Question 1: Do you have evidence of misleading or unfair advertising or marketing practices with regard to mortgage and consumer credit?

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1 Responsible Lending and Borrowing The Financial Regulator welcomes the Commission s undertaking, following this consultation, to come forward with measures at EU level on responsible lending and borrowing. Equally, we look forward to reviewing the conclusions of (i) the Commission sponsored study on the cost and benefits of the different policy options for mortgage credit and (ii) consumer testing on an amended European Standardised Information Sheet for mortgage loans. The Financial Regulator is responsible for the authorisation and supervision of mortgage intermediaries. The National Consumer Agency is responsible for the authorisation and supervision of credit intermediaries, i.e., non-mortgage intermediaries. As such, in responding to this consultation paper, please note that the Financial Regulator has provided views, in the main, on the category of mortgage intermediaries. Question 1: Do you have evidence of misleading or unfair advertising or marketing practices with regard to mortgage and consumer credit? The statutory Consumer Protection Code (the Code), which came fully into effect on 1 July 2007, contains a chapter setting out requirements which regulated financial institutions must comply with when advertising financial products and services to consumers in. As with all parts of the Code, the section dealing with advertising is aimed at protecting the consumer and ensuring that the advertising of financial products and services is clear, fair and not misleading. 1

2 The Financial Regulator actively monitors compliance with these advertising requirements (detailed below). Where issues arise, the relevant entity is requested to either amend or withdraw the advertisement. In 2007 and 2008 a letter was issued to all regulated entities providing feedback and clarifications to assist the industry in developing and ensuring compliance with the Code s Advertising Requirements. Typical issues which arose in relation to the promotion of credit were omissions of the regulatory disclosure statement or incorrect regulatory disclosure statements, use of interest rates other than APR and failure to include warning statements in a larger font size than the normal font size used in the advertisement. Lenders and mortgage intermediaries are required to comply with a number of general provisions when advertising. For example, they must ensure that their advertisements are fair and not misleading, that the name of the lender or intermediary publishing the advertisement is clear, and warnings and product specific information must be clear and must not be obscured or disguised in any way by the content, design or format of the advertisement. Other general provisions of the Code which are particularly relevant to the advertising of credit/mortgages are: The design and presentation of an advertisement must allow it to be clearly understood. Where small print or footnotes are used, they should be of sufficient size and prominence to be clearly legible. Where appropriate they should be linked to the relevant part of the main copy. An advertisement that uses promotional or introductory rates must clearly state the expiry date of that rate and provide an indication of the rate that will apply 2

3 thereafter. This does not apply to advertisements for loans where the promotional rate is for a period that does not exceed 1 year. Where an advertisement includes an annual percentage rate, the advertisement must clearly state if the underlying rate is fixed or variable. An advertisement for a term loan must, if displaying the annual percentage rate and the term, display the total cost of credit. A regulated entity must ensure that all warnings required by this Code are prominent, i.e., they must be in a box, in bold type and of a font size that is larger than the normal font size used throughout the document or advertisement. The Code also contains specific requirements in relation to the advertising of mortgages, which are set out below: An advertisement for a variable-rate residential mortgage must contain the following warning: Warning: The cost of your monthly repayments may increase If you do not keep up your repayments you may lose your home. An advertisement for an interest-only mortgage must contain the following warning: Warning: The entire amount that you have borrowed will still be outstanding at the end of the interest-only period. 3

4 Advertisements for the consolidation of two or more debts must, where sample figures are offered in the advertisement, indicate the difference between the total cost of credit of the consolidated mortgage and the total cost of the individual debts that are the subject of consolidation. An advertisement for a debt consolidation mortgage must carry the following warning: Warning: This new loan may take longer to pay off than your previous loans. This means you may pay more than if you paid over a shorter term. Question 2: What are your views on the development of risk guidelines? In relation to risk guidelines for credit products, it is not clear what risks could be referred to in the guidelines, apart from the risk that the borrower may not be able to afford the repayments and the consequences that would arise from this. Inability to repay is a risk for the lender, and this risk is assessed by the lenders when considering whether or not to lend the amount of credit sought. The consequences for the borrower of being unable to afford the repayments could amount to the loss of the product purchased, e.g., car, house, etc. Inability to repay could also affect the borrower s credit rating which could make it difficult to secure credit in the future. In addition, the borrower could be faced with outstanding debt if the sale of the car, house, etc, does not cover the amount borrowed. It is also worth considering the consequences for guarantors who agree to take over the responsibility of making repayments where the borrower cannot meet these repayments. 4

