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| Financial Law Update | Back to article summary. |
| Preparing for the consumer protection code | ||
| Joe Beashel |
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| Joe Beashel of Matheson Ormsby Prentice warns about the impact of the Consumer Protection Code to be introduced in July next. With fines of up to €5 million for breaching the "code", he stresses the need for regulated companies to develop a compliance system that will withstand regulatory scrutiny. | ||
In my last article for Finance Magazine, I highlighted that the Financial Regulator intends to introduce a comprehensive Consumer Protection Code (the €Code€) in July next (although a transitional period for implementation will be provided for). The Financial Regulator recently published its response to the many submissions received to its initial Consultation Paper (CP10) of February 2005. While the Financial Regulator has indicated its willingness to amend some wording and has provided clarification in certain areas, there is no fundamental change from the approach outlined in the original CP10.
In form, the Code contains a number of general principals, some common rules for all regulated entities and some market segment/product specific rules. Submissions which criticised the approach as being €overly prescriptive€ and likely to €increase bureaucracy€ were rejected by the Financial Regulator which indicated its belief that it has €€struck a reasonable balance€.€ Whether this view is correct will depend on both time and one€s perspective. For regulated entities, it is clear is that as breaches of the Code may be subject to administrative sanctions (which include fines of up to €5 million) it will be an important challenge, this year, to develop a compliance system that will withstand regulatory scrutiny. The scope of the Code The Code is part of a trend of initiatives from the Financial Regulator which has sought, since it was set up in 2003, to update and standardise rules across industry sectors. This Code will replace the various sectoral codes that currently apply to regulated firms and apply to all financial services providers when operating in the State, ie. those authorised by the Financial Regulator, those authorised in another EU/ EEA country that have at least one branch in Ireland and those passporting services into Ireland. The Code will apply to the range of financial service providers including inter alia Credit Institutions, Insurance Companies, Stockbroking Firm, Mortgage Intermediaries, Investment Business Firms and Credit Unions. In addition, the content and application of the Code will be subject to European developments in financial regulation, particularly the Markets in Financial Instruments Directive ("MiFID") 2004/39/EC. MiFID will affect the conduct of business rules for investment business services although, as the outcome of discussions on MiFID are not yet finalised, it is not possible to be definitive on the exact impact on the Code. Consumer definition The initial, very broad, definition of €consumer€ proposed by the Financial Regulator was criticised by industry. Keen to ensure that small businesses would be included as well as individuals, the Financial Regulator has agreed that, for the purpose of the Code, a consumer would mean €a natural person acting outside their business, trade or profession or a business with a turnover of €3 million or less in the previous financial year€. This will include sole traders, partnerships, clubs and charities. This definition is similar to that recently introduced by the Financial Services Ombudsman. Also, it will not extend to a business that, while it may be below the turnover threshold, is a member of a larger group or is a special purpose vehicle established to carry out particular financial transactions. Some Key issues raised in the Consultation Process Substantial comment was received on almost all aspects of the Code. We highlight below some of its more significant provisions although we would point out that there are many more:
Preparation Although the Code is still in draft form the recent response from the Financial Regulator gives a very clear indication of its position on a range of issues and aspects of the draft Code. The introduction of the Code will, to a greater or lesser extent, have implications for all regulated financial services providers. Documentation (from compliance manuals to marketing materials) will need to be reviewed and where necessary updated, sales processes will need to be reviewed and in some cases new processes and procedures developed. Any such changes will have system implications and training implications for affected staff. Indeed, given the comprehensive nature of the new code it is likely that all staff will need some form of training. We would encourage all regulated firms that have not already done so to review the Code and the regulators€ response to the feedback it received and to conduct an impact analysis of its own business and to start planning to make the changes necessary. Like all change, the more notice and planning that can be brought to bear the more successful the change process can be. Joe Beashel can be contacted by phone: +353 1 619 9000 or by email: joe.beashel@mop.ie. Further information on the firm is available at www.mop.ie |
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Author Details: Joe Beashel is a partner in the Banking and Financial Services Department at Matheson Ormsby Prentice and is Head of the firm€s Regulatory Risk Management and Compliance Group |
