Consumer Protection Code

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• Consumer Protection Code
• Practical Considerations
• Fergus Bradley 10 September 2009
• Tel. [phone]

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A Time for Clear Thinking !

• Unprecedented markets
• Global issues
• Regulators under pressure
• Clients suffering - confidence, jobs, investments
  
• Industry needs a clear focus

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Agenda today

• Focus on CPC
• Identify potential exposure areas
• Consider appropriate actions
• What changes should be made to CPC?

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Regulatory risk

• Breach of Code (FR)- Sanction - reprimand,
  fine, disqualification
• Business risk- If lack of transparency or lack
  of care- Financial Services Ombudsman award
  (financial loss, referral to FR)
• PI insurance claim/premium

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FSO Complaint Statistics
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Outcome in favour of Complainants - 2008

• Overall 62 (3 on 2007)
• Insurance 59 (9)
• Credit Inst. 65 (-6)

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Consumer Protection Code

• Fully inforce since July 2007
• Review planned after 3 years
• Now is the time to start identifying issues and
  lobbying for change

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Customer or Consumer

• Every client is a Customer
• Not every Customer is a Consumer
• More stringent requirements for dealings with
  Consumers
• Consistency in approach is best

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Focus on all firms

• Life, General, Mortgages
• Some specific issues for each
• Initially focus on common themes

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Terms of Business

• A critical document to get right
• Sets out the basis of services provided and
  charges/fees for those services
• Make sure you do what you say!
• Include reference to IMR Registration

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Fees

• Complete transparency required
• State fee scales in ToB ( or )
• Charges must be in line with ToB
• Fees must not be disguised, diminished or
  obscured
• Include third party fees
• Transparency avoids motivation doubts

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Overcharging

• At your peril
• Overcharge Sanction !
• Review all files back to 2001
• Massive costs, time wasted, business disruption,
  reputation

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Premium write-offs

• Firm cannot benefit from overpayment or lower
  premium than charged
• Errors must be corrected
• You must not write-off balances to your benefit
  even small amounts!
• Small balances significant issue for many brokers
  need for some leeway?

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Premium rebates

• Return to consumers in full within 5 business
  days
• Dont hold to offset against other policies for
  future renewals
• Only take fees from rebate if client has provided
  written consent impractical?
• Cant deduct commission clawback

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Client Premium A/c

• Know what goes into CP A/c - insurance premiums
  only- cant lodge tracker bonds, deposits, unit
  trust funds, etc
• Insurance premiums when- renewal invited-
  proposal accepted(e.g life bonds generally not
  accepted)
• Must have monthly reconciliations

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Receipts

• S.30 for cash, cheques, drafts for
  insurance/investment products
• Direct Debit acknowledgements ideally not in
  S.30 format

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Factfinding Capture

• Client objectives, attitude to risk, investment
  experience, personal circumstances
• Items covered verbally and agreed actions
• General ins record needs, extras, etc

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Older Vulnerable clients

• See FR letter June 08
• Older 60 !!
• May need family involvement
• Watch risk profile of product/consumer
• Be careful with Term of product
• Watch access to funds
• Need additional procedure for this !

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Records of Research

• Motor, Household, Life Protection good
  quotation engines available
• Life General know where to place other business
  e.g. Bonds, Commercial
• Must record and retain research info and
  rationale for selection on file

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Research

• Advisors must understand detailed
  nature/structure of products
• Investment products can be extremely complex
• Have seen some investments collapse!
• FSO expects advisors to be experts!
• Might get thro FR, but FSO?

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Quotations must include

• Amount of quote and time for which valid
• Summary of any warranties or endorsements
• Discounts or loadings
• Full legal name of underwriter

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Reasons Why

• A critically important document
• Avoid jargon !
• Be very specific
• State whats included
• State whats not included e.g. SIC
• If focus on single need say so!

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Reasons Why Content

• Reflect client circumstances
• Include research conducted
• State why particular product/provider recommended
• Cover all angles e.g. Optional extras, Minimum
  and Deposit premiums
• PHI/SIC refer to Key Features Document for
  definitions, restrictions...

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Reasons Why - Investments

• State client risk profile
• Give timeline of investment
• Mention if guaranteed or not !
• ARF risks/potential bomb-out
• Explain any leveraging
• Are products permitted - Credit Unions

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Optional extras

• Generally a different insurer e.g. Legal
  expenses, PPI, PA
• Treat as providing separate policies i.e.
  Research, Reasons Why.....
• Need client consent for extras
• Avoid opt-out obtain consent

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Execution only business

• Regular confusion in market
• It means, consumer has specified- product
  provider- product
• No advice given !
• No quotations provided !
• No factfind required !

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Client files for 6 yrs

• ToB
• Factfind or client needs recorded
• Evidence of research
• Reasons why for all products
• Fees clearly disclosed
• Client instructions/acknowledgements
• Evidence of advice

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Non regulated advice

• Must explain role to clients
• Cant use regulated letterhead, business cards
  etc
• Dont mix correspondence
• Danger is that advice may be regarded as being
  regulated for FSO purposes

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Mortgages

• Same principles as other products
• Level of information in Reasons Why?
• Sub-prime - rates mortgage term- full
  transparency required
• Loan consolidation information

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Mortgages also

• Affordability additional role for broker?
• Is there a level playing field? - brokers v.
  Banks
• Potential conflicts with property services

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Advertising

• FR reviews advertising
• Use of correct status disclosure
• Information/Statements/Warnings cross check all
  ads to CPC
• Prescribed Warnings - In bold print- Larger
  font- In a box

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Advertising issues

• Terms such as free
• Size of print/rushed disclosures
• Breaches of omission
• Illustrations/rates
• Misleading product names
• Intermediary appointments
• Rates not available
• Competitor comparisons

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Websites

• Regulatory status on home page
• Multi Agency Intermediaries cant say they
  provide Independent Advice or Broad based
  advice
• Include Companies Act requirements

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Website marketing

• Need transparency as to who is providing service
• Links between sites must be clear
• Terms of Business should spell out who does what
  !
• Is business execution only or not?

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Health Insurance

• A General Insurance product
• Must be qualified to advise
• Life broker must meet General Insurance
  competency to sell

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Commission sharing

• Looking for sources of business
• Share with regulated entities
• Similar authorisations required e.g. IIA, CCA,
  etc

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Business re-structuring

• Entity which intends to cease operating e.g.
  Mergers, acquisitions, etc
• Must provide 2 months notice to consumers
• Insurance intermediary retiring must inform
  consumers of option to decline to have business
  transferred

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Sanctions since 2007

• Settlements with 16 firms
• 5 firms no longer operate
• Fines totalling 4.2m imposed
• At least 4 people disqualified and ? lost their
  jobs

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Each firm.........

• Should have- Procedures- Systems- Controls
• Conduct compliance audits (internal or
  external) to identify any potential gaps

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Agenda today was to.......

• Focus on CPC
• Identify potential exposure areas
• Consider appropriate actions
• What changes should be made to CPC?

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And ........

• Do sleep at night...........
• because
• ... some day today will just be history !
• Fergus Bradley 01 845 7647