Regulatory Investigations and the Consumer Protection Risk Assessment

Transcription

1 CPD Accreditation Code: Regulatory Investigations and the Consumer Protection Risk Assessment Muireann Reedy Dillon Eustace

2 Regulatory Investigations and the Consumer Protection Risk Assessment Presentation to the ACOI 14 November v1

3 The plan Inspections types, what to expect, how to prepare Post inspection - the potential outcomes and the Central Bank s powers Enforcement investigations Hot topics

4 Consumer protection is not a procedures document, it is an actual outcome, a living, breathing part of the firm s business model and culture. This includes an appropriate rewards model. Good culture is built around the idea of doing the right thing, even when nobody is looking. Derville Rowland, then Director of Enforcement, 22 June 2017

5 Consumer Protection Risk Assessments A Guide to Consumer Protection Risk Assessments ( CPRAs ) Credit institutions, non-bank lenders, insurance undertakings, investment firms, large retail intermediaries and e-money institutions Design and effectiveness review how do the procedures work in practice? Intrusive - observation at board and key committee meetings, system walk-through, testing and interviews Five modules: (i) governance and risk controls (ii) people and culture (iii) product development (iv) sales/transaction process (v) post sales handling

6 Inspection types CPRAs Themed inspections Inspections by specialist teams: e.g. AML/CFT Division, Client Asset Specialist Team, Fitness and Probity Team Full Risk Assessments ( FRAs ) - generally depends on PRISM rating, but investment funds this year for first time

7 What happens: pre-inspection phase Usually pre-notified documents requested for desk-top review first Policies and procedures, details of any relevant internal/external audits and evidence of training CPRAs: Some examples of potential document categories: (i) governance (ii) performance management, reward and incentives (iii) speak up, challenge and escalation FRAs: Some examples of potential document categories: (i) board documents (ii) business documents (iii) compliance documents (iv) financial documents (v) strategic documents (vi) operational documents (vii) internal audit documents Normally notified who will be on site (at least two) and who the Central Bank wants to meet from the firm

8 Pre-inspection preparation Planning is key! Documents - give what requested by deadline Meet with business areas: appoint lead contact to liaise with the Central Bank Any issues people want to discuss? Anything outstanding? Better late than never Prepare documents for on-site review

9 The inspection: some tips Be co-operative, courteous, polite, give what is asked for but do not speculate Be aware: the Central Bank can use information it collects for any of its functions Make copies of anything reviewed and take notes of what is said The Central Bank generally does not use compulsory powers at inspection Central Bank (Supervision and Enforcement) Act 2013 ( 2013 Act ) compulsory information gathering powers Part 3 (wideranging e.g. compel answers to questions, give Declaration of Truth, require access to IT systems etc) criminal offence not to comply unless reasonable excuse

10 Post inspection Post inspection findings or Risk Mitigation Programme ( RMP ) RMPs where deficiencies are more serious findings/rmps usually in draft first check for accuracy if unclear - go back and clarify can still be subject to enforcement later Set right tone from outset, set the bar high and impress the Central Bank chance to try and mitigate against any enforcement action Follow-through on any actions the Central Bank does check up (Risk Mitigation Programme Valuation Reviews) and it reflects badly on the firm if the actions are not embedded increases risk of enforcement

11 Non-compliance: supervisory powers Directions: S45 of the 2013 Act - some examples: suspend provision of financial service cannot enter into certain transactions/agreements cannot solicit business from certain persons raise and maintain capital modify systems and controls Certain circumstances must be met before issue can also publish Appeal to High Court or to Irish Financial Services Appeals Tribunal Skilled Person s Report: S9 of the 2013 Act power of last resort specific requirement for information - cannot get readily or reliably from somewhere else or need expert recommendations Skilled Persons Reporting: Statement of Proposed Use (2014)

12 Non-compliance: supervisory powers ctd Redress: S43 of the 2013 Act widespread or regular relevant defaults resulting in customer loss/damage: overcharging providing a service which was not requested providing a customer with an unsuitable financial service providing inaccurate information which influences a customer to make a decision about a financial service failure of any system or control a prescribed contravention No upper monetary limit, but cannot exceed loss plus interest

