IFSRA... likely impact on main distribution channels Tony Gilhawley F.I.A. Technical Guidance Ltd. “A new era for life assurance supervision” 4 March 2003 Tony Gilhawley F.I.A. Technical Guidance Ltd. “A new era for life assurance supervision” 4 March 2003

Outline n Main components of IFSRA legislation –Retailers of personal financial products n Possible impact on distribution outlets

IFSRA legislation

Legislation n The Central Bank and Financial Services Authority of Ireland (CBFSAI) (No 1) Bill, n The Central Bank and Financial Services Authority of Ireland (CBFSAI) (No 2) Bill, n Financial Services (Miscellaneous Provisions) Bill

General approach n Legislative framework maintained –Reallocation of responsibilities n Central Bank  CBFSAI n DETE ---  CBFSAI n CBFSAI functions allocated to IFSRA n IFSRA may allocate some functions to Consumer Director

IFSRA Consumer Director CBFSAI IFSRA Consumer Director

Consumer Director... specific responsibilities n Mortgage intermediaries –Some powers retained by Minister for Finance n Codes of Conduct –Investment business firms –Stockbrokers –Credit Institutions Subject to consultation with the Minister for Finance –Insurance Act, 1989 Duty of disclosure and warranties Subject to consultation with the insurance industry and consumer representatives

n Insurance Act, 2000 –disclosure of information n Client money requirements –investment business firms –Stockbrokers n Retail Investment & Intermediary Supervision (RIIS)? Consumer Director... specific responsibilities

Restrictions on Consumer Director n Other members of IFSRA may allocate responsibilities to Consumer Director n IFSRA can undertake functions itself

Restrictions on Consumer Director n Must manage functions consistent with –Orderly and proper functioning of financial markets –Prudential supervision of providers n Codes of Conduct can only be made in the name of IFSRA –Must first be approved by other members of IFSRA n Is ‘subject to the control of other members of IFSRA’

Broad scope of Consumer Director's role n Monitor the provision of financial services to consumers n Promote the best interests of users of financial services n Increase awareness of consumers of financial services –costs to consumers, –risk and benefits

Broad scope of Consumer Director's role n Monitor the extent to which competition exists among providers of financial services –in so far as it affects consumers of those services n Monitor developments that have taken place with respect to the provision of financial services, – in so far as these developments affect consumers.

Power to control insurance commission payments n Section 37, Insurance Act, 1989 –Reduction in commission payments –Power transferred to IFSRA –Subject to consent of Minister for Finance

Power to control insurance commission payments n Section 38, Insurance Act, 1989 –Non cash payments –Indemnity commissions –Can now vary by type of intermediary –Power transferred to IFSRA –Subject to consent of Minister for Finance

SummaryIFSRA Consumer Director Minister for Finance n Prudential regulation of product providers n Power to reduce insurance commissions (subject to Minister) n Power to ban certain types of insurance commissions (subject to Minister

SummaryIFSRA Consumer Director Minister for Finance n Prudential regulation of product providers n Power to reduce insurance commissions (subject to Minister) n Power to ban certain types of insurance commissions (subject to Minister n Authorisation and regulation of intermediaries n Codes of Conduct n Client Money Requirements

SummaryIFSRA Consumer Director Minister for Finance n Prudential regulation of product providers n Power to reduce insurance commissions (subject to Minister) n Power to ban certain types of insurance commissions (subject to Minister n Authorisation and regulation of intermediaries n Codes of Conduct n Client Money Requirements n Consent to reduce insurance commission payments n Consent to ban certain types of insurance commissions n PI requirement for mortgage intermediaries n Disclosure of housing loan insurance commissions n Exclude certain persons as mortgage intermediaries

CBFSAI IFSRA Joint Committee of the Financial Services Consultative Panels Consumer Consultative Panel Industry Consultative Panel Consumer Panel Advisory Group Industry Panel Advisory Group Governor Director General Chairperson of IFSRA Chief Executive of IFSRA 4 Members of IFSRA 4 Other Directors Chairperson Chief Executive Consumer Director 5-7 other Members

Barnacles n Pensions Board –Regulator of PRSA product –IFSRA regulation of PRSA providers –Where does the Consumer Director fit in? n Lack of regulation of insurer direct sales? n Continuation of ‘approved professional body’ form of self regulation n Exemption of Solicitors from IIA

Impact on main distribution channels

Facts n ‘One stop shop’ for Codes of Conduct –Consistency of treatment across all distribution outlets? –Current inconsistencies n Consumer Director has clear statutory role for protecting and promoting the interests of the consumer

Impact on main distribution channels n Intermediaries n Credit institutions n Life assurers

Independent intermediaries n A lot of pain currently –Adapting to comparing products, reason why, etc.. –Not the prevailing culture for a long period

Quotation from intermediary n ‘..once an MAI has a range of agencies, you must consider all the products available from those agencies before you make a recommendation. You must also explain the reasons why you are recommending one particular product. In this sense, being an MAI is quite different from being an old style insurance broker.’’

Quotation from intermediary n ‘I can understand why some intermediaries are concerned about being an AA. Offering truly impartial advice is a big culture change and the advantages to intermediaries are not always clear’.

Quotation from Central Bank n " Please put in place procedures to ensure all reason why letters will clearly state why a particular product is considered suitable for a client and include reasons why the product recommended is more suitable that similar products available from other product producers. The reason why letter should also show the market research conducted by the firm".’.

Unfair criticisms of Central Bank Codes n Simply restate the legal position of independent intermediary acting as the agent of the client

Misunderstanding of Authorised Advisor role n Can advise on Ark Life, if I want to –Broker n Must advice on Ark Life –Central Bank

Consumer Director n Enforcement of intermediary acting as the agent of the client –Use of Section 38 to ban non cash commission payments? –EU Insurance Mediation Directive n Higher level of enforcement of Codes?

What might happen? n AA category abandoned or modified –Large fall in number of AAs...down to 50? n One person MAIs increasingly look to tied agency arrangements n Reduction in agencies held by MAI –Reduce burden of product comparison –EU Insurance Mediation Directive influence?

Credit Institutions n Mainly ‘tied houses’ for investment business services n EU Insurance Mediation Directive –Closer harmonisation of credit institution and independent intermediary Codes –Harmonisation up or down Mortgage protection n Some may attempt to run tied branches and ‘higher net worth’ AA operation, concurrently? –Will this be possible

Life assurers n Least affected n No statutory regulation of sales process?

Impact n Credit institutions and insurers increase market share n Independent intermediaries lose out –Burden of product comparison –Burden of regulation compliance –Poor investment returns for 3-4 yrs –PRSA downward pressure on pension commissions –EU Insurance Mediation Directive

But... n This has been said before! n Independent intermediaries are resilient n Can they do it again???

IFSRA... likely impact on main distribution channels Tony Gilhawley F.I.A. Technical Guidance Ltd. “A new era for life assurance supervision” 4 March 2003 Tony Gilhawley F.I.A. Technical Guidance Ltd. “A new era for life assurance supervision” 4 March 2003