MiFID II Product Governance

Important Note

This is a summary of detailed analysis that ATEB has undertaken of the product governance requirements detailed in the MiFID II Policy Statement. Our full analysis will be discussed with ATEB clients as part of our ongoing service arrangements.

This article is one of a series. It is a very high-level summary and does not therefore cover every MiFID connotation. It does include our interpretation of the requirements, where there is a lack of clarity, and should therefore be used with discretion and read with a questioning attitude.

Product governance is a specialist area that is not aimed at a ‘typical’ ATEB client. Nevertheless, all firms should note the content, and those clients that are directly affected should analyse the requirements in detail.

All firms should read the Policy Statement.

Accessing the FCA Handbook

We do not replicate FCA rules in this article, but refer to them. The made rules are contained in the annex to the Policy Statement but to access the relevant rules as they will be in their final context, you will need to forward date the FCA handbook. To do this:

  • Go to the FCA Handbook provide link ;
  • Click on ‘Show Timeline’;
  • Select a date well into 2018;
  • Access the relevant handbook.

Product Governance

The FCA has published a new sourcebook, PROD, that sets out its product governance requirements for manufacturers and distributors. By product governance the FCA means the systems and controls firms must have in place for the design, approval, marketing and ongoing management of products throughout their lifecycle to ensure they meet legal and regulatory requirements.

The FCA published a precursor, the Responsibilities of Providers and Distributors for the Fair Treatment of Customers (RPPD) some years ago and this will continue for those firms that do not have to comply with PROD.

In brief, firms that manufacture and distribute MiFID products will need to be fully conversant with the PROD rules.

  • A firm must take into account the nature of the instrument or service and the target market when designing products;
  • Governance must be proportionate and appropriate for the product or service being manufactured or distributed;
  • Non-MiFID firms that manufacture and distribute MiFID products should apply the provisions proportionately.

What this means in reality is that firms that manufacture and distribute products should:

  • Establish procedures to assess the target market and risks for new products (or product re-issues) that the firm manufactures or distributes;
  • Ensure Board level accountability for the process;
  • Ensure compliance oversight of the process;
  • Employ staff with relevant competence for these roles;
  • Choose appropriate distribution channels;
  • Monitor existing products on an ongoing basis to check they function as expected;
  • Are sold to the expected target market and remain consistent with the needs of the target market;
  • Take action if they identify problems;
  • Design products that meet the needs of the target market;
  • Stress test the products;
  • Assess that the charging structure is appropriate;
  • Provide relevant information to distributors.  

Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

ATEB Compliance offers compliance and regulatory advice.

ATEB Suitability provides report writing software for the financial services market.

Our View

This is a set of new rules that applies to manufacturers and distributors of products and will affect advisory firms who will need to implement updated systems and procedures.

Action Required By You

  • Consider if the rules apply to your firm;
  • Ensure you are aware of the changes to the rules;
  • ATEB clients should speak with their account manager as necessary; otherwise contact ATEB here to find out how we can help.

About the Author

Technical Manager - Often referred to as the Oracle or the Sage, Alistair has a wealth of financial services experience. He is our go-to Technical Manager and enjoys nothing more than a complicated conundrum. Feel free to test his renowned knowledge by getting in touch.

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