13 Redress* and Enforcement Springboard Mortgages Limited Redress: approx. 6.2m (Oct 2017) Fine: 4.5m Ulster Bank Ireland DAC Combined Insurance Company of Europe Limited Redress: approx. 59m (at Nov 14) Fine: 3.5m Redress: approx. 2.1m (at end process) Fine: 3.35m Tracker Mortgage Examination: approx. 120m as at end Sept 2017 & some Enforcement investigations on-going *In many cases redress pre-dated requirement under 2013 Act

14 Enforcement process - generally The Administrative Sanctions Procedure ( ASP ) Part IIIC Central Bank Act 1942 ( 1942 Act )* The Central Bank s first priority stop the offending behaviour Prescribed contravention broadly defined (over 100 pieces of legislation and Codes, directions, requirements made under them) Why is one case referred over another? Number of factors: serious breach which impacts on consumers Central Bank has had previous issues with the firm RMP no follow through *Different sanctioning regime applies for breaches of the Market Abuse Regulations, the Prospectus Regulations, the Transparency Regulations and the EMIR Regulations

15 Enforcement process what to expect Investigation Letter (often more than one) sets out breaches and requests a lot of information Statutory Requirements Letter (maybe) Interviews routine: internal (e.g. Compliance, individual(s) responsible for area where breach occurred) external customers/former customers formal and taped

16 Enforcement process conclusion Various options, but the reality is that most cases settle Settlement Letter normally received near end of investigation Potential sanctions at Inquiry include (S33AQ of the 1942 Act): fines of up to 10million or 10 per cent of turnover - whichever is the greater on a firm, or of up to 1m on a person* suspension of one or more authorised activities for period not exceeding 12 months* revocation of authorisation* pay the Central Bank s costs of both the Inquiry and the preceding investigation disqualifying an individual for a certain period Early Settlement Discount up to 30% Publicity statement: often the most contentious part of any settlement *Sanctions available for breaches occurring from 1 August 2013 onwards

17 ASP settlement statistics** 2006 to date Published settlements (publicity statements)* 103 Fines > 59 million Disqualifications 11 Revocations 7 Referrals to Inquiry 7 individuals (2 other referrals subsequently settled) *In the past sometimes only 1 statement issued for a settlement with multiple parties **Does not include statistics for settlements under the alternative administrative sanctions process for breaches of the Market Abuse Regulations

18 ASP CPC cases: some examples Year Name Fine Why 2016 Springboard Mortgages Limited 2016 New Ireland Assurance Company 2014 FBD Insurance plc 4.5m (and redress) Applying incorrect interest rates to 222 customer mortgage accounts 650,000 Provision of incomplete information to customers 490,000 Failure to demonstrate that it disclosed relevant material information to customers, failure to provide its Terms of Business in advance of entering into policies, failure to ensure that regulated activities which were outsourced were carried out in compliance with the CPC 2011 Combined Insurance Company of Europe Limited 3.35m (and redress) 28 breaches of the CPC, including an inappropriate remuneration framework and inappropriate behaviour of tied agents 25 settlements have related to breaches of the Consumer Protection Code ( CPC )

19 Enforcement process tips Answer all questions asked but do not speculate at interviews Sanctioning factor: how quickly, effectively and completely the regulated entity brought the contravention to the attention of the Central Bank (Outline of the Administrative Sanctions Procedure) Head of Compliance (PCF-12) and Head of Compliance with responsibility for AML & CTF (PCF-15) under statutory obligation to inform Central Bank if believe a prescribed contravention or any provision of financial services legislation may have been breached (S38(2)(a) 2013 Act)

20 Hot topics/areas of interest Look at speeches, Dear CEO letters, Central Bank s Annual Performance Statement (see strategic priorities for each Directorate) IT and cybersecurity (dedicated IT risk inspection unit since 2015) Outsourcing Fitness and Probity due diligence records Finally ensure that the firm adheres to its internal policies, its policies are sufficiently tailored to its own business and these policies are disseminated

21 Questions?

22 Contact details Muireann Reedy: