CPC Suitability

Table of Contents

Suitability / Knowing the Consumer I

A regulated lender is obliged to gather and record sufficient information to enable it to make a proper recommendation for a product or service. This does not apply where the consumer specifies the product and product provider and has not received advice.

The regulated lender must gather details of material changes to the consumer’s circumstances before it provides a subsequent product or service. A regulated lender must endeavour to have the consumer verify the accuracy of the information provided.

The level of information gathered should be appropriate to the nature and complexity of the product or service being sought by the consumer, but must be to a level that allows the regulated entity to provide a professional service and must include details of the consumer’s:

needs and objectives including, where relevant: the length of time for which the consumer wishes to hold a product, need for access to funds (including emergency funds); and need for accumulation of funds
personal circumstances including, where relevant, age, health, knowledge and experience of financial products, dependents, employment status, and known future changes to his/her circumstances.
financial situation including, where relevant: income, savings, financial products and other assets, debts and financial commitments.
where relevant, attitude to risk, in particular, the importance of capital security to the consumer.

Suitability / Knowing the Consumer II

A regulated lender must ensure that on the facts disclosed by the consumer and all the relevant facts available, that the product or service is suitable for the consumer. If it offers a selection of product and service options, the most suitable for the range available must be offered. Where it recommends a product, the recommended product must be the most suitable. These requirements do not apply where the consumer has specified the product and product provider and not received advice.

Before providing a service or product, a regulated lender must prepare a written statement setting out the reasons it is considered suitable. The regulated lender must give a copy to the consumer and retain a copy in writing. This does not apply to “execution only” consumers, who have specified the product and provider and not received any advice.

Where a consumer refuses to provide, the information sought above, the regulated entity must inform the consumer that, as it does not have the relevant information necessary to assess suitability, it cannot offer the consumer the product or service sought. A regulated entity must endeavour to have the consumer certify the accuracy of the information it has provided to the regulated entity.

Mortgages

Prior to providing a mortgage to a personal consumer, a mortgage lender must either:

have had sight of all original supporting documentation evidencing the personal consumer’s identity and ability to repay, or
receive from a mortgage intermediary a signed declaration that such mortgage intermediary has had sight of all original supporting documentation evidencing the personal consumer’s identity and ability to repay.

A declaration signed by the personal consumer, (or his or her representative), certifying income and/or ability to repay is not sufficient evidence for these purposes. A regulated entity must assess the reasonableness of the information contained in the documentation submitted by a personal consumer in support of a mortgage application and take all reasonable steps to ensure that the documentation submitted is legitimate and authentic. A regulated entity must ensure that it has had sight of an original valuation report for the property which will act as security for the mortgage, prior to providing a mortgage.

Assessing Affordability of Credit I

Prior to offering, recommending, arranging or providing a credit product to a personal consumer, a lender must carry out an assessment of affordability to ascertain the personal consumer’s likely ability to repay the debt, over the duration of the agreement.

An affordability assessment must include consideration of the information gathered above and in the case of all mortgage products provided to personal consumers, the results of a test on the personal consumer’s ability to repay the instalments, over the duration of the agreement, on the basis of a 2% interest rate increase, at a minimum, above the interest rate offered to the personal consumer. This test does not apply to mortgages where the interest rate is fixed for a period of five years or more.

Where the lender offers an introductory interest rate, it must carry out the 2% interest rate test on the variable interest rate to be applied after the introductory period has ended if known at the time of the offer of the introductory interest rate, or on the current variable interest rate, if the variable interest rate to be applied after the introductory period has ended is not yet known.

Assessing Affordability of Credit II

The lender must notify the relevant intermediary, if any, of the results of the assessment of affordability. A mortgage intermediary must submit the information obtained from a personal consumer to the relevant lender to enable the affordability assessment(s) to be carried out.

In the case of an interest-only mortgage, the lender must carry out an assessment to ascertain the personal consumer’s likely ability to repay the principal at the end of the mortgage term. In the case of a mortgage provided on an interest-only basis for a duration less than the term of the mortgage, a lender must carry out an assessment to ascertain the personal consumer’s likely ability to repay the capital and interest instalment amount that will apply at the end of the interest-only period.

This assessment must be on the basis of a 2% interest rate increase, at a minimum, above the interest rate that will apply at the end of the interest-only period if known at the time of the offer of the interest-only mortgage, or on the current variable interest rate if the variable interest rate to be applied after the ending of the interest-only period is not yet known.

Assessing Affordability of Credit III

A regulated entity must take account of the result of the affordability assessment when deciding whether a personal consumer is likely to be able to repay the debt for that amount and duration in the manner required under the credit agreement.

When offering, or recommending a variable interest rate mortgage, a regulated entity must provide a personal consumer, on paper or on another durable medium, with figures reflecting the revised instalment amount following a 2% interest rate increase above the variable interest rate offered.

Where the lender is offering an introductory interest rate, the revised instalment amounts must reflect an increase of 2% on the variable interest rate to be applied after the introductory period has ended if known at the time of the offer of the introductory interest rate or the current variable interest rate, if the variable interest rate to be applied after the introductory period has ended is not yet known.

A lender must carry out a further affordability and suitability assessment prior to advancing additional credit to a personal consumer, whether by way of a top-up on an existing loan or by a new agreement to provide credit.

Statement of Suitability I

Prior to providing or arranging a product or service, a regulated entity must prepare a written statement setting out:

the reasons why a product or service offered to a consumer is considered to be suitable to that consumer; or
the reasons why the product options contained in a selection of product options offered to a consumer are considered to be the most suitable to that consumer; or
the reasons why a recommended product is considered to be the most suitable product for that consumer.

The reasons set out in the statement must reflect the information gathered to assist the consumer in understanding how the product(s) or service(s) offered or recommended meets, where relevant, the consumer’s needs and objectives, personal circumstances, and financial situation.

Statement of Suitability II

The written statement must also include an outline of the following, where relevant: how the risk profile of the product is aligned with the consumer’s attitude to risk; and how the nature, extent, and limitations of any guarantee attached to the product is aligned with the consumer’s attitude to risk.

The regulated entity must sign the statement and provide a copy of this statement on paper or on another durable medium, dated on the day on which it is completed, to the consumer prior to providing or arranging a product or service, and retain a copy.

A regulated entity must include the following notice at the beginning of the statement of suitability:

Important Notice – Statement of Suitability

This is an important document which sets out the reasons why the product(s) or service(s) offered or recommended is/are considered suitable, or the most suitable, for your particular needs, objectives and circumstances.

Where a regulated entity has provided an oral explanation to the consumer of the product(s) or service(s) offered or recommended, a regulated entity must include a record of such explanation in or with the statement of suitability.

Exemption from KYC and Suitability

Provisions on Knowing the Consumer and Suitability do not apply where:

the consumer has specified both the product and the product producer by name and has not received any assistance from the regulated entity in the choice of that product and/or product producer; or
the regulated entity has established that the consumer is seeking a term deposit of less than one year or a notice deposit account and has alerted the consumer to any restrictions on the account.

The first exemption does not apply where a personal consumer is seeking a credit amount above €75,000, a mortgage, or a home reversion agreement. In this case, prior to providing an investment product to a consumer, a regulated entity must warn the consumer, on paper or on another durable medium, that the regulated entity does not have the information necessary to determine the suitability of that product for the consumer.