The FCA has expressly acknowledged the overlap between the FCA’s existing MiFID II-derived rules on the manufacture of investment products in its Product Intervention and Product Governance Sourcebook (PROD) and the new Consumer Duty provisions on manufacturer product governance arrangements. In response to industry feedback that the application of both sets of rules may lead to uncertainty and could be disproportionate, “adding costs with minimal benefits”, the new Consumer Duty provisions gives manufacturers subject to the existing PROD rules the choice of applying the existing processes under PROD 3, rather than the new processes set out in new PRIN 2A.3.
Whilst this is almost certainly designed to be helpful, it does leave product manufacturers a choice they will want to consider carefully. Many manufacturers will want to take this decision on an informed basis, particularly since the FCA has emphasised that, whilst the new rules in PRIN 2A.3 “are broadly the same” as those in PROD 3, “there are differences.” At one level, there is a risk that at least some of the processes set out in PROD 3 could increasingly come to seen as ‘best practice’ and effectively amplify the requirements in PROD 3, even for those firms who elect to apply the legacy rules; there may also be challenges that come from other firms in the distribution chain making a different election, particularly in respect of the flow of point of sale information back up the distribution chain. It is also worth emphasising that the choice of applying the legacy PROD rules rather than the new Consumer Duty rule is only available for the products and services outcome, and not for the Consumer Duty provisions on price and value, consumer understanding or consumer support. With this in mind, whether product manufacturers choose to apply the new Consumer Duty rules in full or not, there will be important differences for them to reflect in their processes.
Product manufacturers should also be aware that the FCA has effectively accelerated aspects of their consumer duty implementation. Whilst the Consumer Duty is not due to apply to new products and services and products and services that remain on sale or open for renewal until 31 July 2023, paragraph 12.11 of PS22/9 makes clear that “Manufacturers should aim to complete all the reviews necessary to meet the four outcome rules for their existing open products and services by the end of April 2023, so that they can: share with distributors by the end of April 2023 the information necessary for them to meet their obligations under the Duty… [and] identify where changes need to be made to their existing open products and services to meet the Duty and implement these remedies by the end of July 2023.”
In other words, manufacturers are expected to have their implementation plans ready ahead of time, in order for distributors to take manufacturers’ changes into account in their own implementation.