Background

On 17 November 2022, the Central Bank of Ireland (CBI) sent a “Dear CEO letter” (Letter) to all Irish regulated firms (Firms) regarding the treatment of consumers in a challenging economic environment.

In the Letter, the CBI directs Firms to its March 2022 Consumer Protection Outlook Report (Report), noting a more challenging economic outlook, characterised by energy-driven inflation and uncertainty, since the publication of the Report.

Purpose

The Letter reminds Firms of the CBI’s expectations in the Report to manage potential risks to consumers, particularly given the changing landscape, in the following areas:

1. Actively identify and address risks to consumers that may potentially emerge from changes in the landscape within which the Firm and/or its consumers are operating;
2. Have sufficient operational resilience to manage change without creating risks to consumers;
3. Proactively assess the risks and consumer impact a commercial decision may pose to new and existing customers, and develop comprehensive action plans to mitigate these risks;
4. Have the customer service capacity and structures in place to meet expected service levels to provide a timely and customer focused service through all channels;
5. Consider the impact of their decisions on vulnerable customers and provide the assistance necessary; and
6. Only design and bring to market products with features, charges, and risks that meet the needs of consumers identified for the product.

Appendix

In an Appendix to the Letter, the CBI sets out further items for particular attention which are summarised below.

Affordability and suitability

• Firms providing or advising on credit should note their obligations to ensure that credit is affordable.

• When gathering information and considering a consumer’s individual circumstances, both prior to selling or during the course of a financial product, Firms should consider that circumstances could be impacted by the current economic outlook. Firms should identify customers in vulnerable circumstances and provide appropriate supports.

• Advice on savings and investments needs to consider both the short and long term needs of the consumer, and should factor in both an anticipated increase in the day-to-day costs consumers may face and costs they may not anticipate. Firms must have clear procedures for calculating consumers’ capacity for loss, to ensure they do not invest in products that are outside their financial capacity.

• Firms should clearly explain the impact inflation may have on the performance/value of an investment and on nominal returns. For products that include a guarantee or capital protection, it should be clearly outlined that this would not protect against the effect of inflation over time.

Provision of relevant, clear and timely information

• Firms should provide information to consumers – including prominent information on their websites, business premises and other publicly available material - to enable them to make informed decisions on their options regarding changing financial products for more affordable or better value options and on available supports for customers facing difficulties meeting their payment obligations under existing financial products.
• Firms must clearly explain changes to terms or conditions which may impact on the cost of a financial service to consumers.

• Firms producing financial products are reminded of their responsibilities to provide information (including to intermediaries who sell or advise on their products) that is clear, accurate, up-to-date and not misleading in the context of the current economic circumstances and outlook, and that helps consumers make informed decisions. 

• Firms should use their data to identify potential groups of consumers that may benefit from early engagement with the Firm, and carry out early and appropriate engagement campaigns with these consumers

Effective operational capacity

• Firms should monitor and manage their resources in a manner that is appropriately reactive to those services which, in this context, consumers may need to a greater extent or which may be especially important.

• Training should seek to equip staff to have complex conversations in an empathetic manner with consumers facing financial difficulties.

• Staff should have sufficient knowledge of the protections and supports for borrowers under the various Codes, and Firms should ensure they have the required, and sufficiently expert, resources to assess individual circumstances, and to offer appropriate and sustainable solutions to consumers.

• Firms should pay particular attention to operational resilience and their capacity to provide an uninterrupted payment service to consumers.

Sales and product governance

• Firms should have robust product governance and oversight arrangements in place to proactively assess the risks and consumer impacts commercial decisions may pose to new and existing customers, and develop action plans to mitigate these risks.

• Firms selling and advising on insurance products should consider the impact of increasing costs on consumers’ budgets - both to meet premium payments and in the event of the occurrence of an insurable event.
• Firms should provide clear and understandable information to consumers on the implications of any reduction in insurance cover.

• Firms should engage with customers who choose to cancel or reduce insurance cover due to affordability to ensure they understand any implications and avoid the cancellation of necessary cover.

• Firms should monitor and evaluate the investment products they sell and consider how their risk profile may change in this period of volatility - including whether they remain suitable for sale to retail investors - and seek to mitigate risks to clients accordingly.

• Firms must ensure their due diligence on products takes account of all relevant factors, including risk-return profile, liquidity, costs and charges, and any ‘kick-out’ or ‘trigger’ features that may alter the nature of an investment product under certain conditions.

Next steps

Firms should review and consider the Letter and the Report, including a review of the specific items set out in the Appendix to the Letter.

The Letter should be considered by the Firm’s board and incorporated into the Firm’s work programme.

The Letter warns Firms that in circumstances of non-compliance by a Firm with any regulatory requirements relevant to the matters raised in the Letter, the CBI may, in the course of future supervisory engagement, or when exercising its supervisory and/or enforcement powers in respect of such non-compliance, have regard to the consideration given by a Firm to the Letter.

The Letter is another example of steps taken by financial regulatory authorities to ensure consumer protection standards are adhered to in relation to increased cost of living challenges. For more on this topic, see our Engage article ‘UK cost of living crisis: Key issues for retail financial institutions’ which includes information on similar issues in Ireland and the U.S.