about banking 3

8/14/2019 About Banking 3

1/28

ABOUT BANKING

Pat Neary

The Principal of

Regulation

Managing Foreign

Exchange Exposure

for Irish Exports

A New Regime

to Counter Money

Laundering

The IBF Personal

Account Switching Code12 Months On

MAY 006EDITION 3

INSIDE


2/28

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Contents

About bAnking

ISSN 1649-6671

About Banking is a publication

of Irish Bankers Federation (IBF).

Opinions expressed in the magazine

are not necessarily those of IBF,

its Council, Committees or the

Editor. Reproduction in whole or in

part without written permission is

strictly prohibited.

Irish Bankers Federation is the

leading representative body for

the banking and f inancial services

sector in Ireland. Membershipof over 60 institutions includes

licensed domestic and foreign

banks and financial services

institutions operating here.

The Federation of International

Banks in Ireland (FIBI) and the

Irish Mortgage Council (IMC)

are affiliates.

President: Richie Boucher

Chief Executive: Pat Farrell

Irish Bankers Federation,Nassau House,

Nassau Street,

Dublin 2

Tel: +353 (0)1 6715311

Email: [email protected]

www.ibf.ie

Edr

Felix ORegan

Head of PR and Public Affairs

[email protected]

Prdc

Patrick [email protected]

Advers

Aoife McDonnell

[email protected]

Des

Dcoy Design

www.dcoy.ie

Pr

Hudson Killeen

9-11 Maa Fre Exchae

Expsre fr irsh Exprs

Dr. Jh Cer ad D bred

6-8 the Prcpal

f Rela

Pa neary

2-4 newsdes

the laes ews frm he

irsh facal servces secr

12-15 the ibF Persal Acc Swch Cde:

12 Mhs o Ea Dyle

16-17 P Research ad Develpme

a he Hear f Facal Servces

Aee Farrell

19-21 A new Reme Cer

Mey Lader

Emer oRre

23-24 CP14: Mre tha a nmer

Ay bas b

Ahy Walsh


4/28

2 About bAnking

nEWSDESK

tp sess sdes hred

Five students were recognised for achievements in the 2005

state examinations in business subjects at an event hosted byIBF with the Business Studies Teachers Association of Ireland

(BSTAI) in Dublins National Concert Hall.

The annual Business Studies Achievement Awards are

presented to students who are placed first in the state

examinations in Accounting, Business, and Economics at

Leaving Certificate and Business Studies at Junior Certificate.

The 2005 awards were presented by Pat Burke, Assistant

Secretary General of the Department of Education and

Science, and Caroline McHale, BSTAI President.

Diarmuid Bradley, past IBF President, praised the students

and the productive relationship between IBF and the BSTAI,

which promotes business subjects in schools.

Cllara red ld irelads eraal sccess

An Taoiseach, Bertie Ahern, TD, has joined Mike Ryan,

Chairman of the Federation of International Banks

in Ireland (FIBI), in highlighting the need for ongoingpartnership between the public and private sectors to

ensure that Ireland maintains its success in international

financial services. Both were speaking at the annual lunch

of FIBI, which is affiliated to Irish Bankers Federation (IBF),

in Dublins Westin Hotel.

Noting that the continued growth of Irelands international

financial services industry could result in employment

growth of almost 50% over the next five years to some

26,000, Mike Ryan said that a new strategy for the sector

can best be achieved through continued partnership with

Government and other stakeholders.

Mr Ahern highlighted the review of the future direction of the

industry being carried out under the auspices of the Clearing

House Group, chaired by his Department, which will be

completed shortly, and he encouraged the industry to engage

with the public sector to ensure its objectives are achieved.

An Taoiseach, Bertie Ahern, TD, congratulates Mike Ryan, Chairman, FIBI,

on another successful year for international financial services in Ireland.

Pictured at the Business Studies Achievement Awards (L to R):

Emma Halley (Wicklow), Caroline McHale, President, BSTAI,

Orna Grant (Dublin), Kieran Curtis (Dublin), Diarmuid Bradley,past President of IBF, Aoibheann Hurley (Cork)

We have had considerable success in the financial services

sector to date. The challenge we all now face is to build on

that success in adapting to a new and more competitive

environment, added Mr Ahern.


5/28

AboutbAnking 3

Cferece sees rh frefr mrae mare

The future of the Irish mortgage market looks bright,

according to speakers at the recent National Mortgage

Conference, which was organised by Irish Bankers

Federation and sponsored by MyHome.ie.

Delegates concluded that there is plenty of room for

further sustainable growth domestically and through new

opportunities emerging in the massive EU mortgage market.

Against the backdrop of a strong economy, the

development of Irelands financial sector in general, and

the mortgage market in particular, has assisted thousands

of people enter and move up through the housing

market, said Minister for Finance, Brian Cowen, TD, in

his opening address to the conference in Dublins MansionHouse. Increased competition among financial institutions

intensified by new market entrants has enabled households

to benefit from Irelands membership of the euro area,

in a very tangible way, through access for the consumers

to very competitive mortgage finance, and through the

lenders product innovation and a wide choice among

mortgage providers.

new ibF Presde welcmesCmmsser McCreevy

In his first engagement as the new IBF President, Richie

Boucher hosted a breakfast briefing by Charlie McCreevy,

European Commissioner for the Internal Market and Services.

Commissioner McCreevy highlighted his priorities: these

include facilitating single markets for payments and mortgages,

cross-border consolidation, improving efficiency and enhancing

competition. He also acknowledged that new measures

relating to the level of capital, required by financial institutions

to protect them from insolvency and to protect their

customers interests, present banks and regulators with a major

implementation challenge.

bsesses eef frm ewSwch Cde

Irish Bankers Federation (IBF) launched a Business Account

Switching Code in March to make it easier for businesses to

switch accounts from one financial institution to another.

Developed by IBF in association with the Irish Payment

Services Organisation (IPSO) and in consultation with

the Financial Regulator, as well as a number of business

representative groups, the IBF Business Account Switching

Code covers current accounts and demand deposit

accounts held by business customers. The business

representative groups involved in consultations on the

Code included the Small Firms Association (SFA), Chambers

Ireland, Irish Small and Medium Enterprises Association

(ISME) and the Irish Farmers Association (IFA).

IBF has invited all financial institutions, including non-IBF

members, to subscribe to the Code which will be fully

operational by 30 June 2006.

This Code will provide a clear and simple road map for

business customers who wish to switch accounts from one

financial institution to another, said IBF Chief Executive

Pat Farrell.

Internal Market Commissioner Charlie McCreevy and Richie Boucher,

IBF President at the IBF breakfast briefing.

Launching IBF Business Account Switching Code (L to R): John Dunne,

Chief Executive, Chambers Ireland; Pat Farrell, Chief Executive, IBF; and

Pat Delaney, Director of Business Sectors, IBEC.

Minister for Finance Brian Cowen giving his opening address at IBFs National

Mortgage Conference, sponsored by MyHome.ie.


