Brokers Ireland

March CPD Seminars March 2018

Compliance UpdateElizabeth Smith Wright

Items Covered

• Update on Central Bank Consultation CP - 116• Update on transposition of Insurance Distribution

Directive (IDD)• Update on PRIIPs/Life Disclosure Regulations• Recent Central Bank inspections• Central Bank Bi-Annual Meeting

Update on Central Bank Consultation CP - 116

• 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.

• Key priority of Brokers Ireland – Submission in draft format.

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Update on Central Bank Consultation CP - 116

• 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

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Update on Central Bank Consultation CP - 116

• 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

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Update on Central Bank Consultation CP – 116

• 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.

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Proposed Changes

• 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.

• It is proposed that In order for “inducements” to be acceptable, they must: be designed to enhance the quality of the relevant service to the

consumer;

Commission payments fundamentality differ between MIFID and IDD/MCD firms.

Proposed Changes

• It is proposed that ALL firms would no longer be permitted to describe themselves and their regulated activities as ‘independent’ where they accept and retain inducements.

• It is proposed that certain types of commission, inducements linked to the size of a mortgage loan and other rewards, remuneration and payments would no longer be acceptable for example payment for volume / reaching sales targets.

Proposed Changes

• It is proposed that 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.

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.

Proposed Changes

• It is proposed that Intermediaries will be required to publish on their websites & display in their public offices a comprehensive summary of the details of the inducement arrangements they have with any product producers from which they receive inducements for arranging products.

• There are proposals for enhanced policies and procedure to acknowledge and manage conflicts of interest 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

Proposed Changes

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.

• Brokers Ireland meeting with CB – 6th Feb.

• 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

• Member feedback – compliance@brokersireland.ie

Update on transposition of Insurance Distribution Directive (IDD)

• Brokers Ireland met with Department of Finance on 14th February.

• EU Directive postponing the IDD implementation until 1st July and its application until 1st October is expected to be adopted on 15 March and will apply with retroactive effect from 23 February 2018.

• The DOF have indicated that they hope to complete the transposition within a short period beyond 23 Feb 2018.

• Application date 1st October

Update on transposition of Insurance Distribution Directive (IDD)

• DOF confirmed that their transposition is faithful to the directive with only very few enhanced provisions apart from improved processes for registration.

• Indicated that minister has made the decision in relation to restriction on the term independent for Insurance Based Investment Products (IBIPS)

• As there is an overlap in the nature of the products falling under MIFID and IBIPS there are concerns about products being designed to avoid relevant regulation.

Update on PRIIPs & Life Disclosure Regulations

• The “Regulation on key information documents for packaged retail and insurance-based investment products” (PRIIPs) came into force in January.

• Aim of the Regulation was to create a standardised, easy to understand “Key Information Document (KID)” for PRIIPs, which facilitates comparison between different products.

• Member feedback has highlighted significant issues with the content of the KID

Update on PRIIPs & Life Disclosure Regulations

Risk Rating

• The risk scales used on the KID are not ESMA risk scales which are mostly used industry wide in Ireland.

• Product Provider literature used for the risk scales may or may not be in line with the risk scales on the KID.

Costs/Charges

• Some product providers have adopted the approach of using the worst pricing scenario for the basis of the KID.

Update on PRIIPs & Life Disclosure Regulations

• Brokers Ireland have highlighted issues with Product Providers and will raise issues with CB at meeting on 22nd March.

• Webinars/contact Broker Consultants for clarifications

• Brokers Ireland working with Life Companies to draft a recommended standard illustration.

Update on PRIIPs & Life Disclosure Regulations

• Amendment to the Life Assurance (Provision of Information) Regulations 2001 (the Life Regulations).

• For PRIIPs products, members must provide consumers with the KID and also comply with the disclosure requirements under the Life Disclosure Regulations.

• Requirement to supply disclosure documents at point of sale where it is available.

Recent Central Bank inspections

Central Bank carrying out onsite inspections

Inspections cover the firms’ compliance with the Consumer Protection Code and Minimum Competency Code.

Approx. 1/2 weeks notice given.

Members were required to submit the following document in advance of the inspection:

Recent Central Bank inspections

1. An up-to-date organisation chart for the Firm;

2. Return completed Minimum Competency Code Questionnaire, along with a copy of the Firm's Register of Accredited Persons as per the Minimum Competency Code;

3. A copy of the Firm's Terms of Business document;

Recent Central Bank inspections

4. Schedule of sales for a selected period in excel format. The schedule file should contain the following information:

o Date of sale o Type of policy (e.g. life, personal pension, public liability etc.) o Commission (upfront) o Fee (if applicable) o Underwriter o Premium handler o Reference

5. Copies of the Firm's Internal Control Procedures documents

Recent Central Bank inspections

6. Details of the Firms Internal Systems for; Managing customer files Storing customer information/files Managing customer renewals

• Inspections take approx. two working days

• Officials of the Central Bank: interviewed certain staff reviewed the firms’ clients files and reviewed the firms complaints logs.

Recent Central Bank inspections

Get prepared!

• Brokers Ireland Template documents • Schedule of sales with the detail CB require• Carry out review of client files• Check compliance with Minimum Competency Code• Register of Accredit Individuals

Reminder: Grandfathered Mortgage Advisors, March 2019 Deadline

Central Bank Bi-Annual Meeting

• Date to take place on March 22nd

Key Agenda Items

Funding Levy Authorisations Central Bank interaction with members AML/CTF – feedback from inspections Issues surrounding the KID document

Any Questions?