The Central Bank is looking to overhaul the way financial products are sold by prohibiting forms of commission payment that it says favour the interests of brokers and intermediaries over their customers.
The regulator has launched a public consultation on "intermediary inducements", the various types of commission payments from the originators of financial products - including mortgages and pensions - which are made to brokers and intermediaries who sell them to consumers.
The Central Bank wants to prohibit any inducements which it says give rise to conflicts of interest in how financial products are sold. These include any commission or other payment which is tied in to the volume of a particular product which is sold by the broker. Such incentive arrangements can reward brokers for selling a product to a consumer ahead of a competing product which might be in the client's interest but won't be as lucrative for the financial intermediary.
The bank also wants to ban inducements for selling mortgages which are linked to the size of a loan because of the risk that they would encourage borrowers to take on more debt as this would result in a bigger commission payment.
The consultation paper sets out stricter criteria governing the use of the term "independent" by intermediaries. The Central Bank proposes that no firm which accepts any inducements in order to sell financial products would be allowed to describe itself as independent.
Launching the consultation document, Central Bank Director General Financial Conduct Derville Rowland said the objective was to ensure firms act in the best interest of consumers.
"By their very design, the manner by which financial institutions pay intermediaries who sell their products influences the behaviour of those intermediaries. It is imperative, therefore, that remuneration arrangements are designed to encourage responsible business conduct, fair treatment of consumers and to avoid conflicts of interest," she said.
Brokers Ireland, a group representing 1,300 broker firms, welcomed most of the proposals. In a statement its chief executive Diarmuid Kelly said ending inducements "such as targets linked to volume, profit or business retention is very much in a consumer’s interest and creates a level playing field among financial advisers".
Mr Kelly said there was a risk, however, that the new rules could push up the cost of upfront fees paid for impartial advice from independent financial advisers. He pointed to a recent regulatory overhaul in the UK as an indicator of what might happen here. "The introduction of RDR (Retail Distribution Review) regulations in the UK in 2012 has resulted in the cost of advice increasing, leaving the less well-off unable to afford impartial advice," he said.