6/28

4 About bAnking

Dch shw he way eer rela

As a member of the Government-appointed Business Regulation

Forum, I received recently, along with my fellow members, a

presentation from Wim Jannsen. Wim is a senior civil servant in theDutch Finance Ministry and heads up their Administrative Burdens

Reduction Unit (ABRU). I thought Wims title was intriguing, dare I

say bordering on radical, in a public service context.

A radical approach was what was needed. It seems the Dutch

have measured the cost of red tape compliance and have

come up with a figure of e16.4bn! Not surprisingly, they

decided enough was enough and set a target to reduce the

cost for business by 25% over four years. And before the critics

wade in with the usual arguments about not throwing the

baby out with the bathwater, a key principle underpinning the

exercise is that any changes made must not result in dilution ofthe original regulatory initiatives policy imperative; rather, seek

to improve it.

With less than two years to go, the Dutch programme has

achieved a 17% cost reduction and they are confident of

exceeding their target comfortably in the timeframe agreed.

The reason they have made so much progress is that they

have tackled the issue with the seriousness it deserves: each

Government Ministry has its own ABRU and failure to achieve

targets results in financial penalties being applied by

way of reductions in the Ministrys annual budget.

Some would say that this is a rather aggressive

approach. A similar approach is what is needed here

if we are to successfully counter the perceived inertia

that characterises official thinking on this subject.

S where are we w he beer Rela aeda?

The onset of warmer weather and longer, brighter evenings

has reminded me that the Governments Better Regulation

launch last July will soon celebrate its first anniversary. The

launch set out some new initiatives; all primary legislation and

significant statutory instruments would henceforth be subject to

Regulatory Impact Assessment (RIA) and Consultations would beinformed by guidelines. On the face of it a reasonable start, but

on further scrutiny it appears that the growing plethora of rule

making initiatives generated by an increasing array of regulatory

and compliance agencies are not obliged to apply RIA but can

do so on a voluntary basis. On consultation the guidelines

initiative is similarly underwhelming when compared with the

UK Government position which raises the bar much higher and

sets out non-negotiable standards.

But maybe all this is a bit harsh and, almost a year on, answers

to the following questions may pleasantly surprise us all:

- Has the Better Regulation Group yet devised a public sector-

wide standardised methodology for conducting RIAs?

- How many RIAs have been undertaken and what have been

the results?

Meanwhile, back to our Dutch friends. There is no doubt that

they had a bigger problem than us in the first instance and this

created an urgency to act. Do we need to arrive at the same

pass before a similar momentum is created here? Apparently

the Dutch initiative was driven at political level by a Minister

who was prepared to invest political capital in

making things happen. Does our political system

have the capacity to act likewise? If it does, the

benefits for business and consumers alike would

be considerable.

Pa Farrll,IBF Chif excuiv

Parershp wrs

The continued growth and development of the IFSC can be

attributed in large measure to a public/private partnership modelwhich has enabled the wholesale banking and financial services

sector to successfully maintain and enhance Irelands competitive

positioning in what is a truly global marketplace. Irish Bankers

Federation (IBF), representing the wholesale and international

banking sector, has played a leading role in building and

developing the relationships which sustain the models success.

The recent announcement by the Minister for Finance of the

Governments decision to amend and update the Asset Covered

Securities Act, 2001, is a prime example of that partnership at

work. Since its inception, the current legislation has facilitated

the participation by Irish financial institutions in these markets,

which have an increasingly prominent role in the international

debt capital markets. The Irish legislation is highly regardedinternationally for the high levels of protection afforded to

investors in Irish covered bonds. This update should further

enhance Irelands leading position in the market.

IBF has for some time now been working with the Department

of Finance and key stakeholders to bring about these

legislative changes so as to position Ireland for continued

growth in the international covered bonds markets, in the

face of ever-changing market conditions and the forthcoming

introduction of new European legislation.

neWsDESK


7/28

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8/28

6 About bAnking

the Prcpal f Rela

iervew wh Pa neary, CEo, Facal Relar

My main principle is that the boards andmanagement of regulated entities are bestplaced to run their own organisations, saysPat Neary, CEO of the Financial Regulator.Patrick Hughes met with him to discuss arange of key issues.

the Facal Relar red hree

years ld 1 May 2006. the frmer

Prdeal Drecr, Pa neary, srelavely fresh he rle f CEo,

hav ae ver frm Lam oRelly

a he e f Ferary. the

rle demads a sr sese f

leadershp am her persal

qales, says neary. i am lcy

wr wh a hhly prfessal

eam, whch shares a cmm vs.

i d r j we are wr

wh a dyamc secr, prfale ad

sd, cr he Sae ad

he cmmy.

Pat Neary sees his previous role as

Prudential Director as having clear

relevance to the new job. I see that

certain aspects are carried through, such

as attention to safety and soundness,

and many micro issues that transmit to

the macro. This is key to the systems

robustness. Consumer protection is at

the core, and I encourage a view of

consumers as not only borrowers but

also as depositors.

The CEOs background in the area of

regulation is impressive, having worked

in statistics, internal audit, and in the

area of supervision since 1979, mostly

in banking, but also in securities.

I had a good relationship already

with the major players nationally and

internationally. This is very useful in my

new role.

Nearys view of the future of the

Financial Regulator and its relationship

with industry is quite clear. I see the

Financial Regulator as working closely

with the industry and being mindful

of its needs, while not creatingbureaucracy for the sake of it. There

should be no unnecessary regulation;

rather, we should encourage

innovation. The caveat is that banks

treat all customers with respect and

care. The Financial Regulator can be

aggressive if necessary and falling

out will happen where its needed.

But the best approach is through

reasonable collaboration, consultation

and cooperation.


9/28

AboutbAnking 7

Rela fr prdece

ad prec

There continues to be significant debate

within the industry about principles-

based regulation versus rules-based

regulation. The Financial Regulator

does not see these as being mutually

exclusive: Best practice is not one or

the other, but a combination of both. A

rule should have a principle, and must

be capable of being defended as a

principle first. Some jurisdictions can do

little by principle; all regulations must

be enshrined in law. While some EU

directives come through as regulation,

rules must hang off principles.

My main principle is that the boards

and management of regulated entities

are best placed to run their own

organisations: they know their dynamics.

We must ensure that they have policies

in place to cover their main areas of

operation and their main risks. Any

rules must contribute to that smooth

operation; nothing else makes sense.

Are banks in Ireland delivering their

responsibilities in this respect? I think we

have an industry of good standing. Our

strategy reflects this: its not draconian.

As to striking the right balance between

prudential supervision and consumer

protection, Neary is quite clear in his

mind as to the importance of that

balance and how the Financial Regulator

should help to strike it. I believe that

we are displaying subtle judgement

in striking the right balance. We are

fleshing out the prudential side under

Basel II and other codes to develop a

fully formed prudential framework.

At the same time with regard to

consumers, we have developed andcontinue to develop a framework to

protect customers.

