On 29 July 2002, the Minister for Finance issued a public consultation document on the Central Bank and Financial Services Authority of Ireland (No. 2) Bill inviting comments on proposals for legislation dealing with: 

·        Establishment of a statutory Financial Services Ombudsman;

·        Establishment of Consumer and Industry Consultative Panels to advise IFSRA;

·        Regulation of non-consumer money lending;

·        Licensing of certain mortgage lenders;

·        Corporate governance and auditing of financial institutions;

·        Authorisation of bank mergers and acquisitions;

·        Provision of information to enforcement agencies;

·        Amendments to Insurance Legislation. 

The public consultation period ended on 20 September 2002 with the Department receiving 37 submissions. This paper attempts to summarise the main points arising from the various submissions under each of the headings listed above. All submissions are still available on the Department of Finance website at: 

http://www.finance.gov.ie/publications/legi/cbfsaiindex.htm 

The Department is now considering these comments in detail in the context of the draft Heads as published on our web site. This process may require us to make contact with some of the contributors with a view to finalising the Heads for publication.  

If you have any queries, please contact the undersigned by e-mail to CBFSAIconsult@finance.gov.ie or by phone at (01) 6045571. 

Dave Salter

IFSRA Legislation Unit

Department of Finance 

19 December 2002

1)Financial Services Ombudsman (FSO)

Significant agreement on the following points

Significant disagreement on the following points:

Significant other points

Technical amendments

2) Consultative Panels

Significant agreement on the following points:

Significant disagreement on the following points:

Technical amendments

3) Review Group on Auditing / Corporate Governance

General issues

Technical amendments

4) Provision of Information to Enforcement Authorities

Technical amendments

5)Bank Mergers

Technical amendments

6) 

Technical amendments

7) Miscellaneous

Technical amendments

8) Insurance Amendments

Technical amendments

9) Issues not directly related to those raised in the consultation document

Central Bank and Financial Services Authority of Ireland Bill, 2002

Other issues 

The onus should be on the consumer to attempt to resolve the complaint first with the supervised entity 

There should be clear timelines for the complaints process and no retrospection. 

The Ombudsman should issue a “regular” report. 

Critical to the success of the new arrangements are independence (e.g. staff should not be employees of CBFSAI, adequate funding should be provided, reporting obligations must be clear etc.) and transparency in relation to the Ombudsman and the Consumer Director. 

Consumer education is important and the Consumer Director has an important role in this and wider education. 

The Ombudsman should be the only complaints handler whilst the Consumer Director should pro-actively deal with general consumer protection issues. The roles and responsibilities should be clearly defined and communicated and formal interaction between both and IFSRA is required. There is probably room for some operational flexibility. 

If the non-statutory Ombudsman schemes are retained, the FSO should license them and only deal with cases falling outside their remit.  It is also suggested that after specified time limits the consumer can go directly to the FSO. 

The non-statutory Ombudsman schemes should remain in place OR all current non-statutory schemes should be subsumed into the statutory scheme with a one-stop shop for consumers. 

There is some disagreement as to whether there should be any limit on the type of complaint to be dealt with. There are a significant number of suggestions for limiting jurisdiction (including type of claimant, type of complaint [e.g. refusals], issue outside entities control or limit on claims [District Court]).

The Credit Unions already have a statutory avenue for complaints but there should be standardisation with other financial institutions in relation to the handling of complaints. 

The Ombudsman should be the final (statutory) appeal in respect of grievances from officials of financial institutions related to issues of corporate governance / fraud. The IBF should be statutorily required to provide support, advice and legal support for officials in such circumstances. 

The Ombudsman’s determination must be final with access to Courts on points of law and legal aid for consumers when it goes to court. 

Complainants should pay a small, non-refundable fee to prevent frivolous complaints Or the FSO should be allowed to refuse to deal with frivolous/vexatious complaints. 

Ombudsman may need to define materiality. 

Ensure no regulatory overlap with the Pensions Ombudsman. 

Licensed providers should be members of an approved Ombudsman scheme. 

Complaints should focus on corporate rather than individual responsibility. 

Professional indemnity insurance should be mandatory. 

During the transitionary period, the Consumer Director needs to define what will constitute “allowable complaints”. 

All complaints notified to IFSRA who will undertake parallel examination. 

The Ombudsman (and IFSRA) should be able to “name and shame”. 

Establish a link between the Ombudsman and Consultative Panels. 

