BIPAR

BIPAR is the European Federation of Insurance and Financial Intermediaries. It groups 50 national associations in 30 countries. Through its national associations, BIPAR represents the interests of insurance intermediaries (agents and brokers), credit intermediaries and financial intermediaries in Europe. More information on BIPAR can be found on: www.bipar.eu .

BIPAR welcomes the opportunity provided by EBA to comment on its draft guidelines on product oversight and governance arrangements for retail banking products.

BIPAR strongly believes that it is crucial to pay attention to the product design and governance and to ensure that products on offer in the EU market are fit for consumers. Appropriate product governance will increase the confidence of existing and prospective consumers, thus fostering market growth

Effective product governance should however not be confused with product pre-approval which is a different matter. BIPAR regrets that it is not clearly stated in EBA draft Guidelines that the aim of the principles is to strengthen manufacturers’ internal controls prior to product launch and that they do not aim at requiring or introducing product approval.

Below are BIPAR answers to EBA questions that are of relevance for credit intermediaries.

BIPAR agrees with the proposed activity based approach of covering distributors that are involved in the design and manufacturing of a product and considering them as manufacturers for setting up POG arrangements.

However BIPAR does not agree with the proposed approach of capturing the entire product life cycle by covering distributors as well as manufacturers. It is not appropriate that distributors are included in the scope of EBA guidelines.

Product designing is provided by manufacturers, not by distributors. As EBA states in its consultation paper, “product oversight and governance is made to involve manufacturers in a fair designing of products, taking into account end-consumers”. The ramifications of extending the scope to distributors could lead to some confusion between the liabilities of the distributors and the manufacturers; that could be to the detriment of consumers and create legal uncertainty. They could also be severe for credit intermediaries that are mainly SMEs. We believe that the impact of such an approach has not been properly assessed.

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. In most of the cases distributors do not take part in the designing of the products.

We also believe that the various EU Directives on which the draft guidelines are built already require distributors to have appropriate knowledge and ability and to disclose specific information to consumers. These are not product oversight and governance and should not be included in the draft guidelines.
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.
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.
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”.
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.
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.
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.
These requirements should be specific and proportionate to the size and the role of the distributors.
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.
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.
Isabelle Audigier