On 25 September 2019, the Central Bank of Ireland (the "Central Bank") published an Addendum to the Consumer Protection Code 2012 (the "CPC") which introduces new requirements relating to the payment of commission to financial intermediaries.
The amendments are designed to enhance transparency in commission arrangements between financial intermediaries and product producers and to prohibit certain types of commission arrangements. The aim is to minimise the risk of conflicts of interest arising from commission arrangements when intermediaries are providing advice to consumers.
Independent no more?
Under the new rules, in order for commission arrangements to be permitted, the commission must not impair compliance with the duty to act in the best interests of consumers. In the case of a nonmonetary benefit, the commission must be designed to enhance the quality of the relevant service to the consumer.
Further, conflicts of interest must be avoided. Any commission that is linked to targets that do not consider a consumer's best interests, e.g. sales volumes, will be deemed a conflict of interest.
Significantly, an intermediary is no longer permitted to describe itself or its services as "independent", where it accepts and retains commission and is providing financial advice.
New disclosure requirements
Intermediaries will be required to disclose to consumers a summary of the details of all commission arrangements that the intermediary has in place with product producers. The summary must, at a minimum, include the following:
- an indication of the agreed amount or percentage paid to the intermediary;
- an explanation of the arrangement, including details of the type of fee, commission, other reward or remuneration provided to the intermediary; and
- details of any other agreed fees, administrative costs or non-monetary benefits included under such arrangements.
This information must be brought to the attention of the consumer before concluding a contract for a financial product service.
Conferences in, golf days out
Under the new rules only non-monetary benefits which are designed to enhance the quality of the service to the consumer will be permitted. Such benefits might include food and drink at a conference or other consumer oriented industry event. The Central Bank has made it clear that corporate hospitality events such as golf trips and sporting event tickets will not be allowed.
As part of the Central Bank's consumer protection compliance monitoring process, supervisors will be empowered to request from intermediaries details of all non-monetary benefits received.
The amendments to the CPC will require product producers and intermediaries to review their commission and inducement arrangements and to make changes where necessary. Intermediaries will be required to take the necessary steps to comply with the transparency requirements. The new rules come into effect on 31 March 2020.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.