The Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Bill 2021: Passed all stages
On 31 March 2022, the Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Bill 2021 passed all stages in the Seanad. It will now be sent to the President for his signature. The Bill requires providers of credit (direct or indirect) to consumers (including hire purchase/PCP agreements) to become regulated by the Central Bank of Ireland (CBI).
The Bill will also provide for the regulation of entities which service or own these agreements as well as making some consequential and related amendments to the Consumer Credit Act 1995, including the extension of the existing interest rate cap on credit and hire purchase agreements provided to consumers (other than money lending agreements which have their own regulatory framework) to all entities that fall within the scope of that Act.
Opening Statement by Governor Gabriel Makhlouf at Joint Oireachtas Committee on Finance, Public Expenditure and Reform, and Taoiseach
On 30 March 2022, Gabriel Makhlouf, Governor of the Central Bank of Ireland, delivered the opening statement before the Joint Oireachtas Committee on Finance, Public Expenditure and Reform, and Taoiseach.
In his opening statement, Governor Makhlouf discussed the economic outlook, the financial landscape in Ireland, CBI’s new strategy and the CBI’s regulatory priorities for 2022.
Governor Makhlouf stated the Irish economic outlook remains broadly positive, despite the war in Ukraine, the pandemic and the persistence of inflation. Consumer price inflation rose to 5.7% (HICP) in February 2022. The CBI are concerned at the impact of inflation and Governor Makhlouf said increases in official consumer prices for energy and fuel are yet to reflect in full the developments of recent weeks. Governor Makhlouf expects the war to have a material impact on economic activity and inflation in the euro area.
Governor Makhlouf discussed the CBI’s new strategy which represents a renewal and repositioning of the CBI to face the opportunities and complexities posed by the rapidly-changing world of financial services. Four connected themes were highlighted: Future-Focused; Open & Engaged; Transform and Safeguarding.
Governor Makhlouf highlighted the CBI’s financial regulation priorities 2022 which include:
- continued prioritisation of authorisation work across multiple sectors;
- in the area of payments, participation in the work on a digital euro, promoting low-cost instant payments domestically and across Europe and contributing to the review of the Payment Services Directive and the functioning of open banking;
- on the microprudential side, continued focus on operational resilience, covering cyber resilience, critical infrastructure and outsourcing;
- in relation to conduct and consumer protection, CBI’s priorities include business interruption insurance, long-term mortgage arrears and oversight of the withdrawal of Ulster Bank and KBC from the Irish market. CBI will continue to enhance the reports from the National Claims Information Database to support the wider policy agenda towards a better functioning non-life insurance sector;
- stepping up of work on climate change to both ensure the financial system can support the transition to a carbon neutral economy and is suitably resilient to the risks, with a focus on the development and marketing of ‘green’ financial services products and services such that they are meeting high standards of quality and disclosure; and
- continued evolvement of the CBI’s regulatory frameworks and supervisory approaches to ensure that the interests of citizens and the economy are well-served by innovation in the financial sector.
Governor Makhlouf also outlined the key milestones of CBI’s work programme for 2022 which include:
- completing the framework review of the macro prudential mortgage measures,
- contributing to the European review of capital buffers for banks,
- starting a comprehensive review of Consumer Protection Code
- introducing new measures to address risks in Irish property
- putting in place a structured framework for engagement including an Industry Stakeholder Forum, Financial System Conference and a Climate Risk and Sustainable Finance Forum.
Notice of Intention – Upcoming changes following enactment of the Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Bill
On 29 March 2022, the CBI published a notice of intention on upcoming changes under the Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Bill 2021 (the Bill) which is expected to be signed into law in 2022.
On commencement of the Act, entities providing credit (directly or indirectly) through hire purchase agreements or consumer hire agreements (such as buy now pay later agreements) will be required to seek authorisation as a Retail Credit Firm (RCF) from the CBI. Entities that service these agreements will also require authorisation as a Credit Servicing Firm (CSF).
The Consumer Protection Code 2012 (the Code) will be amended by way of an Addendum to the Code published by the CBI. The principal changes to the code include deleting exclusions for the provision of credit of a total amount of €200 or less and hire purchase and consumer hire agreements.
An Addendum is also proposed to the Minimum Competency Code 2017 (MCC) to include RCFs and CSFs in the scope of the MCC. The amendment to the Minimum Competency Regulations 2017 imposes obligations on regulated firms regarding the transitional arrangement.
The CBI states it will publish the Addendums to the Code and MCC and changes to the MCR at the commencement date of the Act, or as soon as possible thereafter. Any firms engaged in RCF or CSF activities are invited to signal intention to seek such an authorisation to the CBI.
Central Bank warning on investing in crypto-assets
On 22 March 2022, the CBI issued a warning on the risks of investing in crypto assets, as part of a European- wide campaign by the European Supervisory Authorities. The CBI emphasised that crypto assets are highly risky and speculative, and may not be suitable for retail customers. The CBI highlighted the risks of misleading advertisements, particularly on social media, where influencers are being paid to advertise crypto assets.
