Product Intervention

and Product
Governance
Sourcebook (PROD)
PROD Contents

Product Intervention and Product Governance

Sourcebook (PROD)

PROD 1 Product Intervention and Product Governance Sourcebook (PROD)

1.1 Application and purpose

1.2 Application of PROD 2
1.3 Application of PROD 3
1.4 Application of PROD 4
1.5 Application of PROD 5
1.6 Application of PROD 6
1.7 Application of PROD 7

PROD 2 Statement of policy with respect to the making of temporary

product intervention rules

2.1 Purpose
2.2 General rule making and product intervention rules
2.3 Agreements made in breach of product intervention rules
2.4 Temporary product intervention rules
2.5 Factors the FCA will consider when making temporary product
intervention rules
2.6 General considerations for product intervention rules
2.7 Contextual considerations for product intervention rules
2.8 Competition considerations for temporary product intervention rules
2.9 Regulatory principles
2.10 Process for making temporary product intervention rules
2.11 Consulting the panels
2.12 Consulting the PRA
2.13 Communication, publication and post-implementation review of
temporary product intervention rules
2.14 Revocation or replacement of rules

PROD 3 Product governance: MiFID

3.1 General
3.2 Manufacture of products
3.3 Distribution of products and investment services

PROD 4 Product governance: IDD and pathway investments

4.1 General
4.2 Manufacture of insurance products
4.3 Distribution of insurance products
4.4 Additional expectations for manufacturers and distributors of insurance
products

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PROD Contents

4.5 Additional expectations for manufacturers and distributors in relation to

value measures data
4.6 Application of PROD 4.2 and 4.3 for legacy non-investment insurance
products

PROD 5 Extended warranties sold with rent-to-own agreements: customer

information and deferred opt-in

5.1 Ensuring the customer can make an informed decision

5.2 Deferred opt-in for extended warranties

PROD 6 Product governance: additional provisions for pathway

investments and default options

6.1 General
6.2 Manufacture of pathway investments
6.3 Distribution of pathway investments
6.4 Manufacture of default options
6.5 Distribution of default options

PROD 7 Product governance: funeral plans

7.1 General
7.2 Manufacture of funeral plans
7.3 Distribution of funeral plans
7.4 Product governance requirements for subsisting funeral plans

Transitional provisions and Schedules

TP 1 Transitional Provisions
TP 2 Transitional Provisions for Funeral Plan Products

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PROD Contents

PROD–iii [Link] ■ Release 33 ● Feb 2024

 Product Intervention and Product Governance Sourcebook (PROD)

Chapter 1

Product Intervention and

Product Governance
Sourcebook (PROD)

■ Release 33 ● Feb 2024 [Link] PROD 1/1

 PROD 1 : Product Intervention Section 1.1 : Application and purpose
and Product Governance
Sourcebook (PROD)

1
1.1 Application and purpose

Purpose
.....................................................................................................
1.1.1 G The purpose of PROD is to improve firms’ product oversight and governance
processes and to set out the FCA’s statement of policy on making temporary
product intervention rules.

1.1.2 G Product oversight and governance refers to the systems and controls firms
have in place to design, approve, market and manage products throughout
the products’ lifecycle to ensure they meet legal and regulatory
requirements.

1.1.3 G Good product governance should result in products that:

(1) meet the needs of one or more identifiable target markets;

(2) are sold to clients in the target markets by appropriate distribution

channels; and

(3) deliver appropriate client outcomes.

1.1.4 G Unless the contrary intention appears, a reference to Gibraltar-based firm in

PROD has the same meaning as in the Gibraltar Order.

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1
1.2 Application of PROD 2

1.2.1 R ■ PROD 2 sets out the FCA’s approach to issuing temporary product
intervention rules. It is of relevance to all firms.

■ Release 33 ● Feb 2024 [Link] PROD 1/3

 PROD 1 : Product Intervention Section 1.3 : Application of PROD 3
and Product Governance
Sourcebook (PROD)

1
1.3 Application of PROD 3

General: Who? What?

.....................................................................................................
1.3.1 R ■ PROD 3 applies to

(1) a MiFID investment firm;

(2) a CRD credit institution;

(3) a MiFID optional exemption firm; and

(4) branches of third country investment firms; with respect to:

(5) manufacturing financial instruments and structured deposits; and

(6) distributing financial instruments, structured deposits and investment

services.

[Note: articles 1(3), 1(4), 16(3), 24(2) and 41(2) of MiFID]

1.3.-1A R A TP firm and a Gibraltar-based firm must also comply with the provisions in
■ PROD 1.3 and ■ PROD 3 in relation to a pathway investment, with respect to
activities carried on from an establishment maintained by it, or its appointed
representative, in the United Kingdom.

Other firms manufacturing or distributing financial

instruments or structured deposits
.....................................................................................................
1.3.2 R (1) Subject to (2) other firms which manufacture or distribute financial
instruments or structured deposits should take account of ■ PROD 3 as
if it were guidance on the Principles and other relevant rules and as if
“should” appeared in ■ PROD 3 rules instead of “must”.

(2) Paragraph (1) does not apply to a firm to the extent that it is
required to comply with Principle 12 (Consumer Duty) and ■ PRIN 2A in
relation to a product.

Eligible counterparty business

.....................................................................................................
1.3.3 R ■ PROD 3.3.1R does not apply to eligible counterparty business.

[Note: article 30(1) of MiFID]

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Where?
.....................................................................................................
1
1.3.4 R ■ PROD 3 applies to a firm with respect to activities carried on from an
establishment maintained by it, or its appointed representative, in the
United Kingdom.

1.3.5 R (1) ■ PROD 3 also applies to a firm with respect to activities from an
establishment overseas with a client in the United Kingdom.

(2) But ■ PROD 3 does not apply to those activities if the office from
which the activity is carried on were a separate person and the
activity:
(a) would fall within the overseas persons exclusions in article 72 of
the Regulated Activities Order; or
(b) would not be regarded as being carried on in the United
Kingdom.

1.3.6 R [deleted]

1.3.7 G [deleted]

1.3.8 G [deleted]

1.3.9 G [deleted]

1.3.10 G [deleted]

MiFID
.....................................................................................................
1.3.11 G ■ PERG 13 contains general guidance on the persons and businesses to which
the UK provisions which implemented MiFID apply.

1.3.12 G [deleted]

1.3.13 G [deleted]

1.3.14 G [deleted]

Interaction of PROD 3 and the RPPD Guide

.....................................................................................................
1.3.15 G A firm to which ■ PROD 3 applies need not apply the guidance in RPPD for
matters covered by PROD if the firm has complied with ■ PROD 3.

Manufacturing pathway investments and default options

.....................................................................................................
1.3.16 G A firm that is within the scope of ■ PROD 3 (Product governance: MiFID)
when it manufactures pathway investments or default options other than in

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 PROD 1 : Product Intervention Section 1.3 : Application of PROD 3
and Product Governance
Sourcebook (PROD)

connection with its operating of a retail client’s personal pension scheme or

1 stakeholder pension scheme, is also subject to ■ PROD 6 (Product governance:
additional provisions for pathway investments and default options) as
guidance with respect to that manufacturing activity (see ■ PROD 1.6.1R(3)).

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PROD 1 : Product Intervention Section 1.4 : Application of PROD 4
and Product Governance
Sourcebook (PROD)

1
1.4 Application of PROD 4

1.4.1 R ■ PROD 4 applies to:

(1) an insurance intermediary; and

(2) an insurer,

with respect to:

(3) manufacturing insurance products;

product governance and distribution arrangements for legacy non-

investment insurance products (see ■ PROD 4.6); and

(4) distributing insurance products.

[Note: articles 1(2) and 25 of the IDD]

1.4.-1A R A TP firm and a Gibraltar-based firm must also comply with the provisions in:

(1) ■ PROD 1.4 and ■ PROD 4.5 (Additional expectations for manufacturers
and distributors in relation to value measures data);

(2) ■ PROD 1.4 and■ PROD 4 in relation to a pathway investment;

■ PROD 1.4, ■ PROD 4 and (where applicable) ■ PROD TP 1 in relation to

non-investment insurance products (including legacy non-investment
insurance products) that are, or will be, marketed or distributed, or
there are policies under the product that remain in force, in the
United Kingdom.

1.4.1A R ■ PROD 4.5 (Additional expectations for manufacturers and distributors in

relation to value measures data) applies regardless of when the product was
first manufactured.

1.4.2 G In PROD an insurance product may be read as being a reference to the

product for distribution to customers generally and is not intended to refer
to each individual contract of insurance being sold or underwritten (unless
the context indicates otherwise).

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and Product Governance
Sourcebook (PROD)

1.4.3 R ■ PROD 4 does not apply in relation to an insurance product that is:
1
(1) a contract of large risks where the insurance product meets the
conditions in ■ PROD 1.4.-3AR; or

(2) a reinsurance contract.

[Note: article 25(4) of the IDD]

1.4.-3A R The conditions in ■ PROD 1.4.3R(1) are that the insurance product is used
exclusively for effecting contracts of large risks where there are no:

(1) policyholder(s); or

(2) (where relevant) policy stakeholders, including, in relation to a multi-

occupancy building insurance contract, any leaseholder,

who in that context are natural persons acting for purposes outside of their
trade, business or profession.

Manufacturing and distributing pathway investments and

default options
.....................................................................................................
1.4.3A G A firm that is within the scope of ■ PROD 4 (Product governance: IDD) when
it manufactures pathway investments or default options other than in
connection with its operating of a retail client’s personal pension scheme or
stakeholder pension scheme, is also subject to ■ PROD 6 (Product governance:
additional provisions for pathway investments and default options) as
guidance with respect to that manufacturing activity (see ■ PROD 1.6.1R(2)).

1.4.3B R Where a firm:

(1) manufactures or distributes pathway investments or default options

in connection with its operating of a retail client’s personal pension
scheme or stakeholder pension scheme; and

(2) is not otherwise within the scope of the rules or onshored regulations
in PROD in relation to that manufacturing or distribution activity,
then ■ PROD 4, ■ PROD 1.4.4UK and ■ PROD 1.4.10G, apply with respect
to that manufacturing or distribution activity.

1.4.3C G The effect of ■ PROD 1.4.3BR is to apply ■ PROD 4 to any firm, such as a SIPP
operator, which:

(1) manufactures or distributes pathway investments or default options

in connection with its operating of a retail client’s personal pension
scheme or stakeholder pension scheme; and

(2) before the entry into force of ■ PROD 1.4.3BR, was not subject to the
rules or onshored regulations in PROD.

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When an intermediary may be considered to be manufacturing

.....................................................................................................
1
1.4.4 UK For the purposes of [■ PROD 4.2.1R, ■ PROD 4.2.2R, ■ PROD 4.2.29R,
■ PROD 4.2.34R, ■ PROD 4.3.1R and ■ PROD 4.3.2R], insurance intermediaries shall
be considered manufacturers where an overall analysis of their activity shows
that they have a decision-making role in designing and developing an
insurance product for the market.
3(2)A decision-making role shall be assumed, in particular, where insurance
intermediaries autonomously determine the essential features and main
elements of an insurance product, including its coverage, price, costs, risk,
target market and compensation and guarantee rights, which are not
substantially modified by the insurance undertaking providing coverage for
the insurance product.
3(3)Personalisation of and adaptation of existing insurance products in the
context of insurance distribution activities for individual customers, as well as
the design of tailor-made contracts at the request of a single customer, shall
not be considered manufacturing.
[Note: article 3 of the IDD POG Regulation]

1.4.5 G The effect of ■ PROD 1.4.4UK and ■ PROD 1.4.6R is that an insurance
intermediary needs to consider if it is manufacturing an insurance product or
if it would be a manufacturer for a legacy non-investment insurance product
for ■ PROD 4.6, and, if so, should comply with ■ PROD 4.2 (Manufacture of
insurance products).

Scope of ‘manufacturing’
.....................................................................................................
1.4.5A G (1) ■ PROD 4.2 applies to firms that manufacture insurance products. The
terms ‘firm’ and ‘manufacturer’ are used in that section
interchangeably to refer to such persons.

(2) The Glossary term ‘manufacture’ includes ‘designing, developing,

creating and/or underwriting’ which cover activities prior to the
insurance product being approved for marketing and distribution,
and on a continuing basis after such approval.

Effect of provisions marked “UK” for certain manufacturers

and distributors of insurance products
.....................................................................................................
1.4.6 R (1) Subject to (2) and ■ PROD 1.4.3R, provisions in this section and in
■ PROD 4 marked “UK” apply to firms :

(a) manufacturing or distributing insurance products, but to whom

the IDD POG Regulation does not apply;
(b) in relation to product governance and distribution arrangements
for legacy non-investment insurance products,
as if they were rules.

(2) For the purposes of (1), a word or phrase used in the IDD POG
Regulation and referred to in column (A) has the meaning indicated
in Column (B) of the table below:
(a) (b)

■ Release 33 ● Feb 2024 [Link] PROD 1/9

 PROD 1 : Product Intervention Section 1.4 : Application of PROD 4
and Product Governance
Sourcebook (PROD)

(a) (b)
1 “Article 8(2)” PROD 4.2.30UK

“customer” and “potential customer

customer”

“insurance-based investment insurance-based investment

products” products
“insurance distribution activit- insurance distribution activities
ies” and “distribution activities”
“insurance distributor” distributor
“insurance intermediary” insurance intermediary
“insurance undertaking” insurer
“manufacturer” and “manufac- manufacturer
turers within the meaning of Art-
icle 2 of this Delegated Re-
gulation”
“manufacturing” manufacturing
“shall” must

(3) In this sourcebook, where a reproduced provision of an article of the

IDD POG Regulation refers to another part of the IDD POG Regulation,
that other provision must also be read with reference to the table in
(2).

(4) In relation to a legacy non-investment insurance product, the

reproduced provisions of an article of the IDD POG Regulation must be
read to be consistent with the application of product governance and
distribution requirements in ■ PROD 4.2 and ■ PROD 4.3 to a legacy non-
investment insurance product.

Effect and interpretation of PROD 1.4 and PROD 4 for certain

manufacturers and distributors of pathway investments and
default options
.....................................................................................................
1.4.6A R A firm to which ■ PROD 1.4.3BR applies must

(1) comply with provisions marked "UK" in ■ PROD 1.4 and ■ PROD 4 as if
they were rules; and

(2) read terms or phrases found in ■ PROD 1.4 or ■ PROD 4 as follows:

(a) terms referred to in column (1) of the table below have the
meaning indicated in the same row of column (2) of the table;
(b) terms relating to insurance or insurance products have the
meaning of the corresponding term relevant in the context of
pathway investments or default options; and
(c) terms or phrases which are only relevant to firms manufacturing
or distributing insurance products may be disregarded.
This table belongs to PROD 1.4.6AR(2)(a).
(1) (2)

“ICOBS 2.5-1R and COBS 2.1.1R” COBS 2.1.1R

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(1) (2)
“ICOBS” relevant conduct of business ob- 1
ligations
"PROD 4.2 requirements of the IDD PROD 4.2
POG Regulation)”
“insurance-based investment pathway investment or default
products” option
“insurance distributor” distributor
“insurance distribution activities” distribution activities
“insurance intermediary and an in- firms
surance undertaking”
“insurance product” pathway investment or default
option
“‘manufacturer’ and ‘manufacturers’ manufacturer
within the meaning of Article 2 of
this Delegated Regulation”
“manufacturing” manufacturing
“premiums” costs and charges
“shall” must

Where?
.....................................................................................................
1.4.7 R ■ PROD 4 applies to a firm with respect to activities carried on from an
establishment maintained by it, or its appointed representative:

(1) (for all insurance products and pathway investments) in the United
Kingdom; and

(2) (in addition, for non-investment insurance products) overseas, in

relation to an insurance product that is, or will be, marketed or
distributed, or there are policies under the product that remain in
force, in the United Kingdom.

[Note: in respect of (1), article 7(2) of the IDD]

1.4.8 R [deleted]

1.4.9 G [deleted]

Interaction of PROD 4 and the RPPD Guide

.....................................................................................................
1.4.10 G A firm to which ■ PROD 4 applies need not apply the guidance in RPPD for
matters covered by PROD if the firm has complied with ■ PROD 4 (see also
■ PROD 4.4.2G). ■ PROD 4.4 includes guidance based on the RPPD which firms
subject to ■ PROD 4 should apply.

Modification of PROD 4.2 and PROD 4.3 for overseas non-

investment insurance products
.....................................................................................................
1.4.11 R ■ PROD 4 applies in relation to an overseas non-investment insurance product
with the following modifications:

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and Product Governance
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(1) The changes made to ■ PROD 4.2 and ■ PROD 4.3 in Annex E of the
1 Non-Investment Insurance: Product Governance, Premium Finance,
General Insurance Auto-renewal and Home and Motor Insurance
Pricing Instrument 2021 do not apply, unless otherwise specified in
(2).

(2) The following rules and guidance in Annex E of the Non-Investment

Insurance: Product Governance, Premium Finance, General Insurance
Auto-renewal and Home and Motor Insurance Pricing Instrument
2021 continue to apply:
(a) ■ PROD 4.2.1AG;

(b) ■ PROD 4.2.21AG;

(c) ■ PROD 4.2.34AG; and

(d) ■ PROD 4.2.36BR.