It is now one year since Irish Bankers

Federation (IBF) introduced the Personal

Account Switching Code. We feel

that there is considerable evidence that

it is working. We need to continue to

build up information and transparency

to consumers about pricing structures.

Our Consumer Protection Code, which

will be implemented later this year, will

address some of these issues, but the

industry clearly also has its own part

to play, said Neary.

With regard to the industrys contention

that price control (Section 149 of the

Consumer Credit Act) stifles innovation

and should be removed, Neary has

this to say: Section 149 is a political

matter, and the Financial Regulator

should not seek to engage in that

process. However, we can clearly state

our position based on our assessment

of the facts. Many, I know, have pointed

out that there may be grounds for its

removal. However, before that stagecan be reached, we think a number of

things will need to happen. They include

some of the issues I have mentioned,

such as full transparency on costs and

the effective operation of the switching

code. They also include consideration

of the development of a standardised

low-cost basic bank account. We have

been engaged with the Combat Poverty

Agency in conducting research on the

issue of access to financial services and

what the barriers to access are.

We can createthe structure for areputable businessenvironment. After

that, the matterof reputation isin the hands offinancial institutionsthemselves.


10/28

8About bAnking

the Erpea aeda

A lot hangs off the EU agenda says

Mr Neary. Prominent in many experts

minds is the reinsurance question:

We need the regime to capture risks,

but not work against the reinsurance

industry. Some critics believe there isa danger that regulation in Ireland goes

beyond EU requirements. Thats not

the case, he states. On the prudential

side, we dont goldplate, the standard

supervisory framework applies, but

where we see a need to focus on some

issues specific to this market, we will

adapt the regime as necessary. The

consumer side is being developed, with

the Markets in Financial Instruments

Directive (MiFID) applying to how entites

sell cross-border in Europe. The hurdles

here are no higher than for anywhere

else. As a regulator, we do not seek

to create any barriers to competition,

but the importance of a well regulated

industry of high reputation should not

be underestimated.

Is convergence in regulation a clear path

to a single European regulator?

I dont think were heading there

quickly. The fabric has been woven to

bring this to bear on supervision in due

course. This is crystal ball stuff: if it doeshappen, Im not sure it would completely

replace local national regulators.

Relas wh he dsry

When discussing the relationship with

the industry, to describe the situation

Pat Neary reaches again for the three

Cs - collaboration, consultation and

cooperation. Our working relationship

with IBF has been constructive and

collaborative, shown for example by our

working together on the implications

of Basel II. Nor do I have any sense of

difficulties in our relationship with

banks themselves.

At the moment, wecreate no distinctionin dealing withinternational anddomestic banks, norbetween wholesaleand retail banks. Thisapproach is beingreviewed at presentto ensure that wedeal with banks usingthe best model. I amopen-minded: we areexamining the risksand benefits of adifferentiated model.

One particular strength in Irish bankinghas been the way we have dealt with

the International Financial Services

Centre (IFSC). We did not grant lower

regulatory requirements to the IFSC,

but the same to everyone.

However, Neary recognises the

difficulties in implementing regulation

for all parties concerned - not least

banks. The sector is so complex, with

many directives demanding attention.

It is a struggle for the sector to absorb

the avalanche of regulation. Its often

the same colleagues who are trying

to implement everything. We must be

realistic about the timescales involved.

the secrs repaApproaching the end of the interview,

one senses that the new CEO really

gets into his stride when the issue

of reputation is raised, not least

when reference is made to a recent

attempt to stick the label of the Wild

West on Ireland. I saw this as an

opportunistic comment, which has

gained no credibility, says Neary,

there is no systematic flaw to justify

this comment. There is nothing

to cause me concern about the

reputation of the financial services

sector, he states emphatically.

The various overseers, like the

International Monetary Fund and the

Financial Action Task Force all provide

positive endorsements.

And what can the Financial Regulator

do to ensure a positive reputation?

We can create the structure for a

reputable business environment. After

that, the matter of reputation is in

the hands of financial institutionsthemselves, he states simply. That said,

Neary endorses the recent supportive

comments from An Taoiseach. The

IFSC attracted international banks and

gave them room for profit. We cant

begrudge them their success. On the

domestic side, there have been some

unfortunate incidents which will take

time for the sector to recover from, but

there is no doubt that the sector is very

much heading in the right direction,

he concludes positively.

One particular strength in Irish banking has been the way wehave dealt with the International Financial Services Centre (IFSC).

We did not grant lower regulatory requirements to the IFSC,but the same to everyone.

th Pricipal f Rgulai


11/28

About bAnking 9

Dr. Jh Cer ad D bred, Mchael Smrf Schl f bsess, uCD

All exporters needto correctly managetheir foreign exchangeexposure with the full

support and expertiseof their banks, statesDr. John Cotter.

is scarcely srprs ha, as a small

pe ecmy heavly depede

rade, irelads ecmc sascs

reflec a sr, psve relashp

ewee r rade perfrmace ad

verall ecmc acvy. Hwever,

he slwdw r expr

perfrmace ver rece years sa maer f sme ccer, wh

exprs 2003 recrd a al

decle f ver 12% vale he

prevs year, fr example.

The contraction of the world economy

is the oft cited explanation, while the

negative effect of escalating oil prices

has taken up much of the media

coverage. In addition, however, the

impact of foreign exchange exposure

continues to create uncertainty for

performance in this sector; and, to some

extent, this has been overlooked.

Through the provision of currency risk

management products and services,

banks have a crucial role to play in

helping to reduce this uncertainty.

Additionally, the banking sector can

further help to demystify the many

myths associated with exporting and

foreign exchange exposure.

the rle f he er

It is worth noting that our membership

of the euro zone has helped to mask

the problems associated with foreign

exchange markets. While not the main

one, a key motivation for Irelands joining

the trading block of the EEC (as it was

known then), followed by the European

Monetary System and finally the euro

zone was to expand our export trade to

European markets. This has not happened

to any real extent. What has happened is

that the United States (US) has replaced

the United Kingdom (UK) as our single

largest export destination. Moreover,

much of our trade with non-European

economies is invoiced through sterling

or US dollars and our ability to expand

in these markets will be influenced by

movements in these currencies.

Thus, for now and the foreseeable

future, our largest export volumes will

go to economies that involve foreign

exchange exposure - namely, the US and

the UK. Combined, they account for

approximately 40% of total Irish exports.

It was a fallacy to believe that the euro

would eliminate our foreign exchange

exposure. Perhaps this misconception

was driven by the relatively large intra-

EC trade undertaken by other euro

zone members. Today, perhaps it is

being driven by commentators who

overlook the adverse impact that foreign

exchange exposure has had during the

boom years. Regardless, the volatility of

currency markets continues to be a key

and worrying consideration for exporters

as they try to ensure stability of their

revenues and ultimately their profitability

and competitiveness.