Innovation Hub 2021 Update
On 15 March 2022, CBI published the Innovation Hub 2021 update (the update). The Innovation Hub continued to experience strong growth in demand from innovators. The update identified trends in innovation in the areas of payments, regtech, digital assets, sustainability and stakeholders. The CBI noted an increase in enquiries from potential Virtual Asset Service Providers (VASPs) and Crowdfunding Service Providers. The CBI encourage firms interested in discussing innovation to make contact with the Innovation Hub.
CBI publishes its sixth annual Demographic Analysis Report
On 7 March 2022, the Central Bank of Ireland (CBI) published its sixth annual Demographic Analysis Report (the report) which breaks down the Pre-Approval Control Function (PCF) applications by gender, age, and nationality. Key developments outlined in the report include:
- Whilst progress has been made in improving gender diversity, this progress is slow. Female representation in applications for PCF roles in 2021 stood at 31%, in comparison to 16% in 2012, the first year for which data was available. Approximately one in six applications received in 2012 were for women, compared to just under one in three in 2021.
- Within the context of a continuing gender imbalance at board level across all sectors, the 2021 report has shown improvements. Female representation for these positions increased by 6 percentage points from 22% in 2020 to 28% in 2021.
- In 2021, less than one sixth of applicants of incumbent role holders responsible for driving business revenue were female.
- Existing regulated firms continue to show higher levels of gender diversity than new firms seeking authorisation.
Following the publication of the Report, Derville Rowland, Director General, Financial Conduct, noted that “whilst it is encouraging to see progress, it has been incremental over a decade, and firms simply must speed up.” The Director General stated that the Central Bank remains of the view that a lack of diversity at senior management and board level is a leading indicator of heightened behaviour and culture risks. Ms Rowland said that given that diversity is so interconnected with risk, resilience and financial performance, diversity will continue to be a priority for the Central Bank.
Consumer Protection Outlook 2022
On 11 March 2022, the CBI published its Consumer Protection Outlook Report (the report). The report identifies five cross-sectoral risks facing consumers of financial services in Ireland –
- Poor business practices and weak business processes
- Ineffective disclosures to consumers
- The changing operational landscape
- Technology-driven risks to consumer protection
- The impact of shifting business model
The CBI’s new five-year strategy is to be implemented in the context of the five risks identified in the report. To this end, the CBI will undertake a review of the effectiveness of its supervisory approaches to ensure these are increasingly data-driven, agile and scalable. The CBI has already began an enhanced approach to retail conduct supervision. Over the course of the next two years and beyond, the CBI intends to systematically supervise and assess the appropriateness of these relevant firms’ risk management frameworks and in particular, how they manage and mitigate the risks they pose to consumers. The strengthening of the resilience of the financial system in relation to climate-related risks and cybercrime is a further priority for the CBI.
Central Bank Director General sets out 2022 financial regulation priorities
Speaking at an engagement with Financial Services Ireland, Director General of Financial Conduct, Derville Rowland outlined the Central Bank’s 2022 financial regulation priorities on 11 March 2022.
Ms Rowland said that the CBI will be focused on ensuring that firms treat their customers fairly, in line with supervisory requirements. More widely, the CBI will publish a discussion paper on the Review of the Consumer Protection Code later this year, and engage widely with stakeholders, in line with the “Open and Engaged” theme of the Central Bank’s Strategy.
On the topic of authorisation of financial service firms, Ms Rowland noted that the size of the Irish financial sector had grown at pace in recent years, with an associated increase in scale and complexity and new business models driven by advancements in technology. The Central Bank seeks to continue operating with a forward-looking approach to the authorisation of financial services firms, being clear about its expectations to prospective and applicant firms.
In the area of governance, the Bank will continue to work with the Department of Finance on the introduction of the Individual Accountability Framework (IAF).
Proposal for a Directive of the European Parliament and of the Council amending Directives 2005/29/EC and 2011/83/EU as regards empowering consumers for the green transition through better protection against unfair practices and better information (Text with EEA relevance) (COM(2022) 143 final / 2022/0092 (COD))
On 30 March 2022, the EC adopted a proposal for a directive on empowering consumers for the green transition through better protection against unfair practices and better information (the proposal). The proposal amends the Unfair Commercial Practices Directive 2005/29/EC and the Consumer Rights Directive 2011/83/EU. The proposal aims to enhance consumer rights and contribute to a circular, clean and green EU economy by enabling consumers to take informed purchasing decisions. The proposal also targets unfair commercial practices that mislead consumers away from sustainable consumption choices.
