Product distribution in retail banks

In a notice of 8 September 2017, the ACPR reported itself compliant with the EBA orientations (GL 2015/18) on the governance of banking retail products. In this same notice, it informs all the institutions subject to its monitoring that they must do everything possible to be compliant with it.

This control of the governance of the retail bank products is in accordance with the provisions put in place by MiFID2 and DDA for financial and insurance products.

In this way, the governance provision of these products distinguishes the obligations of the producer and those of the distributor.

As part of the product’s design, the producer defines a target market. In the event of investment products and retail banks, the producer also defines a negative market to which the product cannot be market. Test must therefore be run on banking products, applying crisis scenarios in order to measure the impact of the product on consumers according to the different situations considered.

Indeed, the producer should only design and market products meeting the interests, objectives and characteristics of the specific target market identified for the product. This marketing must benefit the target market.

If the producer decides to market their new product, they then select the distribution channels most suitable to their target market. A chosen distributor must have the competences necessary to adequately market the product.

In order to allow their distributors to best fulfil their mission, in the consumer’s interest, producers should make all the useful information available. In the event of a retail bank product, this information includes a description:

  • Of the product’s main characteristics
  • Of its risks
  • Of its restrictions
  • Of the product’s total price to be paid by the consumer, including all fees, charges and related payments.

The producer of retail bank products must make sure that this information allows the distributor to understand the product, its target market and the situations where it is not suitable.

Once the product is marketed, the producer must continuously monitor it to make sure that the interests, objectives and characteristics of the consumers are still being taken into account. They must also make sure that it is not marketed outside the target market without that being duly justified.

These rules, of which we only presented the highlights, are thus rather complete and cover all the stages of a product’s life. Their application implies a broad procedural framework. In this way, the producer must define the methods of governance and monitoring of their products which will later be approved by the management body and regularly revised.

The distributor must also define and put the methods of governance and monitoring of their products in place. These methods should be efficient and proportional to their size and their role played in the distribution of the products.

Regulation Partners offers to help institutions, producers and distributors put in place adapted measures of governance and supervision.

Benoit, consultant

Published in November 2018

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