Legal Updates

Part 3: Redress

This is the third in a series of four short briefings which looks at some of the key powers which the Central Bank of Ireland (“CBI”) has at its disposal under the Central Bank (Supervision and Enforcement) Act 2013 (the “Act”). The powers in the Act apply to all types of regulated financial service providers, and in some cases also apply to “related undertakings” of such entities.

This briefing looks at the CBI’s power to order redress, which is set out in Part 6 of the Act. The other briefings are on directions and Skilled Persons’ Reports.

Who does the power apply to?

The CBI can direct a regulated financial service provider (“RFSP”) to provide “appropriate redress”.

The definition of a RFSP includes a RFSP whose business is subject to regulation by another authority which performs functions in an EEA country which are comparable to the functions performed by the CBI.

When can redress be ordered?

The CBI can direct “appropriate redress” to be paid by a RFSP to its customers where there have been widespread or regular “relevant defaults” by the RFSP and as a result its customers have, are, or will suffer loss or damage. A “relevant default” is defined as:

• charging a customer an amount which the RFSP is not entitled to charge;
• providing a customer with a financial service which the customer has not agreed to receive;
• providing a customer with a financial service which was not suitable for the customer at the time it was provided;
• providing a customer with inaccurate information which influences the customer in making a decision about any financial service;
• a failure of any systems or controls of the RFSP; or
• a prescribed contravention.

There is no guidance given however as to what criteria will be used to decide if a relevant default is “widespread” or “regular”.

The definition of “customer” includes “any person” to whom the RFSP provides or offers financial services, a relevant borrower in a case where the RFSP undertakes credit servicing in respect of a credit agreement, as well as potential customers and former customers. The definition is therefore broad enough to include non-retail customers, such as large corporate customers.

What is “appropriate redress”?

A RFSP can be required to pay such monetary “or other redress” as is specified in the redress direction. However redress for pecuniary loss cannot exceed the amount of loss suffered, or anticipated to be suffered, together with interest.

Can you appeal a redress direction?

Yes – a decision by the CBI to direct redress is designated as an “appealable decision” and therefore can be appealed to the Irish Financial Services Appeals Tribunal.

Other noteworthy points

The CBI may publish details of a redress direction, or the fact that it is considering a complaint or investigating a matter for the purpose of deciding whether to require redress. There is no prescribed format of such a publication, so it can take whatever form the CBI considers appropriate.

Interestingly, the Act states that compliance by a RFSP with a redress direction shall not be taken to be an admission of liability by the RFSP for any purpose. Presumably this is to allay any concerns a RFSP may have about a redress payment compromising its position in any subsequent CBI enforcement case, or in any civil case by an aggrieved customer down the line. Separately section 44 of the Act (which does not deal with redress) provides a statutory basis for an action for damages by customers who have suffered loss as a result of any failure by a RFSP to comply with its obligations under financial services legislation.

Commentary

Redress can be very costly for a RFSP, as unlike an enforcement fine there is no upper cap to it, provided that it does not exceed the loss/anticipated loss, plus interest (if applicable). Often where redress is ordered it is not the end of the matter for the RFSP, as it may be fined under the CBI’s enforcement regime for the matters giving rise to the redress. Last May a €21 million fine was imposed on a RFSP arising from the CBI’s tracker mortgage examination. That lender had already paid €54.3 million in redress and compensation to its impacted customers¹.

¹The CBI only has the power to order redress payments, and not compensation, under the Act. However as part of the tracker mortgage examination the CBI made it clear that it expected lenders to provide appropriate redress and compensation to impacted customers in line with its Principles for Redress document, even if the redress related to a period prior to the CBI having the statutory power to require redress payments. The CBI’s power to order redress came into force on 1 August 2013 and therefore a redress direction can be made in respect of breaches occurring or continuing after that date.