5 While risk guidelines may have merit in relation to investment products which may involve such risks as market risk, currency risks, etc, it is not clear that there is a need for a similar type of risk guideline for consumers in relation to credit products. We do not think one can compare risk models developed for investments with those developed for lending. The types of risks inherent with lending include risks that are not related to the product or the firm such as a loss of income or illness affecting ability to repay. These risks cannot be defined generically in product documentation. While financial education can play a part it needs to be recognised that one cannot regulate consumer behaviour. As credit products do not require consumers to invest their own money, the traditional understanding of risk, i.e., the possibility of losing the capital invested to varying degrees, does not arise. As such, we would favour the introduction of warning statements during the advertising and sales stage of the credit process to focus the borrower s mind on the consequences of an inability to repay a loan and the display of the effect of an interest rate increase on the repayment amount. In addition to warning statements covering the consequences of taking on too much debt which cannot be repaid, it would also be appropriate to educate consumers about the risks of taking out multiple loans, particularly if their circumstances change suddenly due to illness, redundancy, etc. Consumers need to understand that products are something they buy they are buying a loan or buying a credit card. If they took this approach it would be far easier for them to understand the concept of risk and what can go wrong with a product they need to ask the rainy day questions at the point of sale. 5

6 The Consumer Credit Act, 1995 and our Code attempt to draw the attention of potential borrowers to the consequences of over-indebtedness by imposing requirements on lenders to include warning statements in loan documentation and advertisements. The Code requires the following warning statements to appear in various types of credit documentation: Warning: As a guarantor of this loan, you will have to pay off the loan, the interest and all associated charges if the borrower does not. Before you sign this guarantee you should get independent legal advice. Non-mortgage personal lending: Warning: If you do not meet the repayments on your loan, your account will go into arrears. This may affect your credit rating. Lifetime mortgages: Warning: Purchasing this product may negatively impact on your ability to fund future needs. The Consumer Credit Act, 1995 requires the following warning statements to appear in loan documentation: Warning: Your home is at risk if you do not keep up payments on a mortgage or any other loan secured on it. 6

7 Variable rate mortgages: Warning: The payment rates on this housing loan may be adjusted by the lender from time to time. The Consumer Credit Act, 1995 also requires credit agreements to display the effect on the amount of the repayment of an increase in interest rates of 1%. Question 3: In your view, are there certain (categories of) credit products that are inherently unsuitable for sale to retail borrowers? Would you welcome a set of standardised or certified credit products to be offered to consumers? It is unclear what specific products are envisaged here and it is difficult to comment without more specific information. Further some credit products can be harder to manage than others such as revolving credit (credit cards in particular) because there are no structured repayments and the minimum monthly repayment does not reduce the outstanding loan within a reasonable period of time. As affordability of credit for a particular consumer is such a major element of the credit decision, it is difficult to say that a certain credit product(s) is not suitable for anyone, i.e., that it should not be available on the market. The affordability of the credit for the consumer can only be assessed at the point of sale. If conditions change after the loan has been drawn down, e.g., the property market slumps making LTV rates fall, or the borrower is made redundant and cannot keep up his repayments, this does not mean that the consumer was sold an unsuitable product. 7