Maa Fre Exchae Expsrefr irsh Exprs


12/28

10 About bAnking

Maagig Frig exchag expur fr Irih expr

Certainly exporters recognise that

it is now a more competitive trade

environment. Moreover, they are also

expressing concern about the impact

of oil prices. But what concerns do

they have about currency movements

and how have they responded to these

concerns? Unfortunately, there are still as

many questions as there are answers, but

some disquieting findings have emerged.

Measr fre exchae

expsre

In the Export Ireland Survey 2005,recently published by the Irish Exporters

Association, more than 10% of

responding exporters - trading with non-

euro partners - advised that they take no

action to manage their foreign currency.

This inaction must be seen in the context

of the cumulative movements, both

positive and negative, in the dollar/euro

exchange rate in 2005.

While we know that the net movements

involved an appreciation of the euro of

just 13%, the cumulative movements

show the extent to which currencies can

vary; and, more importantly, the extent

to which exporters revenues can be

affected. However, it is important to be

able to estimate the actual size of the

impact of currency fluctuations on the

export base, as this will help to determine

the policies and strategies required to

manage this exposure.

That said, looking at aggregate exports

themselves may only provide a rough

idea as to the influence of currency

markets on our export activity. The

impact on individual sectors also needs

to be measured. The reality is that Irish

exports are heavily dependent on certainproducts. For example, over 50% of our

exports to our largest trading partner, the

US, are in one sectoral classification (from

ten in total) - namely, the multinational

dominated Chemical and Related

Products sector.

In contrast, little activity can occur

in other sectors including more

predominately indigenous ones. Thus,

aside from the fact that exporters face

risks due to a concentrated dependency

on certain sectors, the impact of foreign

exchange exposure on these individual

sectors also needs to be measured.

Unlike indigenous firms, multinationals

enjoy the option of eliminating the

influence of foreign exchange exposure

through transfer pricing. So, there is no

reason to assume that the impact on

individual sectors would be the same and

consequently the response of firms across

sectors should also vary.

Maa he expsre

Once we have measured the impact

of foreign exchange exposure on

total and sectoral exports, we need to

examine mechanisms to manage thisexposure. There are a number of ways in

which this can be addressed and these

range from the ad-hoc to more formal

procedures. Among others, the potential

list includes exposure netting, currency

accounts, forward contracts and

option contracts.

The extent to which these various

options are being utilised by Irish

exporters in general is confirmed by

one of the key findings of the Export

Ireland Survey: this shows that over

85% of respondents are satisfied

with the support provided by their

Source: Export Ireland Survey 2005,Institute of International Trade of Ireland/IrishExporters Association

Currency accounts

Forward contracts

Trade in euro only

Currency options

Pooling and netting

Use non-bank dealers

Take no action

37.5%

23.5%

20.6%

10.8%

3.6%3.8%

0.4%

Hw d y maae yr fre crrecy?


13/28

banks. However, the same research

also shows that a significant 10% of

respondents take no action to protect

against currency fluctuations and thus

underutilise the services available

from banks.

The banking sector has a key role to

play in providing support services that

help underpin and grow the activities

of exporters. Banks can and do provide

a wealth of expertise and innovative

money and currency market products to

aid the performance of Irish exporters.

They can also provide valuable adviceand tailor-fit risk management products

that are suitable to each exporter as

required. And they can determine,

through engaging with the exporter,

the relative merits of currency risk

management products, such as forward

contracts, in protecting export revenues.

With the international trade environment

becoming more competitive, and with

changing characteristics, there is a

serious challenge for our export sector

to respond positively, bolstered by a

strong supporting role from banks.

It remains to be seen whether Irish

exporters will indeed engage more

and seek comprehensive support from

the banking sector. Certainly closer

cooperation is paramount.

There remains an imbalance between

the theory of good practice in the face

of foreign exchange exposure and

what companies are really doing. This

represents a worthwhile challenge for all

concerned: exporters, the banking sector

and policy makers in general, to ensure

that foreign exchange exposure can be

managed effectively so as to help the

competitive activities of exporters andthe Irish economy in general.

Dr. John Cotter is director of the

Centre for Financial Markets at

University College Dublin. His research

and consultancy interests are in the

areas of risk management and

investment analysis.

About bAnking 11

14.8%

85.2%

Yes

Source: Export Ireland Survey 2005,Institute of International Trade ofIreland/Irish Exporters Association

No

Des yr a mee yr eeds?

Frher research fre

exchae expsre

Foreign exchange exposure and

risk management: The case of Irish

exports is the title of an importantresearch project currently underway

and due for completion in July

2006. The research arises from

engagement between Irish Bankers

Federation (IBF), the Irish Exporters

Association and researchers at the

Centre for Financial Markets, Michael

Smurfit School of Business, University

College Dublin.

Sponsored by a number of IBF

member banks and led byDr. John Cotter and Don Bredin,

this research project is employing state

of the art modelling procedures to

examine foreign exchange exposure

and to provide answers to relevant

questions, including the following:

1. What effect does foreign

exchange exposure have on the

Irish export sector?


exchange exposure have on Irish

exports to the US?


exchange exposure have on Irish

exports to the UK?

4. What is the effect of foreign

exchange exposure on

disaggregated (industry sector)

data, i.e. what is the variation (if

any) of the effects of currency

movements across industrial

sectors?

5. How can exporters develop

risk management strategiesto protect them from foreign

exchange exposure?


14/28

12 About bAnking

the ibF Persal Acc SwchCde: 12 Mhs o

Ea Dyle, Ser Csla Relary ad gverace Maers

The IBF Personal Account Switching Code hashad a successful first year, proven by the level ofswitching facilitated and competition generated,

according to Etain Doyle who has just completedan independent review.

i Ferary 2005, he ibF Persal

Acc Swch Cde was

rdced y he crys lead

as ad ld scees

he persal crre acc

mare. twelve mhs ad

17,000 swches laer, irsh baers

Federa (ibF) ased me revewhe pera f he Cde ad

s develpme. i am d hs

frm a ps f sme famlary

wh he Cde, hav aced as a

depede advser ad referee fr

ibF ver he las year.

The arrangements were set up to make

it easier for customers to switch from

one bank to another. Difficulties in

switching current accounts are viewed

as a barrier to competition. As shown

in Figure 1, a new survey undertaken

by TNS mrbi for IBF indicates that 55%

of current account holders now thinkit is very easy or fairly easy to switch

their current accounts. In March 2005,

a Eurobarometer poll recorded a 46%

response to a similar question.

FAIRLY EASY/VERY EASY

0%

All 55% 29% 27%

65+ 50% 6% 27%

55-64 56% 17% 27%

45-54 45% 27% 27%

35-44 54% 25% 21%

25-34 63% 19% 18%

18-24 53% 11% 36%

20% 40% 60% 80% 100%

FAIRLY DIFFICULT/VERY DIFFICULT

Figure 1: Perceived Ease of Switching Current Accounts - by age (March 2006)

% of respondentsBase: Respondents with current accounts, total 854Source: TNS mrbi

DONT KNOW


15/28

About bAnking 13

Following the Codes introduction in

February 2005, the numbers switching

rose rapidly in the first few months

- as shown in Figure 2. Some 17,000

accounts were switched under the Code

in the year, about 0.5% of the total 3.3m

personal current accounts.

