Written answers

Tuesday, 16 January 2018

Department of Finance

Financial Services Regulation

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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214. To ask the Minister for Finance if he has made a decision to prohibit the payment of fees, commissions or non-monetary benefits to third parties, including brokers and independent financial advisors, in the provision of independent financial advice associated with the sale of certain financial products; the details of such a decision including the products it relates to and when it takes effect; and if he will make a statement on the matter. [55200/17]

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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For the purpose of this reply, I assume that the Deputy is referring to financial activities governed by the Insurance Distribution Directive (the IDD), the Markets in Financial Instruments Directive (MiFID) and the Central Bank of Ireland’s Consumer Protection Code 2012 (the CPC).

In recent years, the European Commission has focused on Consumer Protection with regard the provision of financial services. This began with the updating of the rules for the sale of financial instruments under MiFID and is also a focus of the IDD legislation. The aim of European Legislation in these areas is to provide transparency and clarity to the consumer around the advice they are being given. A way of achieving this is to bring in more stringent requirements around how sellers of such products can receive fees or inducements from third parties. There is also a need to ensure a level playing field for all the providers of products, such as insurance or financial instruments, which can be interchangeable in a number of cases.

Ireland is implementing the improvements in consumer protection via the transposition of IDD, MiFID II and amendments to the Central Bank Consumer Protection Code 2012.

As the deadline for transposition of the Insurance Distribution Directive is 23 February 2018. The Directive is currently in the process of being transposed and it will replace the Insurance Mediation Directive (IMD) which currently regulates point of sale insurance products.

IDD contains a number of national discretions which are open to Member States to adopt if they so wish. My Department carried out a public consultation on these discretions in April 2017 and submissions were received from Insurance Ireland, Irish Life Group and Brokers Ireland.

The discretions set out in Articles 22 and 29 of the Directive, allow Member States to limit or prohibit the acceptance or retaining of fees, commissions or other non-monetary benefits. Following the consideration of the submissions received during the public consultation and consultations with the Central Bank of Ireland, I have decided to exercise part of a discretion contained in Article 29 to prohibit the acceptance and retaining of fees, commissions or other non-monetary benefits in relation to the provision of independent advice for insurance-based investment products.

I will further consider these discretions following the completion of the Central Bank's work in this area. The Bank issued a Consultation Paper in November, which contains proposals to enhance the protections for consumers when seeking advice from financial intermediaries. This includes proposals for stricter rules on how financial intermediaries can be paid commission (or other inducements) by the firms whose products they sell.

The proposed measures require firms to avoid conflicts of interest created by poorly designed inducement arrangements and provide greater transparency for consumers about how a financial intermediary, whose advice they are relying on, is getting paid.

This consultation will close on 22 March 2018 and I look forward to seeing the Central Banks’ analysis once they have completed their work.

It should also be noted that the Commission has recently published a proposal to postpone the implementation date of the IDD requirements to 1 October 2018. This proposal is subject to agreement by the Council, Commission and European Parliament in the normal way.

The framework on advice in IDD is also replicated in the Markets in Financial Instruments Directive or MiFID II, which gives protection for investors in financial instruments, such as shares, bonds or derivatives, and came into effect on 03 January 2018. Under the legislation, authorised investment firms are banned from accepting fees, commissions or other non-monetary benefits when giving “independent” investment advice. The exception is where the non-monetary benefit is minor and is of benefit to the quality of service that the firm provides.

Under MiFID II, I exercised the discretion to allow certain firms such as those authorised under the Investment Intermediaries Act 1995, many of whom are small brokers servicing local markets, to be exempt from the full MiFID II requirements. However, these firms must be subject to strict rules around consumer protection that are deemed “analogous” to the MiFID II rules including those around the acceptance of fees and commissions. To ensure that these firms are covered by analogous rules, the Central Bank updated its Consumer Protection Code (2012) in this area in November 2017. Under the Code, product producers must be able to demonstrate that any commission arrangements based on levels of business introduced do not impair the intermediary's duty to act in the best interests of the consumers and do not give rise to a conflict of interest between the intermediary and the consumer.

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