Central Bank will also continue with its tracker mortgage examination; roll out an enhanced authorisation model for assessing applications from firms, including credit servicing firms, retail intermediaries and payment institutions; and focus on smaller retail firms during 2016.
