The German Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) has published a new draft circular on product oversight and governance arrangements for retail banking products with the objective of strengthening consumer protection in relation to financial products offered in the market. The draft circular shall govern how financial institutions are expected to control and manage the development and distribution of financial products in the retail customer segment. The draft circular is based on the European Banking Authority (EBA) Guidelines on product oversight and governance arrangements for retail banking products that aim to ensure that the interests, objectives and characteristics of the consumers are taken into account.
In particular, the draft circular requires institutions to define a target market for the respective retail banking products as well as the analysis and continuous monitoring of the products. It establishes internal procedures and control mechanisms relevant for ensuring the interests, objectives and characteristics of the target market are met. The distribution channels must be appropriate for the particular target market. If an institution identifies a problem related to the product in the market, it is required to take the necessary action to mitigate the situation. The governance and oversight arrangements shall ensure that conflicts of interests are avoided. Furthermore, institutions are required to ensure that the products they offer to consumers are appropriate.
The circular has to be fully respected and complied with by all credit institutions. Payment service providers must ensure compliance with the draft circular to the extent that is required with regard to the nature, scope, complexity and risk profile of the relevant business.
Responses and comments can be submitted to BaFin until 31 August 2017.
Further information and comments on the new draft circular can be found here (in German).