Context

The first comprehensive consumer protection code was introduced in 2006.  It updated and greatly expanded a number of existing codes of conduct which applied to distinct sectors such as stockbrokers, investment intermediaries, lenders, and others.  The code followed on from a radical reorganisation of the regulation of financial services which took effect in 2004.  A new financial regulator (formerly it was established together with a single comprehensive financial services ombudsman.)  See our other chapters in relation to the schemes of regulation established in 2003-2004.

The 2006 code was made under a range of pre-existing legislation regulating various industries such as banks, insurers, building societies, intermediaries and insurance brokers.  The 2003-2004 legislation had superimposed a single  regulator over the disperse legislation and brought unity to the mechanisms and methods of enforcement.  The codes of conduct are unusual in that they are drafted non-legalistic language.  They are not set out like legislation generally and are intended to be accessible and comprehensible.

The 2012 code consolidates and updates the 2006 code.    The code was extended to retail credit and home reversion firms in 2008.  This brought certain lenders within its scope who were not previously subject to it.

The Code of Conduct on Mortgage Arrears was made in response to the unprecedented number of residential mortgages in distress in February 2009. It has been revised and updated number of times and it is now wholly incorporated in a standalone code.

The 2012 code is effective 1st January 2012.  Proceedings, investigations, and enforcement in respect of the code prior to that date continue under the older code.  The older code is substantially similar.

Legal Status

The code has dual legal significance.  On the one hand, it is a basis upon which the regulator may undertake regulatory enforcement and apply sanctions against regulated financial service providers.  On the other hand, the code is enforceable by members of the public such  as consumers through complaints to the Financial Services Ombudsman’s office.  This financial service ombudsman has significant powers including jurisdiction to make awards up to €250,000.

Where a consumer makes a complaint to the Financial Services Ombudsman the lender may not bring the matter to court.  Alternatively, the consumer may choose to take a court action as an alternative to a complaint to the ombudsman’s office.

There is an appeal from decisions of the  ombudsman to court.  The  courts effectively treat such appeals in the same manner as a judicial review decision.  A number of cases have clarified the relationship.

Scope

The code applies to financial services entities either authorised by the Irish regulator (Central Bank) or authorised by another regulator, but providing services into Ireland or in Ireland through a branch.  It covers banks, insurance companies, building societies, insurance intermediaries, mortgage intermediaries, investment advisors and other intermediaries, credit unions, retail credit firms, and home reversion firms.

The general principles of the code apply to all customers of the regulated entity in the State.  These are very general obligations only.  The more specific obligations apply to consumers defined, which include smaller businesses with a turnover of less than €3,000,000.

Where credit agreements are subject to EU regulation, the code applies in a limited manner.  The code does not apply to services which are regulated under the MiFID directive and Regulations.  However, the broad principles of the code are similar to much of the MiFID regulation which applies to investment-related services.

See our separate chapters on MiFID services.  These are separately regulated under common EU wide rule and are enforced by the regulator.

The code does not apply to moneylenders regulated under the Consumer Credit Act, credit unions which are not undertaking insurance business, bureau de change and hire purchase and credit hire agreement. These activities are separately regulated.

General Principles

The general principles of the code apply to regulated financial services providers in all dealings with customers.  It is not limited to consumers.  The duties include the following:

• Act honestly, fairly and professionally in the best interests of the customer and the integrity of the market;
• Act with acute care skill and diligence in the best interest of customers;
• Not recklessly negligently or deliberately to mislead a customer as to the real or perceived advantage or disadvantage of a service,
• Have the necessary resources, policies, procedure systems, controls, checks, and staff training to implement the code;
• Seek information from customers relevant to the product or service requested;
• Fully disclose charges, avoid conflicts of interest, correct errors speedily;
• Have an efficient complaint handling system;
• Not exert undue pressure or influence on a customer;
• Ensure that outsourced activities comply with the code;
• Not through its policies prevent access to basic financial services;
• Comply with the letter and spirit of the code.

Consumers

The bulk of the code applies to consumers.  A consumer for the protection purpose of the code is much wider than for other consumer legislation including the Consumer Credit Act.  A consumer is

• A  private person
• A business or partnership with turnover of less than 3 million euro;
• A company with a turnover less than 3 million euro.  Where a company is part of a group, this refers to the group turnover.

It includes a potential consumer.

A vulnerable consumer means a person who has the capacity to make his own decisions, but because of his individual circumstances may require assistance to do so or has limited capacity to make his decision and requires assistance to do so.  The former may include persons who are visually or hearing impaired.  The latter includes persons with intellectual disabilities  or mental health difficulties

Where a financial services provider identifies the consumer as vulnerable as above, it must ensure that the vulnerable consumer is provided with such reasonable arrangements and/or assistance that may be necessary to facilitate him in his dealings with the regulated entity.

