Response to consultation on Guidelines on product oversight and governance arrangements for retail banking products
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However our main concern is that in giving such new and wide responsibilities to manufacturers, they might become “quasi-regulators” of their distribution partners, who are regulated entities in their own right and accountable to their home state regulator. It is not the function of a manufacturer to act as a regulator.
An unwanted consequence of this situation could also be that manufacturers could chose not to distribute their products via credit intermediaries. This would lead to vertical integration and mean less choice for consumers and fewer SMEs and jobs.
In this context, BIPAR believes that Guideline 1 for manufacturers should ensure that distributors are always kept informed of the scope and output of any review or update of product governance and oversight arrangements. The following sentence could be added to Guideline 1.2.: “The manufacturer should notify any relevant output of review of product governance and oversight arrangements promptly to the distributor involved”.
An unwanted consequence of this situation could also be that manufacturers could chose not to distribute their products via credit intermediaries. This would lead to vertical integration and mean less choice for consumers and fewer SMEs and jobs.
Credit intermediaries are usually very small firms. According to the Small Business Act, European legislation is generally requested to take into account the “think small first” principle. It seems however that this principle was not respected given the similarity of the wording used for generally large firms (credit institutions) and generally small firms (credit intermediaries and distributors). We believe that these guidelines should be redrafted so that it is possible for SMEs (and sole trader) intermediaries to comply with them.
It is not clear what kind of conflicts of interests are covered in the proposed Guideline. More clarity would be needed on this aspect. The conflict situation can, from a conflict of interest perspective, not seem to be beneficial for the consumer at first glance, but overall it may offer a solution which in competitive terms may be the best available, when analysed. We therefore believe that it should be clear that the conflicts of interests referred to in Guideline 1 are those which existence may adversely affect the interests of the consumers.
Moreover, we believe that the wording “to avoid” is not the appropriate one. The word “mitigate” would be more in line with the reality of the market and with the texts of current EU and national legislation.
We believe that the various EU Directives on which the draft guidelines are built already require distributors to have appropriate knowledge and ability. These are not product oversight and governance and should not be included in the draft guidelines.
Guideline 4.1 should be redrafted to make it clear that the manufacturer can’t provide the distributor with the total price of the product to be borne by the consumer as it does not always have information regarding the remuneration of the distributor.
Guideline 4.3 is too heavy and practically not possible for distributors.
Question 2: Do you agree with the delineation of the two sets of requirements for manufacturers and distributors?
We believe that having a clear delineation between the distributors’ and manufacturers’ obligations is a positive element. It must be clear who is responsible for what.However our main concern is that in giving such new and wide responsibilities to manufacturers, they might become “quasi-regulators” of their distribution partners, who are regulated entities in their own right and accountable to their home state regulator. It is not the function of a manufacturer to act as a regulator.
An unwanted consequence of this situation could also be that manufacturers could chose not to distribute their products via credit intermediaries. This would lead to vertical integration and mean less choice for consumers and fewer SMEs and jobs.
Question 3: Are there any additional requirements that you would suggest adding to either of the two sets of requirements? If so, why?
It needs to be made clear that the use of undefined legal terms by the guidelines (such as “to avoid potential conflicts of interests”) should not be interpreted as general entry for additional rule-making.Question 4: Do you agree with Guideline 1 on establishment, proportionality, review and documentation?
According to the proposed Guideline 3.1 for distributors, distribution channels will be requested to have the appropriate knowledge and ability to recognize the target market for which the product is designed.In this context, BIPAR believes that Guideline 1 for manufacturers should ensure that distributors are always kept informed of the scope and output of any review or update of product governance and oversight arrangements. The following sentence could be added to Guideline 1.2.: “The manufacturer should notify any relevant output of review of product governance and oversight arrangements promptly to the distributor involved”.
Question 10: Do you agree with Guideline 7 on the selection of distribution channels?
In giving such new and wide responsibilities to manufacturers, they might become “quasi-regulators” of their distribution partners, who are regulated entities in their own right and accountable to their home state regulator. It is not the function of a manufacturer to act as a regulator.An unwanted consequence of this situation could also be that manufacturers could chose not to distribute their products via credit intermediaries. This would lead to vertical integration and mean less choice for consumers and fewer SMEs and jobs.
Question 11: Do you agree with Guideline 8 on information for distributors?
It is not possible for the manufacturer to provide to the consumer the total price of the product including all related fees, charges, and expenses as the manufacturer may not be aware of the cost of distribution to the consumer.Question 12: Do you agree with Guideline 1 on establishment, proportionality, review and documentation?
A similar wording is used for the guidelines on establishment, proportionality, review and documentation for distributors and manufacturers. This does bring confusion between the roles and liabilities of the two actors. They can’t be both liable for product designing.Credit intermediaries are usually very small firms. According to the Small Business Act, European legislation is generally requested to take into account the “think small first” principle. It seems however that this principle was not respected given the similarity of the wording used for generally large firms (credit institutions) and generally small firms (credit intermediaries and distributors). We believe that these guidelines should be redrafted so that it is possible for SMEs (and sole trader) intermediaries to comply with them.
It is not clear what kind of conflicts of interests are covered in the proposed Guideline. More clarity would be needed on this aspect. The conflict situation can, from a conflict of interest perspective, not seem to be beneficial for the consumer at first glance, but overall it may offer a solution which in competitive terms may be the best available, when analysed. We therefore believe that it should be clear that the conflicts of interests referred to in Guideline 1 are those which existence may adversely affect the interests of the consumers.
Moreover, we believe that the wording “to avoid” is not the appropriate one. The word “mitigate” would be more in line with the reality of the market and with the texts of current EU and national legislation.
Question 13: Do you agree with Guideline 2 on the distributor’s internal control functions?
These requirements should be specific and proportionate to the size and the role of the distributors.Question 14: Do you agree with Guideline 3 on the knowledge of the target market?
We believe that it is not suitable to cover under this guideline the appropriate knowledge and ability of a distribution channel to recognize the target market for which the product is designed. This is an extremely onerous requirement that cannot be achieved without putting an onus on the manufacturers to disclose all material information around the design of the product to the distribution channel.We believe that the various EU Directives on which the draft guidelines are built already require distributors to have appropriate knowledge and ability. These are not product oversight and governance and should not be included in the draft guidelines.
Question 15: Do you agree with Guideline 4 on information?
We believe that this Guideline does not deal with products oversight and governance process and its interaction with the “Mortgage Credit Directive” is not clear.Guideline 4.1 should be redrafted to make it clear that the manufacturer can’t provide the distributor with the total price of the product to be borne by the consumer as it does not always have information regarding the remuneration of the distributor.
Guideline 4.3 is too heavy and practically not possible for distributors.