Financial regulator looks past consumers

Business Opinion: The financial regulator is slow to respond on consumer issues. That's not my view - it is the stated belief of the consultative consumer panel of the Irish Financial Services Regulatory Authority.

In its second annual review of the regulator's performance, the panel stated that the regulator "appears to seek complexity and obstacles rather than to seek consumer-oriented solutions to current and emerging problems". And it warns that this approach can undermine consumer confidence in the "efficacy of the regulatory process".

The regulator's chief executive Patrick Neary spoke recently of "a determination to put the consumer at the heart of financial services regulation".

Unfortunately, as the consumer consultative panel report indicates, there is no point in putting the consumer at the heart of the written rules unless you also put them at the centre of the spirit of regulation. And in this regard, the financial regulator remains a long way from the finished article.

It's a tough job for the regulator, undoubtedly. It is charged with monitoring the solvency of Irish financial firms, strengthening consumer protection rules and considerably enhancing and developing consumer information. The companies it regulates are expected to foot the bill.They have their own interests, strong views and plenty of interaction with the regulator to make their point.

The consumer simply does not have the same level of access.

Two recent issues have highlighted the challenges to the regulator in fairly weighing up the interests of the industry and the consumer.

One was the generally welcomed decision to force those selling financial products to hold a single clearly understood qualification - Qualified Financial Adviser (QFA). The QFA, which was first introduced three years ago, is the result of a merger of the Institute of Bankers certificate in investment advice, the Insurance Institute of Ireland's financial planning certificate and the associateship qualification from the LIA, a training body for the industry.

From next year, anyone who advises on or sells retail financial services will have to hold a QFA. The QFA is the only professional qualification named by the financial regulator as meeting all of its new minimum competency requirements for every category of retail financial products.

However - and here is the rub - there are a number of exemptions. In this case, two significant groups will be able to sidestep the rules.

The first are staff at call centres who work off a prescribed script. This is designed to take account of high staff turnover.

The second relates to people who have been advising on and selling financial products for any four years in the last eight.

The former exemption favours the banks and insurance giants, who frequently use the call centre sales channel. The second is, to some degree, common sense. Without such "grandfathering", many brokers would have to close their businesses.

However, it originally exempted only those who have sold such products for the past four years - presumably on the understanding that they would have known what they were advising on and selling. The amendment to allow the four years of experience to have been at any time in the past eight years was done at the behest of the banking industry.

Both concessions favour larger financial institutions.

Then there is the dithering over what to call an insurance broker. The existing system of classification has been in place for just five years and is now facing the prospect of its second name change.

Notwithstanding the fact that some of the names have been so cumbersome that they could be loved only by a bureaucrat - can anyone remember the Restricted Activity Investment Product Intermediary? - the pressure for change has come uniformly from the industry.

We started out in 2001 with tied agents (self-evidently "tied" to the financial institutions that employed them), the aforementioned Restricted Activity Investment Product Intermediaries (who were, as at least part of the name implies, "restricted" in the range of competing products they could offer) and authorised advisers (who, if the regulator was truly consumer-focused, would have been called "Independent Advisers" as they are the only truly independent group).

In 2002, following industry dislike of the term "restricted", the regulator changed the name of this group to "multi-agency intermediaries" - putting on this category the more positive spin the industry sought.

Now Patrick Neary has said the regulator will review the classifications again. Addressing the Insurance Institute, he said they may be confusing for consumers. However, the pressure that has been brought to bear by the industry becomes clear in his reference that the current classification "may be over-bureaucratic for the brokers themselves".

"We are considering what changes could be made to improve the position for all stakeholders," says Mr Neary. I cannot see how you can get much clearer than independent, restricted and tied. But then that is putting the consumer first.

This "consumer-focused" regulator has failed after five years even to publish on its website a list of which intermediaries fall into which category - never mind information on which agents will provide information on a commission basis and which will work on the basis of fees - two of the most frequently asked questions from people who are not financially sophisticated and are looking for honest, impartial and complete advice.

The consumer consultative panel in its two-year review of the financial regulator's performance, accused the office of communicating "with such a caution that it gives the impression that, if it can find a reason not to act, this will be the preferred outcome".

After five years, it seems the last thing the financial regulator needs to do is conduct another review. What it does need to do is change the "central bank" mindset within its own walls and finally provide a proper balance between the needs of industry and those of the consumer.

A list of the recognised qualifications is in the appendix to the regulator's minimum competency requirements, at www.itsyourmoney.ie .