Michael McGrath (Cork South Central, Fianna Fail)
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258. To ask the Minister for Finance further to Parliamentary Question No. 214 of 16 January 2018, the position regarding proposals to prohibit the payment of fees, commissions or non-monetary benefits to third parties, including brokers and independent financial advisers, in relation to the provision of independent financial advice associated with the sale of certain financial products; the products that will be affected by the definition of insurance-based investment products; and if he will make a statement on the matter. [16060/18]

Paschal Donohoe (Dublin Central, Fine Gael)
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As the Deputy is aware, in recent years, the European Commission has focused on Consumer Protection with regard to the provision of financial services. This began with the updating of the rules for the sale of financial instruments under Markets in Financial Instruments Directive (MiFID II) and is also a focus of the Insurance Distribution Directive (IDD). 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 MiFID II, IDD and amendments to the Central Bank Consumer Protection Code 2012.

MiFID II, which gives protection for investors in financial instruments, such as shares, bonds or derivatives 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.

IDD replaces the Insurance Mediation Directive which currently regulates point of sale insurance products and following the Council of the European Union’s adoption of a Commission proposal must be transposed by 1 July 2018 and implemented by Member States by 1 October 2018. My Department is currently progressing the transposition of IDD and is liaising with the Office of Parliamentary Counsel and the Central Bank with a view to publishing the transposing Regulations well in advance of the deadline.

IDD contains a number of national discretions including in the area of fees, commissions or other non-monetary benefits 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.

It should be noted that there is an overlap between IDD and MiFID II insofar as "functionally equivalent" or substitutable investment products can be sold under either Directive.  Therefore, in order to ensure a level playing field for such products, I have decided to exercise part of the discretion in Article 29(3) of IDD to prohibit the acceptance and retaining of fees, commissions or non-monetary benefits from third parties in relation to the provision of independent advice for insurance-based investment products.  As there is no level playing field issue with insurance products in general, the discretion in Article 22(3) is not being availed of at this time, but will be considered further after the Central Bank consultation on Intermediary Inducements is completed later this year.

You should also be aware that in transposing the IDD, in the main, I have decided to avail of discretions that allow for the continuation of the current regulatory framework, rather than add to the regulatory burden.

Finally, I will further consider these discretions following the completion of the Central Bank's work in this area. In this regard, you should note that 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.

The Central Bank's consultation process closed on 22 March 2018 and my officials will examine the Central Banks’ analysis once they have completed their work and in due course advise me accordingly.

Insurance-based investment products are defined in the legislation as “an insurance product which offers a maturity or surrender value and where that maturity or surrender value is wholly or partially exposed, directly or indirectly, to market fluctuations” with certain exclusions such as pension products, non-life insurance products as listed in Annex I of the Solvency Directive; as well as life insurance contracts where the benefits under the contract are payable only on death or in respect of incapacity due to injury, sickness or disability.