The European Banking Authority (EBA) published today a consultation paper on draft Guidelines on product oversight and governance arrangements for retail banking products. The guidelines, which apply to both manufacturers and distributors of retail banking products, aim at ensuring that the interests, objectives and characteristics of consumers are taken into account when such products are designed and brought to market. The consultation will run until 10 February 2015.
Developments in the markets for financial services in recent years have shown that failures in the conduct of financial institutions towards their customers can cause not only significant consumer detriment but also undermine market confidence, financial stability and the integrity of the financial system. In addition, conduct failure can result in direct costs for financial institutions, as a result of redress and compensation pay-outs, penalties, fines, and loss of income.
To address some of the causal drivers of conduct failure, and following the initial work carried out by the Joint Committee of the three European Supervisory Authorities in 2013, the EBA has developed detailed Guidelines for the product oversight and governance of retail banking products, which are mortgages, loans, deposits, credit cards, payment services, payment accounts and electronic money.
The Guidelines do not only address past failings but rather provide a framework for robust and responsible product design and distribution to avoid future cases of detriment. When designing its products, the banking sector must consider the interests, objectives and characteristics of its customers. This is crucial to help re-establish and maintain confidence in retail banks.
The requirements for manufacturers cover the manufacturer's internal control functions, identification of the target market, product testing, product monitoring, remedial actions, the selection of distribution channels, and information to distributors. The requirements for distributors cover the distributor's internal arrangements, identification and knowledge of the target market, and information requirements.
The EBA expect to publish its final guidelines in Q2 2015, which will be applied as of 1 April 2016.
Comments to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments is 10 February 2015. All contributions received will be published following the close of the consultation, unless requested otherwise.
A public hearing will then take place at the EBA premises on 15 January 2015 from 14:00 to 16:00 UK time.