An Investment Intermediary needs a Central Bank of Ireland authorisation to advise on and sell most investment products which are called regulated products. Intermediaries can still advise on and sell other products called unregulated products.
The following products are regulated and require authorisation under the Investment Intermediaries Act and/or the Insurance Mediation Regulations: Insurance policies, PRSAs, tracker bonds, deposits, shares listed on a stock exchange and collective investment funds such as ETFs, unit trusts and UCITS.
Firms advising on shares and bonds not listed on a stock exchange which can be transferred from one investor to another, CFDs and options, future, swaps and other derivatives must have a MIFID authorisation.
Unregulated products require no authorisation and they are shares and bonds issued by private companies which are not listed on a stock exchange and cannot be transferred from one individual to another.
Investors considering investing in unregulated products should be aware that unregulated services are not subject to regulation by the Central Bank of Ireland. The main issue here is the advisor is not subject to the Consumer Protection Code [CPC]. The CPC imposes provisions on the advisor such as ‘Knowing the Customer’ and the ‘Suitability of the Product’. In practice, most advisors will follow CPC rules when dealing with customers.
Investors in unregulated products are not covered by the Investor Compensation Scheme. This scheme provides redress of up to €20,000 currently, where a client’s investment is lost because of the financial failure of a regulated firm that held the client’s funds.
Investors in unregulated investments will be covered by the Financial Ombudsman scheme in relation to the provision of investment advice given to them because this service is classified as a ‘financial service’.
Unlike regulated products, advisors are not required to hold Professional Indemnity Insurance [PI] in place for the provision of unregulated services. Before engaging an advisor on unregulated products, you should check if that advisor has extended their PI insurance to cover unregulated products.
Advisors are not required to disclose their commissions and fees arising from the sale of unregulated products.