Inspection finds firms offering more complex and risky Structured Retail Products to consumers

• Significant move away from capital protected deposit-based products towards more complex, capital at risk products
• Weak product governance arrangements identified around the development and marketing of Structured Retail Products
• Sale of Credit Linked Notes to consumers raises particular concerns

The Central Bank highlighted in its Consumer Protection Outlook Report 2016 (PDF 877.09KB) the risks to consumers from firms selling higher risk products in the low interest rate environment as well as poor product oversight and governance.  One of the priority themes identified in that Report was a review of the Structured Retail Products (SRPs) market in Ireland as these products are being offered to consumers as an alternative to deposits. The Central Bank is of the view that SRPs are not always a suitable alternative for consumers, given their complexity and potential for partial or total loss of investment. 

The main findings of the inspection are:

• 371 SRPs were launched in 2015, consisting mainly of two types of products: Deposit-Based SRPs and Note-Based SRPs, accounting for sales of €971m.
• There has been a significant move away from the sale of capital protected deposit-based products towards more complex, capital at risk products.
• A Product Performance Comparison identified that over half of the SRPs that matured in 2014 and 2015 underperformed vs. State Savings available at the time of launch of these SRPs;
• Weak product governance arrangements were identified in a number of firms in areas including target market identification and product testing;
• Credit Linked Notes are being sold by a small number of firms to consumers and, in some cases, the higher risks associated with such products are not being adequately highlighted;
• Various types of SRPs are being marketed as ‘capital protected’, however, the level of capital protection varies depending on the set up of the product.

Director of Consumer Protection, Bernard Sheridan, said: “The need to ensure the protection of consumers who invest in higher risk products remains a priority for the Central Bank.  It is important that consumers are fully informed about the risks they are taking on and that they receive appropriate advice.  Not all Structured Retail Products are the same, they can be very complex and risky and may not be suitable to meet consumers’ needs if they have a low risk appetite.  Credit Linked Notes are particularly complex and can carry a much higher risk than other products and may not be suitable for most consumers.”

The Central Bank is engaging directly with those firms where issues have arisen and is considering the appropriate use of its supervisory powers to address the issues identified.  The Central Bank has also issued a letter to all relevant firms, detailing the findings of this inspection together with recommendations to enhance their compliance arrangements, where relevant.

Further information:

The inspection consisted of a desk-based review of 20 Investment and Stockbroking firms and Credit Institutions manufacturing and/or distributing Structured Retail Products, followed by on-site inspections in five of these firms. 

Tá an preasráiteas seo ar fail as Gaeilge chomh maith.