[Note: the Non-Investment Insurance: Product Governance, Premium Finance,

General Insurance Auto-renewal and Home and Motor Insurance Pricing
Instrument 2021 can be found at [[Link]
instrument/2021/FCA_2021_19.pdf]]

1.4.12 G (1) The effect of ■ PROD 1.4.11R is that, for an overseas non-investment
insurance product, including where this is a legacy non-investment
insurance product subject to ■ PROD 4.6, a firm’s product approval
process (and arrangements for ongoing monitoring) need only
comply with:
(a) the requirements in ■ PROD 4.2 or ■ PROD 4.3 as they stood on 30
September 2021, except for those provisions in ■ PROD 1.4.11R(2);
and
(b) any subsequent changes made by an instrument other than the
Non-Investment Insurance: Product Governance, Premium
Finance, General Insurance Auto-renewal and Home and Motor
Insurance Pricing Instrument 2021.
■ PROD 1.4 and ■ PROD 4 as it stood on 30 September 2021 can be
accessed by using the timeline on the FCA Handbook website. Firms
will need to consider any further changes to PROD after this date to
consider if they apply in relation to overseas non-investment
insurance products.

(2) A non-investment insurance product:

(a) that will be or is available for distribution or marketing to
customers who are habitually resident or, if applicable, where the
state of the risk is, in the United Kingdom; or
(b) where, for any policy issued under the product, the policyholder
is habitually resident in or, if applicable, the state of the risk is in,
the United Kingdom,
will not be an overseas non-investment insurance product and the
firm will need to meet all applicable requirements in ■ PROD 4
including ■ PROD 4.2.14AR in relation to providing fair value.

(3) A firm should also consider in relation to any overseas non-

investment insurance product what is required to meet obligations

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and Product Governance
Sourcebook (PROD)

under other rules in the FCA Handbook including, for example, the
Principles and SYSC. 1

Meaning of ‘customer’ in PROD 4 for non-investment

insurance contracts: consideration of policyholders, and policy
stakeholders (including leaseholders)
.....................................................................................................
1.4.13 G Firms are reminded that in ■ PROD 4, in relation to non-investment insurance
contracts, as the context requires, ‘customer’ includes:

(1) a person who is a policyholder, or a prospective policyholder, whether

or not they make the arrangements preparatory to the conclusion of
the contract of insurance; and

(2) a policy stakeholder including a leaseholder.

1.4.14 G For a non-investment insurance product that is or will be used to effect a

multi-occupancy building insurance contract, when meeting the
requirements under ■ PROD 4, including in particular whether the product
provides fair value for the purposes of ■ PROD 4.2.14AR, a firm should
consider the interests of:

(1) any policyholder making the arrangements preparatory to the

conclusion of the contract of insurance;

(2) the freeholder and any other policyholder of the product; and

(3) leaseholders.

■ Release 33 ● Feb 2024 [Link] PROD 1/13

 PROD 1 : Product Intervention Section 1.5 : Application of PROD 5
and Product Governance
Sourcebook (PROD)

1
1.5 Application of PROD 5

General: Who? What?

.....................................................................................................
1.5.1 R ■ PROD 5 applies to a firm which:

(1) offers to sell an extended warranty to a customer; or

(2) refers, invites or induces a customer to obtain an extended warranty

from a person connected to the firm;

in connection with the entering into of a rent-to-own agreement with the

firm.

1.5.2 G A person connected to the firm includes someone who has a relevant
business relationship with the firm.

Where?
.....................................................................................................
1.5.3 R ■ PROD 5 applies to a firm with respect to activities carried on from an
establishment maintained by it, or its appointed representative, in the
United Kingdom.

1.5.4 R [deleted]

1.5.5 G [deleted]

1.5.6 G [deleted]

1.5.7 G [deleted]

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PROD 1 : Product Intervention Section 1.6 : Application of PROD 6
and Product Governance
Sourcebook (PROD)

1
1.6 Application of PROD 6

1.6.1 R ■ PROD 6 applies to a firm:

(1) that manufactures or distributes pathway investments or default

options in connection with its operating of a retail client’s personal
pension scheme or stakeholder pension scheme;

(2) within the scope of ■ PROD 4 when manufacturing pathway

investments or default options, other than in connection with its
operating of a retail client’s personal pension scheme or stakeholder
pension scheme, as guidance with respect to that manufacturing
activity;

(3) within the scope of ■ PROD 3 when manufacturing pathway

investments or default options, other than in connection with its
operating of a retail client’s personal pension scheme or stakeholder
pension scheme, as guidance with respect to that manufacturing
activity.

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1.7 Application of PROD 7

Application of PROD 7
.....................................................................................................
1.7.1 R (1) ■ PROD 7 applies to:
(a) a funeral plan provider; and
(b) a funeral plan intermediary,
with respect to:
(c) manufacturing funeral plan products; and
(d) distributing funeral plan products.

1.7.2 R A Gibraltar-based firm must also comply with the provisions in ■ PROD 7
(Product governance: funeral plans).

Manufacturing a funeral plan product

.....................................................................................................
1.7.3 G The Glossary term ‘manufacture’ includes ‘designing, developing, creating
and/or entering into or carrying out a funeral plan contract as provider’
which cover activities prior to the funeral plan product being approved for
marketing and distribution, and on a continuing basis after such approval.

1.7.4 R (1) For the purposes of ■ PROD 7, a funeral plan intermediary is a

manufacturer of a funeral plan product where an overall analysis of
their activity shows that they have a decision-making role in
designing and developing a funeral plan contract for the market.

(2) A decision-making role will be assumed, in particular, where a funeral

plan intermediary autonomously determines the essential features
and main elements of a funeral plan contract, including any of its
price, costs, target market or guarantee rights, which are not
substantially modified by the funeral plan provider.

(3) Personalisation of and adaptation of existing funeral plan products in

the context of funeral plan distributions for individual customers, as
well as the design of tailor-made contracts at the request of a single
customer, are not manufacturing.

Territorial scope
.....................................................................................................
1.7.5 R ■ PROD 7 applies to a firm with respect to activities carried on by it, or its
appointed representative, in relation to:

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and Product Governance
Sourcebook (PROD)

(1) a funeral plan product; and

1
(2) a subsisting funeral plan.

Interaction of PROD 7 and the RPPD Guide

.....................................................................................................
1.7.6 G The RPPD Guide does not apply to a firm to which ■ PROD 7 applies for
matters covered by, and where the firm has complied with, ■ PROD 7.

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PROD 1/18 [Link] ■ Release 33 ● Feb 2024

 Statement of policy with respect to the making of temporary product
intervention rules

Chapter 2

Statement of policy with

respect to the making of
temporary product
intervention rules

■ Release 33 ● Feb 2024 [Link] PROD 2/1

 PROD 2 : Statement of policy Section 2.1 :
with respect to the making of
temporary product…

2.1 Purpose
2

2.1.1 G This chapter explains the FCA’s policy with respect to the making of
temporary product intervention rules under sections 137D and 138M of the
Act. This statement of policy replaces the “Statement of Policy for making
temporary product intervention rules” published in Policy Statement PS13/03
(see [Link]
[Note: see section 138N of the Act]

2.1.2 G Product intervention rules are rules made under section 137D of the Act
which apply to specific products (or types of products), product features or
marketing practices relating to specific products.

2.1.3 G Product intervention rules may be made without consultation under section
138M of the Act but are limited to a maximum duration of 12 months and
are referred to as “temporary product intervention rules”.

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PROD 2 : Statement of policy Section 2.2 : General rule making and
with respect to the making of product intervention rules
temporary product…

2.2 General rule making and product

intervention rules 2

2.2.1 G The Act empowers the FCA to make general rules as appear necessary or
expedient for the purpose of advancing one or more of its operational
objectives.
[Note: see section 137A of the Act]

2.2.2 G The Act also provides that the FCA may use its general rule-making power to
make product intervention rules prohibiting authorised persons from, among
other things, entering into specified agreements (section 137D of the Act).
These rules may be made to advance:

(1) the consumer protection objective; or

(2) the competition objective; or

(3) the market integrity objective.

2.2.3 G Section 137D(2) of the Act sets out that the FCA may prohibit authorised
persons from:

(1) entering into specified agreements with any person or specified

person (specified person means a person who meets the description
specified by FCA rules);

(2) entering into specified agreements with any person or specified

person unless requirements specified in the rules have been satisfied;

(3) doing anything that would or might result in the entering into of
specified agreements by persons or specified persons, or the holding
by them of a beneficial or other kind of economic interest in specified
agreements; and

(4) doing anything within paragraph (3) unless requirements specified in

the rules have been satisfied.

2.2.4 G Section 137D of the Act makes it clear that a range of options would be
available to us in making rules prohibiting authorised persons from entering
into specified agreements.

■ Release 33 ● Feb 2024 [Link] PROD 2/3

 PROD 2 : Statement of policy Section 2.2 : General rule making and
with respect to the making of product intervention rules
temporary product…

2.2.5 G The extent of the rules which are made will generally depend on the type of
intervention deemed necessary to address the issues identified, having
regard to whether the intervention would be a proportionate response to
the perceived risk to consumers, competition issues or market integrity issues.
2
2.2.6 G Rules may include:

(1) requiring certain product features to be included, excluded or

changed; or

(2) requiring amendments to promotional materials; or

(3) the imposition of restrictions on sales or marketing of the product; or

(4) in more serious cases, a ban on sales or marketing of a product in

relation to all or some types of client.

2.2.7 G Where the product is provided by a business outside of the UK, rules may be
made targeting regulated activities by authorised persons in the UK that
would lead to a specified agreement being formed.
[Note: see sections 137D(2)(c) and (d) of the Act]

PROD 2/4 [Link] ■ Release 33 ● Feb 2024

PROD 2 : Statement of policy Section 2.3 : Agreements made in breach of
with respect to the making of product intervention rules
temporary product…

2.3 Agreements made in breach of

product intervention rules 2

2.3.1 G In relation to agreements entered into in breach of product intervention

rules, section 137D(7) sets out that the rules may:

(1) provide for a relevant agreement or obligation to be unenforceable

against any person or specified person;

(2) provide for the recovery of any money or other property paid or
transferred under a relevant agreement or obligation by any person
or specified person; and

(3) provide for the payment of compensation for any loss sustained by
any person or specified person as a result of paying or transferring
any money or other property under a relevant agreement or
obligation.

2.3.2 G Where a rule provides for a relevant agreement or obligation to be

unenforceable, the relevant agreement or obligation would only be
unenforceable if the sale of the product was made after the introduction of
the rules and there was a contravention of those rules. Clients with products
bought after the introduction of rules incorporating unenforceability
provisions would generally need to seek redress through the usual channels
of complaints to the firm and to the Financial Ombudsman Service, or legal
action against the firm.

2.3.3 G Arrangements made before the introduction of the rules would not be
affected by the unenforceability and compensation provisions. Clients
holding contracts made before these rules were in place would still be able
to seek redress through the usual channels of complaints to the firm and to
the Financial Ombudsman Service or legal action against the relevant firm.
These clients would need to establish their claim to redress in the usual way,
for example by demonstrating that the advice they received was unsuitable,
or that they bought the product after receiving a misleading financial
promotion.

■ Release 33 ● Feb 2024 [Link] PROD 2/5

 PROD 2 : Statement of policy Section 2.4 : Temporary product intervention
with respect to the making of rules
temporary product…

2.4 Temporary product intervention

2 rules

2.4.1 G Normally the FCA must consult the public before making any rules. However,
the Act allows a general exemption in section 138L where the FCA considers
that the delay involved in complying with the requirement to consult would
be prejudicial to the interests of consumers.

2.4.2 G There is also a specific exemption to the consultation requirement in relation

to making temporary product intervention rules (section 138M of the Act).
The FCA may make temporary product intervention rules without
consultation if it considers that it is necessary or expedient not to comply
with such a requirement to advance:

(1) the consumer protection objective, or

(2) the competition objective, or

(3) the market integrity objective.

2.4.3 G The FCA’s discretion to act under section 138M is therefore wider than under
section 138L.

2.4.4 G Decisions to make any rules, including temporary product intervention rules,
will be taken by the FCA Board. In doing so, the FCA Board will have regard
to all the available, relevant evidence, as well as the impact of the measure
to be introduced by the rule.

2.4.5 G The FCA Board will consider whether the evidence is sufficient to support the
proposed measure and whether the measure is a proportionate response to
the issue identified.

2.4.6 G In publishing temporary product intervention rules the FCA will also publish
the rationale for these rules.

PROD 2/6 [Link] ■ Release 33 ● Feb 2024

PROD 2 : Statement of policy Section 2.5 : Factors the FCA will consider
with respect to the making of when making temporary product intervention
temporary product… rules

2.5 Factors the FCA will consider when

making temporary product 2
intervention rules

2.5.1 G In general terms the FCA will consider a product intervention rule where we
identify a risk of consumer detriment, a threat to market integrity or
ineffective competition arising from a particular product, type of product, or
practices associated with a particular product or type of product.

2.5.2 G In deciding whether the rule should be made as a temporary product

intervention rule, the FCA’s main consideration will generally be whether
prompt action is deemed necessary in seeking to reduce or prevent consumer
detriment or a threat to market integrity or ineffective competition arising
from that product, type of product or practices.

■ Release 33 ● Feb 2024 [Link] PROD 2/7

 PROD 2 : Statement of policy Section 2.6 : General considerations for
with respect to the making of product intervention rules
temporary product…

2.6 General considerations for product

2 intervention rules

2.6.1 G Together with the considerations in ■ PROD 2.5, when making temporary or
permanent product intervention rules, the FCA will have regard to the
regulatory principles set out in section 3B of the Act, (see ■ PROD 2.9).

2.6.2 G The FCA will also take into account general considerations that include, but
are not limited to, whether the proposed rules are:

(1) an appropriate and effective means of addressing actual or potential

consumer detriment associated with a particular product or group of
products;

(2) a proportionate and deliverable means of addressing actual or

potential detriment;

(3) compatible with the FCA’s duty to promote effective competition in

the interests of consumers (section 1B(4) of the Act);

(4) supported by sufficient and appropriate evidence;

(5) transparent in their aim and operation;

(6) likely to be beneficial for clients when taken as a whole; and

(7) compatible (where relevant) with other applicable law.

2.6.3 G In accordance with the Equality Act 2010, the FCA will have due regard to
the need to:

(1) eliminate discrimination, harassment, victimisation and any other

conduct that is prohibited by or under the Equality Act 2010;

(2) advance equality of opportunity between persons who share a

relevant protected characteristic and persons who do not share it; and

(3) foster good relations between persons who share a relevant

protected characteristic and persons who do not share it;

when making temporary or permanent product intervention rules.

PROD 2/8 [Link] ■ Release 33 ● Feb 2024

PROD 2 : Statement of policy Section 2.7 : Contextual considerations for
with respect to the making of product intervention rules
temporary product…

2.7 Contextual considerations for

product intervention rules 2

2.7.1 G When the FCA is considering whether to make temporary or permanent

product intervention rules in response to an identified issue with a product,
the following factors may be taken into account:

(1) The potential scale of detriment in the market. Issues involving

products with a large or potentially large client base are more likely
to require product intervention.

(2) The potential scale of detriment to individual clients. Issues that may
lead to high detriment for individual clients are more likely to require
product intervention.

(3) The social context. Issues that may lead to detriment for particular
groups of clients (such as, in particular, vulnerable client groups) are
more likely to require product intervention.

(4) The market context. Market mechanisms such as information

disclosure and competition do not always work to protect consumers.

(5) Possible unintended consequences. Whether the use of product

intervention rules or the timing of the intervention would in itself
create undue risk of further consumer detriment, including harm to
existing clients and in the market (although this will not necessarily
comprise a full cost benefit analysis).

■ Release 33 ● Feb 2024 [Link] PROD 2/9

 PROD 2 : Statement of policy Section 2.8 : Competition considerations for
with respect to the making of temporary product intervention rules
temporary product…

2.8 Competition considerations for

2 temporary product intervention
rules

2.8.1 G When making a temporary or permanent product intervention rule, the FCA
will seek to promote effective competition in the interests of consumers
where doing so is compatible with its consumer protection objective or
integrity objective.

2.8.2 G In accordance with section 1E of the Act the FCA also has a competition
objective and may make rules, including temporary product intervention
rules, specifically to advance competition.

2.8.3 G Relevant competition-related considerations for the FCA in the context of

temporary or permanent product intervention rules are likely to include:

(1) Whether there is reasonable scope for the rules under consideration
to promote effective competition in the interests of consumers, for
instance by addressing consumer behaviours that impair their ability
to benefit from competition, by reducing information asymmetries or
by correcting misaligned incentives.

(2) Whether the rule under consideration may have a negative impact on
competition factors such as product innovation and barriers to entry
for new market participants.

(3) Whether any negative impact on competition factors is

proportionate, having regard to the aims of the rule under
consideration.

(4) Whether alternative solutions may deliver the same intended

outcome while having a more positive impact on competition.

(5) The overall effect of a proposed rule upon the operation of effective
competition in the market for financial services, having regard to the
interests of consumers.

