THE issue of over regulation of Brokers continues to remain top of the Brokers Ireland agenda for 2023.

Since 2021, Brokers Ireland has produced a proportionate regulation document to aid the understanding of policymakers and industry stakeholders in relation to the importance of the role of Brokers and of the impact of regulation on our members.

This document is updated each year, with the updated version issued to members, regulators, and industry in May.

The document sets out the impact of regulation on our members, the vast majority of which are non-cash handling, non-product producing firms.

Brokers account for 50 per cent of all regulated firms but are a small lowrisk section of the market. Despite the Central Bank of Ireland’s rating of intermediaries under PRISM (Probability Risk and Impact SystemTM) as low risk, and the fact that the Central Bank, the EU and the Irish Government have stated commitments and policies that support proportionate regulation, Brokers remain subjected to an extremely onerous regulatory regime.

As part of the research for the report, each year a survey of Brokers Ireland members takes place in February, the results show that based on employment levels and turnover, the sector remains dominated by micro enterprises.

The following table (sample size 312) demonstrates that 80.9 per cent of intermediaries are micro enterprises, 13.9 per cent are small enterprises and 4.7 per cent are medium-sized enterprises.

Micro enterprises are defined as enterprises that employ fewer than ten persons and whose annual turnover or annual balance sheet total does not exceed €2 million.

In theory, proportionality means that regulatory requirements are tailored to a firm’s size, systemic importance, complexity and risk profile.

Brokers in their interaction with customers do not expose them to any significant level of risk. Whilst acknowledging regulation is vital in protecting consumer interests, it should not be applied in a manner that negatively impacts the ability of firms of different size, scale, and complexity to competitively operate in the same market.

Micro enterprises are defined as enterprises that employ fewer than ten persons and whose annual turnover or annual balance sheet total does not exceed €2 million.

In theory, proportionality means that regulatory requirements are tailored to a firm’s size, systemic importance, complexity and risk profile.

Brokers in their interaction with customers do not expose them to any significant level of risk. Whilst acknowledging regulation is vital in protecting consumer interests, it should not be applied in a manner that negatively impacts the ability of firms of different size, scale, and complexity to competitively operate in the same market.

The costs for micro/small firms to employ full-time compliance, data protection, risk management, HR or IT staff is not proportionate to the risk that they pose.

These types of firms have fewer resources to comply with legislative and regulatory change and thus require more time and effort to understand, implement and comply.

This impacts small firms’ ability to compete in a very competitive market and threatens their economic viability.As we are aware, there is significant consolidation going on in the industry, particularly in the Insurance Broker market.

The cost of compliance is a key driver for this trend, making it more challenging for smaller Brokerages to survive. We believe that every effort should be made to ensure that small Brokerages are able to survive and work alongside much larger Brokerages.

Brokers are a key element of the financial advice industry in Ireland and play a fundamental and important role in providing financial services to businesses and consumers, both at a personal and at an economic level.

The challenge is to ensure that as high a percentage of the population as possible has adequate access to pension coverage, investment, risk management and risk-mitigation products.

The European Commission initiative, the capital markets union (CMU) and the goals of the Retail Investment Strategy (RIS), which is due to by published by end of May 2023, aims to ensure that consumers who invest in capital markets can do so with confidence and trust, that market outcomes are improved, and that consumer participation is increased.

Brokers play a pivotal role in the attainment of this aim to encourage participation in financial markets. Another European goal is to increase consumer engagement with sustainable products.

Given the complexity of sustainability terms and product categorisation, Brokers play an important role in explaining and advising where appropriate in this regard.

A key goal of the report is to reiterate the importance of the application of the SME Test. The SME Test analyses the possible effects of EU legislative proposals on SMEs.

It has been an integral part of the European Commission’s Better Regulation guidelines since 2009. The Commission actively encourages EU countries and other EU institutions to systematically apply the SME Test in the policymaking process.

By assessing the costs and benefits of policy options, it helps implement the ‘Think Small First’ principle and improve the business environment.

The purpose of the SME Test is to request policymakers to think about the negative impact of any new legislation or regulation which may create a burden on SMEs.

The main thrust of the test is to propose possible exemptions or less stringent requirements for smaller companies.  The European Commission estimates that on average, where a big company spends one euro per employee to comply with a regulatory duty, a medium-sized enterprise might have to spend around four euro and a small business up to ten euro per employee.

The Irish Programme for Government 2020 also gave a commitment that the government would seek to cut bureaucracy for SMEs and support the SME Test across government to assess the potential for less stringent requirements and simplification of regulatory adherence.

The OECD’s policy framework for effective and efficient financial regulation indicates that state authorities should only intervene where there is an identified market failure that can be addressed through regulation.

Where authorities do intervene, they must assess critical trade-offs and alternatives, in the public interest. They must ensure that the benefits of intervention outweigh the costs, with careful consideration of unintended consequences.

This has not been the case for intermediaries and we believe that too much regulatory focus on small advicebased firms may divert resources from real and higher risk priorities of the Central Bank

We welcome the Central Bank’s increasing references to proportionality when issuing guidance; however, this concept must be implemented on a practical level for intermediaries when issuing industry-wide requirements and guidance and expectations.

We believe that the current review of the Consumer Protection Code offers an opportunity for the Central Bank to issue revised regulations that differentiate the responsibilities of providers/product producers and separate to this, intermediary firms. Brokers Ireland will continue to work with decision makers in this regard and update members accordingly.