Insurance brokers to stay outside Central Bank regulation

INSURANCE brokers will not be regulated by the Central Bank under the amendment to the Central Bank Bill 1996, which is to be announced this week.

The Central Bank will take over responsibility only for brokers and intermediaries selling non insurance savings and investment products, The Irish Times has learned. A broker or intermediary, with a mix of insurance and investment business, may have to report to two or more different regulators.

The Irish Brokers Association (IBA) and the Insurance Intermediaries Compliance Bureau will continue to regulate brokers who invest client funds in insurance products. An industry working party set up to advise the Government on the regulation of investment intermediaries has expressed concern that the new regulatory environment "may be unworkable".

The Minister of State for Commerce, Mr Rabbitte, decided that the Central Bank should become the regulator of investment intermediaries following a recommendation from Mr Martin Cosgrove, who investigated the collapse of intermediary Mr Tony Taylor. However, because many intermediaries take funds from clients for investment in both non insurance and insurance products, there is concern that the change in regulation will not be in the best interests of brokers' clients.

The working party warned that there would be practical and prudential problems trying to ring fence one part of an intermediaries savings/investment business from another. One of the main lessons of the Taylor affair was that a regulatory authority needed to have "at a minimum" an overview of all the financial services carried out by a particular intermediary, it said.

The regulator must be able to see all that an intermediary is doing, including services offered through separate legal entities or using different trading names, it warned.

In a report seen by The Irish Times, the working party pointed out that only two companies within the Taylor group came within the regulatory ambit of the IBA while "substantial activities took place elsewhere".

The working party is concerned that enacting the proposed amendment on its own will create an "unlevel playing field" where intermediaries will be encouraged to opt for a business which is subject to softer regulation.

It wants the Central Bank to be appointed the lead regulator" for all savings and investment intermediaries. As the lead regulator, the bank should be able to devolve powers to an insurance regulator for an intermediary's insurance activities. This was the consensus view of all members of the working party except for the IBA.

The regulators should have the legal powers required to carry out their function and there should be "formal and robust arrangements between regulators to ensure that each has full knowledge of the intermediaries activities". Statutory arrangements should be put in place to ensure this was the case.

Additional legislative provisions should be implemented at the same time as the Central Bank took over responsibility for investment brokers, according to the working party. Delays in bringing in additional legislation to improve the regulatory environment would be "damaging to consumer interests and to the financial services industry generally", it warned.

It has estimated that 400 to 600 retail investment/savings brokers who are to be regulated by the bank are also taking in client funds for investment in insurance products.

The Insurance Act 1989 and the Investment Intermediaries Act 1995 should be amended to include a specific provision that regulators can communicate with each other without exposure to legal action. There should be a duty on them to co operate in certain circumstances, it suggested.

The Insurance Act 1989 should be amended to give a merged IBA/IICB regulatory body statutory powers to regulate, to give an indemnity to the regulator carrying out its proper functions and to set out the specific criteria on how the regulator should regulate insurance intermediaries.

For the working party, the bottom line is that intermediaries who are doing savings/investment business for financial institutions - insurance companies, banks, building societies or others - should all be regulated on the same basis.

Recently the Governor of the Central Bank, Mr Maurice O'Connell, referred to "some unique difficulties yet to be resolved and theses should not be understated". He said there needed to be "a clear understanding about the division of regulatory responsibility" where brokers had a mix of investment and insurance business.