PROD 2/10 [Link] ■ Release 33 ● Feb 2024

PROD 2 : Statement of policy Section 2.9 : Regulatory principles
with respect to the making of
temporary product…

2.9 Regulatory principles

2

2.9.1 G The FCA will have regard to the regulatory principles set out in section 3B of
the Act when making temporary product intervention rules.

2.9.2 G As part of the FCA’s consideration of issues including the desirability of

facilitating innovation, we will consider the potential deterrent effect on
entry to the market and innovation when making temporary product
intervention rules against the potential for reducing anticipated consumer
detriment.

■ Release 33 ● Feb 2024 [Link] PROD 2/11

 PROD 2 : Statement of policy Section 2.10 : Process for making temporary
with respect to the making of product intervention rules
temporary product…

2.10 Process for making temporary

2 product intervention rules

2.10.1 G Once initial proposals have been discussed, a paper will be prepared at
working group level for a committee (the Committee) with appropriate
authority to propose temporary product intervention rules to the FCA Board.

2.10.2 G The Committee will either endorse the proposals and recommend that they
are taken to the Board, or suggest rethinking or amending the proposals
and coming back at a later date. A decision may be taken to use a different
regulatory tool, or not to proceed.

2.10.3 G If the Committee decides that the proposals should go to the Board, the
paper will be taken to the next available scheduled Board meeting, unless
the matter is of great importance or there is an emergency, in which case the
Board may convene specifically to consider the issue.

2.10.4 G If the Board makes a decision to act on the policy proposals the FCA will
publish the temporary product intervention rules on its website and take the
necessary follow-up actions.

PROD 2/12 [Link] ■ Release 33 ● Feb 2024

PROD 2 : Statement of policy Section 2.11 : Consulting the panels
with respect to the making of
temporary product…

2.11 Consulting the panels

2

2.11.1 G The FCA will generally seek the views of the Financial Services Practitioner
Panel, the Smaller Businesses Practitioner Panel and the Financial Services
Consumer Panel during the process for making temporary product
intervention rules if there is sufficient time to do so.

■ Release 33 ● Feb 2024 [Link] PROD 2/13

 PROD 2 : Statement of policy Section 2.12 : Consulting the PRA
with respect to the making of
temporary product…

2.12 Consulting the PRA

2

2.12.1 G Before any proposed product intervention rules are made (whether
temporary or not) the FCA will consult the PRA.

PROD 2/14 [Link] ■ Release 33 ● Feb 2024

PROD 2 : Statement of policy Section 2.13 : Communication, publication
with respect to the making of and post-implementation review of temporary
temporary product… product intervention rules

2.13 Communication, publication and

post-implementation review of 2
temporary product intervention
rules

2.13.1 G Before making a temporary product intervention rule, the Committee will
consider how affected firms and clients are to be informed of the rule in
good time.

2.13.2 G The FCA will publish a statement on its website explaining why it is
introducing the rule. The FCA may choose to invite feedback, but this will
not amount to a consultation exercise.

2.13.3 G The FCA may choose to review a temporary product intervention rule during
the term for which the rule is in force. Such a review will generally depend
on the perceived risk the rule seeks to mitigate. These reviews may be
informed by market monitoring and feedback from stakeholders, including
product manufacturers, distributors and clients.

2.13.4 G Where the FCA perceives potential uncertainty about how the rule operates,
it may consider publishing guidance.

2.13.5 G Reviews are likely to consider whether a rule is functioning as intended,

including whether:

(1) there have been any breaches of the rule; or

(2) there are any unintended consequences, such as an impact on

products that were not intended to be caught by the rule; or

(3) there is evidence suggesting firms are avoiding or seeking to avoid

the rule rather than complying with it, for instance where new
products enter the market or new features are added to existing
products that expose clients to the same or similar potential
detriment; or,

(4) new evidence demonstrates that the rule is not necessary or

detriment is unlikely.

■ Release 33 ● Feb 2024 [Link] PROD 2/15

 PROD 2 : Statement of policy Section 2.13 : Communication, publication
with respect to the making of and post-implementation review of temporary
temporary product… product intervention rules

2.13.6 G As a result of these reviews, where necessary, the FCA may:

(1) revoke a temporary product intervention rule; or

2 (2) amend the rule, for example where a rule specifies certain criteria
under which the sale of a product may continue, change these
criteria.

2.13.7 G Subsequent changes to a temporary product intervention rule will be

communicated by issuing a new statement containing the revised rule and
the rationale for the changes. Such changes will not extend the lifespan of
the temporary product intervention rule.

2.13.8 G However, the FCA may consult on a new rule to replace the temporary
product intervention rule from the date on which the temporary product
intervention rule ceases to have effect. This exercise would be subject to the
FCA’s standard rule-making procedure including market failure analysis, cost
benefit analysis and consultation to which all stakeholders, including
manufacturers, distributors and clients would be invited to reply.

PROD 2/16 [Link] ■ Release 33 ● Feb 2024

PROD 2 : Statement of policy Section 2.14 : Revocation or replacement of
with respect to the making of rules
temporary product…

2.14 Revocation or replacement of rules

2

2.14.1 G When making temporary product intervention rules the FCA will state the
duration of the rule and the date from which it will be effective. Temporary
product intervention rules will have a maximum duration of 12 months from
when the rule is made, but the FCA may decide on a shorter duration for a
rule.

2.14.2 G The FCA may review or revoke temporary product intervention rules at any
time before the end of the period for which they apply.

2.14.3 G Rules may be revoked or amended for a number of reasons, including but
not limited to:

(1) new rules are introduced on a permanent basis following a

consultation exercise; or

(2) industry initiatives are developed that specify sufficient minimum

standards to address the sources of consumer detriment; or

(3) further evidence is submitted that demonstrates that consumer

detriment will not occur; or

(4) demand for, or supply of, the relevant product disappears and is
deemed unlikely to return; or

(5) the FCA identifies unforeseen negative effects of the rule which
outweigh any positive impact upon consumer protection.

2.14.4 G Where temporary product intervention rules have been made, the FCA may
not make further temporary product intervention rules containing the same,
or substantially the same, provisions within 12 months beginning on the day
on which the limited duration of the initial rules ends (whether or not the
rules were revoked early). This period does not apply to rules that are not
temporary product intervention rules, (i.e. rules which had been made
subject to consultation, whether or not of set duration).

■ Release 33 ● Feb 2024 [Link] PROD 2/17

 PROD 2 : Statement of policy Section 2.14 : Revocation or replacement of
with respect to the making of rules
temporary product…

PROD 2/18 [Link] ■ Release 33 ● Feb 2024

 Product governance: MiFID

Chapter 3

Product governance: MiFID

■ Release 33 ● Feb 2024 [Link] PROD 3/1

 PROD 3 : Product governance: Section 3.1 :
MiFID

3.1 General

[Note: ESMA has also issued guidelines: Guidelines on MiFID II product

governance requirements, 05/02/2018, ESMA35-43-620]

Interpretation: financial instruments and structured products

.....................................................................................................
3.1.1 R For the purposes of ■ PROD 3, references to financial instruments include
structured deposits.

Proportionate application of rules

.....................................................................................................
3.1.2 R (1) A firm must, when manufacturing financial instruments or deciding
on the range of financial instruments and investment services it
intends to distribute to clients, comply, in a way that is appropriate
and proportionate, with the requirements set out in this chapter.

(2) In complying with these requirements, a firm must take into account:
(a) the nature of the financial instrument or investment service; and
(b) the target market for the financial instrument.
[Note: articles 9(1) and 10(1) of the MiFID Delegated Directive]

3.1.3 G A proportionate application of the requirements in this chapter may mean

that complying with the rules could be relatively simple for simple financial
instruments distributed on an execution-only transaction basis where such
financial instruments would be compatible with the needs and characteristics
of the mass retail market.

PROD 3/2 [Link] ■ Release 33 ● Feb 2024

PROD 3 : Product governance: Section 3.2 : Manufacture of products
MiFID

3.2 Manufacture of products

General
.....................................................................................................
3.2.1 R A manufacturer must:

(1) ensure that the financial instruments it manufactures are designed to

meet the needs of an identified target market of end clients within
the relevant category of clients (see ■ COBS 3 for client categories);

(2) ensure that the strategy for distribution of the financial instruments is
compatible with the identified target market; and

(3) take reasonable steps to ensure that the financial instrument is

distributed to the identified target market.

[Note: article 24(2) of MiFID]

3.2.2 G Consideration of target market factors should permeate all aspects of

product development and distribution, as well as ensuring the selection of
appropriate distribution channels and the promotion of the financial
instruments are accompanied by sufficient and correct information.

Product governance arrangements

.....................................................................................................
3.2.3 R A manufacturer must maintain, operate and review a process for the
approval of:

(1) each financial instrument, and

(2) significant adaptations of existing financial instruments,

in each case before they are marketed or distributed to clients.

[Note: article 16(3) of MiFID]

3.2.4 R For each financial instrument the product approval process must:

(1) specify an identified target market of end clients within the relevant
category of clients (see ■ COBS 3 for client categories);

(2) ensure that all relevant risks to the identified target market are
assessed; and

■ Release 33 ● Feb 2024 [Link] PROD 3/3

 PROD 3 : Product governance: Section 3.2 : Manufacture of products
MiFID

(3) ensure that the intended distribution strategy is consistent with the
identified target market.

[Note: article 16(3) of MiFID]

3.2.5 G When designing financial instruments, a firm should have in place systems
3 and controls to manage adequately the risks posed by financial instrument
design.

Manufacture by more than one firm

.....................................................................................................
3.2.6 R Where firms collaborate to manufacture a financial instrument, only one
target market needs to be identified.
[Note: article 9(9) of the MiFID Delegated Directive]

3.2.7 R Where firms collaborate, including with entities which are not authorised
and supervised in accordance with UK provisions implementing MiFID or
third country investment firms, to create, develop, issue and/or design a
financial instrument, they must outline their mutual responsibilities in a
written agreement.
[Note: article 9(8) of the MiFID Delegated Directive]

Target market
.....................................................................................................
3.2.8 R Manufacturers must identify the potential target market for each financial
instrument at a sufficiently granular level and must:

(1) specify the type or types of client for whose needs, characteristics and
objectives the financial instrument is compatible; and

(2) identify any group or groups of client for whose needs, characteristics
and objectives the financial instrument is not compatible.

[Note: article 9(9) of the MiFID Delegated Directive]

3.2.9 G The level of granularity of the target market and the criteria used to define
the target market and determine the appropriate distribution strategy
should be relevant for the financial instrument and should make it possible
to assess which clients fall within the target market. For simpler, more
common financial instruments, the target market could be identified with
less detail while for more complicated financial instruments such as bail-
inable instruments or less common financial instruments, the target market
should be identified with more detail.
[Note: recital 19 of the MiFID Delegated Directive]

3.2.10 R Manufacturers must determine for each financial instrument they

manufacture, whether it meets the identified needs, characteristics and
objectives of the target market, and in doing so must include an examination
of the following elements:

(1) whether the financial instrument’s risk/reward profile is consistent

with the target market; and

PROD 3/4 [Link] ■ Release 33 ● Feb 2024

PROD 3 : Product governance: Section 3.2 : Manufacture of products
MiFID

(2) whether the design of the financial instrument is driven by features

that benefit the client and not by a business model which relies on
poor client outcomes to be profitable.

[Note: article 9(11) of the MiFID Delegated Directive]

3.2.11 R Manufacturers of financial instruments that are distributed through other 3

firms must determine the needs and characteristics of the clients for whom
the product is compatible based on:

(1) their theoretical knowledge of, and past experience with, the
financial instrument or similar financial instruments;

(2) the financial markets, and

(3) the needs, characteristics and objectives of potential end clients.

[Note: article 9(9) of the MiFID Delegated Directive]

Product testing
.....................................................................................................
3.2.12 R Manufacturers must undertake a scenario analysis of their financial
instruments to assess:

(1) the risks of poor outcomes for end clients posed by the financial
instrument; and

(2) in which circumstances those poor outcomes may occur.

[Note: article 9(10) MiFID Delegated Directive]

3.2.13 R In conducting the scenario analysis manufacturers must assess their financial
instruments under negative conditions covering what would happen if, for
example:

(1) the market environment deteriorated; or

(2) the manufacturer or a third party involved in manufacturing and/or

the functioning of the financial instrument experiences financial
difficulties or other counterparty risk materialises; or

(3) the financial instrument fails to become commercially viable; or

(4) demand for the financial instrument is much higher than anticipated,
putting a strain on the firm’s resources and/or on the market of the
underlying financial instrument.

[Note: article 9(10) MiFID Delegated Directive]

3.2.14 R Manufacturers must consider the charging structure proposed for each
financial instrument, including examination of the following:

(1) whether the financial instrument’s costs and charges are compatible
with the needs, objectives and characteristics of the target market;

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 PROD 3 : Product governance: Section 3.2 : Manufacture of products
MiFID

(2) whether the charges undermine the financial instrument’s return

expectations, such as where the costs or charges equal, exceed or
remove almost all the expected tax advantages linked to a financial
instrument; and

(3) whether the charging structure of the financial instrument is

appropriately transparent for the target market, such as that it does
3 not disguise charges or is too complex to understand.

[Note: article 9(12) of the MiFID Delegated Directive]

3.2.15 R Manufacturers must consider whether the financial instrument may represent
a threat to the orderly functioning, or to the stability, of financial markets
before deciding to proceed with the launch of the financial instrument.
[Note: article 9(4) of the MiFID Delegated Directive]

Information disclosure to distributors

.....................................................................................................
3.2.16 R A manufacturer must make available to any distributor of that financial
instrument:

(1) all appropriate information on the financial instrument;

(2) all appropriate information on the product approval process;

(3) the identified target market of the financial instrument, including

information about the target market assessment undertaken;

(4) information about the appropriate channels for distribution of the

financial instrument;

and must ensure that the information is of an adequate standard to enable

distributors to understand and recommend or sell the financial instrument
properly.
[Note: article 16(3) of MiFID II and 9(13) of the MiFID Delegated Directive]

3.2.17 G When providing information to distributors, a manufacturer should make it

clear if that information is not intended for end client use.

3.2.18 G Manufacturers may consider, for example, with regard to each distribution
channel or type of distributor what information distributors of that type
already have, their likely level of knowledge and understanding, their
information needs and what form or medium would best meet those needs
(which could include discussions, written material or training as appropriate).

Review of financial instruments

.....................................................................................................
3.2.19 R (1) A manufacturer must regularly review the financial instruments it
manufactures taking into account any event that could materially
affect the potential risk to the identified target market.

(2) In doing so, a manufacturer must assess for each financial instrument
at least the following:

PROD 3/6 [Link] ■ Release 33 ● Feb 2024

PROD 3 : Product governance: Section 3.2 : Manufacture of products
MiFID

(a) whether the financial instrument remains consistent with the

needs, characteristics and objectives of the identified target
market;
(b) whether the intended distribution strategy remains appropriate;
(c) whether the financial instrument is being distributed to the
target market; and
3
(d) whether the financial instrument is reaching clients for whose
needs, characteristics and objectives the financial instrument is
not compatible.
[Note: article 16(3) of MiFID II and article 9(14) of the MiFID Delegated
Directive]

3.2.20 G In carrying out the reviews in ■ PROD 3.2.19R manufacturers should collect
and analyse appropriate management information to detect patterns in
distribution as compared with the planned target market in order to assess
the performance of the distribution channels through which a financial
instrument is being distributed.

3.2.21 G (1) When reviewing the financial instruments it manufactures, a firm

should communicate to the end client contractual “breakpoints” such
as the end of a long tie-in period that may have a material impact on
the end client that the end client cannot reasonably be expected to
recall or know about already.

(2) If the manufacturer does not know the identity of the end client, it
should communicate any contractual breakpoints to the distributor.

3.2.22 R Manufacturers must:

(1) review financial instruments prior to any further issue or re-launch if

they are aware of any event that could materially affect the potential
risk to clients; and

(2) identify crucial events that would affect the potential risk or return
expectations of the financial instrument.

3.2.23 G Crucial events that would affect the potential risk or return expectations of
the financial instrument include:

(1) the crossing of a threshold that will affect the return profile of the
financial instrument; or

(2) the solvency of certain issuers whose securities and guarantees may
impact the performance of the financial instrument.

3.2.24 R When a crucial event affecting the potential risk or return expectation of the
financial instrument occurs, a manufacturer must take appropriate action,
which may consist of:

(1) the provision of any relevant information on the event and its
consequences on the financial instrument to the clients or distributors

■ Release 33 ● Feb 2024 [Link] PROD 3/7

 PROD 3 : Product governance: Section 3.2 : Manufacture of products
MiFID

of the financial instrument if the manufacturer does not offer or sell

the financial instrument directly to the clients;

(2) changing the product approval process;

(3) stopping further issuance of the financial instrument;

3 (4) changing the financial instrument to avoid unfair contract terms;

(5) considering whether the sales channels through which the financial
instrument is sold are appropriate where the manufacturer becomes
aware that the financial instrument is not being sold as envisaged;

(6) contacting the distributor to discuss a modification of the distribution

process;

(7) terminating the relationship with the distributor; or

(8) informing the FCA.

3.2.25 R Manufacturers must review financial instruments at regular intervals to assess

whether they function as intended.

