On 27 August 2020, the Central Bank of Ireland (CBI) published its latest ‘Dear CEO’ letter titled: “Thematic Review: Verification of data submitted in Retail Intermediaries’ Annual Returns” (the Letter).
In the Letter, the CBI details its findings following a recent thematic review of annual returns submitted by retail intermediaries. Despite an overall improvement in compliance with the requirements, the CBI identified, and enumerates in the Letter, several shortcomings in the quality of retail intermediaries’ annual returns (as summarised below).
Notably, the Letter stipulates that its contents be brought to the attention of each intermediary’s board at their next meeting and that the minutes of the meeting evidence the board’s discussion of the Letter.
The Letter is relevant for all (re)insurance intermediaries registered with the CBI under the European Union (Insurance Distribution) Regulations 2018.
Annual Return Data
Using powers conferred on it by Section 22 of the Central Bank (Supervision and Enforcement) Act 2013, the CBI requires retail intermediaries to submit a ‘retail intermediary annual return’ on an annual basis. An intermediary’s financial data, including its gross annual income, commission and fee income and details of its professional indemnity insurance, must be disclosed in the annual return.
The CBI found that many intermediaries failed to submit correct financial data. According to the CBI, this failure represents consumer risk of a material nature. Interestingly, the CBI acknowledged that no intermediary was found to have knowingly submitted incorrect data. In any event, the Letter serves as a timely reminder to retail intermediaries to ensure that the financial information they submit is correct.
During its thematic review, the CBI identified several intermediaries which are not actively trading. This, the CBI says, distorts the market and affects the integrity of the CBI’s register of authorised intermediaries. The CBI explains that these non-trading intermediaries necessitate unnecessary use of CBI resources and present a distorted picture of the industry to consumers. Regarding these non-trading intermediaries, the CBI notes its’ expectation in the Letter that non-trading intermediaries will voluntarily apply to have their authorisation revoked.
Several investment intermediaries failed to submit audited accounts with many such intermediaries being unaware of the requirement for the preparation of same. Paragraph 3.4 of the ‘Handbook of Prudential Requirements for Investment Intermediaries’ (the Handbook) states that:
“Investment intermediaries, including unincorporated bodies of persons, sole traders and partnerships, are required to prepare annual audited accounts no later than six months after the end of the financial year-end. The audited accounts may be requested by the Central Bank at any time following this six- month period after the investment intermediary’s financial year-end.”
Investment intermediaries which may not be aware of this requirement should now put in place processes to ensure that these audited accounts are prepared and available on request from the CBI. More generally, it is prudent for investment intermediaries to review the requirements set out in the Handbook on a regular basis to ensure full compliance is maintained.
As highlighted above, the CBI expects the boards of all retail intermediaries to discuss the contents of the Letter at their next board meeting. If any remedial actions are required in respect of issues identified in the Letter or relating to the robustness of the annual return process more generally, it is important that such actions are taken in a timely manner and that they are appropriately documented.
In relation to investment intermediaries specifically, these firms should take careful note of the requirement to prepare audited accounts and should also review their wider obligations under the Handbook.
Finally, any non-trading intermediary should consider whether it remains appropriate to retain their regulatory authorisation having regard to the CBI’s stated expectation in the Letter that such intermediaries should voluntarily apply to have their authorisation revoked.
If you have any questions in relation to the Letter, please contact your usual William Fry contact or any member of our Insurance & Reinsurance team.
Contributed by Catherine Carrigy and James Grogan