1. Brokers Ireland Member Meetings
Central Banks consultation on Intermediary Inducements Enhanced Consumer Protection Measures CP 116
February 2018

2. Agenda
Welcome:
Overview of CP 116 proposals & Brokers Ireland planned response: Diarmuid Kelly
Explaining Mifidisation: Paul Carty, Brokers Ireland Board Member
Member discussion
Timelines & closing remarks: Diarmuid Kelly

3. Overview of CP 116 proposals & Brokers Ireland Planned Response
Diarmuid Kelly, Brokers Ireland Chief Executive

4. Background: Overview of CP 116 proposals & planned response
CP 116: Intermediary Inducements Enhanced Consumer Protection Measures was published on the 22nd of Nov 2017. 
Submissions due by the 22nd of March 2018.
Consultation paper follows on from the 2016 discussion paper on the payment of commission to Intermediaries.

5. Background: Overview of CP 116 proposals & Brokers Ireland planned response
The 2016 discussion paper focused on the risks & benefits to the consumer of the payment of commission to Intermediaries.
Brokers Ireland made a joint submission – 13 in total received by the Central Bank (no submissions received from consumer bodies/individual consumers)

6. Background: Overview of CP 116 proposals & Brokers Ireland planned response
February 2017 – feedback statement published on Discussion paper.
Central Bank indicated they were going to focus on:
Use of the word independent
Eliminating product provider bias
Volume based override payments

7. Content: Overview of CP 116 proposals & Brokers Ireland planned response
The Consultation Paper contains 31 questions and invites responses on some or all of the issues addressed.
Key Points
Change in terminology
“Mifidisation” of the market
Enhanced Quality of Service
Use of the term Independent
Transparency
Conflicts of interest
Proposals in relation to restricting payment of commissions

8. Overview of CP 116 proposals & Brokers Ireland planned response
Change in terminology: Proposed use of the term Inducement as a substitute for the term commission.
No legal basis for this proposal – Brokers Ireland completely rejects this change in terminology.

9. Overview of CP 116 proposals & Brokers Ireland planned response
“Mifidisation” of the market
Proposing to apply standards of MIFID across all financial products, i.e.. from pet insurance to complex investment products.
This approach was rejected by EU legislators – Decision was made to draft 3 distinct pieces of Legislation i.e. MIFID II, IDD and MCD.

10. Overview of CP 116 proposals & Brokers Ireland planned response
Enhanced Quality of Service - A MIFID Concept
In order for “inducements” to be acceptable, they must:
be designed to enhance the quality of the relevant service to the consumer;
not have the potential to impair the intermediary’s obligation to act honestly, fairly and professionally in accordance with the best interests of the consumer; and
not have the potential to impair the intermediary’s obligation to satisfy the suitability requirements set out in Chapter 5 of the Code.

11. Overview of CP 116 proposals & Brokers Ireland planned response
Brokers Ireland rejects this proposal in it’s entirety.
It needs to be recognized by the Central Bank that the nature of MIFID products differ greatly from the nature and complexity of products which fall under the IDD and MCD.
Commission payments fundamentality differ between MIFID and IDD/MCD firms.

12. Overview of CP 116 proposals & Brokers Ireland planned response
Use of the term Independent: It is proposed that firms would no longer be permitted to describe themselves and their regulated activities as ‘independent’ where they accept and retain “inducements”.
Brokers Ireland rejects this proposal.
A deliberate decision was taken by European Parliament when drafting the IDD/MCD not to impose a ban on commissions for independent advice.

13. Overview of CP 116 proposals & Brokers Ireland planned response
Current provisions of the code should continue to apply.
Proposed change will mean that choice is taken away from the consumer.
Importance of the concept of independent advice

14. Overview of CP 116 proposals & Brokers Ireland planned response
Proposal that inducements linked to size of mortgage loan be prohibited.
Brokers Ireland rejects this proposal.
Lending is subject to strict Central Bank criteria in relation to loan to value ratios and affordability.
Current market practice where commission rates are linked to the loan amount works well and reflects the additional work and complexities of larger cases.  

15. Overview of CP 116 proposals & Brokers Ireland planned response
Concern lenders will select a lower remuneration amount regardless of the complexity of the case.
Brokers forced to charge the consumer a top-up-fee to pay for their services or stop providing advice in this area.
Consumers may be forced to deal directly with lenders – lack of choice/advice.