3.2.26 R Manufacturers must determine how regularly to review their financial

instruments based on relevant factors including factors linked to the
complexity or the innovative nature of the investment strategies pursued.
[Note: article 9(15) of the MiFID Delegated Directive]

Conflicts of interest
.....................................................................................................
3.2.27 R Manufacturers must establish, implement and maintain procedures and
measures to ensure the manufacture of financial instruments complies with
the requirements on proper management of conflicts of interest (see
■ SYSC 10.1.7R), including remuneration.

3.2.28 R Manufacturers must ensure that the design of each financial instrument,
including its features, does not:

(1) adversely affect end clients; or

(2) lead to problems with market integrity by enabling the firm to

mitigate and/or dispose of its own risks or exposure to the underlying
assets of the product where the firm already holds the underlying
assets on own account.

[Note: article 9(2) of the MiFID Delegated Directive]

3.2.29 R Each time a financial instrument is manufactured manufacturers must

analyse potential conflicts of interests.

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PROD 3 : Product governance: Section 3.2 : Manufacture of products
MiFID

3.2.30 R In analysing potential conflicts of interest manufacturers must assess whether

the financial instrument creates a situation where end clients may be
adversely affected if end clients take:

(1) an exposure opposite to the one previously held by the manufacturer

itself; or

(2) an exposure opposite to the one that the manufacturer wants to hold 3
after the sale of the product.

[Note: article 9(3) of the MiFID Delegated Directive]

Oversight and training requirements

.....................................................................................................
3.2.31 R Manufacturers must ensure that their management bodies have effective
control over their product governance process.

3.2.32 R The development and periodic review of product governance arrangements

must be monitored by the person allocated the compliance oversight
function of a firm in order to detect any risk of failure by the manufacturer
to comply with applicable provisions of PROD.
[Note: article 9(6) and article 9(7) of the MiFID Delegated Directive]

3.2.33 R All relevant staff involved in the manufacturing of financial instruments must
possess the necessary expertise to understand the characteristics and risks of
the financial instruments they intend to manufacture.
[Note: article 9(5) of the MiFID Delegated Directive]

3.2.34 G Firms should have regard to ■ SYSC 5.1, and in particular ■ SYSC 5.1.5AB R,
when considering whether their relevant staff have the necessary expertise.

Compliance reports
.....................................................................................................
3.2.35 R Compliance reports to the management body must include information
about the financial instruments that the firm has manufactured, including
information on the distribution strategy.

3.2.36 R Manufacturers must make the compliance reports available to the FCA on
request.
[Note: article 9(6) MiFID Delegated Directive]

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 PROD 3 : Product governance: Section 3.3 : Distribution of products and
MiFID investment services

3.3 Distribution of products and

investment services

General
.....................................................................................................
3.3.1 R A distributor must:

(1) understand the financial instruments it distributes to clients;

(2) assess the compatibility of the financial instruments with the needs of
the clients to whom it distributes investment services, taking into
account the manufacturer’s identified target market of end clients;
and

(3) ensure that financial instruments are distributed only when this is in
the best interests of the client (see ■ COBS 2.1.1R(1)).

[Note: article 24(2) of MiFID]

3.3.2 G A distributor should consider what impact the selection of a given

manufacturer could have on the end client in terms of charges or the
financial strength of the manufacturer, or possibly, where information is
available to the distributor, how efficiently and reliably the manufacturer
will deal with the distributor or end client at the point of sale (or
subsequently, such as when queries/complaints arise, claims are made, or a
financial instrument reaches maturity).

3.3.2A G A distributor is reminded of its obligations under ■ ESG 4.1.16R to ■ ESG 4.1.19R
in meeting its obligations under ■ PROD 3.3.1R.

Obtaining information from manufacturers

.....................................................................................................
3.3.3 R Distributors must obtain from manufacturers subject to ■ PROD 3.2
information to gain the necessary understanding and knowledge of the
financial instruments they intend to distribute in order to ensure that the
financial instruments will be distributed in accordance with the needs,
characteristics and objectives of the target market.
[Note: article 16(3) MiFID and article 10(2) MiFID Delegated Directive]

3.3.4 G In ensuring that they have obtained sufficient information about the
financial instruments they distribute and in ensuring they understand the
financial instruments or investment services distributed, distributors:

(1) should consider whether they understand the materials provided by

the manufacturer or distributor earlier in the sales chain;

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(2) should ask the manufacturer to supply additional information or

training where this seems necessary to understand the financial
instrument or investment service adequately;

(3) should not distribute the financial instrument or investment service if

they do not understand it sufficiently; and

(4) when providing information to another distributor in a distribution 3

chain, should consider how the further distributor will use the
information, such as whether it will be given to end clients. Firms
should consider what information the further distributor requires and
the likely level of knowledge and understanding of the further
distributor and what medium may suit it best for the transmission of
information.

Distributing financial instruments manufactured by firms to

whom PROD 3.2 does not apply including third country firms
.....................................................................................................
3.3.5 R (1) Distributors must take all reasonable steps to comply with ■ PROD 3.3
when distributing financial instruments manufactured by any firm to
which product governance requirements in ■ PROD 3.2 do not apply.

(2) As part of this, distributors must put in place effective arrangements

to ensure that they obtain sufficient, adequate and reliable
information from the manufacturer about the financial instruments
to ensure that they will be distributed in accordance with the
characteristics, objectives and needs of the target market.

(3) This rule applies to financial instruments sold on either the primary or
secondary market.

3.3.6 R The obligation to obtain adequate and reliable information applies

proportionately depending on:

(1) the degree to which publicly available information is obtainable; and

(2) the complexity of the financial instrument.

[Note: articles 10(1) and 10(2) of the MiFID Delegated Directive)

3.3.7 R Where information relevant to the obligation in ■ PROD 3.3.5R is not publicly
available, distributors must take all reasonable steps to obtain such relevant
information from the manufacturer or its agent.

3.3.8 G Acceptable publicly available information is information which is clear,

reliable and produced to meet regulatory requirements, such as disclosure
requirements under the transparency rules or the Prospectus Regulation.
[Note: article 10(2) of the MiFID Delegated Directive]

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 PROD 3 : Product governance: Section 3.3 : Distribution of products and
MiFID investment services

Target market and distribution strategy

.....................................................................................................
3.3.9 R Distributors must determine the target market for the respective financial
instrument, even if the target market was not defined by the manufacturer.
[Note: article 10(1) of the MiFID Delegated Directive]

3 3.3.10 R Distributors must identify the target market and their distribution strategy
using:

(1) the information obtained from manufacturers; and

(2) information they have on their own clients.

3.3.11 G In identifying the target market and creating a distribution strategy,

distributors should consider:

(1) the nature of the financial instruments to be offered or

recommended and how they fit with end clients’ needs and risk
appetite;

(2) the impact of charges on end clients;

(3) the financial strength of the manufacturer; and

(4) where information is available on the manufacturer’s processes, how

efficiently and reliably the manufacturer will deal with the end client
at the point of sale or subsequently, such as when complaints arise,
claims are made or the financial instrument reaches maturity.

3.3.12 G The target market identified by distributors for each financial instrument
should be identified at a sufficiently granular level.

3.3.13 G Where a distributor is part of a distribution chain, the information referred

to in ■ PROD 3.3.10R(2) should include information on the intended end client.

3.3.14 R Where a firm acts both as a manufacturer and a distributor, only one target
market assessment is required.
[Note: article 10(2) of the MiFID Delegated Directive]

3.3.15 R (1) Distributors must have in place adequate product governance

arrangements to ensure that:
(a) the financial instruments and investment services they intend to
distribute are compatible with the needs, characteristics and
objectives of the identified target market; and
(b) the intended distribution strategy is consistent with the identified
target market.

(2) Distributors must appropriately identify and assess the circumstances

and needs of the clients they intend to focus on to ensure that their

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MiFID investment services

clients’ interests are not compromised as a result of commercial or

funding pressures.

(3) Distributors must identify any groups of end clients for whose needs,
characteristics and objectives the financial instrument or investment
service is not compatible.

[Note: article 10(2) of the MiFID Delegated Directive] 3

3.3.16 R Distributors must periodically review their product governance arrangements

under ■ PROD 3.3.15R and must take appropriate actions where necessary to
ensure they remain robust and fit for their purpose.
[Note: article 16(3) of MiFID and article 10(4) of the MiFID Delegated
Directive]

3.3.17 G In the design of investment services, to help clients make an informed

investment decision, firms should consider the support clients need before
they reach the product selection part of the process.

3.3.18 R Distributors must have in place procedures and measures to ensure that
when deciding the range of financial instruments and investment services to
be distributed, and the target market, all applicable rules are complied with,
including but not limited to:

(1) disclosure (see ■ COBS 4 and ■ COBS 14.3A);

(2) suitability (see ■ COBS 9A);

(3) appropriateness (see ■ COBS 10A);

(4) inducements (see ■ COBS 2.3A); and

(5) conflicts of interest (see ■ SYSC 10.1).

3.3.19 G Distributors should take particular care to ensure compliance with

■ PROD 3.3.18R when they intend to distribute new financial instruments or
there are variations to the investment services they provide.
[Note: article 10(3) of the MiFID Delegated Directive]

Oversight and training requirements

.....................................................................................................
3.3.20 R The development and periodic review of product governance arrangements
must be monitored by the person allocated the compliance oversight
function of a firm in order to detect any risk of failure by the distributor to
comply with applicable provisions of PROD.
[Note: article 10(6) of the MiFID Delegated Directive]

3.3.21 R The management body of a distributor must have effective control over the
firm’s product governance process to determine:

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 PROD 3 : Product governance: Section 3.3 : Distribution of products and
MiFID investment services

(1) the range of financial instruments the firm offers or recommends;

and

(2) the investment services provided to the respective target markets.

[Note: article 10(8) of the MiFID Delegated Directive]

3
3.3.22 R All relevant staff must possess the necessary expertise to understand:

(1) the characteristics and risks of the financial instruments that the firm
intends to distribute;

(2) the investment services provided by the firm; and

(3) the needs, characteristics and objectives of the identified target

market.

[Note: article 10(7) of the MiFID Delegated Directive]

3.3.23 G Firms should have regard to ■ SYSC 5.1, and in particular ■ SYSC 5.1.5AB R,
when considering whether their relevant staff have the necessary expertise.

Compliance reports
.....................................................................................................
3.3.24 R Compliance reports to the management body must include information
about the financial instruments distributed by the firm and the investment
services provided.

3.3.25 R A distributor shall make the compliance reports available to the FCA on
request.
[Note: article 10(8) of the MiFID Delegated Directive]

Post-sale review
.....................................................................................................
3.3.26 R Distributors must regularly review the financial instruments they distribute
and the investment services they provide, taking into account any event that
could materially affect the potential risk to the identified target market.

3.3.27 R In carrying out the review in ■ PROD 3.3.26R, distributors must assess at least:

(1) whether the financial instrument or investment service remains

consistent with the needs, characteristics and objectives of the
identified target market; and

(2) whether the intended distribution strategy remains appropriate.

3.3.28 R If a distributor becomes aware that it has wrongly identified the target
market for a specific financial instrument or investment service, or the
financial instrument or investment service no longer meets the circumstances
of the identified target market, it must take appropriate steps, including at
least:

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(1) reconsidering the target market; and/or

(2) updating its product governance arrangements.

3.3.29 G A distributor may need to take action under ■ PROD 3.3.28R in circumstances
where the financial instrument becomes very illiquid or very volatile due to
market changes. 3
[Note: article 16(3) of MiFID and article 10(5) of the MiFID Delegated
Directive]

Information sharing
.....................................................................................................
3.3.30 R To support the reviews carried out by manufacturers under ■ PROD 3.2.19R to
■ PROD 3.2.26R, a distributor must provide to the manufacturer of each
financial instrument it distributes:

(1) information on sales; and

(2) where appropriate, information on the reviews carried out under

■ PROD 3.3.26R to ■ PROD 3.3.28R.

3.3.31 G (1) Information on sales should include information on any sales made
outside the target market.

(2) In complying with ■ PROD 3.3.30R it is not necessary to report every

sale to the manufacturer. Distributors should provide the data
necessary for the manufacturer to review the financial instrument and
check that it remains consistent with the needs, characteristics and
objectives of the target market defined by the manufacturer.
Relevant information could include:
(a) summary information of the types of clients;
(b) a summary of complaints received; and
(c) responses from clients to questions suggested by the
manufacturer for the purposes of obtaining feedback from a
client sample.

(3) In determining when providing information on the reviews carried

out under ■ PROD 3.3.26R to ■ PROD3.3.28R is appropriate, a distributor
should have regard to the requirements on the manufacturer in
■ PROD 3.2. Information on the reviews should be shared if the
manufacturer requests it.

[Note: article 10(9) of and recital 20 to the MiFID Delegated Directive]

Responsibilities in chains of distributors

.....................................................................................................
3.3.32 R (1) A firm which distributes financial instruments or investment services
to end clients is responsible for ensuring that the obligations in this
chapter are met in respect of any financial instrument or investment
service it distributes to an end client.

(2) A firm which distributes financial instruments to clients which are not
end clients must, in addition to complying with the rules in this

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 PROD 3 : Product governance: Section 3.3 : Distribution of products and
MiFID investment services

chapter, consider if they are also undertaking a manufacturing role

and, if they are, also apply ■ PROD 3.2.

3.3.33 R A distributor which distributes financial instruments to other distributors

must:

3 (1) ensure that relevant product information is passed from the

manufacturer to the final distributor in the chain; and

(2) if the manufacturer requires information on product sales in order to

comply with its obligations under ■ PROD 3.2, enable them to obtain
it.

[Note: article 10(10) of the MiFID Delegated Directive]

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 Product governance: IDD and pathway investments

Chapter 4

Product governance: IDD and

pathway investments

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 PROD 4 : Product governance: Section 4.1 : General
IDD and pathway investments

4.1 General

Other requirements under the IDD

.....................................................................................................
4.1.1 R This chapter does not affect the application of other requirements in the FCA
Handbook applying to firms in relation to their insurance distribution
activities including but not limited to:

(1) disclosure (■ ICOBS 2.2, ■ ICOBS 6.1, ■ COBS 4 and ■ COBS 14.2);

(2) suitability (■ COBS 9 or ■ COBS 9A);

(3) appropriateness (■ COBS 10A);

(4) identification and management of conflicts of interest (■ SYSC 10.1 for

intermediaries or ■ SYSC 3.3 for insurers); and

(5) inducements (■ COBS 2.3A).

[Note: article 25(3) of the IDD]

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IDD and pathway investments products

4.2 Manufacture of insurance products

Product governance arrangements

.....................................................................................................
4.2.1 R A firm which manufactures any insurance product must maintain, operate
and review a process for the approval of:

(1) each insurance product; and

(2) significant adaptations of an existing insurance product,

in each case before it is marketed or distributed to customers.

[Note: first subparagraph of article 25(1) of the IDD]

4.2.1A G For the purposes of ■ PROD 4.2:

(1) whether a proposed change to the product would be a ‘significant

adaptation’ should include consideration of the potential impact the
adaptation may have on an existing or potential customer (when
compared to the unadapted version of the product);

(2) a ‘significant adaptation’ in relation to a non-investment insurance

product may include, but is not restricted to, a proposed change to
the insurance coverage, costs, exclusions, excesses, limits or conditions
and any other significant change to the terms and conditions.

4.2.2 R The product approval process referred to in ■ PROD 4.2.1R must be

proportionate and appropriate to the nature of the insurance product.
[Note: second subparagraph of article 25(1) of the IDD]

4.2.3 G Manufacturers should take into account the following when considering
whether the product approval process is proportionate and appropriate:

(1) the complexity of the insurance product;

(2) the degree to which publicly available information can be obtained;

(3) the nature of the insurance product and the risk of consumer
detriment related to it;

(4) the characteristics of the target market; and

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 PROD 4 : Product governance: Section 4.2 : Manufacture of insurance
IDD and pathway investments products

(5) the scale and complexity of the relevant business of the manufacturer
or distributor.

[Note: recital 2 to the IDD POG Regulation]

4.2.3A G In addition to, and/or by way of elaboration of, the factors set out in
■ PROD 4.2.3G, for a non-investment insurance product a firm should take
into account:

4 (1) the potential risk, and possible levels, of harm to customers if the
product design is flawed, in particular, due to the potential scale of
harm if the product is intended for a wide target market;

(2) the nature of the cover that the product is intended to provide;

(3) whether the distribution arrangements could mean customers are at a

greater risk of not receiving fair value from the insurance product, for
example where:
(a) the insurance product will be distributed with additional
products;
(b) where the insurance product will be distributed on an ancillary
basis to another product; or
(c) there is complexity in the distribution arrangements including the
use of multiple parties in the distribution chain or reliance on
persons not regulated under FSMA when selling the insurance
product;

(4) the nature and complexity of the firm’s existing or intended customer
base, for example whether it includes or is likely to include;
(a) different types of customers with varying characteristics including
in relation to their understanding of financial matters;
(b) a significant number of vulnerable customers;
(c) a significant number of customers of long tenure;

(5) any particularly notable features of, or relating to, existing products
(including how it has been distributed).

