The Central Bank is consulting on changes to its Minimum Competency Code 2011. Amended twice already to cover both debt management services and credit servicing, the existing Code sets out minimum professional standards that must be met in respect of the staff of financial services providers when dealing with consumers in relation to retail financial products.
WHY IS THE EXISTING CODE BEING UPDATED?
Some of the updates are to address changes in professional knowledge and competency requirements arising from:
- the European Union (Consumer Mortgage Credit Agreements) Regulations 2016, which transposed the Mortgage Credit Directive into Irish law;
- MiFID II (due to be transposed into Irish law by 3 January 2018), and ESMA's related Guidelines for the assessment of knowledge and competence (the MiFID Guidelines); and
- the Insurance Distribution Directive (IDD) (due to be transposed into Irish law by 23 February 2018).
The Central Bank's proposed changes are more wide-ranging than those required by the above laws and guidelines. Its Director of Consumer Protection, Bernard Sheridan, commented that the proposed changes "...are aimed at increasing professional standards for staff of financial service providers, in particular for staff dealing directly with consumers in relation to retail financial products and also those designing products that are ultimately sold to consumers."
STRUCTURAL CHANGES - A NEW CODE AND REGULATIONS
Since 2011, the Central Bank's requirements in relation to minimum competency have taken the form of the existing Code. However, the Central Bank proposes to divide the new requirements into a new Code together with set of Regulations.
The new Code will deal with fitness and probity standards, additional requirements for the provision of advice on MiFID investment services and activities, and recognised qualifications.
The Regulations will deal with general requirements on regulated firms, including:
- providing services online;
- the conditions that must be met where a prescribed script function is performed on behalf of a regulated firm;
- establishing and maintaining the register of accredited persons;
- supervising individuals who are carrying out a relevant function for the first time, or carrying out a new type of relevant function for the first time;
- carrying out internal annual reviews; and
- continuing professional development.
The Central Bank intends to make the following changes but, as these changes are necessary to meet EU requirements, it is not specifically consulting on these. The changes on which it is consulting are listed later in this Briefing in the "Specific Consultation Questions" table.
As the competencies listed in the Mortgage Credit Regulations, MiFID II Guidelines and the IDD are broader than those listed in the existing Code, the new Code will reflect a more expansive EU-based list of competencies.
The definition of "advice", until now based on the definition set out in the Investment Intermediaries Act 1995, is being amended in the new Code to bring it into line with the equivalent definitions contained in the Mortgage Credit Regulations, MiFID II Guidelines and the IDD.
|PROPOSED NEW DEFINITION OF "ADVICE"|
- MiFID II
The list of "retail financial products" is being broadened to cover structured deposits and financial instruments as defined in MiFID II.
To date, the existing Code applied to the provision of advice on, arranging or offering to arrange, retail financial products for consumers. This is being widened to cover the provision of advice to, and arranging or offering to arrange retail financial products for, retail clients and elective professional clients.
Additional requirements will be imposed in respect of the provision of advice on particular MiFID services and activities which, until now, have been outside the scope of the existing Code. These include the operation of multilateral trading facilities and organised trading facilities, the placement and underwriting of financial instruments, and the provision of advice to undertakings on capital structure.
- Staff of mortgage creditors and mortgage intermediaries
Staff carrying out relevant functions in relation to mortgage credit agreements must obtain a recognised qualification by 21 March 2019, or act as new entrants working towards a recognised qualification.
- Investment products
Staff carrying out relevant functions in relation to financial instruments and structured deposits (as defined in MiFID II) must have at least 6 months' experience and obtain a recognised qualification by 3 January 2018, or with effect from that date may act under the direction and supervision of a qualified and experienced person for up to 4 years while working towards meeting the experience and qualification requirements.
- Annual reviews
All in-scope firms will now have to conduct annual reviews which take into account employees' qualifications, development and experience requirements, taking into account regulatory developments and any new retail financial products offered by the regulated firm.
- Freedom to provide services
Those who provide services in the State in respect of mortgage credit will be required to meet certain competencies regarding:
- knowledge of relevant laws (in particular, consumer protection law);
- the process for purchasing real property;
- how the Land Registry and Registry of Deeds systems work; and
- the Irish mortgage market,
through a recognised qualification for the purposes of the new Code.
SPECIFIC CONSULTATION QUESTIONS
|QUALIFICATIONS AND EXPERIENCE||Should those who carry out a relevant
function in respect of any in-scope retail financial product have a
minimum level of experience before they can work without
supervision? If so, is 6 months' experience sufficient or
should experience depend on the role and the product?
The Central Bank is seeking views on its proposal that regulated firms keep supporting documents and sign Certificates of Experience confirming the relevance and level of individuals' experience.
|DEVISING/CREATING PRODUCTS||The Central Bank has proposed that
regulated firms, at a minimum, ensure that one person with material
influence on the final decision regarding product design have a
relevant qualification for the purposes of the new Code. It is
seeking feedback on this proposal, and views on whether there are
alternative ways in which compliance with the new EU-based
competencies and standards could be demonstrated.
(To date, the existing Code has not applied to those involved in designing or approving products however, in light of EU-based changes (in particular, the Mortgage Credit Regulations) this is now in scope.)
|CREDIT UNIONS||The Central Bank is seeking views on
whether the new Code should apply to credit unions in respect of
any retail financial product offered by them that is within the
scope of the new Code, and what the timeframe should be for such an
extension of scope.
(The existing Code already applies to credit unions when carrying out insurance intermediation activities and the new Code will apply to credit unions when providing mortgage credit agreements.)
|MORTGAGE CREDIT INTERMEDIARIES||The Central Bank is seeking views on ways in which board members of mortgage credit intermediaries could meet the competencies set out in the Mortgage Credit Regulations (other than obtaining a recognised qualification for the purposes of the new Code).|
|REINSURANCE||The Central Bank is seeking views on what qualifications are suitable for the carrying out of reinsurance distribution activities.|
WHAT HAPPENS NEXT?
The closing date for submissions is 15 February 2017. We will issue a further update once the Central Bank publishes its feedback on responses received to this consultation.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.