8 The downside of having standardised credit products is that they may be inflexible, i.e., cannot be tailored to individual customers, and so may not meet the needs of all consumers. It could also have the effect of stifling innovation and the development of new credit products, thus reducing the choices available to the consumer. The Financial Regulator regulates lenders, not credit products. We require firms to carry out Know the Customer and suitability processes, in order to ensure that only suitable products are offered to consumers. However, the final decision to take up the credit offered by a lender still lies with the consumer. If lenders know their customer then the requirements concerning suitability and acting in the best interests of the customer provide good protection. The lending criteria and the underwriting procedures capture the risk element. Consequently, there is no need for categories of credit products designed for different sets of consumers because that might close off short term lending (overdrafts, credit cards, car loans) to certain groups of society such as the retired because they are not working but have the capacity to repay. Products are designed by lenders with different markets in mind, e.g., equity release - the terms of those products already suggest that categories exist. On the basis of the above remarks we do not support categorising certain credit products as unsuitable for retail borrowers. 8

9 Question 4: Do you consider that mortgage lenders and credit intermediaries should always perform creditworthiness and/or suitability assessments before granting consumer and mortgage loans? For mortgage credit, what are your views on the criteria to be used in assessing suitability such as loan-to-income ratios or loan-to-value ratios? In, mortgage lenders and mortgage intermediaries are subject to the Consumer Protection Code (the Code), which requires them to comply with Know the Customer and suitability requirements in order to ensure that only suitable products are offered and/or provided to consumers. Credit intermediaries, other than mortgage intermediaries, are not subject to the Code and so do not have to comply with these requirements. The Code came fully into effect on 1 July Since 2008, following a change in the law, non-deposit taking lenders, now called retail credit firms which include socalled sub-prime lenders, must also comply with the Code. As a suitability assessment is already required in, we would support the development and use of suitability assessments across all EU Member States particularly with respect to mortgage loans the most significant borrowing in the lifetimes of most borrowers. The Code requires lenders to gather information about the consumer s circumstances and, based on that information, offer or recommend a product that is suitable for that consumer s needs. While the Code requires mortgage lenders and mortgage intermediaries to gather information from the customer, it does not specify what 9

10 information should be gathered (as this will vary depending on the product being sought by the consumer). However, the Code does state that the level of information gathered should be appropriate to the nature and complexity of the product or service being sought by the consumer, but must be to a level that allows the regulated entity to provide a professional service. The Suitability provisions of the Code state: A regulated entity must ensure that, having regard to the facts disclosed by the consumer and other relevant facts about that consumer of which the regulated entity is aware: a) Any product or service offered to a consumer is suitable to that consumer; b) Where it offers a selection of product options to the consumer, the product options contained in the selection represent the most suitable from the range available to the regulated entity; or c) Where it recommends a product to a consumer, the recommended product is the most suitable product for the consumer. Before providing a product or service to a consumer, a regulated entity must prepare a written statement setting out: a) The reasons why a product/service or each of a selection of product options offered to a consumer is considered to be suitable to that consumer; or b) The reasons why a recommended product is considered to be the most suitable product for that consumer. The regulated entity must give a copy of this written statement to the consumer and retain a copy. The above requirements do not apply where: 10

11 i) The consumer has specified both the product and the provider and has not received any advice; ii) The consumer is purchasing or selling foreign currency, or iii) The consumer is seeking a basic banking product or service 1. In the context of a credit product, affordability of the repayments for a consumer, in relation to their income and other commitments, is an area that should be considered by the lender/intermediary when assessing suitability. As part of the affordability assessment, lenders would normally run a credit check on a consumer seeking a credit product, as a means of assessing the consumer s creditworthiness. However, it is our view that suitability is a lot wider than just affordability/creditworthiness and that the wording of any EU suitability requirements should not be limited to requiring lenders/intermediaries to only conduct affordability/creditworthiness assessments. Suitability should also require lenders to assess which type of product should be offered to the consumer to meet his/her needs, e.g., fixed rate, variable rate or tracker rate mortgage. In our view the criteria to be used in assessing suitability should relate to the individual consumer and his/her personal circumstances. If the criteria used in assessing suitability were limited to loan-to-value or loan-toincome ratios, especially in relation to mortgage lending, some important factors would not be taken into consideration by lenders. For example, if loan-to-income ratio was the only factor considered, this could result in some consumers failing to receive mortgage approval, e.g., those households who are experiencing a lower than 1 Basic banking product or service means a current account, overdraft, ordinary deposit account or a term deposit account with a term of less than one year. 11