4.2.4 G For the purposes of ■ PROD 4.2.2R proportionality means that the product
approval process should be relatively simple for straightforward and non-
complex products that are compatible with the needs and characteristics of
the mass retail market. On the other hand, in the case of more complex
products with a higher risk of consumer detriment more exacting measures
should be required.
[Note: recital 2 to the IDD POG Regulation]

4.2.4A G (1) In relation to a non-investment insurance product, ■ PROD 4.2.2R does

not allow a firm to assume a simple product approval process will be
appropriate for a product intended for a mass retail market even if
the product and/or distribution arrangements are straightforward and
not complex. For example, the potential risks and levels of harm
which could result even from a straightforward and non-complex

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IDD and pathway investments products

product, with simple distribution arrangements, intended for the

mass market could mean that more exacting measures are required.

(2) An example of a straightforward and non-complex product could be

cover for a single item (such as mobile phone insurance), or in
relation to a single risk (such as ticket cancellation insurance), with
straightforward distribution arrangements. However, there could be
potential risks of such a product not providing fair value and
therefore potentially leading to significant levels of harm. Firms
should ensure the product approval process has the necessary
measures to identify and mitigate any potential risks and harms. 4

Product approval process

.....................................................................................................
4.2.5 UK 4(1)Manufacturers shall maintain, operate and review a product approval
process for newly developed insurance products and for significant
adaptations of existing insurance products. That process shall contain
measures and procedures for designing, monitoring, reviewing and
distributing insurance products, as well as for corrective action for insurance
products that are detrimental to customers. The measures and procedures
shall be proportionate to the level of complexity and the risks related to the
products as well as the nature, scale and complexity of the relevant business
of the manufacturer.
[Note: article 4(1) of the IDD POG Regulation]

4.2.5A R For a non-investment insurance product, a firm must ensure a product

approval process has all necessary measures and procedures for identifying
whether the product is, or remains, appropriate to be marketed or
distributed to customers in light of the requirements in ■ PROD 4.2.14A (Fair
value for non-investment insurance products: individual insurance product
and packages) to ■ PROD 4.2.14SR (Fair value for non-investment insurance
products: additional provisions).

4.2.6 UK 4(2)The product approval process shall be set out in a written document
(“product oversight and governance policy”), which shall be made available
to the relevant staff.
[Note: article 4 (2) of the IDD POG Regulation]

4.2.7 UK 9Relevant actions taken by manufacturers in relation to their product

approval process shall be duly documented, kept for audit purposes and
made available to the Financial Conduct Authority upon request.
[Note: article 9 of the IDD POG Regulation]

4.2.8 UK 4(3)The product approval process shall

(a)ensure that the design of insurance products:

(i)takes into account the objectives, interests and characteristics
of customers;
(ii)does not adversely affect customers;
(iii)prevents or mitigates customer detriment;

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 PROD 4 : Product governance: Section 4.2 : Manufacture of insurance
IDD and pathway investments products

(b)support a proper management of conflicts of interest.

[Note: article 4(3) of the IDD POG Regulation]

4.2.9 UK 4(4)The manufacturers’ body or structure responsible for the manufacturing

of insurance products shall:

(a)endorse and be ultimately responsible for establishing,

implementing and reviewing the product approval process;
4
(b)continuously verify internal compliance with that process.

[Note: article 4(4) of the IDD POG Regulation]

4.2.10 UK 5(4)Manufacturers shall ensure that staff involved in designing and

manufacturing insurance products has the necessary skills, knowledge and
expertise to properly understand the insurance products sold and the
interests, objectives and characteristics of the customers belonging to the
target market.
[Note: article 5(4) of the IDD POG Regulation]

4.2.11 UK 4(5)Manufacturers designating a third party to design products on their

behalf shall remain fully responsible for compliance with the product
approval process.
[Note: article 4(5) of the IDD POG Regulation]

4.2.12 UK 4(6)Manufacturers shall regularly review their product approval process to

ensure that that process is still valid and up to date. They shall amend the
product approval process where necessary
[Note: article 4(6) of the IDD POG Regulation]

Manufacture by more than one firm

.....................................................................................................
4.2.13 UK 3(4)An insurance intermediary and an insurance undertaking that are both
manufacturers within the meaning of Article 2 of this Delegated Regulation,
shall sign a written agreement which specifies their collaboration to comply
with the requirements for manufacturers referred to in [■ PROD 4.2.1R,
■ PROD 4.2.2R, ■ PROD 4.2.29R, ■ PROD 4.2.33R and ■ PROD 4.2.34R] the
procedures through which they shall agree on the identification of the
target market and their respective roles in the product approval process.
[Note: article 3(4) of the IDD POG Regulation]

4.2.14 R In circumstances other than ■ PROD 4.2.13UK, when firms collaborate to

manufacture an insurance product, they must outline their mutual
responsibilities in a written agreement.

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Fair value for non-investment insurance products: individual

insurance product and packages
.....................................................................................................
4.2.14A R For a non-investment insurance product, a firm must ensure that the product
approval process identifies whether the product provides fair value to
customers in the target market including whether it will continue to do so
for a reasonably foreseeable period (including following renewal).

4.2.14B R (1) Where a non-investment insurance product is intended to be

distributed with one or more additional products, a firm must identify 4
whether:
(a) each component product; and
(b) the package as a whole,
will provide fair value to the customer including that it will continue
to do so for a reasonably foreseeable period (including following
renewal).

(2) The assessment referred to in (1) must include (but is not limited to)
consideration of:
(a) the value of the core insurance product;
(b) the value of any additional products; and
(c) the overall price of the package to the customer, taking into
account the proposed distribution arrangements.

(3) A firm is not required to assess the value of a component product

under (1) where the component is a non-investment insurance
product for which the firm is not a manufacturer.

Fair value for non-investment insurance products: record

keeping and steps following value assessment
.....................................................................................................
4.2.14C R (1) A firm must:
(a) be able to clearly demonstrate how any non-investment insurance
product, additional product or package provides (and will provide
for a reasonably foreseeable period) fair value; and
(b) make and retain a record of the value assessment required by
■ PROD 4.2.14AR and, where relevant, ■ PROD 4.2.14BR.

(2) Where a firm is unable to both:

(a) identify; and
(b) clearly demonstrate,
that the insurance product and, where relevant, the package will
provide fair value, the firm must not market the product or permit
the product to be distributed (whether directly or through another
person), or must have ensured appropriate changes have been made
so that fair value will be provided.

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 PROD 4 : Product governance: Section 4.2 : Manufacture of insurance
IDD and pathway investments products

Fair value for non-investment insurance products: relevance

through the product approval process
.....................................................................................................
4.2.14D R A firm must consider the value considerations in ■ PROD 4.2.14AR and, where
relevant, ■ PROD 4.2.14BR throughout every stage of the product approval
process in ■ PROD 4 including, in particular, when:

(1) identifying the target market and the interests, needs, objectives and
characteristics of such customers (■ PROD 4.2.15R to ■ PROD 4.2.21AG);

4 (2) undertaking product testing (■ PROD 4.2.22UK to ■ PROD 4.2.26G); and

(3) selecting any distribution channel (■ PROD 4.2.27UK to

■ PROD 4.2.32DR).

Fair value for non-investment insurance products: meaning of

value
.....................................................................................................
4.2.14E R In ■ PROD 4, ‘value’ means the relationship between the overall price to the
customer and the quality of the product(s) and/or services provided. The
assessment of value must include consideration of at least the following:

(1) the nature of the product including the benefits that will be
provided, their quality, and any limitations (for example in the scope
of cover, exclusions, excesses or other features);

(2) the type and quality of services provided to customers;

(3) the expected total price to be paid by the customer when buying or
renewing the insurance product, and the elements that make up the
total price. This will need to include consideration of at least the
following:
(a) the pricing model used to calculate the risk premium:
(i) for the initial policy term; and
(ii) any future renewal;
(b) the overall cost to the firm of the insurance product (including
the underwriting and operating of the product) and, where
relevant, any other components of a package;
(c) the individual elements of the expected total price to be paid by
the customer including, but not limited to, the price paid for:
(i) the insurance product, including any additional features
which are part of the same non-investment insurance
contract;
(ii) any additional products, including retail premium finance,
offered alongside the insurance product;
(iii) the distribution arrangements, including the remuneration of
any relevant person in the distribution arrangements, and
including where the final decision on setting the price is
taken by another person);

(4) how the intended distribution arrangements support, and will not
adversely affect, the intended value of the product.

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4.2.14F R When considering the value of a non-investment insurance product under

■ PROD 4.2.14A and, where relevant, ■ PROD 4.2.14BR, a firm must not rely on
individual customers to consider whether they are making fair value
purchases in place of any part of the firm’s own assessment, in particular
where an insurance product is manufactured to be distributed either with
additional products or on an ancillary basis to another good or service.

4.2.14FA R (1) For the purposes of ■ PROD 4.2.14ER, and any rules in ■ PROD 4 that
rely on the meaning of ‘value’ in this rule, a firm is not required to
take into account product distribution arrangements that relate to 4
the distribution of the product to:
(a) a customer who is not habitually resident in the United Kingdom;
or
(b) where the state of the risk is not the United Kingdom

(2) The effect of (1) includes that a firm is not required to obtain and
assess information in relation to the distribution of the product to a
customer who is not habitually resident in the United Kingdom or
where the state of the risk is not the United Kingdom, from a
distributor based outside of the United Kingdom, including, in
particular, information pertaining to that person’s remuneration for
such distribution.

(3) A non-investment insurance product that is used for effecting a multi-

occupancy building insurance contract is excluded from (1).

Fair value for non-investment insurance products: guidance on

reasonably foreseeable period
.....................................................................................................
4.2.14G G (1) Firms will need to consider the matters in ■ PROD 4.2.14ER and
■ PROD 4.2.14ME to identify if there is fair value both for the initial
term of a non-investment insurance product and renewals for a
reasonably foreseeable period. What may constitute a ‘reasonably
foreseeable period’ will depend on the type of the non-investment
insurance product (including the intended term of any policy and the
underlying risk) and the expected length of time a customer in the
target market will keep the product, including in particular where it
would be reasonably expected that a customer would renew the
product on a number of occasions.

(2) When considering whether a product will provide fair value for a
reasonably foreseeable period, a firm should consider at least:
(a) any expected changes to the total price a customer would pay
during the period that they hold the product (including at the
first or any subsequent renewal or any other point in time);
(b) any expected change to the insured risk over time, for example in
the nature, financial value or a customer’s usage of an underlying
good to which the insurance relates;
(c) whether the number of expected claims that may be made, or
financial value of any such claim, would be expected to change
over time due to the nature of the product, the customer’s needs
or any relevant features of the insured risk, for example:

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 PROD 4 : Product governance: Section 4.2 : Manufacture of insurance
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(i) as a result of expected depreciation in the value of the

insured asset;
(ii) where the customer’s need, or eligibility, for certain cover
may change including as a result of features identified in (b)
or where claims have been made;
(d) whether the total premiums expected to be paid over the length
of time a customer would hold the product would exceed the
benefits that could be received from claims for example due to
cover limits applying across the foreseeable period (taking into
4 account any deductions permitted by the contract such as any
relevant policy excess for such claims);
(e) whether the benefits offered by the policy at inception may not
be available at subsequent renewals, due to exclusions or claims
limits, without any commensurate reduction in the premium;
(f) whether customers could be discouraged from or be unable to
renew due to the level of ongoing premiums including increases
at renewal meaning they may not be receiving the full intended
benefits of the product (where these are intended to be spread
across the reasonably foreseeable period).

Fair value for non-investment insurance products: general

.....................................................................................................
4.2.14H G (1) When considering the costs of, or associated with, any distribution
arrangements, firms should consider the justification in value terms of
any difference between the risk price and the total price paid by the
customer including where the difference is mainly due to the costs
(including remuneration) of any person in the distribution
arrangements or where this is due to the combined costs (including
remuneration) of multiple parties involved in the distribution
arrangements.
(2) Where a firm identifies that an insurance product, package or
individual component has poor value or there is an unreasonable
relationship between either the cost to the firm and the price paid by
the customer, or the price paid by the customer and product quality
or service provided, the product or package will not be providing fair
value. However, a firm should not assume there is fair value simply
due to the absence of an unreasonable relationship in the costs or
where they identify an absence of poor value. Firms will need to
consider all relevant aspects of value in the particular context and
consider whether overall there is fair value provided.
(3) Where a non-investment insurance product has negligible, or no
obvious, benefit for the customer this will not be providing fair value
regardless of the price of the product. For example, the product will
not provide fair value where the cover under the non-investment
insurance contract is significantly limited, whether by exclusions or
limits on the amount that would be paid in settlement, meaning that
the customer is unlikely to be able to make a successful claim or
where the customer could conclude it is not in their interests to make
a claim due to the disproportionate time or effort which would be
required, compared to the claim settlement which would be
expected.
(4) When assessing whether a package provides fair value for the
purposes of ■ PROD 4.2.14BR, a firm will need to consider both the
components individually and the package as a whole to identify
whether there is fair value. This should include whether there is a risk

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that the individual components do not provide the same level of

value to the customer when combined in a package. For example,
where the package includes more than one non-investment insurance
product, a firm should consider the type and level of insurance cover
provided by each of these products and whether this would result in
duplicate insurance cover that could detrimentally affect the value of
the package.

Fair value for non-investment insurance products: retail

premium finance guidance
.....................................................................................................
4
4.2.14I G (1) Where the manufacturer will provide, or arrange for another firm to
provide, the option for customers to buy a non-investment insurance
product using retail premium finance, it will need to consider if the
additional costs of, or relating to, the retail premium finance have a
material detrimental effect on the value of the insurance product
when the two products are taken together.

(2) When assessing the value of any particular retail premium finance
under ■ PROD 4.2.14BR, a manufacturer should consider the
relationship between:
the total price a customer would pay (including the applicable
APR) for the retail premium finance; and
the quality of that retail premium finance including any relevant
factors and features. For example, any benefit that a customer
could have from using retail premium finance including the
ability to spread the cost of a non-investment insurance contract
instead of paying up front, taking into account the higher
overall price the customer will have to pay.

Fair value for non-investment insurance products: information

to be used
.....................................................................................................
4.2.14J R (1) When assessing value, a firm must use all necessary and appropriate
data and information available to it.

(2) For the purposes of (1) the data and information a firm should
consider using includes, but is not limited to:
(a) information available to the firm internally including:
(i) customer research;
(ii) claims information such as handling times, frequency, severity
of claims costs (including total costs and average per claim),
claims ratios, rates of and reasons for claim acceptance/
declinature, both expected for the product and/or any actual
information from a comparable product; and
(iii) complaints data (including root cause analysis and handling
times), both expected for the product itself and/or any actual
information from a comparable product;
(b) public information or information obtainable by the firm from
external sources including analysis of similar insurance products
available from other firms and, where relevant, data published as
part of the FCA’s work on value measures in the general
insurance market;

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(c) information available to the firm specifically from persons in the

distribution arrangements, including:
(i) remuneration and its impact on the value of the product,
package or component part;
(ii) levels or quality of service provided by any person in the
distribution arrangements; and
(iii) any results of monitoring and oversight of the processes of
any persons in the distribution arrangement (for example,
4 call monitoring or file checks) including in relation to other
products that person distributes.

4.2.14K G The information that a firm will need to use for ■ PROD 4.2.14JR will depend
on the nature of the particular non-investment insurance product and
(where relevant) the package, the particular distribution arrangement(s), the
target market, the nature of any actual customer base, and any existing
information on customer outcomes (for example claims experiences,
outcomes of claims and complaints related data).

Fair value for non-investment insurance products: compliance

with fair value requirement
.....................................................................................................
4.2.14L G The following evidential provision provides examples of arrangements the
FCA considers will breach ■ PROD 4.2.14AR and, where relevant,
■ PROD 4.2.14BR.

4.2.14M E (1) A firm should not have a non-investment insurance product where
the difference between the risk price to the firm and the total price
paid by the customer bears no reasonable relationship to:
(a) the actual costs incurred by the firm or any another person
involved in the distribution arrangements;
(b) the quality of any benefits (including of the insurance product or
any additional products); or
(c) the costs or quality of any services provided in connection with
the insurance product or additional products, by the
manufacturer or any another person involved in the distribution
arrangements.

(2) A firm should not increase the price of an insurance product based
on:
(a) policies being subject to auto-renewal compared to policies that
are not subject to auto-renewal;
(b) the customer’s vulnerability or any protected characteristic(s)
(unless the firm is clearly permitted to rely on them under the
Equalities Act 2010); or
(c) where customers purchase the policy using retail premium
finance,
unless the firm has an objective and reasonable basis for making the
change.

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(3) A firm should not use an estimated final price to the customer to
assess value that does not represent the expected total price to the
customer including any additional products the firm expects to be
purchased by the customer. For example, where the firm is
responsible for providing or making available retail premium finance
(the costs of which will be part of the total price paid by the
customer).