What sanctions can the Financial Services Ombudsman impose on institutions? The Ombudsman should have a band of measures for complaints of different value.   

Head 3: the Ombudsman’s terms of reference should facilitate changes e.g. amend through Statutory Instrument (S.I.). 

Head 3: confirm whether authorised bodies that conduct incidental investment business are subject to the FSO. 

Head 3: clarify difference between financial institution and authorised financial institution? 

Head 3.1: amend the interpretation of “Persons Subject to the Financial Services Ombudsman Scheme” to correctly reflect the procedure for insurance.  

Head 7: amend to ensure that FSO can be removed on grounds of misconduct, indolence etc. 

Head 7: clarify if there will be a public competition & specified qualifications? 

Head 7: The FSO should have a council ala the Insurance Ombudsman Council OR should have a board where consumers are in majority. 

Head 7.7: amend to ensure that FSO is precluded from any employment/office where a conflict of interest might arise. 

Head 7.8: define Treaty and Statute. 

Head 7.13: amend to ensure that only a competent person may deputise. 

Head 9: Use of the term “complaint” is inadequate. 

Head 9.1: clarify the scope e.g. Irish policyholders, resident abroad? 

Head 9.5: confirm whether determinations are binding on complainant? 

Head 9.6: amend to impose obligation on a person to provide the information. 

Head 9.7: clarify in relation to overseas entities? 

Head 9.10: re-consider if this is too restrictive as drafted. 

Head 10: clarify recourse of complainant who does not accept determination of FSO within specified time limits? 

Head 10: approach suggested is too unwieldy. 

Head 11: clarify if C & AG will audit these accounts separately from CBFSAI?

Head 12: ensure indemnity for FSO/staff does not apply to misconduct/negligence – see Head 13(7). 

Head 12.8: strengthen proposal i.e. not persistent misbehaviour.

Head 12.9: ensure that though the consumer has to surrender the right to privacy, the Minister/Dail Committees cannot query individual cases. 

Head 13.2: should this be agreed with IFSRA after consultation with Industry? 

Head 13.4: ensure that FSO can seek counsel should he so desire. 

Head 13.5: is it necessary to provide for such detail in primary legislation? 

Head 13.5: consider whether Consumer Director should have a role here. 

The panels should provide for the inclusion of representative bodies. 

The panels need clear and meaningful terms of reference to ensure that they are not just talking shops. 

There is disagreement on the desirability of having an Industry Panel and a Joint Committee of the two panels. 

There is disagreement on the structure etc. of the panels (i.e. one v two panels, MIAB or NESF models, funding, fixed number of members and terms, need for a joint committee, how they would work in practice, funding etc.). 

Should IFSRA always be obliged to consult the panels or would that restrict its responsiveness? 

Head 15: delete “where practicable” in 15(2) – see 21(5) IFSRA does not have to accept etc. 

Head 15.1: should Financial Services Ombudsman be subject of Panels? 

Head 16: replace “chairperson” (here and later) with chairman. Independent chair needed to help strike correct balance. 

Head 16.1: consider Consumer panel to be appointed by Minister for Enterprise, Trade and Employment. 

Head 17: consider amending 5 years to 2/3 years. 

Head 21: clarify how “agreed joint views” to IFSRA in 21 (1) would be provided?  

Head 21.5: examine for consistency –  Heads 21.5 v 15.2 v 20.2

Head 22: is this necessary in primary legislation – unduly bureaucratic? Is it consistent with 24.6? 

Head 23: The Consumer Panel should issue annual report. 

Auditors should disclose the level of materiality applied in the conduct of the audit.

The constitutionality of the proposals in Head 26 related to the Compliance Statement by Directors may need further consideration. 

The provisions in Part IV are unwise in advance of finalising the Audit and Accountancy Bill.

While Auditors have an important role, they are not a substitute for the Regulator.

Increasing the auditors’ responsibilities could increase costs. 

Check overlap between the Bill and existing Practice Notes and Statements on Auditing Standards. 

Distinctions need to be made between requirements imposed on larger institutions compared to smaller ones. 

The letter of representation from the Board to the auditors is a key document – making greater use of key documents [see below Head 28 (40] would reduce the need for further reporting obligations. 

Employer’s duty to provide staff and training is critical. 

The proposals should be implemented through regulatory notices. 

IFSRA to have the power to decide what reporting, rules etc. apply to what type of entity e.g. listed plc v investment funds.