16. Overview of CP 116 proposals & Brokers Ireland planned response
An intermediary may not recommend a product to a consumer as being the most suitable product from a range where there are different levels of inducement offered for the range of products involved.
Brokers Ireland rejects this proposal - could ultimately mean that Brokers would have to refuse to recommend particular products to consumers.

17. Overview of CP 116 proposals & Brokers Ireland planned response
Competition Law argument.
CB have indicated broker could either put in place measures to eliminate the bias i.e. set a fee for this range of products and charge/refund monies to the client as appropriate; or
the broker could outline a range of products to the client at the point of sale via the statement of suitability and the client select which product they want from the range.

18. Overview of CP 116 proposals & Brokers Ireland planned response
Also proposals that certain inducements are deemed to give rise to a conflict of interest and, therefore, must be avoided.
These are:
inducements linked to targets that do not consider the consumer’s best interests (e.g.,
targets linked to volume, profit or business retention); and
soft commission arrangements;

19. Overview of CP 116 proposals & Brokers Ireland planned response
Brokers Ireland argue that the existence of these override payments can provide benefits to consumers.
It can drive the costs down and enable more consumer choice through a variety of annually renewable insurance products.

20. Overview of CP 116 proposals & Brokers Ireland planned response
Greater Transparency
Intermediaries must publish on their websites and display in their public offices a comprehensive summary of the details of the inducement arrangements they have with any product producers with which they have an appointment or from which they receive inducements for arranging products.
Summary document also to be brought to the attention of the consumer

21. Overview of CP 116 proposals & Brokers Ireland planned response
Intermediaries are already subject to a comprehensive disclosure regime.
We don’t believe there is any benefit to the consumer of this proposal and ultimately the only benefit would be to competitors in order to compare commission levels between the providers.
Impossible to keep such comprehensive details up to date and accurate

22. Overview of CP 116 proposals & Brokers Ireland planned response
Conflicts of Interest
There are proposals for enhanced policies and procedure to acknowledge and manage such conflicts both by the intermediary and the product producer.
Firms will be required to retain records to demonstrate:
how conflicts of interest arising from inducements have been avoided for each transaction;

23. Overview of CP 116 proposals & Brokers Ireland planned response
how the requirement that a firm must not make any recommendation if there are different levels of inducement offered for the range of products involved has been met; and
that the inducement arrangements summary document was brought to the attention of the consumer before concluding a contract for a financial product.

24. Overview of CP 116 proposals & Brokers Ireland planned response
Brokers Ireland consider these proposals as completely unworkable overall and in particular for volume business.
Consumers already overwhelmed with the volume of paperwork received.
It would mean additional cost, more paperwork with no tangible benefit to the consumer.

25. Central Bank Meeting Feedback:
Clear that the CB are fundamentally seeking through the proposals contained in the consultation paper to:
Eliminate/remove product provider bias and address conflicts of interest that are in place and
Achieve the highest standards across the board – i.e.. Mifidise

26. Department of Finance Meeting
Feedback:
Advised that for the transposition of the IDD it is their intention to stick very closely to the wording of the Directive.
Term Independent - The Dept. of Finance advised that the decision has been made in relation to Insurance Based Investment Products and the Minister has signed off on it.

27. Overview of CP 116 proposals & Brokers Ireland planned response
Brokers Ireland submission currently in draft submission
Welcome any member feedback –

28. Brokers Ireland activities
Consultation paper - Key priority
Brokers Ireland Board Meetings
Brokers Ireland meetings with both the Central Bank and Department of Finance in relation to the Consultation paper.
Meeting public representatives on the matter.
Member meetings

29. Explaining Mifidisation Paul Carty, Brokers Ireland Board Member

30. ALL WRAPPED IN THE CONSUMER INTEREST
Central Hypotheses of CP116 is:
CBI see’s commission as creating conflict of interest/bias.
Result - the Central Bank sees the higher standard of MIFID II (MIFIDISE) as an appropriate response, for example:-
Ban commission for “Independent advice”. (MIFID) (Not IDD)
Fee, commission is designed to “enhance” rather than “not have a detrimental impact” on the quality of the service. (MIFID v IDD).
ALL WRAPPED IN THE CONSUMER INTEREST

31. We have to do the following:
Undermine the assumptions in CP116, flawed research, failure to differentiate between products in terms of consumer profile and exposure, failure to understand intermediation, failure to produce evidence of bias.
Demonstrate that it is contrary to consumer interests.
Whilst adopting language and explanations that are as simple as the circumstance dictate or permit that resonate with the audience.

