Efforts to legislate for change in Ireland were for years successfully quelled by the Financial Services Institutions and other Vested Interests.
This was particularly the case in 1994 / 1995 when the Financial Services Institutions’ / Life Assurance Companies’ lobby succeeded in ensuring that they retained full control of the Regulatory Regime (i.e. that their system of Self Regulation continued to prevail).
Life Assurance (as distinct from life insurance) was essentially an 'investment' product. The main purpose of the Investment Intermediaries Act 1995 was to enable the Regulation and Supervision of 'investment business firms' and 'investment product intermediaries' by the Central Bank.
But, the 'tentacles of influence' of those within the Financial Services Sector were so extensive that they were able to ensure that the 'investment business' through which they amassed vast personal wealth would not be governed by any such legislation, or by any regulation that would follow from it.
This, they achieved by ensuring that the definition of 'investment business', within the Investment Intermediaries Act 1995, specifically excluded investment business related to Life Assurance products.
Investment intermediaries for Life Assurance investment products were therefore not governed by the provisions of the Investment Intermediaries Act 1995 and, as a consequence, by the Central Bank, and by any Code of Conduct Requirements that would be issued by the Central Bank under power of Sections 37 and 23 of that Act.
-----------------
In June 1996, as stipulated under Section 37 of the Investment Intermediaries Act 1995, the Central Bank issued a 'Code of Conduct for Investment Business Firms'.
While the primary tenet, that 'an investment business firm should ensure that it acts honestly', was stipulated as a required Code provision within Section 37 of the Act itself, the Code of Conduct issued by the Central Bank was really only issued internally, i.e. to the respective Financial Services firms regulated by the Central Bank; there was no effort made by the Central Bank to make the public at large aware of its contents, or even of its existence.
Again, this practice by the Central Bank, of effectively restricting the dissemination of knowledge of the contents of such Codes, was a manifest deference to the interests of those within the Financial Services Institutions.
It ensured the continued ignorance among consumers / customers generally of the pervasive breaches of Common Law by those within the Financial Services Sector —— ALL very much protective of the personal financial interests (the commission Gravy Train) of those Financial Services personnel.
As a further protection of their interests, the Financial Services Institutions' lobby succeeded in ensuring that the Investment Intermediaries Act 1995 was given no provision by the legislature, whereby the aggrieved customer / consumer could seek direct remedy through the Courts for a breach of any of the Central Bank's Code of Conduct Requirements, as was the case in the U.K. under the Financial Services Act 1986.
NOTE !
The Investment Intermediaries Act 1995, and the legislatively contrived Codes, whereby both Fraud at Common Law and Criminal Fraud are whitewashed within the Central Bank's Codes of Conduct issued under authority of the Act (both the 1996 Codes and their successor 2000 Codes) will be explored in the following Section, Section 2.6.3: A Marked Absence of Teeth ──── Irish Investment Intermediaries Act 1995 and Irish Insurance Act 2000.
The 1996 Code of Conduct for Investment Business Firms stipulated that 'An Investment Business Firm shall ensure that in all its transactions it makes full disclosure of relevant material information, including commissions, in its dealings with clients'.
While this Requirement was nothing more than a codification of the Common Law duty to disclose material information, by ensuring that they remained outside the scope of the Investment Intermediaries Act 1995, those dealing in investment business related to Life Assurance products could [as with the letter of the Code of Conduct for Insurance Intermediaries (see Section 2.6.1)] continue to ignore this duty.
Note! Again be mindful of the fact that the Common Law fiduciary (or special) relationship duty to disclose was treated with absolute disdain by those within the Financial Services Sector. See Section 2.3.4 (a), and note particularly in Conlon v Simms that, where a duty to disclose exists, and the failure to disclose is deliberate, the non-disclosure amounts to fraudulent misrepresentation. (See also Section 2.3.2: Fraudulent Misrepresentation, and 'Silence as Statutory Misrepresentation ?' in Section 2.3.5.)
The political legislature, guided by its Competent Authority, the Central Bank, acquiesced to the contention by the Financial Services / Insurance Industry that the interests of clients / consumers, in the matters of Life Assurance / Endowment Assurance type investments, were adequately protected by Self-Regulation of their own voluntary Codes, and by the Code of Conduct for Insurance Intermediaries as had been issued under title of the Irish Insurance Act 1989 and approved by the Department of Industry and Commerce. (See Section 2.6.1.)