The rate of switching under the Code

is regarded as a good start both by the

Financial Regulator and the Competition

Authority as well as the Consumers

Association of Ireland. It is estimated that

there is a much higher level of switching

outside the Code and this may account at

least in part for an overall 5% switching

rate reported in the TNS mrbi survey.

Develpmes he frs year

As the Code commenced operation, it

gained considerable national publicity.

Numbers of customers switching banks

were larger than had been anticipated.

While this was positive for the success

of the Code, it also intensified initial

teething problems. IBF was proactive

in following up issues and banks madechanges to improve the service, some

taking effect rapidly and others over time.

For example, it had been envisaged

initially that transfer forms would be sent

by post from the new bank to the old

bank and back again, but this proved

impractical and was replaced by courier

services. Decentralised systems operating

mainly at branch level around the country

were slow and insufficiently consistent to

handle switches effectively. Banks withsuch systems centralised key functions.

They introduced controls to improve

visibility of operations at branch level.

All banks strengthened internal and inter-

bank co-ordination.

After two months the percentage of

switches completed late fell very rapidly.

By the end of the year the position had

improved further, thanks to a

combination of factors as follows:

increased experience with the Code;

increased training of staff particularly

at branch level; better identification of

the best switching date for individual

customers; and acceptance from other

banks of minor debit balances on

incoming switches by the bank most

heavily engaged in switching.

Maaeme f acc swch

The clearing banks have dedicated

switching teams, together amounting to

some 50 staff. They have put resources

into IT development, marketing and staff

training, both centrally and in branches

to handle switches. Switching code

operations are subject to internal audit.

In several cases they have already beenreviewed for compliance and issues were

followed up.

Smaller banks also have arrangements

to handle the Code. Banks which do not

offer personal current accounts to new

customers are operating the Code to

switch out existing customers who decide

to bank elsewhere.

The Code was developed under the

auspices of IBF and the IBF Secretariat hasactively overseen its operation, including

independent review, collecting data

and holding regular review meetings

with member bank representatives.

The independent review function is

regarded as particularly important by the

Financial Regulator, as is recourse to an

independent referee where required. For

example, a bilateral dispute concerning

incorrect returns on win-back and

incorrect representations to customers

about another banks offer was dealt with

in this way.

impac cmpe

The TNS mrbi survey showed 5% of

respondents said they had switched their

current accounts to a different financial

institution during the previous twelve

months. The survey asked switchers to

provide the main reason for switchingtheir current account. Bank fees were

noted by 45% of switchers, while 23%

were unhappy with the level of service

from their existing bank and 7% felt

they would get better service from a new

bank. (It should be noted that, with 44

respondents, the sample size was small.)

See Figure 3 on page 14 for details.

Charges and service were two main

reasons also noted by banks interviewed

for this review, some of whom also

mentioned convenient location - a

customer moving job or home may move

to another bank with facilities more

convenient to the new address.

In response to the opposite question

- the main reason for not switching the

current account - it is notable that 61%

of respondents stated that they were

happy with service from the existing

supplier. Interestingly, just 3% gave too

much hassle as the reason. See Figure 4

on page 15 for details.

As the Code was introduced, one

bank was running a major switcher

campaign emphasising a free offer on

current account fees, while another

bank had a long standing limited free

offer. Since then, another three leading

banks have introduced or announced

the introduction of free offers. One of

these three is currently running a major

campaign emphasising its free offer.

The increased competition betweenbanks on current account service costs

is welcomed by the Financial Regulator,

the Competition Authority and by the

FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 2005 JAN 2006

2500

2000

1500

1000

500

0

Figure 2: Numbers Switching Each Month under the Code (1 Feb 2005 - 3 Feb 2006)

Source: IBF


16/28

14 About bAnking

45%

14%2%

2%2%5%

7%

23%

Better deal on interest and/or fees

Base: All respondents that switched in past 12 months,

44 respondents

Source: TNS mrbi

Other

No reason

Not happy with service from existingbank/building society

Better services

More convenient location

Changed mortgage or other product

Loan or overdraft request declined

th IBF Pral Accu swichig Cd: 12 Mh o

Consumers Association representatives

who were interviewed for this report.

Both regulators also noted that the

Code has had a broader impact. The

Financial Regulator noted that it is

helping to deal with the perception

among some consumers that they

could not easily change banks. The

Competition Authority noted that

marketing by banks which refers to

switching is useful in making Irish

people more aware of the possibilities

and potential benefits of switching

suppliers, whether for banking or

other services.

Qeres ad cmplas

Banks record formal complaints -

although queries resolved in a phone

call are not included. However, not

all banks keep separate data for

complaints relating to switching. On

the basis of available bank data, it

appears that complaint levels are low

and most complaints relate to direct

debits not transferred on time, or tolate switching generally. Complaints

are generally made to the new bank,

which takes responsibility for tracking

back problems - howsoever caused.

All indicate a rapid clear-up rate. The

Financial Regulator stressed the need forcontinued close monitoring to ensure

that late completions are minimised. It is

important that switching is trouble free

for customers. As indicated below, issues

raised will be subject to ongoing review.

Between April 2005 and March 2006,

some 22 complaints were made to the

Financial Services Ombudsman about

switching. Of these, 18 were referred

to the internal complaints procedures

of the banks - on the basis that the

Ombudsman does not handle complaints

unless the banks own internal complaints

procedures have first been exhausted.

Of the four complaints accepted by the

Ombudsman, one has been settled and

one not upheld, while the other two are

still under investigation.

The Consumers Association indicated

that most calls it received about

switching were seeking information.

Complaints tended to reflect

disappointment among consumers thatthey were unable to switch right away.

The Financial Regulator wishes to see

timescales kept under review.

Frher develpmes

Shortening the timeframe it takes to

switch accounts has been reviewed.While some thought it might be feasible

to shorten it slightly, the general view

among banks was that this would

increase late transfers. Given the

experience to date and the fact that

switching systems are partly manual,

this is likely to be the case. A slight

shortening is also unlikely to be valued

by consumers. Radically shortening

the process would require complete

automation. Electronic payments

infrastructure required to deliver Irelands

obligations to operate the Single

European Payments Area (SEPA) will be

a driving force in delivering increased

automation from 2008 onwards.

The Consumers Association stressed

the importance of increasing awareness

among consumers of the Code. While

the TNS mrbi survey shows that 27% of

current account holders did not know

whether it would be easy or difficult

to switch their current account, it also

showed that 22% have heard of the IBFCode. This is a good result after a year

and provides a solid basis from which to

develop greater awareness.

Fre 3: Reass fr Swch (March 2006)


17/28

About bAnking 15

The review will now concentrate

attention on measures to improve

efficiency on direct debit transfers wheresignificant numbers have to be followed

up, and on eliminating late transfers.