Some General Obligations I

A regulated entity must ensure that the name of a product is not misleading in terms of benefits that it can deliver to a consumer.  It must ensure that all instructions received from the consumer are properly and promptly processed.

Credit institutions (banks and equivalent) must ensure that funds lodged are credited by the close of the business day in which they are received.  If not so credited they must be backdated to the day on which they were received.

Regulated financial service providers which receive payments from consumers for a product or service must provide a receipt.  The receipt must specify certain information including the name and address of the provider and consumer, the value of the payment, the date of receipt and the purpose.

Documents which confer ownership rights on the consumer must be given to the consumer or held for safekeeping. Where held for safekeeping there must be in agreement on paper or another durable medium.

Where a person is acting for a consumer under a power of attorney the institution must obtain a certified copy and ensure that it allows a person to act for the consumer’s benefit.  It must comply with the limits of the power.

Some General Obligations II

A regulated entity must not seek to limit, exclude or restrict its liability to consumers under any legislation or under the code.  It must not limit, restrict or exclude any liability or obligation it may have at common law to act with due skill care and attention.

All warnings required to be given under the code must be prominent.  They must be in a box in bold type and of a font size at least equal to the predominant font size in the document or advertisement.

Where the regulated entity proposes to amend the range of service that it provides, it must give one month’s notice in advance of the amendment to consumers who are affected by it.

Where it ceases operations, merges or transfers any of its activities it must notify the regulator provide two months’ notice to consumers  to allow them to make alternative arrangements and ensure that outstanding businesses is properly completed prior to the transfer or merger or cessation,  inform the consumer regarding continuity of services following transfer and inform consumers that their details are being transferred if applicable.  Similar positions apply if a credit institution proposes to close, merge or move a branch.

Before opening a joint account for personal consumers, a credit institution must warn each personal customer of the consequences of operating a -joint account, specify transactions for which the consent of all is not required, ascertain whether statements are to be provided separately to each  joint account holders and ascertain any limitations which personal consumers may wish to impose on the account.

A regulated entity cannot provide unsolicited preapproved credit to a personal customer.  It may only increase a personal credit limit in line with an agreement with the consumer.  Where a charge is intended to be made in respect of the provision or arrangement of a loan to a personal consumer and is to be advanced incorporate in the loan amount, the entity must give the consumer the right to pay the charge separately and not include it in the loan.

Bundling

Products and services must not be bundled. The sale of a product or service must not be made contingent on the consumer purchasing another product or service from the same entity or a related entity. Additional products or services may be offered to existing consumers which are not available to potential customer.

Where a feeder account is required to avail of other products, the consumer must not be obliged to use it other than for the purpose of facilitating payments for the private concern.  Charges cannot be applied for using the feeder account for its established purpose.  Additional services must be options and must be activated only by the consumers.

Bundling is permitted only if there is a demonstrable cost saving to the consumer.  Prior to offering or arranging a bundled product, the service provider must provide the consumer with certain information on paper or a durable medium including

• the overall cost to the consumer of the bundle;
• cost of each product separately
• how to switch products within the bundle,
• cost of switching products to exit,
• cost of exit.

Certain information must be provided when a consumer wishes to switch one or more products in the bundle or exit the bundle.  Where an optional extra is offered in conjunction with the product or service, the consumer must be informed that he has the right not to purchase the optional extra in order to buy the main product.  He must be informed of the  cost of the basic product and service and the cost of the optional extra.  The consumer must not be charged any fee for the optional extra unless the consumer has confirmed that he wishes to purchase the optional extra.

Some Insurance Obligations

Where payment protection insurance is offered in conjunction with a loan the lender must exclude payment protection from the initial repayment estimate of the loan and advise the consumer of the amount of the premium separately.  Separate application forms must be used for the protection and the loan.

A regulated lender’s insurance company et cetera may only pay fees and commissions for the provision of regulated activities only to certain persons who are themselves regulated  or otherwise certified or authorised.  The persons must not only be regulated, but they must be regulated for the particular purpose/ function concerned.

A deposit agent must not retain the account passbook of a consumer.  He must not operate on the same premises as a deposit broker.

Conflicts of Interest I

A regulated entity must have a written conflict of interest policy appropriate to its activities.  It must identify activities which may give rise to a conflict of interest which may damage the interests of consumers.  It must specify procedures to be followed in order to manage the conflicts.

If a conflict arises and can’t be reasonably  avoided, it must disclose the nature and source of the conflict to the consumer. They may only undertake business on behalf of the consumer in such circumstances where the consumer has acknowledged on paper or in a durable medium that he is aware of the conflict and wishes to proceed.  The entity must ensure the conflict has not damaged the interests of the consumer.

A regulated financial services entity distributes products to consumers through  an intermediary, it must not require the intermediary to introduce a specified level of business in order to retain its employment.  Where an entity placing products through intermediaries pays commissions based on the level of business, it must be able to demonstrate that the arrangements did not compromise the intermediary’s duty to act in the best interests of consumers and does not give rise to a conflict of interest between the intermediary and the consumer.

