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Thursday, 18th April 2024
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Thumbs down for statutory Ombudsman scheme Back  
The Irish Insurance Federation and the Irish Bankers Federation are opposed to the Statutory Ombudsman Scheme proposed under the Government’s new financial regulation structure.

While the financial services industry has broadly welcomed the Government’s decision to establish an Irish Financial Services Regulatory Authority there have been calls for further discussion on the details of structure and funding. The fact that any decision has been made is good news according to the industry it is now a case of making the new structure work.

However there has been criticism that the structure is unwieldy and confusing. It remains to be seen how the mechanics of it will work out.

Particularly drawing attention is the issue of the Statutory Ombudsman for all financial services.

In responding to the Government’s announcement of the ‘Central Bank and Financial Services Authority’ the Irish Banker’s Federation called the proposed structure complicated but said it had potential. It was also important to the IBF that the existing expertise within the current regulatory bodies be retained and that a one-stop-shop for financial services regulation.

But the IBF is wary of the Ombudsman proposal which would see all financial services disputes dealt with under one body. ‘The IBF believes that, while a Statutory Scheme will have certain merits, it cannot compel the institutions to implement the Ombudsman’s recommendations. However, under the existing voluntary Credit Institutions Ombudsman Scheme, such recommendations are binding on the institutions but not on the complainant.’

Meanwhile Gary Palmer chief executive of the Dublin Funds Industry Association said ‘Overall the Government’s decision to set up IFSRA is a pragmatic, sensible solution which addresses most of the issues raised by all of the interested parties.’

He added that the decision had been greeted with ‘absolute relief’ from DFIA members who had found the past year’s uncertainty difficult to work under. ‘Throughout the period of uncertainty the Central Bank was continuing to do its work, so the negative perception has been nullified somewhat’ he added.

Meanwhile the Insurance Industry, which already has a industry-funded voluntary Insurance Ombudsman, is opposing the proposal for a cross-sector Ombudsman.

According to Michael Kemp, head of the IIF ‘The great benefits of the existing insurance and credit institutions Ombudsman Schemes are that they are voluntary and avoid recourse to the courts in dealing with the great majority of disputes. A statutory scheme would probably become only the first step in the judicial process. The placing of ombudsman schemes within the regulatory framework would also confuse the different roles of regulators and arbitrators. The insurance market is addressing a gap in the remit of the Insurance Ombudsman in relation to disputes between clients and insurance intermediaries which will further enhance the value of the Insurance Ombudsman Scheme.'

The IIF has also called for the solvency supervision and the consumer protection roles of the IFSRA to be properly balanced and warned of potential conflicts in this area. ‘These roles are complementary, but short-term conflicts can arise between them, and the key importance of ensuring that financial services firms continue to be financially secure must be assured in the new regulatory regime.’

In relation to the drafting of new consumer protection rules the IIF emphasised the importance of both the financial services industry and the consumer themselves in the preparation and review of consumer protection rules. ‘The Government’s announcement refers to separate consultative panels feeding into a joint committee. We believe that there is a need for representation for both consumers and the industry within a single forum and that consumer and industry interests should be explicitly represented at subsidiary board level. It is imperative that consumer protection measures are effective without imposing an undue cost burden on the consumer.’

The IIF also said that more work needs to be done on costing the IFSRA and on how costs will be shared between different parts of the financial services sector and between regulated firms and the public purse. ‘All compliance costs imposed on the financial services industry are ultimately borne by consumers. Establishment of the IFSRA should not be allowed to lead to undue increases in regulatory costs. The McDowellReport estimates that the IFSRA will cost ?13-14 million per year in addition to significant set up costs.’

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