# Review of IFSRA's performance so far



## Brendan Burgess (24 Dec 2003)

_This is the text of an article by me, published in the Sunday Tribune on 21 December 2003_

In May 2003, the regulatory activities of the Central Bank were hived off to a subsidiary  the Irish Financial Services Regulatory Authority. The new subsidiary was given a statutory responsibility for consumer affairs.  So how well is it doing its job so far? 

It is necessary to put any evaluation in context. IFSRA is labouring under a lot of restrictions. It is a subsidiary of the Central Bank instead of being an independent body. So, before doing anything that might rock the financial boat, it has to look over its shoulder to ensure that the Central Bank will not mind. It has inherited all the bad habits of the Central Bank  the desire to protect financial institutions’ interests above those of consumers, a reluctance to rock the boat unless absolutely forced to do so, and a statutory obligation of confidentiality in all its dealings. 

The other big problem from a consumer point of view is that IFSRA recruited all its top staff from the Central Bank. So the body charged with consumer protection has absolutely no staff with any experience of consumer protection. And to compound this difficulty, it does not yet have a consumer panel to help it develop this consumer consciousness.

 IFSRA’s consumer protection mandate has two main areas: information and regulation. On the information side, it has recently launched a website; it has issued a fact-sheet on personal retirement savings accounts or PRSAs; it has  dealt with 4,600 phone calls and 800 letters from consumers; it has issued a cost survey on motor insurance  telling us to shop around; it has issued a survey of current account charges telling us that the way we use our current account determines how much we will be charged. The information provided so far has been a duplication of what is already in the public domain. No one will learn anything new from IFSRA’s fact-sheets on insurance costs, bank charges, PRSAs or from its website. In particular, any commentary on motor insurance that does not explain that high premiums are due to our very high claims does a disservice to consumers.  There is no doubt that IFSRA received good publicity from the cost surveys. But has this publicity helped improve the lot of consumers? 

IFSRA must be congratulated for getting a consumer helpline up and running so quickly. The many calls and letters have given it a good insight into what is troubling consumers and have brought products and practices to IFSRA¹s attention which they have looked into. Since July, it has been studying how the financial institutions have passed on interest rate cuts to consumers. IFSRA does not expect to report until early 2004. Why the delay? Has it given a draft to the financial institutions for comment? Is it being toned down? The key area to study is mortgages. They are the biggest cost for consumers and this study should take no more than a few weeks to complete, as long as IFSRA is prepared to name and shame the institutions that have not passed on cuts. Passing on interest cuts on current accounts and credit cards is not so important. They form a much smaller part of our expenditure and it is easy to switch if we are being overcharged. This is another problem with IFSRA’s lack of consumer consciousness. It should have hit the key areas first, issued a report quickly and followed up on the less important issues later. It should not have wasted resources on the superfluous reports on motor insurance and current account costs. 

On the regulatory side IFSRA has told intermediaries that they must justify why they recommend non-standard PRSAs, which have no controls on charges. It has continued to inspect intermediaries to assess whether they are adhering to codes of best practice. And it is consolidating and developing codes of practices for financial institutions and intermediaries. Interim codes for moneylenders, insurance companies and mortgage intermediaries were issued last week.       

IFSRA has issued only one product warning, on geared tracker bonds. This is the type of stuff that IFSRA should be doing. Its warning was well written and should deter people from gambling on these products. IFSRA is in preliminary discussions with the producers of tracker bonds with a view to issuing a consultation paper before the end of next January. It is a pity that they do not have a consumer panel to consult with on these products. It has begun discussions with the Irish Bankers’ Federation with a view to introducing a switching code for bank accounts in 2004. IFSRA was criticised for getting involved in a row last summer over delays by mortgage lenders in passing on interest rate cuts with their customers. It was told by the industry that this was none of its business. But then, IFSRA would be savaged if they did not comment. Telling intermediaries that they must justify the reasons for recommending a non-standard PRSA over a standard PRSA is great work. It is exactly the type of thing that IFSRA was set up to do. This should protect consumers from being sold unsuitable products by unscrupulous intermediaries. IFSRA may have done a lot of other stuff behind the scenes, but we will never know because of it’s obligations of confidentiality. It may have told banks and building societies that their practices are unacceptable, but we will never know. It may have told certain intermediaries that their work was not good enough and to cease business but, again, we will never know. There have been a few instances where IFSRA’s  technical knowledge on modern products has been suspect. For example, in its very welcome warning about geared trackers, IFSRA still concluded that these products may be suitable for some people as part of a portfolio. These products can never form a sensible part of an investor’s portfolio - a gambler’s yes; but not an investor’s. 
IFSRA is not proactive. Financial institutions frequently carry advertisements that are misleading. These ads should not be allowed to appear day after day. IFSRA should order the institutions involved to pull the ads. But it does not. It waits for a complaint from the public and then it looks into the problem. The procedure seems to take months, by which time, many consumers have bought the products. Eddie Hobbs of the Consumers’ Association says that the jury is out on the consumer protection role of IFSRA. “The government and the Central Bank did not care about consumer protection, so IFSRA faces an uphill struggle to change this culture. I am impressed on a personal level with the Director of Consumer Protection, Mary O’Dea. But IFSRA must understand that we expect them to challenge the powers of the big financial institutions. One particular priority for IFSRA is to examine the way in which the big banks give investment advice.” So the final verdict on the consumer protection role of IFSRA? It is a big improvement on the dreadful track record of the Central Bank but it still has to free itself from the old Central Bank “don’t rock the boat” mentality to prove itself as a tenacious protector of consumers.

