On 14 March 2022, the Central Bank of Ireland (CBI) published its Consumer Protection Outlook Report, (Report). The Report identified the following five cross-sectorial risks facing financial services consumers:
- Poor Business Practices & Weak Business Processes.
- Ineffective Disclosures to Consumers.
- The Changing Operational Landscape.
- Technology-Driven Risks to Consumer Protection, and
- The Impact of Shifting Business Models.
The CBI expects firms to take concrete action to deliver on its expectations regarding the risks identified. The CBI also invites consumers and industry participants to submit further areas of potential concern for consumers to [email protected].
Poor Business Practices & Weak Business Processes
The Report highlights the risks associated with the carrying out of poor business practices and weak business processes. According to the CBI, a fundamental responsibility of financial service providers (FSPs) is the provision of good quality services, with the best interest of the consumer at the centre of the design and delivery of that service.
The CBI lists several actions it expects firms to take to bolster business practices and processes, including to:
- put in place robust product governance and oversight arrangements,
- monitor product performance and suitability for the consumer,
- treat consumers fairly in circumstances where an error or incident may have occurred; and
- place the best interests of consumers at the heart of commercial decisions.
Ineffective Disclosures to Consumers
The Report identifies the speed at which transactions can be completed online, and the large scale of information available, as a risk area for financial services consumers. Where there are several similar products on the market, consumers run a risk of choosing an unsuitable product, therefore a greater onus exits on FSP’s to communicate information clearly and effectually.
The CBI emphasised that great care is needed in the rising field of sustainable finance and that firms must fully explain the environmental impacts of products and avoid “greenwashing” in consumer communications.
The CBI expect FSPs to:
- provide clear information in a timely manner to allow for more informed decision making,
- comply with legislation in respect of statements of suitability and other disclosures, and
- make clear and effective disclosures on financial products.
The Changing Operational Landscape
The Report highlights the risk of FSPs failing to keep pace with developments in a manner that places the best interests of consumers at the heart of their commercial decision-making. New business models, products, globalisation, digitalisation, and the move to a greener financial system all contribute to a volatile environment for FSPs and consumers.
The CBI is concerned at the growing popularity of an online provision of services and unregulated services such as crypto currencies and virtual assets.
To combat risks associated with the changing financial services landscape, the CBI expects FSPs to:
- identify and address potential risks to consumers,
- have enhanced operational resilience to manage change without risk to consumers,
- work with financial innovation from the perspective of the consumer’s best interests, and
- clearly distinguish between regulated and unregulated products.
Technology-Driven Risks to Consumer Protection
Growing reliance on technology places FSPs and consumers at a heightened risk of cyberattacks. This can lead to the loss or compromise of a consumer’s personal data, including sensitive data. In addition to the risks associated with technology driven platforms, consumers who lack digital literacy or access to the necessary digital tools, are immediately disadvantaged.
The following measures are recommended in the Report to combat such risks:
- advanced IT and cybersecurity risk frameworks,
- ensure consumers needs and interests are central when developing products,
- adopt measures to mitigate fraud and scams, and
- have appropriate oversight of outsourced roles and activities.
The Impact of Shifting Business Models
It is imperative, according to the CBI, that FSPs adopt a consumer centric approach to the development of their business. This is often lost in the current changing landscape. The Report highlights the changing shift in the provision of business services to online services. While such services have benefits for the FSPs and the consumer, there may still be a need for in-person engagement with consumers.
The CBI expects FSPs to:
- proactively assess the risks associated with commercial decisions for new and existing customers,
- have specific and effective processes and communications in place to support vulnerable customers, and
- tailor products to the identified needs of consumers.
Future Focused, Open & Engaged, Transforming and Safeguarding
The Report details the CBI’s five-year strategy (Strategy) which is based on four themes: future focused, open & engaged, transforming and safeguard.
The Strategy builds on the CBI’s current supervisory and enforcement role. The CBI will undertake a review of its current supervisory practices to ensure they are agile and data-driven. Over the next two years, the CBI will assess retail FSPs risk management frameworks and hold boards of executives to account to show appropriate understanding, oversight and ownership of business performance and key risks. Under the Strategy, the CBI will review the Consumer Protection Code, starting with a Discussion Paper inviting views as to necessary changes.
The Strategy includes a commitment to enhance individual accountability, which is ongoing. The CBI also commits to regulate crowdfunding, Personal Contract Plans (PCPs) and Buy-now-pay-later (BNPL) providers. Finally, the Strategy proposes to strengthen the resilience of the financial sector in response to climate-related risks and cybercrime through its Operational Resilience Strategy.
If you wish to discuss any aspect of this article in more detail, or need advice on financial services in Ireland, please contact Lisa Carty, Hilary Rogers, or your usual William Fry contact.