These issues are important in terms of

trouble free switching and also in scaling

up to handle larger numbers as required.

The IBF Personal Account Switching

Code has had a successful first year and

is already making a visible contribution

in facilitating personal bank customers

and developing competition.

Etain Doyle was the countrys first

sectoral regulator for telecoms between

1997 and 2004. She is also Chairperson

of CRANN, the Nanotechnology Institute

based at Trinity College and a member

of the Executive Board of the Institute of

European Affairs.

Fre 4: Reass fr n Swch Accs (March 2006)

61%

10%6%

5%

5%3%

5%

10%

3%2%

Happy with service from existing bank/building society

Base: Respondents that did not switch accounts, total 810

Source: TNS mrbi

Other

No reason

Been with current provider a long time/Hold other accountConcern about disruption from switching

Inertia

Too much hassle

No other convenient branches

Banks and building societies basically all the same

Cmmmes der he Cde

Under the Code, ACCBank, AIB Bank, Anglo Irish Bank, Bank of Ireland,

Bank of Scotland (Irl.), EBS Building Society, First Active, ICS Building Society,

IIB Bank, Irish Nationwide Building Society, National Irish Bank, Northern

Rock, permanent tsb and Ulster Bank have each committed to providing

the following:

ifrma hw swch:

All banks offering personal current accounts prepared switching packs

and distributed them to branches setting out a step-by-step process to

switch accounts.

C-rdaed peras wh a fxed mescale:All banks committed to opening new accounts, setting up payment

instructions and providing cards etc., to customers within 10 working days.

They also committed to closing old accounts, transferring balances, and

notifying the new bank and third parties such as utilities paid by direct

debit, within 7 working days.

Instead of dealing with both the new and old bank, the customer deals only

with the new bank, using the forms in the switching pack provided. The

two banks operate together to complete the transfer. [To obtain a refund of

Government Duty paid on unused old cheques and cards, customers must

themselves return these to their old bank.]


18/28

16 About bAnking

P Research ad Develpme ahe Hear f Facal Servces

Aee Farrell, Head f Research ad Develpme, Crp

i s wdely held facal servces

ha va day s he ey

fre sccess. the esalshme f

a dedcaed R&D cere Dls

iFSC s a clear s f Crps

cmmme ha ps, wres

Aee Farrell.

In many ways, the International Financial

Services Centre (IFSC) revolutionised

the financial services industry in

Ireland. Almost all of the major global

financial institutions have a presence

in Dublin today. As a consequence of

this, a knowledge and skills base for

the global banking industry is located

here. However, in common with

many other sectors, Irelands financial

services industry now faces increasing

competition from low-cost locations inEurope and Asia.

How can the industry sustain its current,

strong position and, at the same time,

continue to grow? The answer lies

in the fact that, in order to expand

further, we need to look for alternative

opportunities. In other words, we need

to innovate and to move our people

up the value chain. Past experience

has enabled us to develop a wealth of

knowledge and skills upon which we can

now continue to build.

Research & Develpme cere

The majority of Citigroups 1,200

employees are employed in whats

known as the Global Transaction Services

division. This business provides integrated

cash management, trade, fund and

securities services for corporations,

financial institutions, intermediaries

and governments around the world.

With the opening of the banks Dublin

Service Centre in 1996, a range of newbusinesses, services and operations

were moved to the IFSC. In subsequent

years the group began to house global

products in Dublin. Citigroup was also

granted an Irish banking licence for

Citibank Ireland Financial Services plc

(CIFS) by the Financial Regulator.

An innovative idea, the creation of CIFS

reflected Citigroup Irelands ability to

attract and headquarter regional andglobal products. While the financial

services industry differs somewhat

from the manufacturing sector, there

is a belief within senior management

circles in CIFS that we should adopt

a similar approach to innovation.

Continual product development, process

improvements and enhancements are

necessary within all aspects of the

business - not only to sustain existing

positions but to grow in this fast and

ever changing environment. The creationof an R&D centre is a logical progression

of this thought process.

This culminated in the announcement in

July 2005 by the Minister for Enterprise,

Trade and Employment, Michel

Martin, TD, of five new R&D projects

including the Citigroup project. Hence,

Irelands first dedicated and permanent

financial services research capability was

established in the IFSC with a Citigroup

investment of e10 million and the

support of IDA Ireland.

This R&D Centre of Excellence (as

it is known) is responsible for the

development from concept to

commerce of products and services for

Citigroup businesses located in Europe,

the Middle East and Africa. Research

projects will initially focus on the Global

Transaction Services business, developing

innovative solutions for the investment

management industry. A team of eight

multi-disciplinary researchers withspecific skills in financial innovation work

in the Centre. These are supported by

internal subject matter experts.


19/28

About bAnking 17

The Centre performs R&D work within

the funds services area - developingfunds and pooling products - and in the

consumer arena. It continues to identify

and investigate R&D opportunities in

all aspects of its business both from a

regional and global point of view.

Aidan Brady, Country Corporate Officer

for Citigroup in Ireland is particularly

upbeat about this latest initiative:

The staff of Citigroup Ireland have

demonstrated a strong ability to managecomplex global banking and transaction

services. A number of cross border

products are today fully managed out

of Ireland with a global footprint into

108 countries. We are excited by this

initiative and proud to take an innovative

lead in the financial services industry in

Ireland. This is a significant addition to

our Irish operations and firmly places

Ireland as one of the most successful

Citigroup locations worldwide.

the challees

R&D is not a concept that has been

synonymous with the financial services

industry. When one thinks of research in

this context, equity and market research

is what springs to mind.

However, true financial services R&D

involves unearthing knowledge about

products, processes and services

and applying this knowledge to fill

needs within the organisation itselfor within the marketplace. Identifying

R&D opportunities within financial

services companies does not just

mean performing R&D on product

development, but can also involvelooking at opportunities within

the support processes and

infrastructure services.

To fully and successfully embed R&D

in its structure and processes, an

organisation - financial or otherwise

- requires a paradigm shift in its culture

and thinking. Establishing a culture of

innovation throughout the company

is a prerequisite to ensuring that this

shift is successful. Senior managementsupport is also essential. Moving ideas

from the concept stage into the R&D

phase requires a level of investment.

Additionally, there is the inherent risk of

failure: traditionally innovation efforts

have a very low hit rate; while there

will be many ideas and concepts, only a

limited number of them will ultimately

be successful.

the eefs

While recognising the many challenges

involved in setting up and running an

R&D Centre, the benefit ultimately lies

in developing new products, processes

or services. R&D projects can also

create innovations that lead to benefits

in the form of increased revenue,

new or expanding markets, increased

productivity, improved controls and

reduced costs.

In addition, companies will be able to

move their employees up the valuechain. R&D exposes people to new

challenges and experiences. Established

R&D centres have the added benefit

of a library of knowledge that can be

referred to for future projects.

