Maddie Delboy, head of Regulatory Support, The Verve Group, looks at how PROD interacts with Consumer Duty and what else the regulator is looking for in the Consumer Duty rules.
One of the first reactions to Consumer Duty was as ‘TCF on steroids’ and then as we went through rounds of consultation, this eventually morphed into ‘PROD on steroids’. Sometimes I see the mass of articles, webinars, seminars and all things in between regarding Consumer Duty and I think the sight of ‘what is consumer duty’ has been lost, so that makes it hard to look at the how.
Just as a recap (which you can skip if you have seen it too much…) Consumer Duty is all about a shift to outcomes-based regulation and a mandated focus that the client is at the centre of all regulated businesses. The regulator wants firms to put themselves in the client’s shoes at every single touch point along the financial services journey. Those touch points have been highlighted as ‘the four outcomes’. We have:
- Products and services
- Price and value
- Consumer understanding
- Consumer support
As we know, lots of ‘us’ are operating within the spirit of the Duty already, that’s why we do the job, and it’s why we are still here (apparently it pays the bills too) – or are we all charging % OACs in a down market and feeling the pinch? More on this later! But is acting ‘in the spirit’ enough for the regulator? Unfortunately for most of us, no. If you have ever had contact with the regulator and they’ve taken a sniff round your business you will know ‘if it ain’t written down, it didn’t happen’. And that’s going to be the same with Consumer Duty, ESPECIALLY because it isn’t a set of binary rules. The FCA is going to need you to be able to demonstrate how you are delivering good outcomes for retail customers.
Now, it’s not as daunting as you may think. TCF set us up really well (hence TCF on steroids). There are some differences, there’s a little bit of leg work, but don’t reinvent the wheel when the basis of the customer at the centre is the same. Of course, for those falling foul of the regulations at the moment – there’s a lot of work to do. For the majority, it’s just about tightening up processes and ensuring you have evidence for everything.
Talking of not reinventing the wheel, Product Intervention and Product Governance. Or to you and I, PROD. This isn’t new. In fact, we’re creeping up to five years post the implementation of PROD. Good old MiFID II (*shivers in compliance*). For some reason, the requirement for firms to have a PROD and to look at their target market, and the target market of the products they are distributing fell under the radar post MiFID II. We were all too busy imbedding our ex-ante and ex-post disclosures to focus on PROD. But the last few years this has been brought into the spotlight, especially with the regulator recently diving into GI PROD and finding significant downfalls.
So how does PROD interact with Consumer Duty? A lot. But not for all of the Duty, and that is something firms need to be aware of. Consumer Duty shockingly is not a tick box, so please do not feel just because you have a robust PROD you are meeting all elements of the Duty. However for the products and services outcome… maybe you’re already there?! Let’s see what the regulator says.
“Evidence of compliance with PROD will demonstrate that the firm is not in contravention of the products and services outcome”. Now I liked the Finalised Guidance and the Policy Statement, I thought it was well written, fairly engaging. This sentence however…. I digress. What the FCA is saying here is that to meet PROD = meeting the products and services outcome. If you’re already there with PROD, then you are already there with that outcome.
The FCA has also been so kind to give examples of material you could use to demonstrate you are compliant with PROD (and the products and services outcome). A summary of the most applicable for distributors below:
- Details of your product approval process
- Record of target market of manufacturer
- Records of your target market
- Details of product review process
- Details of your review of your target market
- Details of your oversight and control arrangements
It’s not very often a new regulation comes out and you can meet it, in part, with an existing piece of regulation. If you’re compliant with PROD, keep doing as you’re doing. Some may say, just keep PRODding along.
The Verve Group are running a Consumer Duty Support programme over the next 10 months – click here for more information