Brendan Burgess is a campaigner on consumer issues and founder of Askaboutmoney.com, an online discussion forum on personal finance.


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## InterestedObserver (24 Dec 2003)

*Not so slow..*

Ah Brendan - give them some credit for their speed and responsiveness. Your article appeared on 21st Dec quoting Eddie Hobbs as saying "the jury is out on the consumer protection role of IFSRA". On Monday morning, 22nd Dec, the notice appeared in the Indo (p6) from IFSRA revoking the authorisation of Eddie (trading as Financial Development & Marketing) along with BOI Outsourcing Services, Investec Asset Management, Kyte Fund Management & Ann Chapman Insurances from Dalkey. You can't fault them for speed on this one!


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## Bored (24 Dec 2003)

*Above*

Good summary Brendan. As for the above a notice appeared the week before from Hobbs pointing out that he was changing the firm to a limited company - hardly shattering stuff!

IFSRA have a lot of work to do and I think it may yet surprise us in the new year.


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## Rudolf (30 Dec 2003)

*IFSRA's Performance Part I*

Brendan,

You mention two of IFSRA's pro-active interventions which on the face of it are commendable.  Unfortunately both are inadequate and highlight the immense challenges IFSRA face against its much more wily industry counterparts.

I)  The "outing" of Non standard PRSAs.  

Unfortunately, this highly welcome move will not achieve it's objective.  For a start it really only has bite in the broker sector. Brokers will find it very difficult to defend a high charging Non standard PRSA from company XYZ when there is almost certainly just as good a Standard PRSA from company ABC.  The same does not apply to the direct salesforce of company XYZ, whose Standard PRSA may be so seriously deficient that they can just about say the higher charging Non standard version is worth the money.  And believe me this is happening in spades!  Secondly, brokers still have access to old style pension products and the numbers game can actually make these *look* better at retirement even though they are clearly not better than a Standard PRSA in overall terms.

The result will be clear from industry figures when we will find that Non standard PRSAs will be vying with old style Personal Pensions for supremacy with Standard PRSAs a poor third.

I will address the second point in a separate posting.


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## Rudolf (30 Dec 2003)

*IFSRA's performance Part II*

II)  Arguably IFSRA cannot be held responsible for the failure of their well intentioned intervention in the PRSA sector.  But they were surely taken for a complete ride on the Geared Trackers issue.  Far from consigning these to the WPB, IFSRA actually underpinned this travesty.  





> "These are suitable for certain high net worth individual's portfolio who understand the risks"


 is the perfect strapline for those who peddle this trickery. A key selling point is that they are not suitable for the ordinary punter but only for the sophisticated few and IFSRA agrees.

Brendan, you correctly address this error on IFSRAs' part though perhaps not strongly enough.  But even you let Geared Trackers off light.  *They are not suitable even for gamblers.*  A gambler on a roulette wheel can expect on average to lose 3% of his money (6% on double zero wheels).  Typical "commissions" in horse race betting are 20%.  The expected losses on a Geared Tracker are around 60%.  This is similar to Lotto type leakage.  But there is a world of difference between buying a tenner's worth of Lotto tickets, hoping to make a couple of million and maybe enjoying the TV draw, and investing €10,000 a year for 6 years in the slim hope of at best doubling your investment.

Geared Trackers are suitable for *No One*


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## Brendan Burgess (30 Dec 2003)

*Re: IFSRA's performance Part II*

Hi Rudolf

Have you read the Interim Code of Practice for Insurance Companies launched by IFSRA a few weeks ago. I haven't read it myself yet, but it might address some of your concerns. 

You might read it between deliveries and give us your assessment.

Brendan


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## Rudolf (30 Dec 2003)

*IFSRA Code of Conduct*

B,

Yes, I read the code - gee, you might start to guess my day job.

It is much like all the other codes.  Fine words.

I suppose the key clause is the one requiring life companies to act in "the Best Advantage" of their clients and that is the same wording as for brokers and banks.  

The point I was making in the context of PRSAs is that for brokers "Best Advantage" means from all of their product/company choice.  It is pretty difficult for a broker to recommend in writing that a high charging Non standard PRSA is more suitable than any of the Standard PRSAs available to him.

But if you are employed by company XYZ and they provide a Standard PRSA with only one fund choice then the only reason for recommending a Non standard PRSA (increased fund choice) becomes more real and possibly just enough to justify recommending the latter.


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