12 normal level of income at the time of application due to taking maternity leave, or unpaid leave and older consumers who may be asset rich but cash poor. If loan-to-value was the only criterion used, this would mean assessing the consumer against external factors such as the property market, which can experience property bubbles, resulting in extremely high market values, and property slumps, resulting in very low property values. In 2007, following a survey of the mortgage sales process of a number of mortgage lenders, we issued general feedback to the industry to highlight our findings. We noted from responses to the survey that factors such as the following are considered by lenders when assessing suitability of mortgage sales: Purpose of borrowings Type and length of loan Plans for early retirement Attitude to fixed/variable interest Age Savings track record LTV Employment Income Repayment capacity We are of the view that factors such as, but not limited to, those listed above should be considered when assessing suitability in relation to mortgage products. For information from a prudential perspective, the Capital Requirements Directive allows a preferential 35% risk weight for residential real estate under the Standardised 12

13 Approach to measure credit risk, subject to certain conditions. One of these conditions is that the value of the property exceeds the exposure by a substantial margin. We have defined substantial margin with reference to the exposures current loan-tovalue (LTV) ratio. Loans with an LTV not higher than 75% can attract the preferential 35% risk weight. The amount of any exposure above 75% LTV attracts a risk weight of 75% if the exposure meets the definition of the retail exposure class under Article 79(2) of the Directive (2006/48/EC) or 100% otherwise. Countries in the EU have differing definitions on what constitutes a substantial margin e.g. the UK defines it as loans not higher than 80% LTV. Question 5: How should the lender or credit intermediary demonstrate or document the adequacy of the creditworthiness and suitability assessment? As set out in response to Question 4 above, the Consumer Protection Code (the Code) requires a lender/mortgage intermediary to gather the information it needs from the consumer in respect of the product or service being sought, offer only suitable products/a selection of suitable product options/or a recommendation to the consumer, and document in a written statement the reasons why a product or service offered/recommended is considered to be suitable to that consumer. The lender/intermediary is required to give a copy of the written statement to the consumer and to retain a copy. Under the Code a firm must be able to demonstrate to the Financial Regulator, after the event, that the loan it offered to a borrower was, in fact, suitable at that time on the basis of the borrower s circumstances. 13

14 Question 6: Do you think that these advice standards would be appropriate in an EU context? Are there others that should be considered? What would be the most appropriate means to introduce and enforce the application of advice standards? Please explain. It may be useful to require lenders and mortgage intermediaries, at an EU level, to explain the different products and the possible consequences for consumers as the purchase of a mortgage is a long-term decision, e.g., if you take out a mortgage where the interest rate is fixed for the first 3 years you will not benefit from any reduction of ECB rates and you may have to pay a fee to break out of the fixed rate if your circumstances change. A large number of the standards listed in section 3.2 of this consultation paper already exist in. They are set out in the Consumer Protection Code (the Code) as follows: - To act honestly, fairly and professionally in the best interests of its customers; - To gather and record sufficient information from the consumer to enable the firm to provide a recommendation or a product or service appropriate to that consumer. The level of information sought must be to a level that allows the regulated entity to provide a professional service; - To ensure that any product or service offered to a consumer is suitable to that consumer; - To ensure that where a selection of product options are offered to a consumer, each of the product options in the selection are suitable to that consumer; - To ensure that where a product is recommended to a consumer, the recommended product is the most suitable product for that consumer; 14

15 - To provide the consumer with a written statement setting out the reasons why a product is considered suitable for that consumer; - To make full disclosure of all relevant material information, including all charges, in a way that seeks to inform the customer; - To seek to avoid conflicts of interest and where conflicts of interest arise and cannot reasonably be avoided, that such conflicts of interest must be disclosed to the consumer and the firm can only proceed where the consumer has acknowledged in writing that he/she is aware of the conflict of interest and that he/she still wants to proceed; Question 7: Apart from a focus on financial education, are there any measures that could be taken to encourage responsible borrowing? While the Consumer Protection Code (the Code) applies to regulated firms and cannot impose requirements on the consumer, it does require firms to ask for relevant information from the consumer and to endeavour to have the consumer certify the accuracy of the information provided. Provision 27 of the Code states a regulated entity must ensure that, where a consumer refuses to provide information sought in compliance with this Code, the refusal is noted on that consumer s records. Provision 28 of the Code states a regulated entity must endeavour to have the consumer certify the accuracy of the information it has provided to the regulated entity. Where the consumer declines to do so, the regulated entity must note this on the consumer s records. 15

