Product Governance – are you ready for the FCA’s review?

14 March 2019

product governance

Andrew Bailey has confirmed that a review on product governance is coming. We don’t yet have the detail but there are three areas where you should definitely be ship shape.

The FCA is continuing its review of firms’ MiFID II implementation by diving under the bonnet of their product governance arrangements. Speaking at a Treasury Select Committee meeting in January, the CEO said that the Regulator will carry out product governance supervisory work this year. While the scope of the review is not yet known, the FCA will clearly look for evidence that firms are taking product governance seriously and embedding it into the way they do business, especially when they launch new services or products. There are three areas the Regulator is likely to be looking at:

  1. Have you identified the target market for your products/services?

As a manufacturer you should have identified which target market the product is likely to be suitable for and any groups for whom it is unlikely to be suitable.

As a distributor you should have identified the target market for the products that you distribute and the services that you offer (for example all your advice and investment management service variants, and your centralised investment proposition). Remember that you still need to have identified the target market even if the target market wasn’t defined by the manufacturer.

Can you show that any new product or service options you’ve added since the advent of MiFID II have been through a target market assessment and wider product governance process?

  1. Have you set up a process to enable effective information sharing with the manufacturer/distributor of your products/services?

As a manufacturer you should be sharing appropriate information on your products/services with the distributor(s). This includes the identified target market and information on appropriate channels for distribution.

As a distributor you should be prepared to provide the manufacturer(s) of the product/service with:

  • the volume of sales made
  • the category of client that buys the product/service
  • whether the product/service has been sold to any clients outside of your target market assessment
  • all complaints received on the product/service.
  1. Are you reviewing your products/services?

As a manufacturer you need to ‘regularly’ review the products/services you’ve designed in order to make sure they are still fit for purpose and working as intended.

As a distributor you need to ‘regularly’ review the products/services offered to confirm they remain consistent with your target market’s needs, characteristics and objectives. In doing so, if you identify problems with your distribution strategy, for example sales in to the negative target market have exceeded a pre-defined volume threshold, then you’ll need to make changes and alert the manufacturer(s) of the changes.

Have you reviewed whether all your existing clients are in the right service, and what have you done about it if not? For example, should clients with very small portfolios be paying for your bespoke discretionary managed service?

How we can help with your product governance

Whether you’re a manufacturer or distributor, we can help you to apply the product governance rules to your business. We can review how you’ve implemented the obligations – including testing your compliance with the ‘Top 3’ focus areas above. We’ll let you know how you’re doing against your peers and highlight any areas that need further work.

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