Derville Rowland: Delivering for the consumer in a changing world
Remarks by Ms Derville Rowland, Deputy Governor of the Central Bank of Ireland, at
the Financial System Conference 2022, Session 2 "Delivering for the consumer in a
changing world", Dublin, 2 November 2022.
* * *
Good morning everyone,
I would like to welcome you all to the second session of our Financial Services
Conference which is focused on "Delivering for the Consumer in a Changing World".
On this day in 1988, a talented computer student in Berkeley, California unleashed a
computer programme as an experiment on what was then the early internet.
The programme was a cyber-worm, and within 24 hours had spread like a virus,
affecting 6,000 of the estimated 60,000 computers connected to the internet at that
point.
The FBI, which investigated the case, later said: "Whether accidental or not, the first
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Internet attack- was a wake-up call for the country and the cyber age to come ."
I mention this as an illustration that while progress is generally good, it invariably carries
new risk.
In his book, "The Future of Money", academic Eswar S Prasad writes fluently on this
issue in the context of financial services innovation.
Fintech, he writes, is "changing the world of finance, providing more direct channels
that connect savers and borrowers" and, at the least, "will yield an array of financial
products and services that better meet the specific needs of households, entrepreneurs,
and firms".
The flipside, he cautions, is that "financial innovations will generate new and as yet
unknown risks, especially if financial market participants and regulators put undue faith
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in technology and let down their guard" .
A cornerstone of the Central Bank's strategy is that we create the regulatory context in
which the potential benefits of innovation for consumers, businesses and society can be
realised, while the risks are effectively managed.
It is therefore essential that we carefully consider the consumer and investor impacts of
the transformational change we are seeing in financial services.
This is a responsibility not just for the Central Bank and the firms we regulate, but the
wider State consumer protection framework as a whole.
The importance of that national framework, and the critical roles played by each
component part - from ensuring competition to promoting financial literacy - is
something we hope to illustrate in today's panel discussion.
We also wish to focus on the way in which the Central Bank delivers on its mandate as
part of that national framework, and the review of the Consumer Protection Code in that
context.
We would really welcome your views and observations as part of this discussion.
But first, I will give a brief overview of the Central Bank's approach to consumer
protection.
Our approach to consumer protection
To begin, it is important to emphasise that our work to protect consumers is delivered
across the entirety of the organisation.
The breadth of our mandate enables us to harness our collective wide-ranging policy,
economic, financial stability and regulatory expertise.
The stability of the system, and the resilience of firms within it, are as essential in
protecting consumers and investors as our statutory codes of conduct, assertive
supervision and robust enforcement powers.
The Central Bank works to ensure that the financial system can provide services that
households and businesses require, both in good times and in bad, and that it does so
fairly.
Fairness is the cornerstone of consumer protection - firms must act in their customers'
best interests. This is critical to maintaining trust and confidence in the financial system.
But there is an imbalance between firms and consumers - a customer buying a
financial product for the first time is unlikely to have equivalent knowledge to the
professional selling it. The relatively high value and longer timeframe of many financial
products can increase the impact on consumers if things go wrong. And so on.
Hence, in addition to systemic protections, there is a need for strong rules to protect
consumers. These rules place an onus on regulated firms to put the best interests of
customers at the heart of everything they do, by:
developing and designing products with the consumers' interests in mind;
putting the necessary resources, processes and controls in place to ensure that
the product is sold in a responsible manner that takes into account the
circumstances and needs of the customer concerned. This includes that where
advice is sought the most suitable product from the firm's range is recommended;
and
when mistakes occur, fixing them swiftly and fully, remediating all impacted
customers appropriately.
The rapidly changing environment
Firms must abide by these requirements and principles irrespective of the environment
they are operating in, or the business model they are executing.
Here in Ireland, we are seeing a range of structural changes in retail banking arising
from consolidation, branch closures, withdrawal of in-branch services, and the
outsourcing of certain activities.
We are also seeing a rapid evolution in products and services and in how banking,
insurance and other financial services are being provided to customers, including
through mobile and online delivery channels.
Change and innovation provide opportunities for firms to transform their business
models in order to grow revenues and extract cost efficiencies. Change and innovation
can also bring clear benefits to consumers with better access to financial services,
greater choice of product and provider, and new tools to help them understand and
manage their finances.
However, these new ways of doing business can present risks for consumers too. Our
clear message to the firms we regulate is that it is their responsibility to identify, mitigate
and manage these risks.
This can include, for example, risks arising from the speed and ease at which
transactions can be completed and the absence of any human interaction or advice to
support good decision-making.
The extent to which personal data is available to firms is also open to misuse and raises
complex ethical questions on appropriate use.
And some consumers are excluded from services because they cannot access or
struggle with the technology in question - accessing financial services now not only
requires financial literacy but also requires a level of digital literacy.
This is a challenge for our country that goes beyond just financial services of course.
However, if the prevailing plan of firms in financial services is to increasingly migrate to
digital delivery (much of which places greater onus onto the consumer to access the
information to inform their decisions), then those firms who are pursuing this business
strategy have a corresponding duty to play their part in building the greater levels of
financial and digital literacy that consumers need as a result.
