The Consumer Protection Code review – what’s on the horizon?
Speed read
In October 2022, the Central Bank of Ireland (the Central Bank) launched its review of the Consumer Protection Code 2012 (the Code) to ensure the Code remains fit for purpose and that consumers remain protected in light of ongoing developments in the financial services landscape.
The Central Bank has now published an engagement update following a review of feedback on its discussion paper and next steps towards the introduction of an updated Code (the Engagement Update). The Central Bank’s plan remains that it will update the Code and will publish a new set of regulations in 2024. It will also later go on to publish revised regulations in 2025.
The Discussion Paper
The Central Bank commenced with its publication of a discussion paper in which it sought feedback from consumers and stakeholders to inform the proposed revisions to the Code (the Discussion Paper).
Two broad discussion themes
The Discussion Paper sought feedback on two broad key themes relating to securing consumers’ best interests:
|
Theme A |
Theme B |
|---|---|
|
Explores how efficient and effective markets can support availability and choice for consumers. |
Explores how firms operating within an effective financial services market must appropriately balance their shareholders’ interests with the interests of their customers. |
|
Considers the impacts of changes in financial services on the functioning of the market and on availability and choice in terms of meeting the needs of all consumers. |
Focus on changes in financial services and how both new entrants and existing firms can act in consumers’ best interests as the market for financial services evolves. |
|
Focus on changes in financial services and how these are impacting, both positively and negatively, on availability and choice for consumers. |
Considers the development of guidance on ‘best interests’ for consumers. |
Eight specific discussion themes
The Discussion Paper also sought feedback on eight specific themes, a number of which have common threads:
Key theme - seeking to understand the consequences for consumers of technology-led change in financial services and whether newer activities should be regulated:
1. Innovation and disruption.
2. Digitalisation.
3. Unregulated activities.
Key theme - a consumer’s capacity to make an informed choice regarding financial products:
4. Pricing matters.
5. Informing effectively.
6. Vulnerability.
7. Financial literacy.
Key theme – issues arising from climate change:
8. Climate matters. This is explored from the perspective of consumers and their protection. It focuses on the need for consumers to have confidence that firms are resilient to climate risks and avoid greenwashing. The importance of transparent disclosure is emphasised, noting that consumers need assurance that 'green' products are accurately and fairly represented.
Feedback on the Discussion Paper
The Engagement Update notes that the Central Bank will publish a Consultation Paper before the end of the year setting out the proposed changes to the Consumer Protection Framework.
Submissions were received from a broad range of parties within the financial services industry and the wider business and consumer advocacy community as well as the Minister for Finance whose submission focussed on vulnerable consumers and affordability. The Central Bank is also continuing to undertake targeted consumer research on the Discussion Paper.
The Engagement Update notes the following key themes that have emerged in the course of the feedback:
| Key themes |
|---|
|
Digitalisation is bringing greater choice and access for consumers, but it also brings risks and challenges to some consumers which need to be addressed. |
|
Vulnerability arises in a wide range of circumstances and many people may move in and out of states of vulnerability. This requires firms to consider how they can effectively identify and support people in vulnerable circumstances. |
|
Disclosure requirements can result in information overload and may not ensure that consumers are well informed. Plain, simple, standardised information and language can assist consumers. |
|
Financial education and related initiatives are strongly supported and are seen as a way to address a number of issues including fraud and scams, and the need to protect vulnerable consumers. |
|
It is important that consumers can identify clearly when a firm is regulated by the Central Bank. However, provision of unregulated products and services by regulated firms can create a lack of clarity on the regulatory status of those products. |
The Central Bank has also noted that the feedback on the broad and specific discussion themes impacts its other priorities and broader EU legislative developments. For example:
- Firms acting in consumers’ best interests is linked to the broader Central Bank priority of the implementation of the Central Bank (Individual Accountability Framework) Act 2023, which incorporates the Senior Executive Accountability Regime (SEAR) and includes aspects in the new Common Conduct Standards regarding engagements with customers and protection of their interests.
- Digitalisation is linked to the Central Bank priority around the implementation of Digital Operational Resilience Act (DORA), including the operational resilience of firms given reliance on third party IT dependencies.
- The issue of unregulated activities is connected to the Central Bank priority on the implementation of Markets in Crypto Assets Regulation (MiCA), which aims to ensure that investors are protected while also fostering technological development.
What’s next?
The Central Bank will publish a Consultation Paper on the revised code in December 2023. The feedback from this Consultation Paper will be considered before the new Central Bank regulations are finalised. It is envisaged that the updated Code will:
- introduce requirements and guidance around securing customer interests
- reflect changes in financial services to provide enhanced protections and will consider whether the Code should be extended to any additional sectors or services
- include General Business Standards, cross sectoral and sector specific requirements (as envisaged by the recent IAF reforms)
- consolidate standalone consumer protection codes and regulations e.g. the Code of Conduct on Mortgage Arrears
The Central Bank has also indicated that the Code will ensure that consumers are able to determine the protections available to them across all types of regulated financial services. Importantly, the Central Bank has stated that one of its “overarching goals under the Review is seeking to ensure that firms work to secure consumers’ interests in everything they do.”
The Central Bank will then continue to consider what further enhancements are required to the Code in 2024 and will publish another consultation paper with additional amendments during the course of that year. Further revised regulations are expected to be published in 2025, which will incorporate the Department of Finance’s Retail Banking Review recommendations.
Commentary
While it is useful to have a general overview of what will be covered by the updated Code, and of the issues concerning a cross-section of the public, regulated financial services providers will only get a good sense of the impact of the updated Code on their businesses when the Consultation Paper and revised Code are published at the end of this year.
It remains to be seen how far the Central Bank intends to go in terms of prescriptive rules and specific guidance for regulated firms in particular situations when engaging with consumers, such as the guidance and ongoing dialogue issued by the UK Financial Conduct Authority regarding the principles of ‘Treating Customers Fairly’.
In the meantime, it is clearly more important than ever that financial firms bear in mind the overarching theme of ‘acting in consumers’ best interests’ when engaging with consumers in relation to financial products and services and in their approach to complaint handling.
Our Financial Regulation Advisory and Regulatory Investigation teams have deep experience in advising regulated firms not only on the technical requirements of the previous Consumer Protection Codes and related consumer legislation but also on the Central Bank’s ’s expectations arising from, for example, their supervisory frameworks in the retail banking and insurance spheres. We will be monitoring these developments closely and will bring further updates and thought leadership on these topics as the Code review progresses.
For more information, please contact Dario Dagostino, Partner, Patrick Brandt, Partner, Sinéad Hayes, Senior Associate, Laura Corrigan, Senior Associate, or your usual ALG contact.
Date published: 4 September 2023