(4) Contravention of any of (1) to (3) may be relied on as tending to

establish contravention of ■ PROD 4.2.14AR and, where relevant,
■ PROD 4.2.14BR. 4

Fair value for non-investment insurance products: distribution

arrangements
.....................................................................................................
4.2.14N R A firm must, as far as reasonably possible, ensure the distribution
arrangements for a non-investment insurance product avoid or minimise the
risk of negatively impacting the fair value of the insurance product or
package. This includes, but is not limited to:

(1) avoiding or reducing the risks arising from:

(a) any remuneration of a party, or parties, involved in the
distribution arrangements increasing, directly or indirectly, the
total price paid by the customer without adequate monitoring or
oversight of the nature, level and fairness justification for their
inclusion; or
(b) providing discretion to another person to set the final price, for
example through a net pricing arrangement, without adequate
monitoring or oversight of the final price paid by the customer;

(2) ensuring that appropriate arrangements will be in place to identify if

the actions of another person involved in the distribution
arrangements would adversely affect the value of the insurance
product or package; and

(3) reducing the scope for the overall effect of any distribution
arrangements to detrimentally affect the value of the products or
package including where the cumulative effects of the remuneration
of multiple parties unreasonably add to the overall price paid by the
customer.

4.2.14O G (1) Where the firm is considering the effects of the distribution
arrangements on value it should consider whether the additional
costs of any individual party in the arrangements that add to the
total price paid by the customer deliver any, or a proportional,
additional benefit. If not, firms should consider how they can be
satisfied that the arrangements are consistent with their obligations
to be able to clearly demonstrate fair value to the customer.

(2) A benefit that could be consistent with fair value might include
where the party’s inclusion in the distribution arrangements increases
access to the product for customers in the target market in a way that
is proportionate to the additional cost involved.

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4.2.14P R A firm must obtain from any person in the distribution arrangements all
necessary and relevant information to enable it to identify the remuneration
associated with the distribution arrangements to allow it to assess the
ongoing value of the product, including at least:

the type and amount of remuneration of each person in the

distribution arrangement where this is part of the premium or
otherwise paid directly by the customer, including in relation to
additional products (other than where this relates to another non-
investment insurance product for which the firm is not a
4 manufacturer);

an explanation of the services provided by each person in the

distribution arrangements; and

confirmation from any firm in the distribution arrangements that any

remuneration is consistent with their regulatory obligations including
■ SYSC 19F.2 (IDD remuneration incentives).

4.2.14Q G Firms should take into account what is necessary to satisfy PROD
requirements together with any wider legal obligations, for example,
competition law to which they are subject.

Fair value for non-investment insurance products: additional

provisions
.....................................................................................................
4.2.14R R A firm manufacturing a non-investment insurance product must ensure the
manufacture of an insurance product is driven by features that benefit the
customer and not by a business model which relies on poor customer
outcomes to be profitable.

4.2.14S R In relation to a non-investment insurance product to be sold in a package

with additional products, a firm must not set or increase the price of those
additional products to the customer in a way that detrimentally impacts the
package delivering fair value, including where this is done to minimise the
financial effects on the firm of reducing the price of, or making other
changes to, an insurance product as a result of the fair value assessment.

Target market
.....................................................................................................
4.2.15 R For each insurance product the product approval process must:

(1) specify an identified target market;

(2) ensure that all relevant risks to the identified target market are
assessed;

(3) ensure that the intended distribution strategy is consistent with the
identified target market; and

(4) require the manufacturer to take reasonable steps to ensure that the
insurance product is distributed to the identified target market.

[Note: third subparagraph of article 25(1) of the IDD]

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4.2.15A R The effect of ■ PROD 4.2.14AR and, where relevant, ■ PROD 4.2.14BR, when
taken together with ■ PROD 4.2.15R, is that a firm will need to be able to
show that a non-investment insurance product offers fair value to the
specified target market, taking into account in particular their needs,
objectives, interests and characteristics.

4.2.16 UK 5(1)The product approval process shall for each insurance product identify
the target market and the group of compatible customers. The target
market shall be identified at a sufficiently granular level, taking into account
the characteristics, risk profile, complexity and nature of the insurance 4
product.
[Note: article 5(1) of the IDD POG Regulation]

4.2.17 UK 5(2)Manufacturers may, in particular with regard to insurance-based

investment products, identify groups of customers for whose needs,
characteristics and objectives the insurance product is generally not
compatible.
[Note: article 5(2) of the IDD POG Regulation]

4.2.17A R (1) For a non-investment insurance product, when identifying the target
market a firm must identify if there are groups of customers for
whom the product or package would not provide the intended level
of value identified for ■ PROD 4.2.14AR and, where relevant,
■ PROD 4.2.14BR.

(2) A firm must take reasonable steps in its use of the distribution
arrangements to ensure the product is not distributed to any such
groups of customers identified in (1). The information required in
■ PROD 4.2.29R to be provided to distributors must include a clear
description of these customers.

4.2.18 UK 5(3)Manufacturers shall only design and market insurance products that are
compatible with the needs, characteristics and objectives of the customers
belonging to the target market. When assessing whether an insurance
product is compatible with a target market, manufacturers shall take into
account the level of information available to the customers belonging to
that target market and their financial literacy.
[Note: article 5(3) of the IDD POG Regulation]

4.2.19 G The identification of the target market by the manufacturer should be

understood as describing a group of customers sharing common
characteristics at an abstract and generalised level in order to enable the
manufacturer to adapt the features of the product to the needs,
characteristics and objectives of that group of customers.

4.2.20 G The identification of the target market should be distinguished from the
individual assessment at the point of sale to determine whether a product
meets the demands and needs and, where applicable, whether an insurance-

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based investment product is suitable or appropriate for the individual

customer.
[Note: recital 5 to the IDD POG Regulation]

4.2.21 G The level of granularity of the target market and the criteria used to define
the target market and determine the appropriate distribution strategy
should be relevant for the product and should make it possible to assess
which customers fall within the target market. For simpler, more common
4 products, the target market should be identified with less detail while for
more complicated products or less common products, the target market
should be identified with more detail taking into account the increased risk
of consumer detriment associated with such products.
[Note: recital 6 to the IDD POG Regulation]

4.2.21A G In relation to a non-investment insurance product, a firm should consider

whether the target market needs to be identified in more detail, even for a
simpler, more common product, where there is a material risk of customer
harm associated with it.

Product testing
.....................................................................................................
4.2.22 UK 6(1)Manufacturers shall test their insurance products appropriately, including
scenario analyses where relevant, before bringing that product to the market
or significantly adapting it, or in case the target market has significantly
changed. That product testing shall assess whether the insurance product
over its lifetime meets the identified needs, objectives and characteristics of
the target market. Manufacturers shall test their insurance products in a
qualitative manner and, depending on the type and nature of the insurance
product and the related risk of detriment to customers, quantitative manner.
[Note: article 6(1) of the IDD POG Regulation]

4.2.23 G For the purposes of ■ PROD 4.2.22UK, manufacturers should include

assessments of the performance and risk/reward profile of their insurance
product where appropriate.
[Note: recital 8 to the IDD POG Regulation]

4.2.24 UK 6(2)Manufacturers shall not bring insurance products to the market if the
results of the product testing show that the products do not meet the
identified needs, objectives and characteristics of the target market.
[Note: article 6(2) of the IDD POG Regulation]

4.2.25 R Manufacturers must consider the charging structure proposed for each
insurance product, including examination of the following:

(1) whether the costs and charges of the insurance product are
compatible with the needs, objectives and characteristics of the target
market;

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(2) where relevant, whether the charging structure of the insurance

product is appropriately transparent for the target market, such as
that it does not disguise charges or is too complex to understand; and

(3) where relevant, whether the charges undermine the return

expectations of the insurance product, such as where the costs or
charges equal, exceed or remove almost all the expected tax
advantages linked to a life policy.

4.2.26 G (1) ■ PROD 4.2.25R does not affect the manufacturer’s freedom to set 4
premiums.

(2) In relation to a non-investment insurance contract a firm should

consider whether, as a result of the charging structure it has put in
place, the overall cost for the customer is consistent with its
obligations under ■ PROD 4.2.14AR (and, where relevant,
■ PROD 4.2.14BR), the Principles and ICOBS.

(3) ■ PROD 4.2.25R should be read in light of a firm’s wider obligations

under the Handbook which impose specific restrictions or
requirements around what costs and charges may be permissible. For
example, the rules in ■ COBS 20.2 govern what may be charged to a
with-profits policy when considering its charging structure under
■ PROD 4.2.25R.

Distribution channels and information disclosure to

distributors
.....................................................................................................
4.2.27 UK 8(1)Manufacturers shall carefully select distribution channels that are
appropriate for the target market, thereby taking into account the particular
characteristics of the relevant insurance products.
[Note: article 8(1) of the IDD POG Regulation]

4.2.28 G To ensure appropriate information for customers, manufacturers should

select distributors that have the necessary knowledge, expertise and
competence to understand the features of an insurance product and the
identified target market.
[Note: recital 9 to the IDD POG Regulation]

4.2.29 R A firm which manufactures an insurance product, must make available to a

distributor:

(1) all appropriate information on the insurance product

(2) all appropriate information on the product approval process; and

(3) the identified target market of the insurance product.

[Note: fifth subparagraph of article 25(1) of the IDD]

4.2.29A G For a non-investment insurance product, the information required by

■ PROD 4.2.29R should include:

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 PROD 4 : Product governance: Section 4.2 : Manufacture of insurance
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(1) all appropriate information to enable the distributor to understand

the intended value of the insurance product established by the firm;

(2) any effect the distributor may have on the intended value that has
not been fully taken into account by the firm when assessing value,
and therefore which the distributor should take into account; and

(3) any type of customer for whom the insurance product is unlikely to
provide fair value.

4
4.2.30 UK 8(2)Manufacturers shall provide insurance distributors with all appropriate
information on the insurance products, the identified target market and the
suggested distribution strategy, including information on the main features
and characteristics of the insurance products, their risks and costs, including
implicit costs, and any circumstances which might cause a conflict of interest
to the detriment of the customer. That information shall be clear, complete
and up to date.
[Note: article 8(2) of the IDD POG Regulation]

4.2.31 UK 8(3)The information referred to in paragraph 2 shall enable the insurance

distributors to:

(a)understand the insurance products;

(b)comprehend the identified target market for the insurance

products;

(c)identify any customers for whom the insurance product is not

compatible with their needs, characteristics and objectives;

(d)carry out distribution activities for the relevant insurance products

in accordance with the best interests of their customers as prescribed
in [■ ICOBS 2.5-1R and ■ COBS 2.1.1R].

[Note: article 8(3) of the IDD POG Regulation]

4.2.32 R A manufacturer must make available to any distributor information

about the target market assessment.

The information made available under (1) must be of an adequate

standard to enable distributors to:
comprehend the identified target market for the insurance
products; and
be able to identify any customers for whom the insurance
product is not compatible with their needs, characteristics and
objectives.

A manufacturer is not required to disclose specific information

objectively considered to be commercially sensitive if the information
it does make available would still allow distributors to meet (2)(a)
and (b).

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Distribution channels: selecting channels for non-investment

insurance products
.....................................................................................................
4.2.32A R In relation to a non-investment insurance product, a firm must not use a
distribution channel unless it is able to demonstrate clearly that the channel
results in fair value to customers in the target market.

4.2.32B R In relation to a non-investment insurance product, whenever making a

change to the distribution arrangements a firm must:
4
obtain all necessary information from the distributor or any other
person who will be involved with the distribution arrangement,
including that set out in ■ PROD 4.2.14PR; and

identify whether the proposed change to the distribution

arrangements is consistent with the fair value requirement in
■ PROD 4.2.14AR and, where relevant, ■ PROD 4.2.14BR.

4.2.32C G For ■ PROD 4.2.32BR, a change to the distribution arrangements includes

adding a further distribution channel.

4.2.32D G For a non-investment insurance product sold on an ancillary basis to another

product or service, for example a motor vehicle, electrical good or a holiday,
a firm should consider whether the proposed distribution channel would be
appropriate in light of the risk that the customer’s focus is on the core
product rather than the insurance product.

Monitoring and review of insurance products

.....................................................................................................
4.2.33 R A firm must understand the insurance products it offers or markets.
[Note: fourth subparagraph of article 25(1) of the IDD]

4.2.34 R A firm must regularly review the insurance products it offers or markets
taking into account any event that could materially affect the potential risk
to the identified target market. In doing so, the firm must assess at least the
following:

(1) whether the insurance product remains consistent with the needs of
the identified target market;

(2) (in relation to a non-investment insurance product) whether the

insurance product remains consistent with the fair value assessment
required under ■ PROD 4.2.14AR and, where relevant, ■ PROD 4.2.14BR;
and

(3) whether the intended distribution strategy remains appropriate.

[Note: fourth subparagraph of article 25(1) of the IDD]

4.2.34A G ‘Offers’ and ‘markets’ in the requirements in ■ PROD 4.2.33R and

■ PROD 4.2.34R should be read to include ‘renews’ in relation to the renewal
of existing non-investment insurance products.

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4.2.34B R For a non-investment insurance product, a firm must undertake the regular
review required by ■ PROD 4.2.34R:

(1) every 12 months; or

(2) more frequently where the potential risk associated with the product
makes it appropriate to do so.

4.2.34C G For the purposes of ■ PROD 4.2.34BR, the factors that should be taken into
4 account when considering if more frequent reviews would be appropriate
include, but are not limited to:

(1) the nature and complexity of the product;

(2) the nature of the customer base, including whether there are
significant numbers of customers of long tenure and/or vulnerable
customers;

(3) any specific indicators seen in the firm’s assessment of the product’s
value to the customer;

(4) any indicators of customer harm potentially emerging from the

performance of the product (for example through claims and
complaints data); and

(5) the nature and type of distribution arrangements being used.

4.2.34D R A firm must obtain all necessary and relevant information in order to enable
it to properly understand and monitor a non-investment insurance product
including verification of the information in ■ PROD 4.2.14PR.

4.2.34E G When reviewing non-investment insurance products a firm may

group similar products together where this does not detrimentally
affect the firm’s ability to review each product appropriately. This
includes the need to review whether any individual product, and
where necessary a package, is providing fair value.

For the purposes (1) ‘similar products’ will be those products that are
intended to deliver similar cover and outcomes for customers where
the target markets are consistent.

A firm should consider the following factors when identifying

whether it is appropriate to group products together for review:
(a) the risk of customer harm for each individual product;
(b) the complexity of each product;
(c) the nature of the target market and existing customer base for
each product (including the extent to which this includes
vulnerable customers);
(d) any specific indicators seen in the assessment of value under
■ PROD 4.2.14AR, and where relevant ■ PROD 4.2.14BR which may
make it inconsistent to review that product alongside others;

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(e) any specific indicators of customer harm emerging from the

performance of each product; and
(f) the nature and type of distribution arrangements for each
product.

A firm will need to ensure that the grouping of any reviews does not
impair the firm’s ability to identify any risk that a product is not
delivering fair value or that there is any other issue which could give
rise to customer harm in relation to each individual product.
4
4.2.35 UK 7(1)Manufacturers shall continuously monitor and regularly review insurance
products they have brought to the market, to identify events that could
materially affect the main features, the risk coverage or the guarantees of
those products. They shall assess whether the insurance products remain
consistent with the needs, characteristics and objectives of the identified
target market and whether those products are distributed to the target
market or is reaching customers outside the target market.
[Note: article 7(1) of the IDD POG Regulation]

4.2.35A R (1) When reviewing a non-investment insurance product, a firm must

consider:
(a) whether the insurance product, and where relevant the package,
is providing the intended fair value to customers;
(b) any impact which the distribution arrangements are having on
the value including whether the distribution channels remain
appropriate; and
(c) whether the use of any retail premium finance arrangement
remains appropriate including whether when distributed in a
package with a non-investment insurance product it provides fair
value.

(2) A firm in (1) must:

(a) ensure that it has sufficient, good quality management
information; and
(b) use all appropriate and necessary data and information available
to it (whether it holds this information already, the information is
publicly available or it is able to obtain it from another person),
to enable it to consider and assess value including the value actually
being provided by the insurance product.

(3) The information in (2) that a firm needs to consider whether to use
includes, but is not limited to:
(a) information available to the firm internally including:
(i) customer research;
(ii) claims information (such as handling times, frequency, rates
of and reasons for claim acceptance and declinature, severity
of claims costs (including total costs and average per claim)
and claims ratios); and
(iii) complaints data (including root cause analysis and handling
times);

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 PROD 4 : Product governance: Section 4.2 : Manufacture of insurance
IDD and pathway investments products

(b) public information or information obtainable by the firm from

external sources including analysis of similar insurance products
available from other firms and, where relevant, data published as
part of the FCA’s work on value measures in the general
insurance market;
(c) information available to the firm (including what it would be
reasonably able to obtain) in relation to any distribution
arrangements through which the product is distributed,
including:
4 (i) remuneration information;
(ii) levels and quality of service provided by the distributor;
(iii) ongoing monitoring and oversight reports relating to the
distributor’s processes, for example call monitoring or file
reviews.

4.2.35B G The information that a firm will need to use for ■ PROD 4.2.35AR(2) will
depend on the nature of the non-investment insurance product, (where
relevant) the package, the particular distribution arrangement(s), the target
market, the nature of the actual customer base, and the firm’s existing
information on customer outcomes (for example claims experiences,
outcomes of claims and complaints related data).

