The consumer protection framework in financial services in Ireland is governed by legislation, codes, regulations, and Central Bank of Ireland (Central Bank) guidance.
The Consumer Protection Code (CPC) was originally introduced in 2006, revised in 2012 and 2015, and strengthened with addenda since its introduction. The CPC has been described by the Governor of the Central Bank, Gabriel Makhlouf as “the cornerstone” of the Irish consumer protection framework in financial services.
In October 2022, the Central Bank launched the first phase of a three-stage review of the CPC with the publication of a discussion paper (Discussion Paper) spanning ten themes, including regulated financial service providers (RFSPs) acting in consumers’ best interests. (For further information, access our Financial Regulation Unit’s note on the review, including relevant timelines, here). The principal objective of the Discussion Paper is to get feedback from stakeholders on the themes, which will shape a formal public consultation in the second phase of the review process.
Acting in consumers’ best interests
The Central Bank is mandated under the Central Bank Act 1942 to ensure the proper regulation of RFSPs and markets while ensuring the protection of consumers’ best interests. The Discussion Paper reminds RFSPs that securing consumers’ best interests is at the core of consumer protection.
The focus on consumers’ bests interests is also reflected in the Central Bank (Individual Accountability Framework) Act 2023 (Act). The Act inserts a new section into the Central Bank Act 2010, allowing the Central Bank to prescribe business standards so that RFSPs conduct their affairs in such a way to act in the best interests of customers and further, incorporating duties on those who perform relevant controlled functions in RFSPs to act in the best interest of customers.
Judicial consideration of CPC
Irish case law has confirmed that codes issued by the Central Bank form part of the law, obligating RFSPs to obey the codes. Whilst the best interests requirement under the CPC has not been the subject of judicial scrutiny in the Irish courts, the general significance of the CPC has been addressed in the context of Financial Services and Pensions Ombudsman (FSPO) complaints.
For example, in Utmost Paneurope DAC v FSPO  IECA 77, the Court of Appeal (Court) held against a position adopted by the FSPO that it was a matter for him to decide, at his discretion, whether to have regard to the CPC when assessing a RFSP’s conduct. The Court described this approach as “illogical and untenable”. Giving judgment for the Court, Binchy J, made specific reference to the fact that codes, such as the CPC, are adopted by the Central Bank after a process of consultation with stakeholders. It is intended to influence how financial services are provided, and the interaction between consumers and providers. The Court viewed the CPC as important in terms of the imposition of objectivity and consistency in the assessment of consumer complaints. Regardless of whether a consumer or RFSP relies on the CPC, the Court found that it is reasonable to expect the FSPO to have “due regard” to it when assessing RFSP’s conduct. The Court clarified that the FSPO ought to consider whether any particular conduct is directly or indirectly necessitated by any provision of the CPC, or is in breach of any such provision.
A stark reminder of the consequences for RFSPs in applying poor customer-focused standards, and the emphasis placed on consumer protection by the Central Bank, comes from the level of fines imposed by it on numerous RFSPs found in breach of their CPC consumer interest obligations. Some of the Central Bank’s largest fines against RFSPs were for consumer protection failings or breaches.
The current challenge for RFSPs is that it is often unclear how protecting their customers’ best interests should be reflected in practical decisions and actions. The Discussion Paper presents an opportunity for firms to contribute their views on such matters.
The Discussion Paper invites submissions on the Central Bank’s proposals to develop guidance on best interests principles, structured around key components such as whether it should be a holistic requirement, the need to balance shareholder and customer interests, and a focus on outcomes for the customer.
The closing date for submission of responses is 31 March 2023. RFSPs should consider engaging with the Discussion Paper and avail of the chance to contribute to the development of a revised consumer protection framework.
Contributed by Gail Nohilly