16 It is difficult to see how regulatory requirements could go any further in relation to sign-off of the information provided by the consumer. We are very supportive of the use of financial education that gives a person the capacity and confidence to question what he/she is being offered and thereby leads to increased understanding. An informed consumer is less likely to buy an unsuitable product. Consumers need to understand that when they are taking out a loan they are entering into a contract. When they sign a loan offer they are signing a contract, which sets out all the terms and conditions of the loan. There has to be full disclosure on the consumer s part but also they need to understand not just be aware of the consequences of breaching that contract. For example, what happens if I cannot make the repayments? How will this impact on my credit history and my ability to obtain credit in the future? Financial education is only one element and needs to work with the systems put in place by lenders in relation to risk, knowing your customer, suitability and reliable underwriting systems. In some jurisdictions, e.g., US (one-to-one) credit counselling for vulnerable groups at higher risk of default proved to have positive effects on subsequent credit behaviour. In addition, encouraging good basic budgeting and a savings habit could reduce the need to borrow and increase the likelihood of loans being repaid. In early 2008, the Financial Regulator produced a booklet entitled You and Your Credit Record about the importance of one s credit history when seeking credit and we also have consumer guides on borrowing and mortgages. 16

17 We would suggest that consumers need to be made fully aware of the consequences of deliberately providing false or inaccurate information when seeking credit. Question 8: Do you consider that the scope of the definition of credit intermediary as set out in the Consumer Credit Directive could also be applied to the mediation of credit not covered by that directive? Would it be appropriate to differentiate between full-time credit intermediaries and persons who offer credit intermediation on an incidental basis? Please explain why (not). In order to have a level playing field and to provide the same level of protections to the consumer, the same rules should apply to all mortgage intermediaries, whether providing services on a full-time or incidental basis. As previously mentioned, in, mortgage intermediaries are regulated by the Financial Regulator and other types of credit intermediaries are regulated by the National Consumer Agency. The Consumer Credit Act, 1995 contains a definition of a mortgage intermediary as follows: mortgage intermediary means a person (other than a mortgage lender or credit institution) who, in return for commission or some other form of consideration (a) Arranges, or offers to arrange, for a mortgage lender to provide a consumer with a housing loan, or (b) Introduces a consumer to an intermediary who arranges, or offers to arrange, for a mortgage lender to provide the consumer with such a loan. If a harmonised definition of mortgage intermediary were to be introduced based on the definition of credit intermediary in the Credit Agreements for Consumers 17

18 Directive, we would suggest the inclusion of part (b) of the above definition of mortgage intermediary in order to capture persons who introduce/refer consumers to a mortgage intermediary in return for a fee. Question 9: Do you think policymakers should make distinctions between credit intermediaries in terms of the products they sell (mortgage, consumer credit, point of sale credit)? Should credit intermediaries be treated differently in terms of the status of their relationship with lenders (tied versus untied intermediaries)? Please explain your answer. As stated above, the only type of credit intermediary regulated by the Financial Regulator is the mortgage intermediary. Under the Consumer Protection Code (the Code), the same Know the Customer and Suitability requirements apply to mortgage lenders and mortgage intermediaries, whether or not the mortgage intermediary is tied. The Code also requires regulated entities to provide each consumer with a copy of its Terms of Business prior to providing the first service. The Terms of Business must state, inter alia, - The regulatory status of the regulated entity, - A description of the services that the regulated entity provides, - If the regulated entity is tied for any of its services. We would a support distinction between credit and mortgage intermediaries. The term mortgage intermediary gives an immediate indication to the consumer that the intermediary provides mortgage products. At an EU level, a requirement for a Terms 18

