By dramatically curtailing many economic activities in Ireland and across the world, COVID-19 has had significant consequences for consumers and financial service providers. Credit institutions have agreed to continue providing capital and offering forbearance to consumers and business customers to assist them to ride out the crisis. In the markets arena firms were required to uphold certain short selling bans in some European jurisdictions. Insurers have also been impacted heavily with an increase in claims from disappointed holiday makers, high levels of claims from business customers for business interruption cover and related pressure from regulators, media and shareholders.
A&L Goodbody has been continuously monitoring the numerous statements since the crisis from the European Supervisory Authorities (ESA), which comprise of the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority. Overall, the approach of the ESAs has been to offer increased supervisory flexibility to allow firms more bandwidth to address priority areas while operating on a contingency basis in exceptional circumstances. Both EIOPA and the EBA issued statements in March urging (re)insurers and banks respectively to suspend or postpone discretionary dividend and variable remuneration payments. These measures are aimed at addressing the uncertainty of the COVID-19 impacts on financial services providers, the financial markets and the wider economy.
The Central Bank of Ireland (CBI) has adopted the recommendations of the ESAs and communicated its expectations to the industry generally. Cross-sectoral messaging included statements on anti-money laundering and other financial crime related risks and on the application of government guidelines for financial services. The CBI has also provided research on the economy generally and extensive guidance to consumers.
The main focus of the CBI's industry-specific guidance, beyond such general engagements, has been in relation to insurers. A Dear CEO letter in March 2020 set out the CBI's regulatory expectations for COVID-19 claims and was in line with views expressed by the Financial Conduct Authority (FCA) in the UK. Interestingly, the FCA has also sought High Court declarations in a major test case which aims to resolve key interpretive issues on insurance cover for COVID-19 business interruption claims. The FCA case was heard last week with judgement tentatively expected in mid-September.
There has been considerable speculation on whether the CBI would follow the FCA approach in taking a test case. In a recent letter from the CBI, responding to a query from Pearse Doherty TD the CBI did not rule out a future test case but outlined its other regulatory and supervisory responses and options for addressing the issue.
In other regulatory areas, such as the assessment of lenders' engagement with consumers when capitalizing arrears, which has been reviewed by both the FCA in the UK and the CBI in Ireland, it is notable that judgments from the UK superior courts, although not binding on the Irish courts, are often cited with approval and may be persuasive.
The outcome of the FCA case in the UK may well influence the approach of insurers operating in Ireland (and the CBI's approach). Importantly, however, the result of such test cases generally is binding only against the parties to the litigation and only in relation to the specific policy wording applicable in that test case. While the FCA's objective was to resolve some key issues in respect of business interruption COVID-19 issues, we will have to await the outcome of the proceedings to gauge its success in that regard. In any event, issues may arise in business interruption claims above and beyond those ventilated in the FCA proceedings and there may be issues with policy wording which will not be considered in that litigation. Accordingly, the FCA decision may be influential but not necessarily decisive.
In this context, it is interesting to note that the CBI, in its letter to Pearse Doherty TD, emphasised that its regulatory responses addressed the circumstances of different insurers operating in the sector, each with different policies and varying approaches to settling business interruption claims.
The CBI letter also outlines that the CBI is undertaking a programme of supervision and engagement with insurers. The consumer protection mandate is a primary concern, with the regulator signaling a determination to focus on firms that may not be meeting the expectations set out in the CBI's earlier Dear CEO letter. The CBI also signals that it is utilising the range of supervisory powers in its toolkit, including information gathering powers and requiring responses to be certified by persons occupying senior management positions to ensure individual accountability.
The CBI has at its disposal a considerable toolkit, including for example the power to:
Require a regulated financial services provider to provide information or documents
Commission a report or require a regulated financial services provider to do so
Conduct an investigation
Require the attendance of certain individuals for interview.
In our practice, we have seen the regulator utilise these powers, particularly where it is concerned that there may be a contravention of the regulations or consumer detriment as a result of any such contravention.
We envisage ongoing regulatory scrutiny of financial service providers including insurers as the COVID-19 pandemic unwinds.