Central Bank requires firms to address potential risks for consumers from a changing economic landscape

• Central Bank reaffirms expectations on the treatment of consumers in a challenging economic environment
• Firms are expected to  play their part in supporting their customers at this time
• Key areas for particular attention by firms highlighted 

The Central Bank has written to all regulated firms to reaffirm its expectations on how they treat consumers (PDF 102.21KB), in the context of the current economic environment. The Dear CEO Letter details the specific actions, as set out in the Consumer Protection Outlook Repor (PDF 1.57MB)t, which firms are required to address to manage potential risks arising from this changing landscape for consumers. Firms are required to take action and consider the risks to consumers as a result of the more challenging economic outlook (PDF 3.04MB), energy-driven inflation, rising interest rates and significantly higher consumer prices and business costs. 

Director of Consumer Protection, Colm Kincaid, said: “It is important that financial services plays its part in supporting consumers to navigate this changing economic landscape. The letter we are publishing today highlights a number of areas to which firms should pay particular attention as they do so, in order to ensure that consumers’ best interests are protected at this time and recognising the multiple challenges consumers are facing.” 

Notes to Editor 

The Dear CEO letter sets out a number of specific steps firms should take to meet expectations in the areas of:

• Affordability and sustainability, which includes: 

-Firms providing or advising on credit should pay particular attention to their obligations to ensure that credit is affordable.

-When gathering information and considering a consumer’s individual circumstances, firms should pay particular attention to assessing not just the current circumstances of the consumer but how those circumstances could be impacted by the current economic outlook. In particular, firms should be able to identify consumers in vulnerable circumstances, including financial difficulty, and provide them with appropriate supports.

-Advice on savings and investments needs to consider both the short and long term needs of the consumer. This should factor in an anticipated increase in the day-to-day costs consumers may face as well as costs consumers may not anticipate. 

• Provision of relevant, clear and timely information, which includes:  

-Information should be provided to consumers in a manner that allows them to make informed decisions on changing their financial products for more affordable options, shopping around for better value, and what supports are available for those facing difficulties in meeting their payment obligations under existing financial products.

- Changes to terms or conditions which may impact on the cost of a financial service need to be explained to consumers especially clearly, in a context where consumers may be considering their budgets closely.

-Firms should use their data to identify potential groups of consumers that may benefit from early engagement with the firm, and carry out early and appropriate engagement campaigns with these consumers.

• Effective operational capacity, which includes:

-Firms should monitor and manage their resources in a manner that is appropriately reactive to those services which, in this context, consumers may need to a greater extent (e.g. requiring credit or facing arrears) or which may be especially important (e.g. swift processing of insurance claims and timely processing of credit applications).

-Staff should have sufficient knowledge of the protections and supports for borrowers under the various Codes. Firms should ensure they have the required, and sufficiently expert, resources to assess individual circumstances, and to offer appropriate and sustainable solutions to consumers.

• Sales and product governance, which includes:

-Sales and advice on insurance products should consider the impact of increasing costs on consumers’ budgets (both to meet premium payments and in the event of the occurrence of an insurable event). Consumers should be supported to understand the implications of any reduction in cover. 

-Where customers choose to cancel or reduce insurance cover due to affordability concerns, firms should engage with consumers to ensure they understand any implications and avoid the cancellation of necessary cover. 

-It is important that firms monitor and evaluate the investment products they sell and consider how their risk profile may change in this period of volatility, and seek to mitigate risks to clients accordingly. 

-Firms should ensure they have robust product governance and oversight arrangements in place to proactively assess the risks and consumer impacts commercial decisions may pose to new and existing customers, and develop action plans to mitigate these risks.

The Consumer Protection Outlook Report (PDF 1.57MB), published in March 2022, details five risk areas financial firms should take action on to avoid consumer harm. These risks were framed against the backdrop of a rapidly changing financial services landscape and the responsibility of firms to navigate this change in a manner that places the best interests of consumers at the heart of their commercial decision-making. 

Specific actions that firms were required to take to address potential risks arising from the changing operational landscape were: 

• Actively identify and address risks to consumers that may potentially emerge from changes in the landscape within which the firm and/or its consumers are operating. 
• Have sufficient operational resilience to manage change without creating risks to consumers.
• Proactively assess the risks and consumer impact a commercial decision may pose to new and existing customers, and develop comprehensive action plans to mitigate these risks whilst ensuring that customers understand what changes mean for them. 
• Have the customer service capacity and structures in place to meet expected service levels to provide a timely and customer focused service through all channels.
• Consider the impact of their decisions on vulnerable customers and provide the assistance necessary. This should include specific and effective processes and communication plans to support vulnerable customers. 
• Only design and bring to market products with features, charges, and risks that meet the needs of consumers identified for the product.

The Dear CEO letter (PDF 102.21KB) the Central Bank is publishing today provides further guidance to firms on the above expectations in the context of this more challenging economic outlook.