32. PRODUCT MAP INVESTMENTS INSURANCE TERM INSURANCE PET TRAVEL HOME MOTOR
PROPERTY
PRSA
LIABILITY
PENSIONS
IBIP’S
UNIT TRUSTS
HEDGE FUNDS
INCOME PROTECTION
SERIOUS ILLNESS 1

33. PRODUCT TYPE INVESTMENTS INSURANCE PROTECTION INVESTMENT €€ €€€€€€
TERM INSURANCE
PET
TRAVEL
HOME
MOTOR
PROPERTY
PRSA
LIABILITY
PENSIONS
IBIP’S
UNIT TRUSTS
HEDGE FUNDS
INCOME PROTECTION
SERIOUS ILLNESS 2

34. INSURANCE DISTRIBUTION DIRECTIVE
REGULATION
INVESTMENTS
PROTECTION
INVESTMENT €€
€€€€€€
INSURANCE DISTRIBUTION DIRECTIVE
+ IBIP Regs.
Chapter 8
MiFID II
2619 88
TERM INSURANCE
PET
TRAVEL
HOME
MOTOR
PROPERTY
PRSA
LIABILITY
PENSIONS
IBIP’S
UNIT TRUSTS
HEDGE FUNDS
INCOME PROTECTION
SERIOUS ILLNESS 3

35. INSURANCE DISTRIBUTION DIRECTIVE
CONSUMER RISK PROFILE
INVESTMENTS
NEGLIGIBLE
SERIOUS
PROTECTION
INVESTMENT €€
€€€€€€
INSURANCE DISTRIBUTION DIRECTIVE
+ IBIP Regs.
Chapter 8
MiFID II
2619 88
TERM INSURANCE
PET
TRAVEL
HOME
MOTOR
PROPERTY
PRSA
LIABILITY
PENSIONS
IBIP’S
UNIT TRUSTS
HEDGE FUNDS
INCOME PROTECTION
SERIOUS ILLNESS 4

36. INSURANCE DISTRIBUTION DIRECTIVE
REGULATION
INVESTMENTS
INSURANCE
PROTECTION
INVESTMENT €€
€€€€€€
INSURANCE DISTRIBUTION DIRECTIVE
+ IBIP Regs.
Chapter 8
MiFID II
2619 88
TERM INSURANCE
PET
TRAVEL
HOME
MOTOR
PROPERTY
PRSA
LIABILITY
PENSIONS
IBIP’S
UNIT TRUSTS
HEDGE FUNDS
INCOME PROTECTION
SERIOUS ILLNESS 3

37. INSURANCE DISTRIBUTION DIRECTIVE
CONSUMER RISK PROFILE
INVESTMENTS
INSURANCE
PREMIUM
NEGLIGIBLE
SERIOUS
RISK TRANSFER
PROTECTION
INVESTMENT €€
€€€€€€
INSURANCE DISTRIBUTION DIRECTIVE
+ IBIP Regs.
Chapter 8
MiFID II
2619 88
TERM INSURANCE
PET
TRAVEL
HOME
MOTOR
PROPERTY
PRSA
LIABILITY
PENSIONS
IBIP’S
UNIT TRUSTS
HEDGE FUNDS
INCOME PROTECTION
SERIOUS ILLNESS 5

38. REGULATORY EQUIVALENCE
IDD
MiFID
CBI
INSURANCE
INVESTMENT
CONSUMER IMPACT:
INCREASED UNNECESSARY COSTS
REDUCED CONSUMER CHOICE
DEGRADED MARKET 6

39. Member Discussion

40. Timelines & Closing remarks
Submission closing date 22nd of March
Brokers Ireland to continue to lobby Central Bank & Department of Finance and public representatives
Central Bank have indicated that output from consultation will be published towards end of 2018
Review of CPC 2019 to incorporate any changes