Any possible credulity attaching to the existence of a dividing line between Acquiescence and Collusion, with respect to the relationship between those controlling the formulation of Irish Financial Services Legislation and Regulation and those in power within the Financial Services Sector, was now fast fading.
The lobbying power of the Financial Services Institutions / Life Assurance Companies again became clearly manifest in the manner in which the proposed Disclosure provisions of the forerunner Consumer Credit Bill (1994) were denied effect, or effectively fudged, in the Consumer Credit Act 1995.
For example, Section 108(1) of the Consumer Credit Bill (1994) stated:
Where, in connection with the making of a housing loan or any insurance taken out by the borrower in connection with that
loan ——
| (a) |
a mortgage lender may be paid an insurance commission, including a commission shared by the lender with a mortgage intermediary or any other person, |
| (b) |
a mortgage intermediary or an insurance intermediary may be paid an insurance commission including a commission shared by him with a mortgage lender or any other person, or an introduction fee (whether or not such fee or any part thereof is payable by the person to whom the loan is made), |
This proposed provision in the Consumer Credit Bill (i.e. Section 108(1) above) was not given any statutory effect in the ensuing Consumer Credit Act 1995. The Act merely stated (under Section 131):
| (1) |
The Minister may, after consultation with the Minister for the Environment, by regulations, make provision requiring the disclosure to the borrower of specified information relating to any insurance commission, introduction fee or other inducement, charge or expense that may be payable to any person or retained by any person on foot of an insurance policy taken out by the borrower in connection with the making of a housing loan, or on foot of the making of such loan. |
||||||
| (2) |
Regulations under this section may in particular specify:
|
But no such disclosure regulations were ever made by the Minister. Nor was the power to introduce such regulations transferred to any Designated Agency as was the case in the U.K., where the Securities and Investments Board introduced the Financial Services Conduct of Business Rules.
Note! Section 108(1) of the Consumer Credit Bill (quoted above), in requiring disclosure of commission, also widened the statutory interpretation of commission beyond that previously defined under Statute in the Irish Insurance Act 1989. (See ‘Commission and the Independent Intermediary’ under LAUTRO Conduct of Business Rules in Appendix 2/1.)
The Consumer Credit Bill encompassed any remuneration, reward or benefit in kind, paid or payable to the lender / lender’s Management Personnel within its interpretation of commission.
These express disclosure requirements within the Consumer Credit Bill, to the decision-benefit of the borrower / investor, would have revealed potential conflict of interest and would have led to the Financial Services Institutions / Life Assurance Companies having to desist from paying remuneration, reward or benefit in kind to its Management Personnel / intermediaries, where such payments could be construed as being likely to be an ‘influencing factor’ on their Management Personnel’s / intermediary’s recommendations to clients (as was the situation in the U.K.).
But the Financial Services Institutions’ / Life Assurance Companies’ lobby ensured that such a provision, which conflicted with the personal financial interests of their Management Personnel, was not given express statutory effect in the subsequent Consumer Credit Act.
While lobbying by the Management of the Financial Services Institutions in Ireland ensured that any statutory reforms governing their industry would not impact to any significant degree on their financial interests, any efforts by the media to confront their Regulatory Regime with customers' / consumers' grievances continued to be dismissed with a self-righteous indignation.
The Irish Self Regulating Organisations were affronted (in 1995), when it was questioned that impropriety could be present among their Financial Services Institutions.
From the Chief Executive of the Irish Brokers Association :
‘We’ve had none of the scandals that they have had in the U.K. hit us here in the Republic of Ireland. Not because they haven’t been found out. But because they haven’t happened.’
From the Chief Executive of the Irish Insurance Federation :
‘Self Regulation works on the commitment of the people — the chief executives of the companies, their integrity and honesty to abide by the spirit and the letter of the Codes that have been introduced by the Industry itself in its own interest. I think that structure of Self Regulation is a much more effective in-the-long-term structure than very heavy handed regulation.’
The various Codes, introduced by the Irish Insurance Federation circa 1994, included:
| (a) |
Code of Practice on Cooling-Off Notices. |
| (b) |
Code of Practice on Life Assurance. |
| (c) |
Code of Practice on Life Assurance Selling. |
| (d) |
Code of Practice on Illustrations of Future Benefits. |
| (e) |
Code of Practice on Advertising and Sales Material. |
But, as was the case with the Code of Conduct for Insurance Intermediaries (see Section 2.6.1), these Codes had NO STATUS WHATSOEVER under Statute Law. A breach of the provisions of these Codes, therefore, afforded an aggrieved customer / consumer no statutory means of remedy.