The establishment of the Citigroup R&D

Centre of Excellence has provided an

impetus for other financial institutions

here to follow suit. A recent Citigroup

Ireland/Irish Bankers Federation joint

presentation on R&D in the financial

services sector to senior management

from a range of other financial

institutions generated a lively discussion

with a lot of interest in the initiative

and much feedback. The involvementof other financial institutions in R&D

work will lead to the development of an

innovative and creative culture within

the industry as a whole.

Psve mpac irelad ic

The creation of an R&D culture will

help to make Ireland competitive

in the global market as a world

leader in innovative products for

the financial service industry. In the

Deloitte report, Study on the Future

of the International Financial Services

Sector in Ireland, one of the key

recommendations was that Ireland

should strive towards being a world

class location for managing complex

global/regional banking products.

Development of products for the

global and regional markets through

R&D will contribute towards the

successful implementation of this

recommendation. It will also furthercement the external view of Ireland as a

knowledge-based economy within the

financial services sector.

At the joint Citigroup Ireland/IrishBankers Federation presentation on

R&D in financial services (L to R):

Aidan Brady, Country Corporate

Officer, Citigroup in Ireland;

Deirdre Lyons, Head of International

Financial Services, IDA Ireland;

Enda Twomey, Deputy Chief Executive,

Irish Bankers Federation


20/28

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22/28

20 About bAnking

higher risk. In any case, the very process

of confirming that an entity meets all

of the specified requirements will in

many instances go a long way towards

conforming with the standard process of

customer due diligence.

In the circumstances, considerableconcern exists within the banking

sector that the conservative approach

as outlined by the Commission may

set parameters which would ultimately

preclude institutions from determining

(in accordance with article 8(2)) that

certain customers or products represent

a low risk of money laundering. Banks,

other financial institutions and other

third parties covered by the Directive

could well find themselves with little

opportunity for flexibility going forward.

An early understanding of what is meant

by a risk-based approach in the Irish

context is essential to developing a sound

legislative text. Irish Bankers Federation

(IBF) proposes to closely examine this

concept with the Financial Regulator in

order to develop the required clarity.

Sadard frms f iD

Ireland and the UK are unique among

EU Member States in not having national

identity cards. This presents very specific

challenges against the backdrop of

the increasing onus which is placed on

institutions to ensure that they know

their customers. In the absence of

national ID cards, the existing guidance

notes for implementation of the current

legislation recognise the passport and

driving licence as the pre-eminent forms

of personal identification.

However, it is also acknowledged that,whilst most people have a driving

licence or passport, not everyone does.

A range of other options are available

to credit institutions for the purpose of

identifying people who do not possess

these documents and institutions are

free to decide which of these options are

most acceptable to them. This situation

does not lend itself to consistency and

has given rise to some confusion. Going

forward, more work will need to be doneto find practical solutions which address

the needs of those who do not possess

the standard documentation whilst

meeting the fairly stringent legislative

requirements placed on credit institutions.

beefcal wershp

While it imposed an obligation to

establish the identification of ones

customer, the first Anti-Money

Laundering Directive of 1991 - onwhich our original legislation was based

- contained relatively little detail on the

relevant procedures that should apply.

In view of the crucial importance of

this aspect of the prevention of money

laundering and terrorist financing, the

EU has seen fit, in accordance with the

new international standards, to introduce

more specific and detailed provisions.

These relate to the identification of the

customer and of any beneficial owner

and the verification of that identity.

To this end, a precise definition of

beneficial owner is included.

Significant as this development is, it

will present its own challenges when

institutions are dealing with complex

ownership structures in legal entities.

Guidance will be needed as to the extent

of inquiry that an institution must make

in order to understand the beneficial

ownership of funds - both at the outset

of a relationship and thereafter in the

context of a risk-based approach.

Guidance will also be required from the

Financial Regulator as to the appropriate

methodology for recording beneficial

ownership. Given the diverging and

complex nature of legal structures, the

potential solutions to this issue can

have direct and significant impacts on

institutions systems.

Plcally-expsed perss

In the context of the risk-based approach,

the Directive recognises that certain

situations present a heightened risk of

money laundering or terrorist financing.

Although the identity and business profile

of all customers should be established,

there are cases where particularly

rigorous customer identification and

verification procedures and ongoing

monitoring are required. This is especially

true of business relationships withindividuals holding, or having held,

important public positions. The Directive

requires that special attention should

be paid to such cases: the complete

set of normal customer due diligence

measures are to be applied in respect of

domestic, politically-exposed persons;

and enhanced customer due diligence

measures in respect of politically-exposed

persons residing in another Member State

or outside of the EU.

This aspect is the subject of considerable

focus in the two working papers on

implementing measures published by

the Commission. A potentially very wide

group of people would fall within the

description politically-exposed, including

the spouse, parents, children and in-

laws of the politically-exposed person.

The section, Who is considered to be

politically exposed? on page 21 provides

further details.

The banking industry remains concernedthat theoretical consideration of what

a politically-exposed person is will

proceed without any consideration

A nw Rgim Cur My Laudrig

An early understanding of what is meant by a risk-based approachin the Irish context is essential to developing a sound legislative

text. IBF proposes to closely examine this concept with the Financial

Regulator in order to develop the required clarity.


23/28

as to how these provisions might be

applied in practice. It is essential that

both consideration of the provisions

themselves and of how they are to be

implemented should go hand in hand.

The probable alternatives as to

application in practice are a top down

approach, whereby names would be

checked against a centralised list; or

a bottom up approach such as self-

certification, whereby customers would

be asked to declare any interests they

might have in this regard. The bottom

up approach would more than likely lead

to a high level of potentially intrusive

questioning to prospective customers and

would still ultimately rely on their honesty

in disclosing their status.

The production by the Commission

of comprehensive lists of politically-

exposed persons will be necessary if

these provisions are to be successfully

implemented by credit institutions

- not to mention the whole range of

individuals and small businesses on

whom these obligations will fall.

While IBF has requested the production

of such lists at EU level, there appears to

be little appetite within the Commissionto assume this responsibility.

trasps ad mplemea

The industrys objective is to have the

Directive transposed into national

legislation and to have all attending

guidance finalised by early 2007 with a

commencement date before the end of

2007. To most effectively facilitate this,

IBF would favour the repeal of existing

legislation and the drafting of a new

piece of legislation consolidating all

relevant previous requirements, which

have been spread over a range of

primary and secondary legislation.

The transposition process needs to get

underway now. The potential impact

of a change to a risk-based approach

- together with the incorporation of

the new concepts as introduced in the

Directive - will have direct effects on

business processes. In order to plan for

training, operational design and systemschanges, certainty as to how the new

provisions are to be applied here is

needed as soon as possible.

Early and constructive engagement with

the relevant stakeholders is essential for

the financial sector. Compliance with

the anti-money laundering regime is one

of the single greatest compliance cost

segments for the sector in Ireland today.