An alternative approach to that in the Bill is to use Reporting Accountants as in the UK under Section 39. 

Sanctions for breaches of the Audit and Accountancy Bill provisions are not spelt out. 

In findings of serious misconduct, fraud or negligence the Directors of an authorised firm should be held individually accountable.

Head 26: exclude those already fulfilling the requirements under some other imposition. 

Head 26: re-title “Reporting by and Auditing of entities regulated by IFSRA” 

Head 26: legal advice should be sought on this proposal. 

Head 26: Directors compliance statements should be “in good faith” 

Head 26: guidance needs to be tailored to industry sectors. 

Head 26: there are particular issues (e.g. role of trustee) in relation to compliance statements for the funds industry that need further consideration. 

Head 26: amend (1)(e) to reconcile “guidance legally issued” and clarify if consultation will take place & what formal mechanism for notifying the financial sector will be introduced.

Head 26: amend (3)(iii) to exempt authorised investment business firms authorised under S.26 of the IIA, 1995 or those not handling cash.

Head 27: clarify why this guidance is not binding yet Head 26 is? 

Head 27: the statutory duty to report in 27(1) is already addressed in Practice Note 19(1) “Banks in the Republic of Ireland” 

Head 27: consider the risks for systemic risk (Head 34 of the C & A Bill appends auditors report to annual report) in the proposal at 27(2) 

Head 27:  potential overlap of IFSRA guidance v APB standards in 27(4) 

Head 27: harmonise “statutory duty to report” provisions and ensure conformity with post-BCCI Directive 

Head 28.1: reconsider whether this strikes the correct balance between the auditor’s duty of confidentiality and the ownership of the papers 

Head 28.2: clarify why this subsection only applies to accountants? 

Head 28.3: external auditors always “act independently”. This could impact the client/auditor relationship and an information deficit. Could this increase costs? 

Head 28.4: The management letter is a key document OR the reliance that can be placed on it for regulatory purposes is limited. 

Head 28: The requirement in 28 (4) for auditors to provide IFSRA with a copy of its “management letter” has already been provided for in Practice Note 19(1). 

Head 29: IFSRA must be satisfied that it is really needed. The third party aspect of requester is unacceptable without proper definition. 

Head 29. IFSRA should consider using Reporting Accountants (ala Basel Committee publication). 

Head 29: may be flawed on several grounds i.e. narrowly focussed, auditor cannot decline and might have contract/cost implications. 

Head 29: reports in 29(3) should only be commissioned via the directors. 

Head 30: ensure flexibility in relation to reports IFSRA requests. 

Head 30: extends the scope of the auditor’s responsibilities - needs cost/benefit analysis. 

Head30.1: this is already a professional requirement on auditors?

Head 30.3: this is disproportionate in cost/benefit and is an unwarranted intrusion by the regulator. Need to define proper records, satisfactory systems of control etc. 

Head 32: clarify why an entity is asked to pay for work that is commissioned by a third party and that it is not even aware of?

Head 46: the use of “from time to time” in 46 (1) is too vague. 

Head 46: CBFSAI should produce corporate governance guidelines in advance [see 46 (2)]           

Suggestion is to look at the Stock Exchange’s The Combined Code: Principles of Good governance and Code of best Practice. 

Head 46: should only apply to the manufacturer/producer of financial products and should exempt intermediaries [S.26 of IIA, 1995 and mortgage intermediaries under the CCA, 1995]

Substantial points raised

The legislation should enable the Central Bank to exchange confidential information in the following circumstances: 

a) With the Office of the Director of Corporate Enforcement, based on a request for assistance from an overseas company law authority (Section 23A of the Companies Act, 1990 - Section 33 of the Company Law Enforcement Act 2001), 

b) With an inspector appointed under the Companies Acts; 

c) With a tribunal of inquiry established under the Tribunal of Inquiry Acts, unless this is adequately dealt with in those Acts;

 d) With the Pensions Board [see Section 4(2) of the Pensions Acts]; 

e) With the Competition Authority (S.34 of the Competition Act 2002). 

There is a need for whistle-blowing protection for staff. 

New provisions do not have requirement that the Gardai substantiate suspicions before any onward referral of issues. 

Existing money-laundering provisions are adequate. The proposed "Disclosure Issue Notice" and "Special Compliance Report" provisions are neither workable nor acceptable.   

