EBA encourages financial institutions to put the required focus on consumers’ interests when applying Product Oversight and Governance Arrangements

• The Report identifies a range of good practices and encourages financial institutions to  use them;
• Many financial institutions do not sufficiently put the required focus on ensuring that consumers’ needs are met in line with the Guidelines;
• The EBA and relevant competent authorities will continue monitoring how financial institutions apply the EBA POG Guidelines and whether they make use of the good practices identified in this Report.

The European Banking Authority (EBA) published today its second report on how the industry has implemented the EBA Guidelines on Product Oversight and Governance Arrangements (POG). It identifies good practices of financial institutions 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. Therefore, the EBA encourages financial institutions to ensure that the interests, objectives and characteristics of consumers are taken into account when applying POG arrangements, in order to avoid consumer detriment.

This second Report aims again to examine the application of the EBA POG Guidelines by the industry, but this time based on a larger sample of financial institutions, and in a larger number of Member States, so as to come to more robust conclusions. The review was carried out with 78 credit institutions, payment and e-money institutions across 12 EU Member States.

This Report identifies ways for financial institutions to further strengthen the application of the EBA POG Guidelines. It does so by outlining good practices identified in the sample concerning the scope of the EBA POG Guidelines and general governance, identifying the target market, product testing, product monitoring and remedial actions, and the POG arrangements for distributors.

The Report confirms the conclusions reached in the first report and namely that while manufacturers surveyed had implemented the internal processes in relation to product oversight for retail products, this was not necessarily done in a way that put the required focus on ensuring that consumers’ needs are met. Despite the objectives of the EBA POG Guidelines to enhance consumer protection and also to address the prudential risks arising from misconduct, financial institutions appeared to focus almost only on the requirements set out in the EBA Guidelines on internal governance under the Capital Requirements Directive (CRD IV).

The EBA and relevant competent authorities will continue monitoring how financial institutions apply the EBA POG Guidelines and whether they make use of the good practices identified in this Report.

Legal basis and background

This Report has been drafted in accordance with Articles 1(5) and 9(2) of the EBA founding Regulation. Article 1(5) requires the EBA to “contribute to improving the functioning of the internal market, including, in particular, a sound, effective and consistent level of regulation and supervision. […], preventing regulatory arbitrage and promoting equal conditions of competition, […] enhancing customer and consumer protection, as well as supervisory convergence across the internal market”. Article 9(2) states that the EBA “shall monitor new and existing financial activities and may adopt guidelines and recommendations with a view to promoting the safety and soundness of markets, and convergence and effectiveness of regulatory and supervisory practices”.

In partial fulfilment of this mandate, the EBA decided to address some of the causal drivers of conduct failure that had been identified in the wake of the financial crisis 2008/9. Following initial work carried out in 2012/13 by the three European supervisory authorities, the EBA developed detailed Guidelines on POG arrangements for retail banking products. The EBA Guidelines were consulted in 2014/15, issued in March 2016 and are applicable since January 2017. In July 2019, the EBA published its first implementation report, at the time based on a small sample of credit institutions only.