Brokers heavily criticised for ‘poor practices’ by Central Bank

The regulator has issued a so called ‘Dear CEO’ letter to the intermediaries pointing to what it say is evidence of poor record keeping, ineffective controls and a failure to collect sufficient information on their customers.

Firms have been told that unless they make improvements they will face enforcement actions from the Central Bank.

It follows what the Central Bank calls a thematic inspection of the brokers who sell investments and insurance products.

In a letter send to the bosses of broker firms, the Central Bank said: “The review identified a number of significant weakness, poor practices, and instances of non-compliance across each of the topics under review.”

The regulator said there were also issues around non-compliance with the consumer protection code in both large corporations and sole-trader brokerages.

It cited cases where broker firms were unable to show “documentation to demonstrate compliance” with the minimum competency code.

The letter highlights a lack of knowledge of consumer rules that are outlined in the Bank’s consumer protection code.

Head of the consumer protection, investment firms, intermediaries and client assets division at the Central Bank Des Ritchie wrote in the letter: “It is apparent that these weaknesses arose due to inadequate or ineffective internal processes and controls, and general poor record keeping and file management.”

Mr Ritchie pointed out that brokers had not collected sufficient consumer information, while some registers of accredited people were not updated and maintained.

Smaller broker firms tended to have greater faults than larger ones.

“Although findings were identified in the majority of firms inspected, the volume and severity of the risks and breaches identified were far greater in smaller, independent retail intermediaries,” the letter said.

The regulator has issued risk mitigation programmes to individual firms requiring specific action.

It warned that it will use “other supervisory tools” including taking enforcement action where necessary.

“Where appropriate, we will utilise other supervisory tools available to us, up to and including taking enforcement action.

“It is the responsibility of every firm to ensure that robust business practices are in place to ensure that the firm is in a position to demonstrate its compliance with all relevant regulatory requirements on a continuous basis,” Mr Ritchie wrote.

Today’s News in 90 seconds – 30th May 2024

The letter from Mr Ritchie acknowledged some good practices among brokers.

These included statements of suitability that included all relevant information for the consumer in a single, easy-to-read document.

Representative body Brokers Ireland said the Central Bank letter “unfairly tarnishes” all retail intermediaries.

And it questioned how many brokers were inspected.

Chief executive of Brokers Ireland Diarmuid Kelly said: “The letter appears to be structured in a manner to convey an impression that the review was comprehensive, but there is no evidence whatsoever to support this.”

He said the Central Bank inspection report found many good practices but these are minimised by comparison with the strong language used in the report around the weaknesses.