Head 35.9: amend to clarify that IFSRA does not have a duty to seek out breaches of law for which other agencies have responsibility: 

“…. exchange information tending to show that there is or has been a breach of company law….”  

Head 36: amend to cover breaches of competition law. 

Head 36: clarify how this will work in practice and would it impact on Ireland’s competitiveness as an international funds centre? 

Head 37: need for a sanction for failure to publish a Disclosure Issue Notice in the annual report. 

Head 37: amend 37(2) to clarify its not a general policing role: 

“….or regulation, matters which come to its attention which tend to show that a breach of a relevant law has occurred or is occurring”. 

Head 37: exempt insurance brokers and agents, in relation to life assurance and pensions, from (3) as they are already covered under S.57 Criminal Justice Act, 1994 and SI 104, 1995 – see also S.32 (7) & (8) of the CJA, 1994. Does this apply to oversees customers of Irish institutions? 

Head 37.3: define a “criminal revenue offence”. This would impose unnecessary extra work on the entities. 

Head 37.4: amend to be consistent with 37(2) above. 

Head 37.4:  what situations will be covered by provision and define “…likely to be material…”? Is the proposal at VI) workable? 

Head 37.4 in (vi) change 'annual report' to ‘directors’ report’  

Define a test that would satisfy “the orderly and proper regulation of banking” and ensure that there are still two separate and independent regulatory hurdles

[i.e. competition and regulation] 

The Competition Authority should take on board any comments from the Minister for Finance, IFSRA and the Department of Enterprise, Trade and Employment OR should only have regard to law and not Government policy in any proposed merger 

Consider the implications for mergers below EU thresholds i.e. IFSRA issues v Competition Authority issues v public interest.

Head 40: amend to be consistent with Competition Act i.e. increase the timeframe from 3 to 4 months. 

Head 43.5: consider that self-regulation works. 

Clarify that existing regulated entities are not affected by this proposal. 

Head 45: any proposed licensing regime should include total cost of credit, terms & conditions.  

Head 45: define as a person engaged in mortgage lending to the public who falls outside a defined list of legislation and subject to same licensing regime – this may have implications for credit Institutions under the Consumer Credit Act. 

Head 45:  clarify “non-deposit taking”. 

Head47: clarify intent is that where a moneylender licensed under the CCA, 1995 makes a loan to a person who is not a “consumer” for the purposes of that Act, then the regulatory requirements in Part V111 of the Act will none the less apply to that provision of credit. 

Head 50: clarify how this will work in practice – amendment to Section 116? 

Head 50: clarify the definition to ensure that the unauthorised introducer cannot channel their business through authorised intermediaries. The business referrer should not be treated as a mortgage intermediary 

Head 50: amend the proposal as follows: 

            “….of any kind from either the consumer or the mortgage lender, arranges..” 

Head 50: Ensure that some IFSC entities (e.g. agency treasury companies etc.) are not unintentionally captured. 

Head 50: the redefinition of mortgage intermediary is too broad and inconsistent with the IIA, 1995. Suggested definition: 

any person, other than a mortgage lender or credit institution who in return for a commission, payment or consideration of any kind, arranges or offers to arrange or who, on a professional basis, introduces a consumer to an intermediary who arranges or offers to arrange the provision of a housing loan by a mortgage lender, other than a person who, in the course of the carrying on of any profession or business not otherwise constituting the business of a mortgage intermediary, introduces a consumer to an intermediary who arranges or offers to arrange the provision of a housing loan by a mortgage lender where the introduction arises from other advice or services given in the course of carrying on that profession or business, and where the introduction is not remunerated or rewarded separately from such other advice or services.  

Head 50: include a more general provision that producers of financial products would have responsibilities arising from the activities of introducers of any financial products. 

Head 43: the voluntary system of codes should not be replaced.

Head 44: amend wording to replace ICI with “ICAROM plc (under administration) formerly known as the Insurance Corporation of Ireland plc.” 

Head 48: amend to ensure equivalent protection for all Irish policyholders who take out insurance with an insurer licensed to transact business in Ireland 

Head 48: clarify whether the Central Bank has powers to make payments out of the Deposit Protection Fund? 

Head 49: include a formal definition of what may constitute a ground for the Minister to order a company to cease writing business 

Head 49.1: add “fit and proper” criteria to 1(b). 

Fines should be limited to 1% of annual turnover, such amount to be waived if the business ceased as a consequence of being fined OR Penalties and sanctions should be linked to turnover/revenues OR graduated sanctions should be available.