19 of Business which would describe in more detail the specific services provided by the intermediary could be introduced. From the point of view of mortgage intermediaries, our view is that in order to have a level playing field across the EU and to provide the same level of protections to the consumer regardless of what type of mortgage intermediary they deal with, the same rules should apply to all mortgage intermediaries, whether tied or not. Question 10: Could you give examples of cases of misconduct, mis-selling or any other instances of consumer detriment linked to credit intermediaries in your country? Prior to the introduction of the Consumer Protection Code (the Code), we found evidence of false documentation submitted in support of mortgage applications provided to mortgage intermediaries. In order to prevent this, the following provisions were inserted into the Code: Before a mortgage can be drawn down, a mortgage intermediary must submit to a mortgage lender a signed declaration that such mortgage intermediary has had sight of all original supporting documentation including bank statements, P60/certificate of earnings and other supporting documentation evidencing the consumer s identity and ability to repay. A regulated entity must ensure that it has sight of an original valuation report before drawdown of the funds. 19

20 In 2008 and 2009 the Financial Regulator entered into Settlement Agreements, in accordance with our Administrative Sanctions Procedure, with two mortgage intermediaries in relation to breaches of regulatory requirements. The suspected breaches related to, inter alia, facilitating unauthorised business, failure to draw up terms of business, failure to gather and record sufficient information from customers, failure to issue statements of suitability to certain customers. Both mortgage intermediaries sought a revocation of their authorisations. No customers made any complaints in relation to the suspected breaches. Question 11: Does the regulatory patchwork for credit intermediaries present a problem in your view? Regulatory patchworks in any industry sector present problems in terms of gaps in consumer protection and unlevel playing fields and in terms of achieving a single market goal, particularly in relation to cross border selling. Accordingly, we would support the harmonisation of rules for mortgage intermediaries at an EU level. Question 12: What would be the most appropriate way to address potential conflicts of interest, particularly with regard to fee/bonus/commission structures? Should any measures in this regard apply to bank client-facing staff as well as intermediaries? Transparency and disclosure requirements are key aspects to addressing conflicts of interest in relation to fees and commissions. 20

21 Under the General Principles of the Consumer Protection Code (the Code), all regulated firms are required to: Act honestly, fairly and professionally in the best interests of the customer Make full disclosure of all relevant material information, including all charges, in a way that seeks to inform the customer; and Seek to avoid conflicts of interest. Before providing a product or service to a consumer, the firm is required to give the consumer its Terms of Business document, which must include, among other things: - A description of the services that the firm provides; - The regulatory status of the firm; - A general statement of the charges imposed directly by the regulated entity; and - A summary of the firm s policy in relation to conflicts of interest. Under Common Rule 51 of the Code, where conflicts of interest arise and cannot be reasonably avoided, a regulated entity may undertake business with or on behalf of a consumer with whom it has directly or indirectly a conflicting interest, only where that consumer has acknowledged, in writing, that he/she is aware of the conflict of interest and that he/she still wants to proceed. The Consultation Paper asks whether any measures to address conflicts of interest should apply to bank client-facing staff as well as intermediaries. The Code and legislative provisions apply to the provider as a whole; they are not addressed to the individual staff members of the provider, i.e., there is no distinction made between the provider and its staff members. 21

22 There are currently no requirements on lenders to disclose commission. However, disclosure requirements are either in place or are proposed for insurance and investment products. The relevant requirements are set out below, for information: Life assurance products: The disclosure of sales remuneration in relation to certain life assurance products is required by the Life Assurance (Provision of Information) Regulations These Regulations cover life assurance products, personal pension plans and life assurance investment and savings products. Investment products: The sale of investment products is covered by the MiFID Regulations, which transposed the MiFID Directive into Irish law. Under these Regulations firms are required to ensure that there is clear and prior disclosure to clients detailing the existence, nature and amount of the commission. Non-life insurance products: In December 2008, the Financial Regulator published the Report on the Review of the Intermediary Market, which is available from our website. The Report was produced by a joint Financial Regulator/industry working group, consisting of the Financial Regulator and members of the industry representative bodies. The Review covered two main areas, intermediary categorisation and transparency for the consumer, including the remuneration of non-life insurance intermediaries, and makes the following recommendations: 22