Financial institutionsshare the authoritiesview that preventionof money launderingis a priority issueand they take theirresponsibilities in this

regard very seriouslyand operate to thehighest standards.In order to facilitatethis commitment,early and constructiveengagement bythe sector with the

relevant stakeholdersis essential. This needsto be followed by aformal consultationprocess with theindustry prior tofinalising the nationallegislation andguidance notes.

A decision is also required at an early

stage as to whether the existing

relationship between the legislation and

the guidance notes is to be continued.

If it is to broadly continue, the balance

and extent of detail to appear as

between primary legislation, secondary

legislation or guidance note material

will need to be carefully determined.

Wh s csdered e

plcally expsed?

The Commission working paper

proposes that the following would be

considered to be politically-exposed

persons for the purpose of theDirective. Natural persons who are or

have been entrusted with prominent

public functions shall at least include:

(a) Heads of State, heads of

government, ministers, deputy or

assistant ministers;

(b) Members of legislative bodies;

(c) Members of high-level judicial

bodies and high-ranking public

prosecutors;

(d) Members of the boards of the

bodies or authorities which

monitor or control compliance

with legal obligations by other

public bodies or regulated entities

and which enjoy a certain degree

of independence or autonomy,

such as courts of auditors, central

banks and similar institutions;

(e) High-ranking diplomats, high-

ranking officers in the armed

forces, high-ranking officers

in the police and other high-

ranking officials exercising

public functions within theadministrative structure of these

bodies referred to in points (a) to

(d) or of other bodies or organs

of public nature, provided that

the public functions of these

high-ranking officials allow them

to control or otherwise exercise

dominant influence in the

decision-making process or in the

major public expenditure of these

bodies or organs;

(f) Persons able to discharge

managerial responsibilities within

State-owned enterprises charged

with the exploitation of natural

resources, or which obtain

monopoly revenues, or whose

profits or other type of economic

compensation paid to the State

constitute a material part of the

State revenue;

(g) Any other person that, although

not falling under any of the above

categories, is known to exercise

similar powers or influence in thepublic domain.

AboutbAnking 21


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About bAnking 23

CP14: Mre tha a nmer Ay bas b

Ahy Walsh, Chef Execve, the ise f baers irelad

New competency requirements in financial retailing strike a fair balance between theinterests of product providers and consumers, says Anthony Walsh.

Frm 1 Jaary 2007 ew mmm cmpeecy

reqremes wll apply dvdals wh, a

prfessal ass, prvde advce csmers

real facal prdcs r derae e f fr

specfed acves.

The Financial Regulator has sought responses to a small number

of specific questions that are outstanding - hence the title, Limited

Consultation on Proposed Minimum Competency Requirements,

or CP14 as its generally known. However, the fundamental

structure of the requirements proposed is not likely to change.

impac as ad her csmers

There is no doubt that CP14 has significant implications for

banks, financial institutions and their employees and will

require focused preparation to ensure compliance. However,

informed by extensive consultations with the industry and

professional education bodies, the Financial Regulator has set

out an effective minimum competencies regime that strikes a

fair balance between the interests of providers and consumers

of retail financial products.

As a result of the work of the professional bodies such

as the Institute of Bankers in Ireland, the Life Insurance

Association Ireland and the Insurance Institute of Ireland, all

the qualifications on which the new regime is based already

exist. Arising from the banks long-standing investment in the

education and training of their staff, thousands of bankers

already hold the qualifications which satisfy the minimum

competency requirements.

For example, over 3,500 bankers hold the designation

Qualified Financial Adviser, thereby satisfying the competency

requirements for virtually all retail products. This means that

banks and their staff are, in general, well prepared for the

new regime. In addition, the four-year transition period,

the arrangements for new entrants and the provision for

grandfathering of very experienced advisers will ease the

initial implementation burden considerably.


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24 About bAnking

overvew f ew reqremes

CP14 divides retail financial products into six categories, sets

out details of specific competency requirements for each and

lists the qualifications which meet these requirements. These

are outlined below.

The four specified activities also covered by the minimum

competency requirements are as follows:

Assisting in the administration or performance of insurance

claims;

Reinsurance mediation;

Direct management of those providing advice to consumers

about retail financial products or who arrange or offer to

arrange retail financial products for consumers; and

Adjudicating on any complaint by a consumer which relatesto advice about a retail financial product or the arranging of

a retail financial product.

Compliance with the minimum competency requirements can

be fulfilled only by attainment of a specified qualification,

other than in the case of those who are grandfathered. To be

grandfathered, an individual must have commenced carrying

on the relevant activity on or before 1 September 2000 and

must have continued to carry on the same activity in the period

up to 1 January 2007. However, it should be noted that the

precise time periods that define grandfathering are one of the

areas on which the Financial Regulator has consulted further

with Irish Bankers Federation and others.

Nothing is more important to the

future of the sector then ensuring that

customers continue to receive excellent

advice from their financial institutions.

The consultation paper also sets out the transitional

arrangements for individuals engaged in a relevant activity on

1 January 2007, who do not at that date hold a recognised

qualification and who cannot benefit from the grandfathering

arrangements, and also the position of new entrants after

1 January 2007. These arrangements may be summarised

as follows:

A requirement for continuing professional development is

also set out in the consultation paper. Both qualified and

grandfathered individuals will be required to complete a

number of hours of professional development each year.

Ccls

This new competency regime should be fully embraced at all

levels within the banking and wider financial services industry.

Nothing is more important to the future of the sector then

ensuring that customers continue to receive excellent advice

from their financial institutions. The proposals in CP14 provide

an excellent framework to achieve this.

idvdals wh

cmmeced a

acvy refre 1

Sepemer 2000

Grandfathered

idvdals wh

cmmeced a

acvy ewee2 Sepemer 2000

ad 31 Decemer

2006

4 years to obtain

a recognised

qualification

idvdals wh

cmmece a

acvy r afer1 Jaary 2007

4 years to obtain a

recognised

qualification;ad

must complete a

relevant training

course or part of a

recognised

qualification;

ad

must be supervisedby another

accredited

(i.e., qualified or

grandfathered)

individual.

Caery f Recsed Qalfca(s)

Real Facal Prdc

Savings, Investment and - Qualified Financial Adviser (QFA)

Pension Products (Institute of Bankers, Life

Insurance Association and

Insurance Institute)

Housing Loans and - QFA

Associated Insurances - The Specialist Certificate in

Mortgage Practice (ROI)

(Institute of Bankers)

- Mortgage Diploma

(Life Insurance Association)

Consumer Credit and - QFA

Associated Insurances - Certificate in Consumer Credit

(Institute of Bankers)

Quoted Bonds and Shares - QFA

- Registered Representative(Irish Stock Exchange)

Life Assurance - QFA

Protection Products

General Insurance Policies - Associate or Fellow of the

Chartered Insurance Institute

- Certified Insurance Practitioner

(Insurance Institute, Irish BrokersAssociation)

CP14: Mr tha a numbr i Ay Bak Bk


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about banking 3

Documents