Need to look at the formal and informal systems of sanction that are in place to ensure financial institution compliance.

Clarify why Consumer Credit Act, 1995 not transferred in its entirety to IFSRA? 

Need for increased resources to oversee the Consumer Credit Act, 1995

Clarify whether S.144 (1)(b) [Pg 163/164] appears to allow a mortgage intermediary to operate as a credit intermediary without an authorisation? 

The CCA, 1995 should be reviewed (new Directive due) e.g. Section 47 

Amend the Unfair Terms in Consumer Contracts Regulations (1995) to allow the Consumer Director challenge unjustified penalties and default interest charges. Is the High Court not too costly and intimidating? Could the FSO play a role here? 

The home collected credit industry regulation should remain with the Director of Consumer Affairs and if it moves to IFSRA the costs/fees of regulation should be proportionate to member size

Consider Consumer Director being nominated by the Minister for Enterprise, Trade and Employment 

Members of IFSRA Board should rotate triennially [Pg 94, line 26 Bill1]

Consider whether Ministers (for Finance & Enterprise, Trade and Employment) should jointly nominate CEO of IFSRA. 

The Consumer Panel (Bill 2) should have power of veto over appointment of Consumer Director. 

Freedom of Information Act should apply to all consumer enquiries on all and any aspects of their affairs at IFSRA. 

IFSRA costs should be equally shared across manufacturers, distributors and consumers, and not loaded on to consumers only. 

C &AG should be given a role in evaluating the regulatory process. 

How to assess the performance of the Regulator (Public Accounts Committee?)? 

The Regulator should host an annual conference. 

Look at the responses available for regulatory lapses, concentrating on the result of the failure. 

Amend insurance legislation to specifically provide for Return Premiums to be issued to clients via insurance intermediaries. 

Ensure equivalence in terms of standards and regulatory requirements between the various providers of insurance products to customers. 

Extend annual compliance statements to firms outside financial services industry. 

IFSRA should act on unsolicited contact and invasion of privacy of banking transactions.  Consumers to be protected through yearly refreshers for unsolicited contact. 

Financial products and services should be vetted by IFSRA for imbalance and unfair terms.  IFSRA to apply similar vetting to advertising and marketing, with clear definitions for terms such as “guaranteed”.  The Global Investment Performance Standard to be immediately introduced to regulate past performance data.

Statutory rights to point of sale disclosure of charges and commissions should extend to mortgages, non-life investments, company pension schemes and top-ups on pre-Feb 2001 life insurance and personal pensions. 

Proper labelling of advisors, including the introduction of Multi-Tied Agent instead of the compromise “Multi-Agency Advisor”, in tandem with a substantial consumer awareness campaign. 

Consumer awareness campaigns should be launched on statutory rights of disclosure at point of sale, together with the launch of a Consumer Charter dealing with disclosure, complaints procedure, using the Ombudsman, unfair terms, free phone number, etc. 

Consideration should be given to designating property as an asset class under the Investment Intermediaries Act, and to be regulated by IFSRA, removing existing self-regulation. 

Accountancy bodies engaged in the distribution of financial services products must be regulated by IFSRA. 

In Section 116(b) of the Consumer Credit Act 1995 there is a requirement that a Mortgage Broker must have agencies with banks. This undermines the authority of the regulator (who authorises the broker) e.g. the bank can for any number of unprofessional, personality conflict, commercial or competitive reasons cancel a brokers agency without giving a reason. The regulator on the other hand has to give a reason and the broker has recourse to the High Court. The banks are unaccountable under this legal framework.  

[1] Significant agreement, here and later in the document, means that a number of submissions addressed this point and a significant number of them were agreed on a particular point. It does not signify any Department of Finance view on the issue.

[2] Significant disagreement, here and later in the document, means that a number of submissions addressed this point and expressed divergent views. It does not signify any Department of Finance view on the issue.

[3] Significant other points, here and later in the document, means that a particular point was raised by a single or a small number of submissions. It does not signify any Department of Finance view on the issue.

[4] Technical amendments, here and later in the document, means that a single or a small number of submissions suggested an amendment to, or raised a query about, the Heads as drafted. It does not signify any Department of Finance view on the issue.

[5]The Minister for Finance has indicated to the Oireachtas that he would be proposing to deal with the issue of provision of information to enforcement authorities by way of amendment to the Central Bank and Financial Services Authority of Ireland Bill, 2002.