FCA issues ‘Dear CEO’ letter For Product Governance and Oversight

The FCA is looking to undertake a second thematic review on Product Governance and Oversight to understand whether the product reviews, including the fair value assessments and the Product Distribution Arrangement reviews firms have undertaken, are in line with the FCA’s expectations as set out under PROD 4 of the FCA Handbook.

The selected firms will have received a ‘Dear CEO’ letter with the request to complete the questionnaire by 11 August 2023. The FCA are expecting to conclude their review by the end of Q1 2024, following which they will report their findings to the selected firms and to the wider market. Any feedback highlighting areas of significant interest or concern will also be directed to the firm.

Even if your firm has not been selected for the FCA’s review, it may still be beneficial for your firm to:

• identify those within the firm who are responsible for product governance and oversight, as well as any senior managers who hold responsibility in this area. This would be in relation to the Senior Management & Certification Regime (“SM&CR”) and individual accountability
• assess that current product governance frameworks are appropriate and can demonstrate compliance with PROD 4
• demonstrate that the products provide fair value to customers in the target market, and whether it will continue to do so for a reasonably foreseeable period
• undertake regular product reviews, including fair value assessments as outlined in PROD 4
• recognise where a product is not offering fair value and removing it from the market where necessary

Last year, the FCA expressed their disappointment with the progress made by a “material proportion” of manufacturers fell short of expectations, with the deadline for fair value assessments having to be extended 30 September 2022 to 31 December 2022, as well as the lack of effective cooperation between manufacturers and distributors. In addition, there are concerns that despite the rules coming into force on 1 October 2021, there are still products that have not been withdrawn from the market for not providing fair value, nearly two years on from its implementation.

The FCA has warned that trying to take a “one-size-fits-all” stance or leaving implementation until the last minute is unlikely to result in a compliant process and/or would not ensure that customers are getting the fair value that they deserve. With the implementation deadline for the new Consumer Duty also now entering its final weeks, firms will be under greater scrutiny to offer value and fairness to customers as well as to protect them from foreseeable harm on the lead up to, and beyond 31 July.