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Brokers Ireland Member Meetings

. Central Banks consultation on Intermediary Inducements Enhanced Consumer Protection Measures CP 116. February 2018. 1. Agenda. Welcome:. Overview of CP 116 proposals & Brokers Ireland planned response: Diarmuid Kelly.

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Brokers Ireland Member Meetings






Presentation on theme: "Brokers Ireland Member Meetings"— Presentation transcript:

Slide1

Brokers Ireland

Member Meetings

Central Banks consultation on Intermediary Inducements Enhanced Consumer Protection Measures CP 116

February 2018

1Slide2

Agenda

Welcome:

Overview of CP 116 proposals & Brokers Ireland planned response: Diarmuid Kelly

Explaining Mifidisation: Paul Carty, Brokers Ireland Board Member

Member discussion Timelines & closing remarks: Diarmuid Kelly

2Slide3

Overview of CP 116 proposals

&

Brokers Ireland Planned ResponseDiarmuid Kelly, Brokers Ireland Chief Executive

3Slide4

Background: Overview of CP 116 proposals & planned response

CP 116: Intermediary Inducements Enhanced Consumer Protection Measures was published on the 22nd of Nov 2017. 

Submissions due by the 22

nd of March 2018.Consultation paper follows on from the 2016 discussion paper on the payment of commission to Intermediaries.

4Slide5

Background: Overview of CP 116 proposals & Brokers Ireland planned response

The 2016 discussion paper focused on the risks & benefits to the consumer of the payment of commission to Intermediaries.

Brokers Ireland made a joint submission – 13 in total received by the Central Bank (no submissions received from consumer bodies/individual consumers)

5Slide6

Background: Overview of CP 116 proposals & Brokers Ireland planned response

February 2017 – feedback statement published on Discussion paper.

Central Bank indicated they were going to focus on:

Use of the word independentEliminating product provider bias

Volume based override payments

6Slide7

Content: Overview of CP 116 proposals & Brokers Ireland planned response

The Consultation Paper contains 31 questions and invites responses on some or all of the issues addressed.

Key Points

Change in terminology“Mifidisation” of the market

Enhanced Quality of ServiceUse of the term IndependentTransparencyConflicts of interest

Proposals in relation to restricting payment of commissions

7Slide8

Overview of CP 116 proposals & Brokers Ireland planned response

Change in terminology:

Proposed use of the term Inducement as a substitute for the term commission.

No legal basis for this proposal – Brokers Ireland completely rejects this change in terminology.

8Slide9

Overview of CP 116 proposals & Brokers Ireland planned response

“Mifidisation” of the market

Proposing to apply standards of MIFID across all financial products, i.e.. from pet insurance to complex investment products. This approach was rejected by EU legislators – Decision was made to draft 3 distinct pieces of Legislation i.e. MIFID II, IDD and MCD.

9Slide10

Overview of CP 116 proposals & Brokers Ireland planned response

Enhanced Quality of Service - A MIFID Concept

In order for “inducements” to be acceptable, they must:be designed to enhance the quality of the relevant service to the consumer;

not have the potential to impair the intermediary’s obligation to act honestly, fairly and professionally in accordance with the best interests of the consumer; andnot have the potential to impair the intermediary’s obligation to satisfy the suitability requirements set out in Chapter 5 of the Code.

10Slide11

Overview of CP 116 proposals & Brokers Ireland planned response

Brokers Ireland rejects this proposal in it’s entirety.

It needs to be recognized by the Central Bank that the nature of MIFID products differ greatly from the nature and complexity of products which fall under the IDD and MCD.

Commission payments fundamentality differ between MIFID and IDD/MCD firms.

11Slide12

Overview of CP 116 proposals & Brokers Ireland planned response

Use of the term Independent:

It is proposed that firms would no longer be permitted to describe themselves and their regulated activities as ‘independent’ where they accept and retain “inducements”.

Brokers Ireland rejects this proposal.A deliberate decision was taken by European Parliament when drafting the IDD/MCD not to impose a ban on commissions for independent advice

.

12Slide13

Overview of CP 116 proposals & Brokers Ireland planned response

Current provisions of the code should continue to apply.

Proposed change will mean that choice is taken away from the consumer.

Importance of the concept of independent advice

13Slide14

Overview of CP 116 proposals & Brokers Ireland planned response

Proposal that inducements linked to size of mortgage loan be prohibited.

Brokers Ireland rejects this proposal.

