Major changes are being made to the law affecting financial institutions' liability to their customers.
Where there are systemic issues – such as general overcharging or mis-selling of investment products – the Central Bank of Ireland ("CBI") will be able to direct the financial institution to provide monetary redress to all affected customers – in effect, enabling a kind of "class action" remedy. The recourse of customers has been simplified to provide for a clear statutory right of action rather than an action for negligence or breach of contract. The recently enacted Central Bank (Supervision and Enforcement) Act 2013 (the "2013 Act") bolsters the powers of the Central Bank of Ireland ("CBI") to regulate, supervise and take action against regulated financial entities (including banks, insurance companies, financial intermediaries, investment firms and credit unions). With the exception of section 72 it came into force on 1 August 2013. Part 6 of the 2013 Act contains some radical provisions which will expose banks and other financial institutions to new forms of civil liability for breach of duty and regulatory obligations. These provisions, which were not contained in the Bill as initiated, have the following effect:
The CBI can direct a financial institution to provide redress for "widespread or regular" defaults such as over-charging, mis-selling investment products, other civil wrongs and breach of certain regulatory enactments; Any customer of a financial institution has a statutory cause of action where it has suffered loss as a result of a breach of regulatory duty by the financial institution, e.g. it has sold an unsuitable product to the customer, or has otherwise failed to meet regulatory standards in the provision of its services. CBI Direction to Provide Redress
The CBI can exercise this power in respect of an array of breaches of regulatory duty if they have been "widespread or regular." The CBI can publicise the fact that it is investigating a financial institution's conduct and the making of a direction. A financial institution's compliance with a direction does not constitute an admission of liability. The monetary redress directed can include actual and anticipated loss on the part of the financial institution's customers. The CBI can direct the financial institution to pay the CBI's costs of giving the direction. It can also direct the financial institution to pay interest on monetary redress. A CBI decision...