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| Financial Law Update | Back to article summary. |
| Financial Regulator publishes a comprehensive review of the Irish intermediary market. | ||
| Joe Beashel |
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| The Financial Regulator recently completed a review of the intermediary market in Ireland and issued its findings in December 2008 covering two areas - intermediary categorisation and transparency of services provided in respect of their remuneration, relationship with the consumer and relationship with the product producer. While mortgage intermediaries are not specifically addressed in the second area, it does mention that the two markets are similar and that the recommendations in respect of insurance intermediaries should be considered in the future in respect of mortgage intermediaries, writes Joe Beashel. | ||
The Financial Regulator recently completed a review, which included consumer research, of the intermediary market in Ireland and issued its findings in December 2008 (the “Review”). The Review covers two areas, the first deals with intermediary categorisation and proposes a number of changes to the way that insurance and mortgage intermediaries are categorised to reflect the services they provide and ensure that these categorisations are clear for consumers. The second section deals with ensuring that the services provided by insurance intermediaries are transparent in respect of their remuneration, relationship with the consumer and relationship with the product producer. While mortgage intermediaries are not specifically addressed in the second part of the Review, it does mention that the two markets are similar and that the recommendations in respect of insurance intermediaries should be considered in the future in respect of mortgage intermediaries. The recommendations will be included in a redraft of the Consumer Protection Code (“CPC”) planned for 2009 to the extent possible, while those recommendations that will require legislative amendment have been addressed to the Department of Finance and the Advisory Forum on Financial Legislation for further review.
Consumer Research As part of the Review, the Financial Regulator engaged the services of a market research firm to review Irish consumer’s current understanding and misconceptions about the intermediary market. The research found that generally consumers were not familiar with how intermediaries operate. Confusion existed around the independence of intermediaries and the way in which they are paid, in particular consumers were unaware of how much remuneration was paid and how it is paid. The research also showed that consumers would like to be assured that there is no bias in the recommendations given by intermediaries. In addition, it was clear from the research that consumers were uncertain of the types of services that can and cannot be provided by intermediaries and their responsibilities in this regard. The research recommends that clearer terminology should be used when describing the intermediary market, clear information should be provided to consumers in respect of the independence and services of intermediaries and intermediaries should be required to disclose their fees and commissions. Terminology The Review identifies the various different terms that have been used in respect of intermediaries under the Consumer Credit Act 1995 (“CCA”), Investment Intermediaries Act 1995 (“IIA”), European Communities (Insurance Mediation) Regulations 2005 (“Insurance Regulations”) and by the Financial Regulator. These include mortgage intermediary, tied mortgage branch agent, insurance broker, tied insurance intermediary, authorised advisor and single-agency intermediary to name a few. The Review recommends that the terminology used in the Insurance Regulations and the CCA should be used in the future to describe intermediaries, in particular insurance intermediaries, tied insurance intermediaries, mortgage intermediaries and tied mortgage branch agents. Tied insurance intermediaries or tied mortgage branch agents may also describe themselves as tied agents. The Review also recommends that the use of the term ‘multi-agency intermediary’ and ‘authorised advisor’ should be discontinued. The Review notes that while intermediaries are most commonly referred to as brokers by consumers, it would not be in the market’s interest to develop a number of new categorisations for intermediaries on this basis. Instead, the Review recommends that the term ‘broker’ and the circumstances in which it may be used should be more clearly defined. The Review provides that the term ‘broker’ may only be used by an insurance or mortgage intermediary that offers consumers a ‘fair analysis of the market’. This term is used to explain a situation where the broker has access to a sufficient number of producers in respect of a range of products so that the contract in question would be ‘adequate to the consumer’s needs’. Where a broker specialises in an area this should be included in their title, for example a pensions broker. The Review also requires that where the term broker is used, the intermediary may not be a tied agent for any particular product type within that category, for example a life assurance broker may not tie itself for any form of life assurance. The Review sets out requirements in respect of the disclosure of the types of services offered to consumers. It provides that insurance and mortgage intermediaries should supply details of the level of service provided, whether it provides for fair analysis or limited analysis and where analysis is limited, details of the companies whose products or services are offered should be detailed in the terms of business. Tied agents are required to inform