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Central Bank of Ireland Themed Inspection

Structured Retail Products in MiFID authorised Investment and Stockbroking Firms and Credit Institutions

On the 1st of September 2016 the Central Bank of Ireland (“CBI”) issued a Dear CEO letter to MiFID investment firms, stockbrokers and credit institutions.

Central Bank of Ireland Themed Inspection

The CBI outlines that it completed a themed inspection, which consisted of a desk-based review of 20 investment firms, stockbroking firms and credit institutions manufacturing and/or distributing structured retail products. It followed up with five on-site inspections. The CBI found that the firms are offering retail investors more complex and capital at risk products and that firms have been moving away from capital protected deposit – based products.

The CBI identified that some firms have weak product governance arrangements around the product development and distribution of complex and risky products. The CBI also highlighted that firms are not identifying the appropriate target market for such products. The CBI states clearly that it is “concerned that firms are manufacturing and/or selling structured retail products that may not be suitable for consumers, particularly those who have a low risk appetite “. The CBI also expressed particular concerns around the sale of credit linked notes.

In the letter the CBI reiterates that it expects consumers to be supplied with information that is clear, fair and not misleading and products must include a prominent capital at risk warning on all client marketing and information material.

Firms must also state on material, if applicable, if the product is eligible to be covered by the Deposit Guarantee Scheme or another EU guarantee scheme, the level of cover afforded and where additional information is available.

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