Brokers Ireland Members Winter CPD Seminar 2 nd 4 th December 2019 - - PowerPoint PPT Presentation

Brokers Ireland

Members Winter CPD Seminar 2nd – 4th December 2019

Compliance Update

Elizabeth Smith Wright

Items Covered

• CP response to CP 116
• Key points from CB intermediary roadshow

➢ Assessing the Financial Soundness of Insurers ➢ Unregulated products ➢ Inspections ➢ Funding Levy

• Review of the CPC

CB Response to CP116

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What is proceeding: ➢ The ban on using the term independent or a similar term in your name / description of service where you take commission. ➢ A list of all your commissions across all providers you deal with is to be made available to your consumers in your office /on your website and bring it to the attention of your

• consumer. Originally CP116 proposed that this “commission summary document” be

given to all your consumers. ➢ Hospitality benefits from providers such as golf trips and sporting event tickets will be banned.

CB Response to CP116

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What is proceeding cont.: ➢ The ban on overrides linked to volume and retention. In relation to profit-based overrides/profit share, the Central Bank have advised they are permissible once:

• The Broker is able to demonstrate that the arrangement is in the best interest of the

consumer and

• Brokers/MGAs must avoid conflicts of interest relating to targets that do not consider a

consumer’s best interests

Addendum to the CPC 2012 (September 2019)

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Changes : Use of the term Independent An intermediary may use the description “independent” or use any other word or expression that is a derivative of, or similar to this term – a) in its legal name, trading name or any other description of the intermediary, only where regulated activities provided by the intermediary are all provided on the basis of a fair analysis of the market; or a) in any description of a regulated activity provided by the intermediary, only where that regulated activity is provided on the basis of a fair analysis of the market, and, only where the intermediary does not accept and retain any fee, commission,

• ther reward or remuneration where advice is provided in respect of regulated

activities provided by the intermediary, other than -

Addendum to the CPC 2012 (September 2019)

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Changes : Use of the term Independent i) a minor non-monetary benefit* that includes, for example, attendance at a conference within the State, IT software or platforms, or hospitality of a reasonable de minimis value such as food and drink during a business meeting or conference; and ii) a fee paid by a consumer, or a person acting on behalf of a consumer to whom the advice is provided. *Minor non-monetary Benefit - means such minor non-monetary benefit that is capable of enhancing the quality of the service provided to a consumer and is of a scale and nature such that it could not be judged to impair compliance with a regulated entity’s duty to act in the best interest of the consumer.

Addendum to the CPC 2012 (September 2019)

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Changes : Information about Remuneration An intermediary must make available in its public offices/ website, a summary of the details of all arrangements for any fee, commission, other reward or remuneration paid or provided to the intermediary which it has agreed with product producers. Where an intermediary operates a website, it must publish the summary on its website. The summary must include a minimum of the following: a) an indication of the agreed amount or percentage of any fee, commission, other reward or remuneration where the payment is made to the intermediary on this basis; b) an explanation of the arrangement including details on the type of fee, commission,

• ther reward or remuneration paid or provided to the intermediary, for example, sales

commission or trail commission, and details affecting the fee, commission, other reward or remuneration paid or provided to the intermediary, for example, clawback provisions;

Addendum to the CPC 2012 (September 2019)

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Changes : Information about Remuneration c) details of any other agreed fees, administrative costs, or non-monetary benefits under such arrangements, including any benefits, which are not related to the intermediary’s individual sales. An intermediary must bring this information to the attention of the consumer, and provide any clarification of the information if requested by the consumer, before concluding a contract for a financial product or service. An intermediary must retain records demonstrating that it has complied with this requirement.

Addendum to the CPC 2012 (September 2019)

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Changes : Information about Remuneration

• A key area of focus for Brokers Ireland since the publication of the ‘Addendum’.
• Brokers Ireland have met with the Central Bank on this issue in October and will

continue to engage with them over the coming weeks to try reach a solution for members.

• We are also engaging with other stakeholders (such as Product providers/CRM

providers) in relation to the requirements.

• Brokers Ireland working on guidance document for issue to members – implementation

date of the 31st of March 2020.

CB Response to CP116

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• On the issues of :

➢ Abolition of mortgage commission linked to the loan amount ➢ Restriction on advising on products from a range where there is a difference in commission rates for the range of products involved The Central Bank has indicated that they will carry out further research on these proposals as part of their upcoming review of the Consumer Protection Code in 2019/20

CB Response to CP116

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At recent CB intermediary roadshow reference was made to 1st proposal in relation to mortgage commission CB indicated:

• As commission amount is higher for higher loan amounts, CB view that this is an

automatic conflict of interest.

• “Anecdotal” evidence that consumers are being “pushed/encouraged” to take higher

loan amounts.

• CB going to undertake research as part of the overall CPC review and will look at the

following points: ➢ Looking at first time buyer cases – a survey to be sent to a selection of First Time Buyers. ➢ Difference between going direct to Lender versus going through a Broker.

CB Response to CP116

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• BI highlighted concerns to CB in relation to this proposal at meeting on 14th of Oct.
• Central Bank have committed that Brokers Ireland will be involved in the research piece.
• Key focus for Brokers Ireland in the coming year.