the client that they are under a contractual obligation to conduct business exclusively with one product provider and must disclose the fact it is tied in all advertisements and written material. The Review also provides that the term ‘Qualified Financial Adviser’ may not be used to describe a firm. In respect of the use of the term ‘independent’, the Review recommends that that all of the following criteria should be met; ‘the intermediary provides services on the basis of a fair analysis of the market, the entity must allow the client the option to pay for its services in full by means of a fee; and if the entity is part of a group of companies to which it directs business, it must disclose the name of the group of which it is a part’. Consumer Protection Code The Review also identifies a number of areas within the CPC with particular relevance to intermediaries. The Review addresses the conflicts of interest issues that arise where contingent commission is used, where levels of commission differ between providers and target levels of business are used and emphasises that intermediaries must be able to show how they adhered to the requirements under the CPC. The Review also looks at the information contained in the policies provided to customers and notes that in order to ensure that customers receive all ‘relevant material information’ as required under the CPC, all restrictions and exclusions contained in the CPC must be understood by the customer. Insurance Intermediary Remuneration The Review notes that while there is an obligation to disclose ‘all charges’ under the CPC, there is only an obligation to disclose commission in respect of life assurance products and not non-life assurance products. The Review further notes that the Financial Regulator is currently reviewing the Life Assurance (Provision of Information) Regulations 2001 in order to simplify the information provided and make recommendations to improve transparency for consumers. The Review confirms that both the Competition Authority and the Financial Regular have recommended that commission disclosure should be introduced in respect of non-life insurance. The Review recommends that non-life insurance intermediaries should disclose in general terms, through their terms of business or other suitable mechanism, that it is paid for the services it provides. It also recommends that any payment received by the intermediary in respect of the level of business introduced or any payment that may lead to a conflict of interest should be disclosed and the amount of remuneration receivable should also be disclosed or made available on request. Appointment System The Review confirms that the Insurance Regulations do not contain any procedure for formally appointing intermediaries, unlike the IIA. It looks at the pros and cons of the current system, noting that the appointment system can lead to consumers having less choice and may lead to conflicts of interest. Following this assessment, the Review recommends that the IIA be amended to remove insurance mediation and that intermediaries should be free to deal with whatever insurance provider they choose without being subject to the appointment system. The Review recommends that affected intermediaries should reconsider their duties under the CPC, to act in the best interests of the customer, and therefore processes and procedures will need to be amended to ensure that all insurance providers in the market are considered. The Review further recommends that appointments should not be cancelled merely on the basis that the intermediary has failed to meet certain sales targets set by an insurance provider. It also requires that where an intermediary does not intend to search the entire market on behalf of the customer, this should be disclosed to them. Other Issues The penultimate chapter of the Review addresses the circumstances in which an intermediary will be held to be acting on behalf of a client or on behalf of a product producer. The Review provides that in the absence of legislation, this relationship will be governed by contract and the general principles of agency law. It identifies the following circumstances where an insurance intermediary may be considered to be acting on behalf of a client; they include providing advice to a consumer, procuring a product on behalf of a consumer and assisting a consumer with a claim. In respect of the relationship between the intermediary and the insurance provider, an intermediary may be acting for an insurance provider where is sells a product to a consumer, collects a premium on behalf of a product provider and where the insurance intermediary has binding authority to accept proposals or settle claims on behalf of the provider. It is clear from both lists that there may be occasions when duties are owed to both parties and the intermediary is under an obligation to ensure that those duties do not conflict. Implementation of Recommendations The final chapter of the Review addresses the changes that will need to be made to the CPC based on the forgoing recommendations. It also identifies the areas that will require the assistance of the Department of Finance and the Advisory Forum on Financial Legislation in order to implement the recommendations. We welcome this well researched review and would endorse its recommendations and would encourage the speedy implementation its recommendations. |
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Joe Beashel is a partner in the Banking and Financial Services Department and head of the firm’s Regulatory Risk Management and Compliance Group at Matheson Ormsby Prentice and can be contacted on +353 1 232 2000 or by email: joe.beashel@mop.ie. Further information on Matheson Ormsby Prentice is available at www.mop.ie. |
