The importance of ‘un’
RECENT years have seen growth in the sale of unregulated financial products, proposing investments as varied and attractive such as renewable energy and foreign properties, suggesting returns larger than typically achieved in the regulated space.
There is no doubt that these products are innovative, exploring as they do diverse new markets and offering opportunity that might not otherwise be available to investors. The danger arises, not just for the client, but also for the Financial Broker, when the average consumer, an entity who is, unsurprisingly, not au fait with financial services and its regulation is wholly unaware of the profound difference that two little letters – “un”– make when placed at the front of the word “regulated”.
The Central Bank of Ireland is aware of the risk to consumers presented by unregulated products. Its 2020 letter to industry made clear the obligation on firms to take all necessary measures to ensure that clients are made fully aware of the regulatory status of the product/service they are receiving.
One must question whether the current measures of disclosures are adequate to ensure that the risk of harm to consumers is mitigated to the extent it should be.
Arguably they fall short. The fact is that the very understandable lack of consumer knowledge, means that some consumers will fail fully to comprehend the difference between regulated and unregulated and the loss of protection visited upon them by investing in the latter and in consequence they will lose out.
Brokers Ireland believes that all products marketed to retail investors in the retail investment space, substitutable with other products that are regulated, ought also to be regulated and to offer consumers the essential protection and comfort associated with that status.
Whilst this would require some legislative change, we believe this step would be worthwhile and indeed is essential to ensure that consumers are afforded the range of protections they deserve, with recourse to the ICCL, professional indemnity insurance that will respond in the event of their needing to make a claim and above all, the comfort of knowing that the product meets the requirements of our CBI and of legislation aimed at protecting the consumer.