Key points from CB recent Intermediary Roadshows

Assessing the Financial Soundness of Insurers

• Over the past 6 months, Brokers Ireland has had considerable engagement with the

Central Bank on the issue of Broker responsibilities in assessing the Financial Soundness

• f Insurers.
• The following slide was presented by the Central Bank in relation to assessing the

Financial Soundness of Insurers at the recent intermediary roadshows

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Key points from CB recent Intermediary Roadshows

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Key points from CB recent Intermediary Roadshows

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Assessing the Financial Soundness of Insurers CB Comments:

• The points outlined on the slide come under the Consumer Protection Code’s broad

principles of acting in the client’s best interest.

• These are not regulations – but an “expectation”, which is different than a
• requirement. CBI did indicate that they at inspection they would expect that due

diligence (proportionate to the nature and scale of the brokerage) was carried out.

• Outline that the CBI acknowledged that they have a responsibility for the supervision of

domestic insurers and have “full sight” of them.

Key points from CB recent Intermediary Roadshows

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Assessing the Financial Soundness of Insurers CB Comments: Confirm CB indicated that majority of retail Brokers could meet expectations with a single page demonstrating due diligence was carried out (Brokers Ireland developing a template) All brokers need to look at the following points, as they falls under the scope of the provision of the CPC to act in the best interest of client:

• Company Profile
• Financial Rating
• Insurers Solvency & Financial Condition Report
• Experience and expertise of the insurer in the market - CB have not come up with

a prescribed script for how to assess this.

• Regulatory action

Key points from CB recent Intermediary Roadshows

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Assessing the Financial Soundness of Insurers CB Comments: Additional expectations for MGAs

• Protections available for Policyholders,
• Third party independent review and
• Contingency plan if the insurer fails or exits the market.

Where retail Brokers conduct business through MGA they can accept/rely on the due diligence carried out by the MGA once the Broker confirms this due diligence with MGA. In relation to the third party review expectation for MGA’s, it was acknowledged that the CBI cannot impose this requirement on MGAs and they would take into account the financial capacity of the MGA to get a third party review. The CBI will look at this on a case-by-case basis. In the absence of third party report, the MGA will have to be able to demonstrate that they assessed financial soundness.

Key points from CB recent Intermediary Roadshows

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Unregulated Products

• Central Bank highlighted their concerns about the sale of unregulated products by

regulated firms. ➢ Firms must ensure disclosure line is not on any communication relating to unregulated products and; ➢ Include a warning that the products are not covered by consumer protection or investor compensation schemes.

Key points from CB recent Intermediary Roadshows

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Inspections

• More resources are being allocated to carry out more “intrusive” supervision
• Targeted firm inspections/Thematic Inspections
• Red flags - Information gained through the annual return/late response to CB requests

for information/complaint referrals from FSPO.

• Current inspections focus on:

➢ Sale of Bonds written as loan notes as they feel they are very complicated and they have concerns about Brokers and subsequently the consumers understanding

• f such products.

➢ Information received via the ONR system

Key points from CB recent Intermediary Roadshows

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Funding Levy

• Central Bank moving to an arrears method of collecting the levy which will be in respect
• f the actual budget rather than estimated budget which it has been to date.
• No levy notices will be issued in 2019 - issued in early quarter 3 in 2020. (members should

account for the levy in 2019 accounts)

• Committed to moving to 100% funding by 2023.

70% - 2019 (levy noticed issued 2020) 75% -2020 (levy noticed issued 2021) 80% - 2021 (levy noticed issued 2022) 90% - 2022 (levy noticed issued 2023) 100% 2023 (levy noticed issued 2024)

• Banks will have moved to 100% funding by 2020. Slower rate for intermediaries to

acknowledge the feedback that CB have received from Brokers Ireland.

Key points from CB recent Intermediary Roadshows

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Professional Indemnity levels

• Last June, the European Commission adopted a Delegated Regulation amending the IDD

with regard to regulatory technical standards adapting the base euro amounts for professional indemnity insurance and for financial capacity of insurance and reinsurance intermediaries.

• Act is not yet in force – publication due late 2019/20.
• Application 6 months after publication.

❖ the minimum amount of EUR 1 250 000 per claim will increase to EUR 1 300 380 per claim; ❖ the minimum amount of EUR 1 850 000 for all claims/year will increased to EUR 1 924 560 for all claims/year;

• BI will update members in due course.

Key points from CB recent Intermediary Roadshows

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Review of the CPC

• CB are now taking the opportunity to carry out a review of the Consumer Protection

Code, to consolidate the addenda, and to take a look at what the Code offers for industry and consumers alike, in an ever-changing consumer environment.

• Brokers Ireland met with the Central Bank on the 25th of November.
• The 2012 Code and Addendums will be consolidated into one document and will be

available on the CB website by March 2020.

• CB advised that the Code is undergoing review and it is foreseen that the public

consultation process will start early 2021.

Key points from CB recent Intermediary Roadshows

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Review of the CPC

• One size fits all” approach is not appropriate
• Dual Pricing/Vulnerable consumer
• Consumer Information overload
• BI raised the issue of commission linked to mortgages - CB noted this and advised

“absolutely” they will make sure this happen.

Key points from CB recent Intermediary Roadshows

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Review of the CPC

• The Central Bank will publicly consult on all proposed changes to the Code in due

course.

• Brokers Ireland will highlight when the consultation is available and welcome feedback

for the inclusion in submission… compliance@brokersireland.ie

Any Questions?