23 A non-life insurance intermediary should disclose in general terms that it is paid for the service provided to the consumer by means of a remuneration arrangement with the product provider. A non-life insurance intermediary should disclose in general terms any remuneration arrangements with product providers that are not directly attributed to the service provided to an individual consumer but are based on levels of business introduced by the intermediary to that product provider or that may be perceived as having the potential to create a conflict of interest. Prior to the sale of a product, a non-life insurance intermediary should either inform the consumer of the amount of remuneration receivable in respect of that sale or that details of remuneration are available on request. The disclosures set out above should be made in the Terms of Business document or through some other suitable mechanism, and in renewal notices. The term independent may only be used where all of the following apply: o The intermediary provides services on the basis of a fair analysis of the market; o The entity must allow the client the option to pay for its services in full by means of a fee; and o If the entity is part of a group of companies to which it directs business, it must disclose the name of the group of which it is a part. 23

24 The option of payment by fee must be explained in advance to the consumer. Where a firm charges a fee and also receives commission in respect of the service/product provided to the consumer, it must explain to the consumer how the commission relates to the fee charged, e.g., whether it will be offset against the fee, either in full or in part. These recommendations have not yet been implemented but will be included in the Code following a review of the Code which is due to commence later in the year. Question 13: What are your views on the registration and supervision of credit intermediaries? Mortgage intermediaries operating in are required to obtain authorisation from the Financial Regulator. Mortgage intermediaries are required to comply with the Consumer Protection Code and with our Minimum Competency Requirements. The Minimum Competency Requirements require authorised firms to ensure that individuals acting on their behalf in areas dealing with consumers have a certain level of experience and/or educational qualifications. We supervise the conduct of business activities of all regulated entities by means of themed inspections, general inspections, and mystery shopping exercises. To apply for authorisation as a Mortgage Intermediary, the applicant must complete and return a signed application form which requires the applicant to give personal details and the background of the applicant. The applicant must confirm that it 24

25 complies with the Minimum Competency Requirements and the conflict of interest requirements contained in the Consumer Protection Code. The following also needs to be included in the application. 1. An appointment in writing ( letter of appointment ) in respect of all undertakings (i.e., mortgage lenders or mortgage intermediaries) for which the applicant wishes to act as a mortgage intermediary. 2. Current Revenue Tax Clearance Certificate. 3. Certificate of Incorporation. 4. Partnership agreement. 5. Business Name Registration Certificate. Question 14: What are your views on prudential and professional requirements for credit intermediaries (such as minimum capital, professional indemnity insurance, educational or professional qualifications)? As mentioned above, mortgage intermediaries are subject to the Minimum Competency Requirements (the Requirements). The Requirements came into effect on 1 January 2007 and introduced a basic competency framework that is designed to establish minimum standards for financial service providers, with particular emphasis on areas dealing with consumers. At present there are no minimum capital or professional indemnity insurance ( PII ) requirements in place for mortgage intermediaries. Under domestic legislation governing mortgage intermediaries, the Minister for Finance has the facility to impose 25

26 a PII regime on mortgage intermediaries 2, but the Financial Regulator is not aware of any imminent proposals to do so. Question 15: How do you think the activities of credit intermediaries could be brought within existing complaint and out-of-court redress mechanisms? An out-of-court complaint and redress mechanism is provided in by the Financial Services Ombudsman s Bureau. The Financial Ombudsman will consider complaints in connection with mortgage and other types of credit intermediaries. Where there is disparity between Member States concerning access to complaint and out-of-court redress mechanisms for consumers of mortgage and credit intermediaries, consideration should be given to introducing a similar obligation on Member States to ensure such access, as set out, for example, in the Credit Agreements for Consumers Directive. 2 Section 116(10) of the CCA: the Minister for Finance may, after consulting the Bank, make regulations prohibiting the holder of an authorisation from acting as or claiming to be a mortgage intermediary unless there is in force in respect of that holder a policy of professional indemnity insurance that complies with such requirements as are specified in those regulations. 26