What is the Consumer Duty?
Knowing how to write a product approval process is an essential function for the FCA’s latest retail market rules. The Consumer Duty (‘the Duty’) came into force on 31st July 2023 for new and existing retail products and services. The Duty only applies to retail market customers and aims to deliver a higher level of protection. The standards and rules that make up the Consumer Duty are defined in PRIN 2A of the FCA Handbook. There is also a wealth of non-handbook guidance to be found in the final guidance paper FG22/5.
The founding principles of the Duty focus on providing retail customers with fair, transparent products and services. This leads to delivering good consumer outcomes in relation to a firm’s retail market business. Principle 12, Conduct Rule 6, the Cross-Cutting Rules (or obligations) an the Four Consumer Outcomes form the basis of the Duty.
The FCA Products and Services Outcome
In their non-handbook Consumer Duty guidance, the FCA state that “the products and services outcome rules are central to firms acting to deliver good outcomes”. The way to achieve good outcomes and meet the requirements of this outcome is through an effective Product Approval Process.
The FCA expects firms to ensure that their retail products and services meet the needs, characteristics and objectives of customers in the identified target market. This means assessing, reviewing and monitoring products and services from design, and throughout their lifecycle.
The Product Approval Process
There is no set framework or format for how to write a product approval process. However, the FCA use the PRIN 2A rules and guidelines to specify their requirements and expectations. PRIN 2A.3.2 states that “a manufacturer must maintain, operate and review a process for the approval of a product; and significant adaptations of a product, in each case before it is marketed or distributed to retail customers”.
When writing your process for Consumer Duty product governance, you should break the process down into stages. The mandatory handbook requirements are noted below, however you may want to customise or add to these dependant on your business type and retail product.
Product Approval Stages
Specify the target market at a granular level, considering the products’:
- Risk profile.
Consider characteristics of vulnerability within the target market, particularly additional or different needs. You may need to offer flexible products, services and/or communication methods and channels to ensure vulnerable customers receive the same good outcomes.
Identify and assess all relevant risks to the target market. Consider and document any risks that are inherent or specific to the intended target market and/or relevant to the nature and characteristics of the product.
Ensure that the design of the product:
- meets the needs, characteristics and objectives of the target market.
- does not adversely affect groups of retail customers in the target market.
- avoids causing foreseeable harm in the target market.
Identify the distribution strategy and ensure that it is appropriate for the target market. Consider the types of distribution channels that will be used and how these have been assessed as being suitable and relevant. Also review if you will be using an external distributors and ensure that they have been provided with adequate information and enough time to enable them to comply with the relevant PRIN 2A rules.
Product Approval Process Templates
If you are looking for a complete suite of templates to aid compliance with the FCA’s PRIN 2A rules, look no further than the Know Your Compliance Limited Consumer Duty Template Toolkit. The Toolkit includes all 12 of our essential Consumer Duty templates, all of which are fully customisable.
Our templates will help you to implement a compliant product governance program designed to meet the needs of retail market customers. From product approval process templates, through to financial promotions and client communications. With nearly 9000 organisations using our compliance templates, you can be assured of professional, high quality documents and content.
- 12 Essential Consumer Duty Templates
- Includes Product Approval Process Templates
- Suitable for all Business Types
- Aligned with the PRIN 2A Rules
- Instant Download After Payment