Lending is subject to strict Central Bank criteria in relation to loan to value ratios and affordability. Current market practice where commission rates are linked to the loan amount works well and reflects the additional work and complexities of larger cases.  

14Slide15

Overview of CP 116 proposals & Brokers Ireland planned response

Concern lenders will select a lower remuneration amount regardless of the complexity of the case.

Brokers forced to charge the consumer a top-up-fee to pay for their services or stop providing advice in this area.

Consumers may be forced to deal directly with lenders – lack of choice/advice.

15Slide16

Overview of CP 116 proposals & Brokers Ireland planned response

An intermediary may not recommend a product to a consumer as being the most suitable product from a range where there are different levels of inducement offered for the range of products involved.

Brokers Ireland rejects this proposal - could ultimately mean that Brokers would have to refuse to recommend particular products to consumers.

16Slide17

Overview of CP 116 proposals & Brokers Ireland planned response

Competition Law argument. CB have indicated broker could either put in place measures to eliminate the bias i.e. set a fee for this range of products and charge/refund monies to the client as appropriate; or

the broker could outline a range of products to the client at the point of sale via the statement of suitability and the client select which product they want from the range.

17Slide18

Overview of CP 116 proposals & Brokers Ireland planned response

Also proposals that certain inducements are deemed to give rise to a conflict of interest and, therefore, must be avoided.

These are:

inducements linked to targets that do not consider the consumer’s best interests (e.g., targets linked to volume, profit or business retention); andsoft commission arrangements;

18Slide19

Overview of CP 116 proposals & Brokers Ireland planned response

Brokers Ireland argue that the existence of these override payments can provide benefits to consumers.It can drive the costs down and enable more consumer choice through a variety of annually renewable insurance products.

19Slide20

Overview of CP 116 proposals & Brokers Ireland planned response

Greater Transparency Intermediaries must publish on their websites and display in their public offices a comprehensive summary of the details of the inducement arrangements they have with any product producers with which they have an appointment or from which they receive inducements for arranging products.

Summary document also to be brought to the attention of the consumer

20Slide21

Overview of CP 116 proposals & Brokers Ireland planned response

Intermediaries are already subject to a comprehensive disclosure regime.

We don’t believe there is any benefit to the consumer of this proposal and ultimately the only benefit would be to competitors in order to compare commission levels between the providers.

Impossible to keep such comprehensive details up to date and accurate

21Slide22

Overview of CP 116 proposals & Brokers Ireland planned response

Conflicts of Interest There are proposals for enhanced policies and procedure to acknowledge and manage such conflicts both by the intermediary and the product producer.

Firms will be required to retain records to demonstrate:how conflicts of interest arising from inducements have been avoided for each transaction;

22Slide23

Overview of CP 116 proposals & Brokers Ireland planned response

how the requirement that a firm must not make any recommendation if there are different levels of inducement offered for the range of products involved has been met; and

that the inducement arrangements summary document was brought to the attention of the consumer before concluding a contract for a financial product.

23Slide24

Overview of CP 116 proposals & Brokers Ireland planned response

Brokers Ireland consider these proposals as completely unworkable overall and in particular for volume business.

Consumers already overwhelmed with the volume of paperwork received. It would mean additional cost, more paperwork with no tangible benefit to the consumer.

24Slide25

Central Bank Meeting

Feedback:

Clear that the CB are fundamentally seeking through the proposals contained in the consultation paper to:

Eliminate/remove product provider bias and address conflicts of interest that are in place and Achieve the highest standards across the board – i.e.. Mifidise

25Slide26

Department of Finance Meeting

Feedback:

Advised that for the transposition of the IDD it is their intention to stick very closely to the wording of the Directive.

Term Independent - The Dept. of Finance advised that the decision has been made in relation to Insurance Based Investment Products and the Minister has signed off on it.

26Slide27

Overview of CP 116 proposals & Brokers Ireland planned response

Brokers Ireland submission currently in draft submission

Welcome any member feedback –

compliance@brokersireland.i.e.

27Slide28

Brokers Ireland activities

Consultation paper - Key priority

Brokers Ireland Board Meetings

Brokers Ireland meetings with both the Central Bank and Department of Finance in relation to the Consultation paper.Meeting public representatives on the matter.