4.2.35C G For ■ PROD 4.2.35AR(1), a firm should identify whether there is a risk to it
continuing to provide fair value where there is a material change in the
relationship between the price to the customer and the actual costs to the
firm or another party involved in the ongoing service/distribution of the
product.

4.2.36 UK 7(2)Manufacturers shall determine the appropriate intervals for the regular
review of their insurance products, thereby taking into account the size,
scale, contractual duration and complexity of those insurance products, their
respective distribution channels, and any relevant external factors such as
changes to the applicable legal rules, technological developments, or
changes to the market situation.
[Note: article 7(2) of the IDD POG Regulation]

4.2.36A G In relation to a non-investment insurance product, when identifying the

appropriate intervals for regular review, firms will need to consider the
requirement in ■ PROD 4.2.34BR and also whether any event has happened or
any issue has arisen requiring the insurance product to be reviewed outside
of the minimum review period.

4.2.36B R For the purposes of showing the requirements in ■ PROD 4.2.1R and
■ PROD 4.2.5UK are met, where a firm makes a change to a non-investment
insurance product it must make and retain a record of:

(1) the assessment of whether that change would amount to a significant

adaptation of the insurance product; and

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(2) where the assessment in (1) is that the change would not be a
significant adaptation, the reasons for that decision.

4.2.37 UK 7(3)Manufacturers that identify during the lifetime of an insurance product

any circumstances related to the insurance product that may adversely affect
the customer of that product shall take appropriate action to mitigate the
situation and prevent further occurrences of the detrimental event.
Manufacturers shall promptly inform concerned insurance distributors and
customers about the remedial action taken.
4
[Note: article 7(3) of the IDD POG Regulation]

4.2.37A R For a non-investment insurance product, the review process must:

(1) have the necessary measures to be able to identify if the insurance

product is not providing fair value; and

(2) provide that appropriate actions be taken:

(a) for the mitigation and any potential remediation of the harm to
existing customers; and
(b) to prevent harm to new customers.

4.2.37B G In relation to a non-investment insurance product, the actions firms may

need to take for the purposes of ■ PROD 4.2.37A include (and may involve a
combination of), but are not limited to:

making changes to the product (such as amending policy terms or

applying them more favourably to customers in the event of a claim);

offering existing customers the option to cancel the non-investment

insurance contract without additional cost (for example by waiving
cancellation fees or charges);

providing customers with a refund of the difference between the

premium paid for the non-investment insurance contract and the
premium for a fair value version of that product;

proposing alternative insurance products, whether offered by the

firm or another provider, to existing customers or distributors which
provide fair value and which would be compliant with other FCA
requirements, for example, ■ ICOBS 5.2 (Demands and needs); and

withdrawing the insurance product from continued marketing or

distribution.

4.2.37C G Where in the review required by ■ PROD 4.2.34R and ■ PROD 4.2.35UK a firm
identifies a breach of any rules in place at the time, it should consider what
may be necessary to provide appropriate mitigation and/or remediation of
the harm including whether redress should be made. The firm should contact
any affected customers where this is necessary to inform them of the issues
and of the actions being taken.

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 PROD 4 : Product governance: Section 4.2 : Manufacture of insurance
IDD and pathway investments products

4.2.38 UK 8(4)Manufacturers shall take appropriate steps to monitor that insurance

distributors act in accordance with the objectives of the manufacturers’
product approval process. They shall in particular verify on a regular basis
whether the insurance products are distributed on the identified target
market. That monitoring obligation shall not extend to the general
regulatory requirements with which insurance distributors have to comply
when carrying out insurance distribution activities for individual customers.
The monitoring activities shall be reasonable, taking into consideration the
characteristics and the legal framework of the respective distribution
channels.
4
[Note: article 8(4) of the IDD POG Regulation]

4.2.39 UK 8(5)Manufacturers considering that the distribution of their insurance

products is not in accordance with the objectives of their product approval
process shall take appropriate remedial action.
[Note: article 8(5) of the IDD POG Regulation]

4.2.39A R In relation to a non-investment insurance contract, where a firm identifies

that the distribution is detrimentally affecting the intended value of the
insurance product it must take appropriate remedial measures including, but
not limited to:

(1) amending the distribution arrangements, including ceasing to use

certain distributors or distribution channels;

(2) amending remuneration structures;

(3) withdrawing the insurance product from continued marketing or

distribution.

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IDD and pathway investments products

4.3 Distribution of insurance products

4.3.1 R Where a firm distributes insurance products which it does not manufacture it
must have in place adequate arrangements to obtain the information in
■ PROD 4.2.29R from the manufacturer.

[Note: sixth sub-paragraph of article 25(1) of the IDD]

4.3.2 R Where a firm distributes insurance products which it does not manufacture,
it must have in place adequate arrangements to understand:

(1) the characteristics of each insurance product; and

(2) the identified target market of each insurance product.

[Note: sixth sub-paragraph of article 25(1) of the IDD]

4.3.2A R In relation to a non-investment insurance product, the arrangements in

■ PROD 4.3.2R must enable the distributor to understand:

(1) the outcome of the value assessment required by ■ PROD 4.2.14AR and,
where relevant, ■ PROD 4.2.14BR; and

(2) any identified group of customers for whom the insurance product is
not expected to provide fair value.

4.3.3 R A distributor must take all reasonable steps to obtain the information in
■ PROD 4.2.29R when distributing insurance products manufactured by any
person to which product governance requirements in ■ PROD 4.2 or
requirements of the IDD POG Regulation do not apply.

4.3.4 G To comply with ■ PROD 4.3.2R, distributors should put in place effective
arrangements to ensure that they obtain sufficient, adequate and reliable
information from the manufacturer about the insurance products to ensure
that they will be distributed in accordance with the characteristics, objectives
and needs of the target market.

4.3.5 UK 10(1)Insurance distributors shall have in place product distribution

arrangements containing appropriate measures and procedures to obtain
from the manufacturer all appropriate information on the insurance
products they intend to offer to their customers and to fully comprehend
those insurance products, taking into account the level of complexity and the

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 PROD 4 : Product governance: Section 4.3 : Distribution of insurance
IDD and pathway investments products

risks related to the products as well as the nature, scale and complexity of
the relevant business of the distributor.
[Note: first sub-paragraph of article 10(1) of the IDD POG Regulation]

4.3.6 UK 10(2)The product distribution arrangements shall:

(a)aim to prevent and mitigate customer detriment;

4 (b)support a proper management of conflicts of interest;

(c)ensure that the objectives, interests and characteristics of

customers are duly taken into account.

[Note: article 10(2) of the IDD POG Regulation]

4.3.6A R In relation to a non-investment insurance product, the product

distribution arrangements in ■ PROD 4.3.2R must enable the
distributor to identify:
(a) the value that the insurance product is intended to provide to
the customer; and
(b) the impact that the distribution arrangements (including any
remuneration it, or another person in the distribution chain to
which it belongs, receives) has on the overall value of the
insurance product to the customer.

Any distribution strategy set up or applied by the distributor must be

consistent with the aim of providing fair value to the customer.

For the purposes of (1) and (2) a firm must consider at least the
following:
(a) the benefits the product is intended to provide to the customer;
(b) the characteristics, objectives, interests and needs of the target
market;
(c) the interaction between the price paid by the customer and the
extent and quality of any services the distributor (or any person
connected to it) provides;
(d) whether any remuneration it receives in relation to the insurance
product would result in the product ceasing to provide fair value
to the customer;
(e) any potential detrimental effect on the intended value where the
insurance product is to be distributed as part of a package with,
or as part of the same agreement which provides, another
product or service; and
(f) where the distribution strategy involves offering, or arranging for
the customer to be offered, retail premium finance, the firm must
ensure that, taking into account the costs (including any charges/
interest) of the retail premium finance, the customer does not
pay a price that means, if seen as a package, the customer will
not receive fair value.

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4.3.6B G (1) Where a distributor intends to distribute a non-investment insurance

product alongside:
(a) one or more other non-investment insurance products (whether
from the same or another manufacturer); or
(b) any other additional product,
then the distributor should be able to demonstrate these
arrangements are consistent with the aim of providing fair value to a
customer and any package does not have a detrimental effect on the
intended value of any non-investment insurance product. 4
(2) For the purposes of (1), where more than one non-investment
insurance product is part of a package, a distributor should consider
at least whether the products:
(a) have consistent target markets; and
(b) provide cover in respect of the same risk and subject matter
which could result in duplicate cover that could detrimentally
affect the intended value of each individual product.

(3) A distributor should ensure they have obtained, and taken account
of, all relevant information from a manufacturer in relation to any
non-investment insurance product in the package in order to
understand the value, the relevant target market and any other
relevant characteristic of that product.

(4) The arrangements a distributor is required to have in place under

■ PROD 4.3 are separate from the processes and arrangements the firm
should have in place at the point of sale, including to comply with
the customer’s best interests rule and to determine whether a product
being proposed is consistent with the demands and needs of a
particular customer.

4.3.6C G When assessing the impact that the distribution arrangements may have, a
distributor should consider the effects of any retail premium finance it offers
to customers including the relationship between:

(1) the total price a customer would pay for the retail premium finance
(including any charges for the credit whether in the APR or otherwise
and fees); and

(2) the quality of that retail premium finance including any relevant
factors and features. For example, any benefit that such a customer
could have from using retail premium finance, including the ability to
spread the cost of a non-investment insurance contract instead of
paying up front, taking into account the higher overall price the
customer will have to pay.

4.3.6D G The following evidential provision provides examples of arrangements the

FCA considers will breach ■ PROD 4.3.6AR.

4.3.6E E (1) A firm’s distribution arrangements including any distribution strategy

it sets up, should not result in:

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 PROD 4 : Product governance: Section 4.3 : Distribution of insurance
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(a) the firm receiving a level of remuneration which does not bear a
reasonable relationship to the firm’s actual costs, or their
contribution, level of involvement or the benefit added by them,
to the arrangements for the distribution of the product, including
where the firm provides little or no benefit beyond that which
the customer would receive if they obtained the insurance
product through another distribution channel;
(b) the firm having remuneration arrangements which give an
incentive to propose or recommend an insurance product which
4 either does not meet the customer’s needs (or not as well as
another product would) or is not in accordance with the
customer’s best interests rule;
(c) where the insurance product is distributed as part of a package,
the overall price of the package not bearing a reasonable
relationship to the overall benefits provided by the package; or
(d) the level of any remuneration (for which the firm is responsible
for setting) not being reasonably reflective of the costs actually
incurred.

(2) Contravention of any of (1) may be relied upon as tending to

establish contravention of ■ PROD 4.3.6AR.

4.3.6EA R For the purposes of ■ PROD 4.3.6AR and ■ PROD 4.3.6BR, a firm is not
required to take into account product distribution arrangements that
relate to the distribution of the product to:
a customer who is not habitually resident in the United
Kingdom; or
where the state of the risk is not the United Kingdom.

The effect of (1) includes that a firm is not required to assess the
impact of a person’s remuneration in relation to the distribution of
the product to a customer who is not habitually resident in the
United Kingdom, or where the state of the risk is not the United
Kingdom, when identifying the impact of the distribution
arrangements on the value being provided to the customer.

(3) A non-investment insurance product that is used for effecting a multi-

occupancy building insurance contract is excluded from (1).

4.3.7 UK 10(3)The product distribution arrangements shall ensure that the insurance
distributors obtain from the manufacturer the information to be
communicated under Article 8(2).
[Note: article 10(3) of the IDD POG Regulation]

4.3.8 UK 10(4)Any specific distribution strategy set up or applied by insurance

distributors shall be in accordance with the distribution strategy set up and
the target market identified by the manufacturer.
[Note: article 10(4) of the IDD POG Regulation]

4.3.9 UK 10(5)The insurance distributors’ body or structure responsible for insurance

distribution shall endorse and be ultimately responsible for establishing,

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implementing and reviewing the product distribution arrangements and

continuously verify internal compliance with those arrangements.
[Note: article 10(5) of the IDD POG Regulation]

4.3.10 UK 10(6)Insurance distributors shall regularly review their product distribution

arrangements to ensure that those arrangements are still valid and up to
date. They shall amend product distribution arrangements where
appropriate. Insurance distributors that have set up or apply a specific
distribution strategy shall, where appropriate, amend that strategy in view 4
of the outcome of the review of the product distribution arrangements.
When reviewing their product distribution arrangements, insurance
distributors shall verify that the insurance products are distributed to the
identified target market.
Insurance distributors shall determine the appropriate intervals for the
regular review of their product distribution arrangements, thereby taking
into account the size, scale and complexity of the different insurance
products involved. To support product reviews carried out by manufacturers,
insurance distributors shall upon request provide manufacturers with
relevant sales information, including, where appropriate, information on the
regular reviews of the product distribution arrangements.
[Note: article 10(6) of the IDD POG Regulation]

4.3.10A R A firm must review its product distribution arrangements in relation to a

non-investment insurance product at least every 12 months.

4.3.10B R For the purposes of ■ PROD 4.3.10UK, a distributor must provide on request to
a manufacturer of a non-investment insurance product:

(1) information on the distributor’s remuneration in connection with the

distribution of the insurance product;

(2) information on any ancillary product or service that the distributor

provides to the customer (including insurance add-ons, non-insurance
additional products and retail premium finance), which may affect
the manufacturer’s intended value of the insurance product; and

(3) confirmation that the distribution arrangements are consistent with

the obligations of the firm under the FCA Handbook including in
particular in ■ SYSC 10 (Conflicts of interest) and ■ SYSC 19F.2 (IDD
remuneration incentives).

4.3.11 UK 11Insurance distributors becoming aware that an insurance product is not in

line with the interests, objectives and characteristics of its identified target
market or becoming aware of other product-related circumstances that may
adversely affect the customer shall promptly inform the manufacturer and,
where appropriate, amend their distribution strategy for that insurance
product.
[Note: article 11 of the IDD POG Regulation]

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 PROD 4 : Product governance: Section 4.3 : Distribution of insurance
IDD and pathway investments products

4.3.11A R (1) For a non-investment insurance product, a distributor must take

appropriate remedial and mitigating action, including to amend its
product distribution arrangements, where it identifies:
(a) the insurance product (or, where relevant, the package) is not
providing fair value for customers; or
(b) any aspects of a product or package that may mean it does not
offer fair value; or
(c) the distribution arrangements including remuneration structures
4 may mean the customer is not being provided with fair value.

(2) The actions which the distributor takes for (1) must:
(a) aim to mitigate the situation and prevent further occurrences of
any possible harm to customers, including, where appropriate,
amending the distribution strategy for that product (and, where
relevant, the package); and
(b) include informing any relevant manufacturers promptly about
any concerns they have and any action the distributor is taking.

4.3.11B G For the purposes of ■ PROD 4.3.11AR the steps a distributor may need to take
include, but are not limited to:

(1) amending its remuneration structures;

(2) amending the distribution arrangements;

(3) improving the quality of, or ceasing, any service or benefits it

provides;

(4) where the failure to provide fair value is due to the costs or quality of
additional products, renegotiating the terms of the current
arrangements relating to the additional products, or selecting
alternative providers or distributors of them, in order to provide for a
fair outcome;

(5) ceasing to distribute certain insurance products (or where relevant,

packages), or ceasing to use certain distribution channels;

(6) contacting existing customers to inform them of the issues and of the
measures being taken to rectify them; and

(7) providing redress to customers.

4.3.12 G Manufacturers and distributors should take appropriate action in order to

avert the risk of consumer detriment when they consider that the insurance
product is not, or is no longer, aligned with the interests, objectives and
characteristics of the identified target market.
[Note: recital 12 to the IDD POG Regulation]

4.3.13 UK 12Relevant actions taken by insurance distributors in relation to their

product distribution arrangements shall be duly documented, kept for audit

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purposes and made available to the Financial Conduct Authority upon

request.
[Note: article 12 of the IDD POG Regulation]

4.3.14 UK 10(1)Insurance distributors shall set out the product distribution

arrangements in a written document and make it available to their relevant
staff.
[Note: second sub-paragraph of article 10(1) of the IDD POG Regulation]
4

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 PROD 4 : Product governance: Section 4.4 : Additional expectations for
IDD and pathway investments manufacturers and distributors of insurance
products

4.4 Additional expectations for

manufacturers and distributors of
insurance products

4.4.1 G In addition to ■ PROD 4.1, ■ PROD 4.2 and ■ PROD 4.3, firms should also
consider what needs to be done to comply with obligations found elsewhere
in the FCA Handbook, including under the Principles and in SYSC. In
considering this firms should consider any relevant guidance.

4.4.2 G ■ PROD 1.4.10G provides that, where ■ PROD 4 applies, a firm need not apply
the guidance in RPPD for matters covered by PROD, if that firm has complied
with ■ PROD 4. However, ■ PROD 4 and the IDD POG Regulation does not
cover all parts of the RPPD or wider obligations in the FCA Handbook and
the following guidance, some of which is reproduced from the RPPD,
remains relevant.

4.4.3 G Manufacturers should consider whether the design of an insurance product is

driven by features that benefit the customer and not by a business model
which relies on poor customer outcomes to be profitable.