All of which is why we say that we want to foster not just an innovative financial sector,
but one which is resilient and customer-focused, and sustainably serves the evolving
needs of households and businesses.
Code Review
In implementing our mandate, we supplement the relevant EU and domestic laws with
various Central Bank codes and regulations, modelled on international best practice.
The Consumer Protection Code is a cornerstone of the framework - comprising a set of
rules and principles that firms must follow when providing financial products and
services to consumers.
The Code was first introduced in 2006 - and we have continued to amend it since then,
seeking to ensure it remained fit for purpose over time.
Three core points are important in that context.
First, the Code has enabled many of our key interventions to protect consumers - such
as the Tracker Mortgage Examination and our work on differential pricing. The Code
has served consumers well.
Second, precisely because we have continued to update it, the Code continues to drive
our work to protect consumers on a daily basis. In our annual consumer protection
outlook reports, we seek to identify emerging risks and use the Code and the wider
framework to ensure firms are working to mitigate those risks - for example, on account
migration.
Third, and looking to the longer-term, financial services are rapidly evolving - in
particular in the way products are now accessed through digital means. So the Code
must evolve to continue protecting consumers into the future.
As an open and engaged organisation, we consult widely and deeply when proposing
changes to our rules and regulations.
Many of you will be familiar with our formal consultation papers. In the case of the Code
Review, we decided to introduce an earlier phase - a Discussion Paper - in order to
evaluate fully the complex consumer issues that are emerging from significant societal
and technological change.
Changes to the Code must be informed by the experiences and insights of both those
whom it seeks to protect and those it regulates. This is why we published our
'Consumer Protection Code Review Discussion Paper' at the beginning of October.
The Discussion Paper provides the basis for extensive engagement by outlining ten
important consumer-related, future-focused discussion themes - with a series of
corresponding questions on which we are seeking evidence-based views.
This marks the first step in what we hope will be an open, engaging and productive
consumer protection dialogue with consumers, with industry and with wider
stakeholders.
Indeed our discussion today represents an important opportunity to hear perspectives
on 'Delivering for Consumers in a Changing World' and to consider how consumer
protection in financial services should evolve to remain effective.
Engagement Strands
We will cover the 10 discussion themes through three strands of engagement.
The first is Consumers' Interests .
These are best served through effectively functioning financial services markets
providing appropriate levels of availability and choice through well-run,
consumerfocused firms which act in their customers' best interests.
In this context, an important aspect of regulation is finding the right balance between
reducing risks to consumers and ensuring regulatory requirements do not restrict their
freedom to choose the most appropriate provider or product for them or impose
unnecessary costs.
We seek views on this balance, and related questions.
The second strand is Change and Innovation.
Innovation brings real benefits and risks for consumers. In our daily lives, many of us
experience the ease of access to financial services through digitalisation. However, as I
have noted, for some digitalisation can limit their access to basic services.
As a regulator, we want to enable the benefits of innovation, while ensuring the risks
are mitigated.
We want to hear views on how we can best achieve this.
The third strand is Availability and Choice .
Effective market functioning requires consumers to have access to clear and unbiased
information in relation to products and services. Clear disclosure of product features,
risk and price, allows consumers to select the provider and product that can best serve
their needs, promoting competition amongst firms. Where markets function well,
competition, supported by transparency and disclosure, drives fair price formation.
The transition from traditional to digital-based delivery is having positive and negative
impacts on consumer availability and choice.
We want to engage about the role of high quality regulation within an effectively
functioning market - one where innovation benefits consumers, there is transparency
on the part of firms and competition between product providers. This combined, we
believe, best supports consumers to access and choose the financial products that best
suit their needs.
Next Steps
Our discussion today represents part of an intensive six-month period of engagement
being undertaken by the Central Bank on consumer protection issues. We consider it
vital to listen and engage constructively in order to evolve our consumer protection
framework effectively - and to continue fulfilling our role in the wider consumer
protection system.
We plan to engage through multiple channels, both traditional and digital-based.
Engagement formats will range from various roundtable discussions across the country
to online surveys and more. We are also committed to sharing the feedback we receive,
which we know will inform our evolution of the Code to better protect consumers.
Today's panel will have a lot to say on these topics, from a diversity of perspectives and
experience.
I'm delighted that we are joined by:
Kevin O'Brien, Member of the Competition and Consumer Protection Commission;
Eamonn Crowley, President of Banking & Payments Federation Ireland & CEO,
Permanent TSB;
Patricia Rickard-Clarke, Independent Chairperson, Safeguarding Ireland & Central
Bank of Ireland Consumer Advisory Group;
Neil McDonnell, CEO, ISME; and
Professor Pete Lunn, Economic & Social Research Institute.
I am delighted to have such a high-calibre panel and I know the panel share my desire
to hear your views on these important topics. We will start with some observations from
each of our panel members before we open it up for discussion with our in-person
audience and our online participants.
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See:
https://www.fbi.gov/news/stories/morris-worm-30-years-since-first-major-attackon-internet-110218
2
Prasad, Eswar S, "The Future of Money", Harvard University Press, 2021.