Conflicts of Interest I

A regulated financial service provider must ensure that its remuneration arrangements with employees in connection with providing, arranging and recommending products and services to consumers are not structured in a way which has the potential to impair the obligation to act in the consumer’s best interest and satisfy suitability requirements.

Financial service providers must ensure there are effective Chinese walls between different areas of businesses and between the entity and its group companies in relation to information which could give rise to conflicts o -interest or the risk of abuse.  There must be written procedures in relation to maintenance of the Chinese walls and the consequence of the breach. Chinese walls are arrangements in an organisation or between connected organisations so that  information is withheld from other units of the organisation.

Financial services provider must take reasonable steps to ensure that its officers or employees do not offer, give or solicit gifts or rewards not to feel otherwise likely to conflict with its duties.

A soft  commission arrangement is an agreement under which a regulated entity receives goods or services in return for which it agrees to direct business through or in the way of another person.  Such an agreement must be entered in writing.  Where it exists business must be transacted in a way that does not conflict with the best interests of the consumer.

Where an entity considers the consumer may be affected by the arrangement, the consumer must be informed of its existence and how it might affect them.  A copy must be made available on request.  Goods and services received under the arrangement  must be used for the  provision of services to consumers.  The entity must provide a customer with details of changes in the policy and soft commission arrangements promptly.

Contact with Consumers I

A regulated entity must not make unsolicited personal visits to a consumer who is an individual.  It may only make a personal visit to an individual if he has given informed consent to being contacted by a personal visit.  Consent must be obtained for each visit and a record of consent must be maintained.  The consent must relate to the purpose of the visit including in the case of sales and marketing, the type of products discussed and the time and date for the visit.

Telephone contact may only be made with an existing consumer provided

• the entity has within 12 months provided that consumer with a product and service similar to the purpose of the telephone contact
• the consumer holds a product or service which requires the regulated entity to maintain contact in relation to that product and the contact is in relation to that product.
• the purpose of the telephone contact is limited to offering protection policies or
• the consumer has given his consent for being contacted in this way.

Contact with Consumers II

Contact may only be made with a consumer other than  an existing customer.

• if the consumer signed a statement within the previous 12 months giving the regulated entity permission to make telephone calls for  specified purposes and the contact is for such purposes:
• the consumer has a listing in a business section of the current telephone directory, trade/  professional directories in the state and contact are made via the business number;
• the consumer is a director of the company or partner in a firm and contact is made via the business number in connection with the role of director or partner;
• the consumer is the subject of a referral for which the consumer has provided express consent received from an entity authorised to provide financial services in Ireland and other entity within the group, a solicitor  or a certified person;
• the purpose is limited to offering protection policies.

In the case of a referral,  it must be followed by an indication to the consumer that the referral has been made and the caller must ask for consent to proceed. When it makes telephone contact , it must record the referral.

The telephone contact may only be made between 9:00 a.m. and 9:00 p.m. Monday to Saturday excluding public holidays and bank holidays unless otherwise agreed with the consumer.

Where a person makes a personal visit or telephone contact, under the code,  he must immediately identify himself by name, identify the entity, inform that the telephone call  is being recorded if this is so, disclose the source of business lead or referral and establish if  the consumer wishes the personal visit or contact to proceed.  If not, it must be ended immediately.  The regulated entity must abide by the request not to make the visit or telephone contact again for sales and marketing purposes.

Lodgement

Insurance intermediaries must lodge monies received for premiums paid into a segregated client premium account.  They must operate separate accounts for life or non-life business.  Regulated entities must ensure payment from a client premium account state that the payment emanated from the account concerned.  It must never be overdrawn.

There are certain limited types of lodgements and withdraws only that may be permitted from a client premium account. Insurance intermediaries must undertake reconciliations of amounts due to insurers other entities and the balance on the client premium account.

New Investment Products

In the case of new investment products produced by a product producer for sale to the customers the following details must be provided to the intermediary:

• Key characteristics and features;
• The target market for consumers of the product
• nature and extent of risks inherent in the product;
• nature level extent limitations of any guarantee attaching to the product;
• name of the guarantor.

In selling an investment product to consumers through an intermediary the product producer must provide information to the intermediary about the investment product that is clear, accurate, up-to-date, not misleading and includes certain key information.  The producer must provide an on-going facility to the intermediary to ask questions and obtain information about the product.  It must provide the facility to the intermediary for the duration of the period during which the product is offered for sale and inform the intermediary of his right with respect to the on-going facility.

Within the first year of launching an investment product which is sold to consumers and at least annually thereafter the product provider must update the information.

Register of Intermediaries

A regulated entity must maintain a publically accessed register of all mortgage intermediaries to which it has issued a current appointment.  On termination of the appointment, it must provide the Central Bank with confirmation in writing of the removal.