Member meetings

28Slide29

Explaining

Mifidisation

Paul Carty, Brokers Ireland Board Member

29Slide30

Central Hypotheses of CP116 is:

CBI see’s commission as creating conflict of interest/bias.Result - the Central Bank sees the higher standard of MIFID II (MIFIDISE) as an appropriate response, for example:-Ban commission for “Independent advice”. (MIFID) (Not IDD)

Fee, commission is designed to “enhance” rather than “not have a detrimental impact” on the quality of the service. (MIFID v IDD).ALL WRAPPED IN THE CONSUMER INTEREST

30Slide31

We have to do the following:

Undermine the assumptions in CP116, flawed research, failure to differentiate between products in terms of consumer profile and exposure, failure to understand intermediation, failure to produce evidence of bias.

2. Demonstrate that it is contrary to consumer interests.

Whilst adopting language and explanations that are as simple as the circumstance dictate or permit that resonate with the audience.

31Slide32

UNIT TRUSTS

HEDGE FUNDS

INVESTMENTS

PRODUCT MAP

1

PET

TRAVEL

HOME

MOTOR

PROPERTY

LIABILITY

TERM INSURANCE

SERIOUS ILLNESS

INCOME PROTECTION

PRSA

PENSIONS

IBIP’S

INSURANCESlide33

UNIT TRUSTS

HEDGE FUNDS

INVESTMENTS

PROTECTION

PRODUCT TYPE

INVESTMENT

€€€€€€

€€

2

PET

TRAVEL

HOME

MOTOR

PROPERTY

LIABILITY

TERM INSURANCE

SERIOUS ILLNESS

INCOME PROTECTION

PRSA

PENSIONSIBIP’S

INSURANCESlide34

UNIT TRUSTS

HEDGE FUNDS

INVESTMENTS

PROTECTION

INSURANCE DISTRIBUTION DIRECTIVE

2619

MiFID II

88

REGULATION

INVESTMENT

€€€€€€

€€

+ IBIP

Regs

.

Chapter 8

3

PET

TRAVEL

HOME

MOTORPROPERTY

LIABILITYTERM INSURANCESERIOUS ILLNESSINCOME PROTECTION

PRSAPENSIONSIBIP’S

INSURANCESlide35

UNIT TRUSTS

HEDGE FUNDS

INVESTMENTS

PROTECTION

INSURANCE DISTRIBUTION DIRECTIVE

2619

MiFID II

88

NEGLIGIBLE

SERIOUS

CONSUMER RISK PROFILE

INVESTMENT

€€€€€€

€€

+ IBIP

Regs

.

Chapter 8

4

PET

TRAVEL

HOMEMOTOR

PROPERTYLIABILITYTERM INSURANCESERIOUS ILLNESS

INCOME PROTECTIONPRSAPENSIONSIBIP’S

INSURANCESlide36

UNIT TRUSTS

HEDGE FUNDS

INVESTMENTS

PROTECTION

INSURANCE DISTRIBUTION DIRECTIVE

2619

MiFID II

88

REGULATION

INVESTMENT

€€€€€€

€€

+ IBIP

Regs

.

Chapter 8

3

PET

TRAVEL

HOME

MOTORPROPERTY

LIABILITYTERM INSURANCESERIOUS ILLNESSINCOME PROTECTION

PRSAPENSIONSIBIP’S

INSURANCESlide37

UNIT TRUSTS

HEDGE FUNDS

INVESTMENTS

PROTECTION

INSURANCE

INSURANCE DISTRIBUTION DIRECTIVE

2619

MiFID II

88

NEGLIGIBLE

SERIOUS

CONSUMER RISK PROFILE

INVESTMENT

€€€€€€

€€

+ IBIP

Regs

.

Chapter 8

PREMIUM

RISK TRANSFER

5

PET

TRAVEL

HOME

MOTORPROPERTY

LIABILITYTERM INSURANCESERIOUS ILLNESS

INCOME PROTECTIONPRSAPENSIONSIBIP’SSlide38

REGULATORY EQUIVALENCE

IDD

MiFID

INSURANCE

INVESTMENT

6

CBI

CONSUMER IMPACT:

INCREASED UNNECESSARY COSTSREDUCED CONSUMER CHOICEDEGRADED MARKETSlide39

Member Discussion

39Slide40

Timelines & Closing remarks

Submission closing date 22

nd of March

Brokers Ireland to continue to lobby Central Bank & Department of Finance and public representativesCentral Bank have indicated that output from consultation will be published towards end of 2018

Review of CPC 2019 to incorporate any changes

40