On 3 November 2020, the European Banking Authority (EBA) issued its second report on how firms have implemented the EBA guidelines on product oversight and governance arrangements (the Guidelines). The report identifies good practices that firms have put in place and concludes that many of them do not sufficiently put the required focus on ensuring that consumers’ needs are met in line with the Guidelines. The EBA is therefore encouraging firms to ensure that the interests, objectives and characteristics of consumers are taken into account when applying product oversight and governance arrangements, in order to avoid consumer detriment.
One of the overreaching findings of the second report confirms the conclusions reached in the first report published in 2019. The second report shows that, despite the objectives of the Guidelines to enhance consumer protection and also to address the prudential risks arising from mis-conduct, manufacturers appear to focus almost entirely on the requirements set out in the EBA Guidelines on internal governance under Directive 2013/36/EU (EBA/GL/2017/11). In other words, while the manufacturers surveyed for the second report had implemented the internal processes in relation to product oversight for retail products this was not necessarily done in a way that put the requisite focus on ensuring that consumers’ needs are met, or that attracted the same level of attention as the compliance with the requirements or the profitability of the product and service. The assessment also highlighted that the application of the Guidelines varies significantly according to the size of firm, between the Member States and also within the same Member State.
The second report provides an assessment of the main findings for the following five areas: (i) scope of the Guidelines and general governance, (ii) the identification of the target market, (iii) testing, (iv) monitoring and remedial actions and (v) distribution. It includes examples of good practices considered by the EBA as compliant with the Guidelines.
The second report’s annex sets out some good practices concerning the scope of the Guidelines and general governance, the identification of the target market, product testing, product monitoring and the product oversight and governance arrangements for distributors, the application of which contributes to compliance with the Guidelines and consistency of supervisory and consumer outcomes.