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Whatever Way You Look At It …. It Is A Tough Nut To Crack
Throughout the original journey to the FCA, the transfer of focus was distinctly from being a reactive to a proactive approach. The regulator is in fact attempting to stop customer detriment before it takes place where possible.
A vital element of the regulator’s attention is on products and so we have experienced a marked rise in direct attention paid to product governance and product life-cycle management over the last three years since the regulator started.
A fundamental question firms should really answer is precisely how, considering Conduct Risk and TCF, how they will guarantee and can adequately demonstrate they have put the consumer at the heart of their businesses. The FCA expects firms to be capable of demonstrating this in the context of all product and related, complimentary or auxiliary activities. Our company has also noted a large volume of Risk Mitigation Plan requirements concerning product governance, and questioning the robustness of the governance and approval arrangements, suggesting that this has become a potential hotspot for Boards and senior management.
There have already been numerous regulatory developments in this field in the past even from the 2013 FCA Risk Outlook that confirmed that a priority to the regulator is that firms design products and services that respond to real consumer needs and are in their long term interest. Although the latest Business plan for 2016/17 does not spell it out, the firm’s culture and governance, including the effectiveness of independent governance committees (IGC’s) is likely to include product lifecycle. Various thematic reviews concerning product, for example the publication on mobile phone insurance, which underline the significance of a product with the FCA and therefore this has to be related to culture and governance, ergo a firm-wide matter.
Whilst we don’t anticipate seeing a broad use of product bans, we are seeing a greater programme of product governance reviews being launched by the FCA. Additionally it is clear whenever action is initiated in respect of product intervention by FCA, there will undoubtedly be reputational and commercial impacts, to firms and their culture and overall governance will be investigated.
In reality, such powers will permit the FCA to:
- Restrict the distribution and sales of certain product features;
- Stipulate that a product is not promoted to some or all specific types of customers; and
- In possibly the most serious cases – require that a product is withdrawn from sale altogether.
These requirements pose some real challenges for firms establishing, managing and reviewing their product governance and life-cycle approaches.
“How Many Holes Are There In Your Cheese?”
Examples of the key questions and challenges include:
Product and customer strategies
- Have you got appropriately senior and experienced individuals involved with the setting of product strategy, having a sufficient and appropriate customer-centric approach?
- Can you demonstrate that you have appropriately considered the suitability of all distributors for your products and fully understand their activities and are satisfied with the customer journey?
Committees to deal with the product approval, review and governance process
- Is there a demonstrably suitable balance of committee membership, having a clear and identified “voice of the customer”?
- Is there adequate documented evidence of customer-focused review and challenge?
Suitable product development and approval criteria
- Do your processes and operational procedures result in clear identification of your target market and demonstrable customer needsfor every single one of your products?
- Are customer risks considered at an appropriate stage and sufficiently early enough during the product development process, including appropriate customer involvement while in the product design process?
- Exactly how do you demonstrate evaluation of product-related risks for your customers, for example distribution strategies, using third-parties, product sophistication or complexity and customer value?
Product review processes
- Can you be sure that your particular products remain suitable as time passes for your target market and current environment in which they are sold?
- Does your Board demand and receive the right MI to effectively monitor the product progress to enable it to intervene where needed?
Whatever your needs are, we can provide an objective and detailed review of the evidence and assist you in plugging any gaps you may have.
Just call us on 0207 097 1434