New Product Approval Process
With just one month to go until the Consumer Duty comes into force, we’ll take a look at how firms can make the most of the time remaining to best tackle the new rules.
The good news is that the Duty isn’t just a detached set of requirements but has the potential to change the relationship between the firm and the customer for the better.
While the Duty will lead to improved outcomes for customers – and on the whole has been welcomed positively across the industry – there is still some confusion about the new need to evidence everything from product development to analysis of customer outcomes.
This week, we’ll take a look at three of the areas that have been most concerning firms.
Underpinning everything we’ll do from 31 July 2023 must be a robust Consumer Duty Policy. There is so much to think about that this document is easily overlooked. But it must be complete enough to form a foundation from which the rest of the organisation’s behaviour and practices emanate.
The Policy should be designed to reflect how the Duty will be fixed into the business and how each of the elements will be put into practice for customers. The Policy should be comprehensive and cover review and testing methods.
At this stage product approvals should be well underway. What has been throwing some of the firms we have worked with is target market identification. This first step has to be considered at a “sufficiently granular level” to be able to then form the basis of the understanding of their needs and objectives. Customers with characteristics of vulnerability must also be considered.
The aim of the product approval process is to make sure that risks are properly assessed and then mitigated, and that the product is designed to appropriately meet the identified needs of the target market, of vulnerable customers, and will help them to achieve their objectives. If this sounds broad, it is. To even begin to conduct the task, we have to understand the product inside and out in theory, have a good understanding of the target market, their needs and their objectives, and understand how the product works in practice.
These objectives depend on the business of the firm. They don’t need to be complex – customers of savings accounts will likely have an objective of achieving a good return on their capital – but they do need to be fully considered against the business of the firm and that target market. Crucially, the product approval process must make sure that ‘foreseeable harm’ is avoided.
PRIN 2A.3 requires regular reviews of products, also with a focus on risks and harms. Like product approvals, the review must consider whether the product, in practice, meets the needs of the target customers and actively supports its target market to meet their objectives. The review is the stage at which these factors are assessed in an ongoing basis.
The reviews have to take place both at the point of implementation of the Duty, whenever a new product or service is going to be introduced, and where there is a significant adaptation to an existing product or service.
The key with the product review is to stay focused on what the FCA is most concerned about. The wide berth of the subject matter – the target market, its needs, and how the features and risks of the product impact them – opens the door to potential confusion and ill-defined parameters. Keeping it simple, and following a straightforward five step guide to reviews will help:
Understand the target market
Identify the objectives of your customers
Identify the nature and quality of the benefits of your product
Document, document document! Make sure the reviews cover everything the FCA requires.
Monitor and review – this will be an iterative process – challenge the features, risks and characteristics of your product and you won’t go far wrong.
To help get these processes off the ground, we have created a new, updated, product approval process and a new product review template. Both are now streamlined and come with guidance on how to complete.
We have also created a template consumer duty policy. All of our new templates will be available online shortly!
To help get these processes off the ground, we have created a new, updated, Product Approval Process and a new Product Review template. Both are now streamlined and come with guidance on how to complete.