You can use the search function to find a range of UK Finance material, from consultation responses to thought leadership to blogs, or to find content on a range of topics from Capital Markets & Wholesale to Payments & Innovation.
Product governance has not always been a key topic in retail financial services compliance. Until October 2001, parliament prevented financial services regulators from controlling what financial products customers bought.
By 2000, the UK had lived through the scandal of employees being advised to transfer out of, leave or never join their occupational pension schemes and the industrial mis-selling of mortgage endowments. Change was needed and it came in the form of the Financial Services and Markets Act 2000 (FSMA). Going forward, it gave the then Financial Services Authority (FSA), predecessor of the present-day Financial Conduct Authority (FCA), the power to regulate products.
In preparation for its new powers, the FSA added a new ?Treating Customers Fairly? (TCF) principle from which the idea of product governance emerged in the early 2000s. Papers, reports and consultations culminated in the publication of Responsibilities of Providers and Distributors (RPPD) in 2007. Today, it still applies to everything within FCA regulation except investments and insurance.
Technically, RPPD just represents guidance on the application of the regulators? Principles for Business to products. In practice, it imposes a responsibility on firms to reduce the risk that the products sold to customers will harm them.
When the 2008 financial crisis created major products for structured investment products, the European Union (EU) began discussions about adding product governance to the Markets in Financial Instruments Directive (MiFID). To ensure a level playing field between investments of all types, the European Commission then added a similar regime to the proposed Insurance Distribution Directive (IDD) without limiting the new rules to investment-based policies.
The subordinate legislation for MiFID (MiFID Org Regulation) and the IDD (POG regulation) made two big changes to the UK regime. For investment and insurance, the regime now consists of rules not just guidance. The rules also impose a proper governance regime in this area. The United Kingdom needed a new rulebook, PROD to contain this material. Then, the end of the Brexit transitional period then allowed the FCA to expand the scope of PROD to cover value-for-money measures in October 2021.
Against this background, the RPPD seems to be lagging behind. Political pressure on the FCA to introduce some form of Consumer Duty made an extension of PROD to banking, mortgages, payment services and consumer credit inevitable. CP 21/36 uncomfortably puts the new proposals into the PRIN rulebook alongside a ?challengingly drafted? new Principle 12. The regulator proposes some general ?cross-cutting rules? and then its outcomes, most if not all of which relate in some way to product governance. At the moment, the plan is to match the new provisions to conduct of business rules, such as MCOB, CONC and BCOBS, and limit the new requirements to the scope of these provisions.
The new regime will extend the current insurance and investment regime across the other conduct areas, introduce value measures across the board and actively require enhanced customer service. The questions for UK Finance members are: ?will you be ready in time?? and ?why are you not doing all of this already??
For more on the topic of product governance (mortgages, deposits and consumer credit), join our workshop on 6 and 7 April 2022 with speaker Adam Samuel.
17.03.22
Adam Samuel, Lawyer, Arbitrator and Financial Services Compliance Expert
The objective of our course is to make participants comfortable with the journey from RPPD to PROD. We also look at the Consumer Duty and its application to both manufacturers and distributors of products, enabling attendees to understand the structures and work required to maintain quality offerings and distribution.
08.12.22
By downloading this document, you understand and agree that any sharing, distribution or republishing of the content, without prior written authorisation from the author or content managers at UK Finance, shall be constituted as a breach of the UK Finance website terms of use.