Protecting Consumers: Central Bank reminds RFSPs of its expectations
The Central Bank has sent a Dear CEO letter to all regulated financial service providers (RFSPs), setting out how it expects them to protect consumers in the face of the challenging economic outlook.
This letter supplements the Central Bank’s latest Consumer Protection Outlook Report 2022, published in March 2022. That Report highlighted five key cross-sectoral risks affecting consumers: poor business practices and weak business processes; ineffective disclosures; the changing operational landscape; technology-driven risks; and the impact of shifting business models.
In light of rising interest rates, energy-driven inflation, and the increasing costs facing consumers and businesses, the Dear CEO letter reminds RFSPs of key steps that they should be taking under four headings:
Affordability and suitability
Key points made by the Central Bank under this heading were:
- Reminding RFSPs, regarding mortgages, of the requirement in the Consumer Protection Code (CPC) to assess affordability on the basis of, at a minimum, a 2% interest rate hike.
- RFSP’s need to assess how a consumer’s circumstances might be affected by the current economic outlook.
- Increased day-to-day costs and unanticipated costs must be factored in to advice on savings and investments, and RFSPs must ensure that they have clear procedures for calculating consumers’ capacity for loss.
- Clear explanations should be given of the potential impact of inflation on the performance/value of an investment, and on nominal returns.
Provision of relevant, clear and timely information
Key reminders given by the Central Bank under this heading were:
- RFSPs must give information to consumers in a way that allows consumer to make informed decisions, in particular regarding affordability. That information must be prominent on RFSP’s websites, business premises and other publicly-available material.
- Where a change to terms or conditions could impact on cost, this must be clearly explained to consumers (in particular in light of the current economic outlook and the need for many consumers to budget carefully).
- RFSPs should use their data to identify groups of consumers that could benefit from early engagement.
Effective operational capacity
Under this heading, the Central Bank reminded RFSPs that they should:
- Monitor and manage their resources in an appropriately reactive way – for instance, at the moment consumers may have a greater need for credit, may be more likely to go into arrears, or may need insurance claims processed quickly.
- Ensure that staff are familiar with the protections and supports available to borrowers under the Central Bank’s codes.
- Focus on operational resilience and RFSP’s ability to provide an uninterrupted payment service to consumers.
Sales and product governance
RFSPs were also reminded that:
- They should have robust product governance and oversight arrangements in place.
- When selling or advising on insurance products, they should consider the impact of increasing costs on consumers’ budgets. RFSPs should help consumers understand the impact of reducing / cancelling insurance cover.
- They must monitor and evaluate the investment products they sell, think about how the risk profile of those products may change in the current economic climate, and look to mitigate resulting risks to clients. Due diligence on product offerings by the RFSPs themselves is key, in particular on factors such as risk-return profile, liquidity, costs and charges, and any ‘kick-out’ or ‘trigger’ features.
The expectations highlighted in the Dear CEO letter are intended to supplement the issues brought to RFSP’s attention in the Consumer Protection Outlook Report 2022. The Central Bank expects RFSPs to incorporate the above points into their work programmes, and into their discussions at board and senior management level.
For more information on the Central Bank’s focus on consumer protection, read our recent insights on its Discussion Paper on the review of the CPC here: Consumer Protection Code: Central Bank publishes Discussion Paper.
“It is important that financial services plays its part in supporting consumers to navigate this changing economic landscape. The letter we are publishing today highlights a number of areas to which firms should pay particular attention as they do so, in order to ensure that consumers’ best interests are protected at this time and recognising the multiple challenges consumers are facing.” [Central Bank Director of Consumer Protection, Colm Kincaid]