Financial regulator gets down to business

The Irish Financial Service Regulatory Authority promises to put consumersat the centre of the system of financial regulation, writes Dominic Coyle

Four years after it was first mooted, Ireland yesterday caught sight of its new financial regulator. Not a complete view but something at least to show consumers that their concerns are, at last, being taken seriously.

The Irish Financial Service Regulatory Authority (IFSRA) has been quick to set out its stall with chief executive Mr Liam O'Reilly and director of consumer affairs Ms Mary O'Dea putting financial institutions, and particularly insurers, on notice of the need to act responsibly.

Regulation of financial services in Ireland traditionally has been a piecemeal affair with responsibility spread between the Central Bank, the Department of Enterprise, Trade and Employment in its various guises, the director of consumer affairs and the registrar of friendly societies.

With increasing sophistication in financial services, this hotch-potch of regulation has become increasingly untenable. It has also become clear that, where the Central Bank has been concerned, prudential supervision has taken precedence over consumer interests.

IFSRA promises to put consumers at the centre of the system of financial regulation. Chairman Mr Brian Patterson is on record as saying that consumer protection has been the poor relation in the financial services industry for too long.

Speaking yesterday, Mr Patterson, who is also chairman of The Irish Times Ltd, said: "Good regulation is good for consumers and it is good for the industry."

The Tánaiste, Ms Harney said the arrival of IFSRA would signal an end to confusion for consumers over who to turn to with their complaints.

Such clarity is badly needed. Research conducted for the new authority shows that 70 per cent of consumers don't know who to complain to when problems arise with financial services. Thirty per cent lack the confidence to take action on a complaint.

A new one-stop lo-call number which consumers can use to pass on any complaints was unveiled yesterday. But consumers will have to wait some time for the promised statutory ombudsman to adjudicate on complaints.

The Minister for Finance, Mr McCreevy, says he intends to publish the second Bill relating to the working of the new regulatory structure. It will include proposals for the ombudsman and consultative panels for both industry and consumer groups.

A streamlined appeals process for industry is also promised alongside, IFSRA chief executive Mr Liam O'Reilly hopes, a sliding scale of penalties on transgressing institutions.

But it will likely be the end of the year before such measures are on the statute books. In the meantime, the regulator will be relying largely on the power of persuasion allied to the prospect of "naming and shaming".

Ministers insist protecting consumers does not mean being soft on prudential supervision of the more than 4,000 entities that will come under the reach of IFSRA.

At yesterday's launch of the new body, Ms Harney said: "Prudential supervision and consumer protection are complementary, not conflicting."

That remains to be seen. Certainly, executives at the new authority have been at pains not to alienate the institutions with whom they will now be working.

Chief executive Mr Liam O'Reilly stressed that IFSRA would adopt a principles-based approach to regulation.

"Just because we do not have rulebooks does not mean we will not act on breaches swiftly. At the same time, we do not want to drive industry out of here.

"One of the problems worldwide is that you can have rulebooks by the dozen and it does not guarantee you will avoid an Enron, for example."

Mr O'Reilly has already mapped out a challenging workload for the months ahead. Top of his agenda are an examination of commission structures operated by industry, tackling hidden penalties in financial transaction and keeping an eye on the sale of PRSA products.

IFSRA will also be producing consumer information leaflets and publishing codes of conduct for industry. "Our long-term goal is to have satisfied consumers in a safe environment of high reputation," he said.

Mr Patterson says the IFSRA will also examine the need to extend its role to other areas, including credit intermediaries who offer on-site finance for items such as cars and white goods, and spread-betting operations.

It will also examine stock exchange dealings, particularly the protection of shareholders' rights in situations where companies are being bought out.

"We are working hard on policies, approaches, roles and recruitment," says Mr Patterson. "We are now well set. The time for talking is over. It is what we do that matters."

It may be some time before it becomes clear whether this political construct has got the balance right.