Ireland amends Consumer Protection Code in line with MiFID II rules

Maria Nikolova

The amendments affect the parts of the Code concerning advertising of investment products and services, as well as the policy for conflicts of interest.

Europe is getting ready for the Markets in Financial Instruments Directive II (MiFID II), and the Central Bank of Ireland has been seeking to adapt its regulations to reflect the new rules. Earlier this month, the regulator published an Addendum to the Consumer Protection Code 2012.

The changes affect several chapters, including the ones on Provision of Information and on Advertising.

The document adds a new provision concerning the cases where a regulated entity providing MiFID Article 3 services offers information about the past performance of the advertised product or service or of the regulated entity, this information must:

  • be based on a product similar to that being advertised;
  • not be selected so as to exaggerate the success or disguise the lack of success of the advertised product or service;
  • state the source of the information;
  • be based on actual performance;
  • state clearly the period chosen, which must cover the preceding five years, or the whole period for which the advertised product or service has been provided, where less than five years;
  • include the most recent period;
  • indicate, where they arise, details of transaction costs, interest and taxation that have been taken into account;
  • disclose the effect of commissions, fees or other charges, where the indication is based on gross performance; and
  • state, where applicable, the basis upon which performance is quoted.

Another new provision concerns an advertisement about the simulated performance of the advertised product or service. In such cases, the information must:

  • be based on a simulated performance that is relevant to the performance of the advertised product or service;
  • not be selected so as to exaggerate the success or disguise the lack of success of the advertised product or service;
  • state the source;
  • indicate whether, and to what extent, transaction costs, interest and taxation have been taken into account;
  • for simulated past performance, be based on the actual past performance of one or more investment products which are the same as or substantially the same as the advertised product or service.

The Addendum also states a number of additional requirements arising from the transposition of Directive 2014/65/EU into the Irish law.

Thus, with regard to recording of telephone conversations or electronic communications, a regulated entity should comply with either:

a) Regulation 23(5) – (12) of the MiFID Regulations 2017 and Article 76(1)(b), 76(8) and 76(10) of Commission Delegated Regulation (EU) 2017/565; or

b) Where telephone conversations or electronic communications relating to the provision of client order services that relate to offering, arranging or providing an investment product are not recorded, the regulated entity must promptly follow up the phone conversation with a written communication to the client, confirming the key details of the telephone conversation. Also, the entity must offer the client with an opportunity to disagree with the content of the written communication or to otherwise stop the order being executed within a specified time-frame.

The conflicts of interest requirements are also specified. A regulated entity must ensure that disclosure to consumers includes a specific description of the conflicts of interest that arise in offering, recommending, arranging or providing an investment product. The description must explain the risks to the client that arise as a result of the conflicts of interest and the steps undertaken to mitigate these risks, in sufficient detail to enable that client to take an informed decision with respect to the investment business service in the context of which the conflicts of interest arise.

Regulated entities must assess and periodically review, on an at least annual basis, their conflicts of interest policy and should take all appropriate measures to address any deficiencies.

In March this year, the Central Bank of Ireland joined a growing number of regulators that wish to beef up protection of retail investors in relation to the distribution of CFDs. One of the options outlined in the Consultation document published back then by the central bank is the prohibition of the sale or distribution of CFDs to retail clients in and from Ireland. Another is the implementation of enhanced investor protection measures, such as leverage limits. There are still no updates as to how the regulator will approach the matter.

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