Also, while the provisions of these Codes were taken into account by the Irish Insurance Federation and the Insurance Ombudsman in disputes arising between an aggrieved consumer and a member Financial Services Institution / Life Assurance Company, the Regulatory Regime was such that consumers were not made particularly aware of the specific practices stipulated within the Codes, thereby ensuring (once again) that ‘consumers generally’ remained ignorant of what constituted a breach.
NOTE !
While the Codes introduced by the Irish Insurance Federation had no status whatsoever under Statute Law, their provisions also fell far short of a substantive codification of the duties already established for many years by the precedents of Common Law. (See Appendix 2/1: LAUTRO and FIMBRA Conduct of Business Rules.)
Furthermore, while the Office of the Insurance Ombudsman was, ostensibly, set up by the Insurance / Life Assurance Industry to provide independent settlement of disputes, its Terms of Reference were contrived by Those in Power within the Industry to ensure that the elements within their Life Assurance products, that would, ultimately, feed into the commission Gravy Train and further their own personal financial interests, could not be questioned. (See Section 2.6.4: The Irish Regulatory Regime.)
Notwithstanding the independence of the Office and the proven knowledge of Law the person holding the Office may possess, the Insurance Ombudsman was not empowered to in any way entertain or even comment upon a matter of dispute about Life Assurance referred to it by a consumer, where such dispute concerns the actuarial standards, tables and principles which the Life Assurance Company applies to its insurance business, including, in particular, the method of calculation of surrender values and policy values, and the bonus system and bonus rates applicable to the policy.
As we shall see in later Chapters, it is by the application of such 'so called' actuarial standards & principles that the Life Assurance Companies, furtively, leech unearned profit from the investments of the consumer.
Some of the proposed provisions of the Consumer Credit Bill were given statutory effect in the Irish Consumer Credit Act 1995, notably the provision enabling an investor to cancel an agreement within a 10 day Cooling-Off Period. Also, the provision of mandatory ‘Health Warnings’ (similar to those that had already been required for some years in the United Kingdom) on Information Documents relating to Mortgages (i.e. Mortgage Quotations / Examples) was given some statutory effect under the Act.
A ‘Health Warning’ specifically required in the case of Endowment Mortgages stated:
“ WARNING
THERE IS NO GUARANTEE THAT THE PROCEEDS OF THE
INSURANCE POLICY WILL BE SUFFICIENT TO REPAY THE
LOAN IN FULL WHEN IT BECOMES DUE FOR REPAYMENT ”
BUT, under the Consumer Credit Act 1995, this ‘no guarantee’ warning (in the case of an Endowment Mortgage loan) was not required in cases where the insurer underwriting the insurance policy in respect of the loan guaranteed that the proceeds of the policy at the initial premium would be sufficient to repay the loan in full when it became due for repayment, or where the Mortgage lender undertook to accept the proceeds in full and final settlement of the loan debt.
This out-clause under the Act, whereby, in the case of an Endowment Mortgage Loan, the ‘no guarantee’ warning was not required, was almost certainly inserted into the Act at the behest of the Financial Institutions’ lobby.
While not expressly doing so, the ‘no-guarantee’ warning could result in the kindling, in the mind of the borrower, of an awareness of the risk nature of investment in an Endowment Policy and, consequently, he might be dissuaded from choosing the Endowment Mortgage.
By setting the premium payments sufficiently high in the first place (or by incorporating a step-up increase to payments, with similar effect) the Financial Institutions could safely guarantee that the proceeds of the Endowment Policy would be sufficient to repay the Loan. This would enable them to exclude the ‘no guarantee’ warning from their Quotations / Examples and thus avoid drawing attention to the risk nature of investment in an Endowment Mortgage or a similar Investment Type Mortgage.
Deception can be very subtle indeed!
However, in the light of the revelations of this website-book, it will be clear that such limited ‘Health Warnings’ impact to an insignificant degree on the pervasive abuse of the Common Law Rights of consumers by the Financial Services Institutions.
While the Irish Consumer Credit Act 1995 was introduced, with much bluster, to appease those agitating for statutory protections for the consumer, it was clearly little more than a feigned effort at proper statutory reform. The bottom line remained that the political legislature acquiesced to the interests of the Financial Institutions / Insurance Industry and the substantive Common Law duties of disclosure were, once again, denied statutory effect within Irish Financial Services Legislation and Regulation.