The proposal will increase information obligation for traders as regards the durability and reparability of certain products to consumers and commercial guarantees before concluding the contract. Protection of consumers are enhanced against unfair commercial practices that prevent sustainable purchases, such as:
- Greenwashing practices (i.e. misleading environmental claims)
- Early obsolescence practices (i.e. premature failures of goods)
- The use of unreliable and non-transparent sustainability labels and information tools
Speech by Fabio Panetta, Member of the Executive Board of the ECB, at the Committee on Economic and Monetary Affairs of the European Parliament: A digital euro that serves the needs of the public: striking the right balance
On 30 March 2022, Fabio Panetta, Member of the Executive Board of the ECB, delivered the introductory statement at a meeting of the Committee on Economic and Monetary Affairs of the European Parliament.
In his speech, Panetta discussed the findings of the focus groups on the digital euro. The focus groups found consumer preferences are shifting towards digital payments and the ability to pay with digital euro anywhere is the most important feature of a new digital payment instrument. Panetta noted the possible use cases of a digital euro include:
- Individual paying another individual, e-retailers for online purchases or purchases made in a physical shop
- Businesses paying an individual or another company
- Payments to/ by the government or for machine-initiated payments
The focus groups will continue to assess the actual feasibility of these use cases. Consultations will also be held with stakeholders in the coming weeks and months to design an attractive digital euro product that responds to the expectations of payers and payees alike.
Digital Markets Act (DMA): agreement between the Council and the European Parliament (313/22)
On 25 March 2022, the Council and the European Parliament (EP) reached a provisional political agreement on the Digital Markets Act (DMA), which aims to make the digital sector fairer and more competitive. The DMA defines clear rules for large online platforms. It aims to ensure that no large online platform that acts as a ‘gatekeeper’ for a large number of users abuses its position to the detriment of companies wishing to access such users.
The provisional agreement is subject to approval by the Council and the European Parliament.
Opinion of the European Central Bank of 13 January 2022 on a proposal to amend Regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms with respect to resolution (CON/2022/3) (2022/C 122/10)
On 17 March 2022, the ECB’s opinion on a proposal to amend the Capital Requirements Regulation (CRR) on prudential requirements for credit institutions and investment firms was published. The proposed regulation consists of technical adjustments with the aim of operationalising substantive legislative decisions implemented by the latest amendments to the Bank Recovery and Resolution Directive (BRRD).
The ECB supports the proposed regulation, which ensures better alignment between the CRR and BRRD, following the entry into force of the revised framework on Total Loss-Absorbing Capacity (TLAC) and the minimum requirement for own funds and eligible liabilities.
The ECB proposed minor technical adjustments to clarify the interpretation of the legal text and ensure consistency of terminology used in the regulation.
EU financial regulators warn consumers on the risks of crypto-assets
On 17 March 2022, the European Supervisory Authorities (EBA, ESMA and EIOPA – the ESAs) warned consumers that many crypto-assets are highly risky and speculative and not suited for most retail consumers as an investment or as a means of payment or exchange. The warning comes in the context of growing consumer activity and interest in crypto-assets and the aggressive promotion of those assets and related products to the public, including through social media.
The Warning highlights the following key risks of crypto-assets:
- extreme price movements
- misleading information
- absence of protection
- product complexity
- fraud and malicious activities
- market manipulation, lack of price transparency and low liquidity, and
- hacks, operational risks and security issues
The ESAs also warn consumers that they should be aware of the lack of recourse or protection available to them, as crypto-assets and related products and services typically fall outside existing protection under current EU financial services rules.
In relation to the current situation in Ukraine, and with a view to ensuring the proper implementation of the sanctions in place, the ESAs welcome the clarification by the Council of the European Union of the scope of the restrictive measures against Russian and Belarusian entities and individuals as regards crypto-assets.
Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 909/2014 as regards settlement discipline, cross-border provision of services, supervisory cooperation, provision of banking-type ancillary services and requirements for third-country central securities depositories (COM(2022) 120 final / 2022/0074 (COD))
On 16 March 2022, the EC published proposed changes to the Central Securities Depositories Regulation (CSDR) (the proposal). The proposal aims to increase the provision of cross-border settlement by Central Securities Depositories (CSDs), reduce the administrative burden of the Regulation on stakeholders, and ensure that authorities have sufficient information in order to monitor risks. The proposal reviews the supervisory arrangements for CSDs and recalibrate certain requirements in relation to the passporting process, the provision of banking-type ancillary services and settlement discipline.
Public consultation for Cyber Resilience Act – new cybersecurity rules for digital products and ancillary services
On 16 March 2022, the EC launched a public consultation on the proposed Cyber Resilience Act which is expected to be adopted in the third quarter of 2022. The proposed Act aims to establish new cybersecurity standard for digital products and related ancillary services in Europe. Interested stakeholders can contribute to the consultation by filling in the online questionnaire. The consultation run until 25 May 2022 midnight Brussels time.
Sanctions imposed in response to the crisis in the Ukraine
Over the course of February and March, the EU imposed a number of sanctions in response to the crisis in the Ukraine. Given that the crisis is developing and sanctions are continuing to evolve, the CBI is publishing details of new restrictive measures/sanctions that are adopted in this regard, as well as any associated EU/UN guidance, on their dedicated webpage.