4.4.4 G When providing information to distributors, a manufacturer should:

(1) make it clear if that information is not intended for customer use;

(2) ensure the information is sufficient, appropriate and comprehensible

in substance and form, including considering whether it will enable
distributors to understand it enough to give suitable advice (where
advice is given) and to extract any relevant information and
communicate it to the end customer. As part of meeting this
standard, the manufacturer may wish to consider, with regard to each
distribution channel or type of distributor what information
distributors of that type already have, their likely level of knowledge
and understanding, their information needs and what form or
medium would best meet those needs (which could include
discussions, written material or training as appropriate).

4.4.5 G When reviewing the insurance products it manufactures, a firm should

communicate to the customer and/or distributor contractual “breakpoints”
such as the end of a long tie-in period that may have a material impact on a
customer that the customer cannot reasonably be expected to recall or know
about already.

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products

4.4.6 G Manufacturers should act fairly and promptly when handling claims or when
paying out on an insurance product that has been surrendered or reached
maturity. In doing this, the manufacturer should meet any reasonable
customer expectations that it may have created with regard to the outcomes
or how the process would be handled.

4.4.7 G In ensuring that they have obtained sufficient information about the
insurance products they distribute and in ensuring they understand the
insurance products distributed, distributors:
4
(1) should consider whether they understand the materials provided by
the manufacturer or distributor earlier in the sales chain;

(2) should ask the manufacturer to supply additional information or

training where this seems necessary to understand the insurance
product adequately;

(3) should not distribute the insurance product if they do not understand
it sufficiently; and

(4) when providing information to another distributor in a distribution

chain, should consider how the further distributor will use the
information, such as whether it will be given to customers. Firms
should consider what information the further distributor requires and
the likely level of knowledge and understanding of the further
distributor and what medium may suit it best for the transmission of
information.

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 PROD 4 : Product governance: Section 4.5 : Additional expectations for
IDD and pathway investments manufacturers and distributors in relation to
value measures data

4.5 Additional expectations for

manufacturers and distributors in
relation to value measures data

Application and definitions

.....................................................................................................
4.5.1 R ■ PROD 4.5 applies to a firm which manufactures or distributes a general
insurance contract product which is the subject of a reporting requirement
within ■ SUP 16.27 (General insurance value measures reporting).

4.5.2 R In this section:

“value measures product” means a product which is the subject of a
reporting requirement within SUP
16.27, regardless of when that prod-
uct was first manufactured.
“value measures information” both the individual value measures
means data reported to the FCA by a firm
as well as the value measures data
relating to other firms published by
the FCA, including that based on
value measures data reported to it
under SUP 16.27.

Manufacturers of value measures products

.....................................................................................................
4.5.3 R A firm which manufactures (in whole or in part) a value measures product
must comply with the requirements in ■ PROD 4.5.4R.

4.5.4 R The requirements on manufacturers referred to in■ PROD 4.5.3R are:

(1) that in relation to existing value measures products the firm has
effective procedures in place to ensure that, on a continuing basis,
the product offers fair value to customers in the target market,
taking into account, among other things:
(a) the needs of the target market;
(b) the firm’s reasonable assessment of the value expectations of
customers in the target market;
(c) the value measures information, within a reasonable period;
(d) any particular features of the product or the terms and
conditions that may give rise to concerns about poor value;

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IDD and pathway investments manufacturers and distributors in relation to
value measures data

(e) appropriate product testing including scenario analysis and

testing on consumers; and
(f) the charging structure of the product including examination of
whether the costs and charges are compatible with how useful
the product is to consumers and the transparency of costs and
charges.
[Note: The requirement in ■ PROD 4.5.4R(1)(c) applies from 1 July 2021,
when ■ SUP 16.27 entered into force.]

(2) that in relation to new products and significant adaptations to 4

existing products, the firm’s product approval process in ■ PROD 4.2.1R,
product testing in ■ PROD 4.2.22UK including considerations in
■ PROD 4.2.25R and the review of products in ■ PROD 4.2.34R also
incorporate the procedures and considerations in (1) above.

(3) manufacturers that identify any aspects of a product that may mean
the product does not offer fair value, must:
(a) take appropriate action to mitigate the situation and/or prevent
further occurrences of any possible detriment to customers;
(b) inform any relevant distributors promptly about remedial action
being taken; and
(c) where relevant, not bring new products to market or make any
proposed changes.

(4) manufacturers must regularly review the products it offers or markets

to ensure they continue to offer fair value taking into account any
event that could materially affect whether this remains the case.

(5) where the firm is required to submit a value measures report by

■ SUP 16.27.7R, that the firm takes all reasonable steps to set up
arrangements with firms entering into contracts of insurance as
principal in relation to those products, to enable it to obtain the
value measures data required to be included in the value measures
report.

(6) where there is more than one manufacturer they must all outline in
writing their mutual responsibilities arising under ■ PROD 4.5.3R and
■ 4.5.4R.

4.5.5 G ■ PROD 4.5.4R(1)(f) does not affect the manufacturers’ freedom to set
premiums.

Distributors of value measures products

.....................................................................................................
4.5.6 R Where a firm distributes a value measures product that it does not
manufacture it must comply with the requirements in ■ PROD 4.5.7R.

4.5.7 R The requirements on distributors referred to in ■ PROD 4.5.6R are:

(1) that in relation to existing products it distributes, and any new

products it proposes to distribute, the firm has procedures in place to
consider, on a continuing basis, whether the product offers fair value

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 PROD 4 : Product governance: Section 4.5 : Additional expectations for
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value measures data

to customers in the target market, taking into account the factors in

■ PROD 4.5.4R(1)(a) to (f);

(2) where the firm is required to submit a value measures report by

■ SUP 16.27.7R, that the firm takes all reasonable steps to have
arrangements with the manufacturer of the value measures products
and/or firms or persons entering into contracts of insurance as
principal in relation to those products, to enable it to obtain the
value measures data required to be included in the value measures
report;
4
(3) distributors that identify any aspects of a product that may mean the
product does not offer fair value, must:
(a) take appropriate action to mitigate the situation and/or prevent
further occurrences of any possible detriment to customers,
including, where appropriate, amending their distribution
strategy for that product; and
(b) inform any relevant manufacturers promptly about any concerns
they have and any action the distributor is taking.

PROD 4/36 [Link] ■ Release 33 ● Feb 2024

PROD 4 : Product governance: Section 4.6 : Application of PROD 4.2 and
IDD and pathway investments 4.3 for legacy non-investment insurance
products

4.6 Application of PROD 4.2 and 4.3

for legacy non-investment insurance
products

Application
.....................................................................................................
4.6.1 R ■ PROD 4.6 applies to:

(1) the manufacturer of a legacy non-investment insurance product,

which includes:
(a) an insurance intermediary which has a decision-making role (in
whole or in part) in relation to the manufacture of a legacy non-
investment insurance product;
(b) an insurer that is responsible for the manufacture of a legacy
non-investment insurance product including whoever currently
underwrites the legacy non-investment insurance product; and

(2) a firm that distributes (including the renewal of an existing policy) a

legacy non-investment insurance product.

4.6.2 R For a product falling within (2)(b) of the definition of a legacy non-
investment insurance product, any reference to distribution or renewal is to
be treated as including the ongoing collection of premiums in relation to a
policy that remains in force.

Purpose
.....................................................................................................
4.6.3 G The purpose of this section is to set out the product governance distribution
arrangements for, and how ■ PROD 4 applies to, legacy non-investment
insurance products.

Manufacturers of legacy non-investment insurance products

.....................................................................................................
4.6.4 R A manufacturer of a legacy non-investment insurance product must apply
the product approval process in ■ PROD 4.2 to that insurance product.

4.6.5 G For the purposes of ■ PROD 4.6.4R a manufacturer will need to demonstrate it
has arrangements to meet the following:

(1) general product approval process requirements (■ PROD 4.2.5UK to

■ PROD 4.2.14R);

(2) fair value assessment (■ PROD 4.2.14AR to ■ PROD 4.2.14SR);

■ Release 33 ● Feb 2024 [Link] PROD 4/37

 PROD 4 : Product governance: Section 4.6 : Application of PROD 4.2 and
IDD and pathway investments 4.3 for legacy non-investment insurance
products

(3) target market requirements (■ PROD 4.2.15R to ■ PROD 4.2.21AG);

(4) product testing (■ PROD 4.2.22UK to ■ PROD 4.2.26G);

(5) distribution channels and information disclosure to distributors

requirements (■ PROD 4.2.27UK to ■ PROD 4.2.32DG); and

(6) monitoring and review of insurance products (■ PROD 4.2.33R to

■ PROD 4.2.39AR).

4
4.6.6 G Firms should take into account all relevant factors, including those in
■ PROD 4.2.3G and ■ PROD 4.2.3AG, when identifying the necessary
product approval process and arrangements including, in particular:
(a) previous product governance arrangements including reviews
which the firm (or another person) has undertaken and the
extent to which these would or would not have complied with
PROD requirements; and
(b) the potential level of harm which could result from the product
in question.

Firms should ensure the product approval process has the necessary
measures to identify whether the insurance product is, or remains,
appropriate to be marketed or distributed to customers.

4.6.7 R (1) A firm must determine whether the legacy non-investment insurance
product should continue to be marketed and distributed (including
renewals for existing customers).

(2) Where a firm does not approve the continued marketing and
distribution of the product, including where the firm has been unable
to identify that the product, or where relevant, the package provides
fair value for the purposes of ■ PROD 4.2.14AR or, where relevant,
■ 4.2.14BR, it must immediately:

(a) cease marketing or distributing the product or package (whether

directly or indirectly), including any renewal for an existing
customer; and/or
(b) make such changes as are necessary for the product or package
to provide fair value.

Distributors of legacy non-investment insurance products

.....................................................................................................
4.6.8 R (1) A firm which distributes, or will distribute, a legacy non-investment
insurance product must meet the requirements in ■ PROD 4.3 in
relation to that insurance product.

(2) A firm must put in place the necessary arrangements for the purposes
of (1), including for:
(a) obtaining any necessary information from the manufacturer;
(b) providing any necessary or relevant information to the
manufacturer;
(c) understanding the product, identified target market and value
assessment;

PROD 4/38 [Link] ■ Release 33 ● Feb 2024

PROD 4 : Product governance: Section 4.6 : Application of PROD 4.2 and
IDD and pathway investments 4.3 for legacy non-investment insurance
products

(d) ensuring adequate oversight, including the ability to obtain

necessary or relevant information, of any other persons involved
in the distribution with whom the distributor has a direct
relationship; and
(e) the regular review of the product distribution arrangements
including to take appropriate action in order to avert the risk of
consumer detriment.

■ Release 33 ● Feb 2024 [Link] PROD 4/39

 PROD 4 : Product governance: Section 4.6 : Application of PROD 4.2 and
IDD and pathway investments 4.3 for legacy non-investment insurance
products

PROD 4/40 [Link] ■ Release 33 ● Feb 2024

 Extended warranties sold with rent-to-own agreements: customer
information and deferred opt-in

Chapter 5

Extended warranties sold with

rent-to-own agreements:
customer information and
deferred opt-in

■ Release 33 ● Feb 2024 [Link] PROD 5/1

 PROD 5 : Extended warranties Section 5.1 : Ensuring the customer can
sold with rent-to-own make an informed decision
agreements: customer…

5.1 Ensuring the customer can make an

informed decision

5
5.1.1 R (1) A firm must give the customer the information in (3), at the same
time and in the same document, when it offers to sell them an
extended warranty.

(2) A firm must ensure that any other person to whom it has referred the
customer or invited or induced the customer to obtain an extended
warranty from gives the customer the information in (3), at the same
time and in the same document, when that person offers to sell the
customer an extended warranty.

(3) The information is:

(a) the total cost of the extended warranty, separate from any other
prices, in the following terms:
(i) weekly;
annually; and
over the duration of the rent-to-own agreement;
(b) the significant features and benefits, significant and unusual
exclusions or limitations of the extended warranty, with cross-
references to the relevant warranty document provisions;
(c) a statement that extended warranties may be available from
other persons;
(d) an explanation of how the extended warranty interacts with and
compares against any other products sold or offered for sale in
connection with the rent-to-own agreement (e.g. theft and
accidental damage insurance);
(e) an explanation of how the extended warranty interacts with and
compares against any standard manufacturer’s warranty that may
apply to the goods which are the subject of the rent-to-own
agreement, given in a way that enables the customer to make a
clear comparison between the two;
(f) when the extended warranty can be concluded, as described in
■ PROD 5.2.1R; and

(g) the date the information in (a) to (f) is provided to the customer.

(4) The information in (3) must be communicated in a way that is:

(a) fair, clear and not misleading;
(b) in writing or another durable medium; and

PROD 5/2 [Link] ■ Release 33 ● Feb 2024

PROD 5 : Extended warranties Section 5.1 : Ensuring the customer can
sold with rent-to-own make an informed decision
agreements: customer…

(c) made available and accessible to the customer.

(5) The information in (3) must be drawn to the customer’s attention and
must be clearly identifiable as key information that the customer
should read.

5.1.2 G (1) A firm that sells extended warranties that constitute contracts of
insurance must also comply with the rules in ■ ICOBS 6 (Product
Information).

(2) Firms should also take into account the Supply of Extended
Warranties on Domestic Electrical Goods Order 2005. Other consumer
protection legislation may also be relevant. 5

■ Release 33 ● Feb 2024 [Link] PROD 5/3

 PROD 5 : Extended warranties Section 5.2 : Deferred opt-in for extended
sold with rent-to-own warranties
agreements: customer…

5.2 Deferred opt-in for extended

warranties

5
5.2.1 R (1) A firm must:
(a) not conclude the sale of an extended warranty; and
(b) ensure that no other person to whom the firm has referred the
customer concludes the sale of an extended warranty;
until at least two clear days have passed since the required information was
provided to the customer (■ PROD 5.1.1R).

(2) The period in (1) is one clear day after providing the information if
the customer:
(a) initiates the conclusion of the sale of the extended warranty;
(b) consents to the conclusion of the sale of the extended warranty
earlier than provided for in (1); and
(c) confirms that they understand the restriction in (1).

5.2.2 G For example, if a firm provided the required information to the customer on
Monday, it would not (absent the customer’s consent) be able to conclude
the sale of the extended warranty until Thursday.

5.2.3 G Before the conclusion of the sale of an extended warranty, a firm should
have regard to the information needs of its customers and consider whether
it would be in the customer’s interest to receive the information in
■ PROD 5.1.1R again, for example if a long time has passed between the
provision of the information and the conclusion of the sale.

PROD 5/4 [Link] ■ Release 33 ● Feb 2024

 Product governance: additional provisions for pathway investments

Chapter 6

Product governance:
additional provisions for
pathway investments and
default options

■ Release 33 ● Feb 2024 [Link] PROD 6/1

 PROD 6 : Product governance: Section 6.1 : General
additional provisions for
pathway
investments and default…

6.1 General

6.1.1 R This chapter does not affect the application of other requirements in the FCA
Handbook or onshored regulations applying to firms within the scope of this
chapter. Firms within the scope of ■ PROD 1.3 (Application of PROD 3),
6 ■ PROD 1.4 (Application of PROD 4), ■ PROD 3 (Product governance: MiFID)
and ■ PROD 4 (Product governance: IDD) must continue to comply with those
provisions.

PROD 6/2 [Link] ■ Release 33 ● Feb 2024

PROD 6 : Product governance: Section 6.2 : Manufacture of pathway
additional provisions for investments
pathway
investments and default…

6.2 Manufacture of pathway

investments

6.2.1 R A manufacturer must review its pathway investments at least annually to

ensure that the pathway investments:
6
(1) remain consistent with the needs, characteristics and objectives of
their identified target market, taking into account the investment
pathway options in ■ COBS 19.10.17R(1); and

(2) are being distributed to their target market.

6.2.2 G A firm to which the record-keeping rules in ■ SYSC 3 (Systems and controls) or
■ SYSC 9 (Record-keeping) apply should maintain, in relation to its
manufacture of pathway investments, a record of the process undertaken to
approve each pathway investment, and of the review conducted for each
pathway investment to comply with ■ PROD 6.2.1R.

■ Release 33 ● Feb 2024 [Link] PROD 6/3

 PROD 6 : Product governance: Section 6.3 : Distribution of pathway
additional provisions for investments
pathway
investments and default…

6.3 Distribution of pathway investments

6.3.1 R A firm must not distribute a pathway investment unless it is compatible with
the needs, characteristics and objectives of those retail clients that fall within
the pathway investment’s target market, taking into account the investment
6 pathway options in ■ COBS 19.10.17R(1).

6.3.2 R When carrying out the compatibility assessment referred to in ■ PROD 6.3.1R,
firms must take into account:

(1) the price and complexity of the pathway investment; and

(2) where the firm is referring retail clients to be transferred to the

personal pension scheme or stakeholder pension scheme operated by
another firm, they must also take into account:
(a) the charges and other product features of that other firm’s
drawdown product;
(b) the financial strength of that other firm; and
(c) the reliability and efficiency of that other firm in relation to its
dealings with retail clients.

6.3.3 R A firm must review the distribution arrangements for the pathway
investments it distributes at least on a two-yearly basis to ensure:

(1) the distribution arrangements are still valid and up to date; and

(2) the pathway investments remain compatible with, and are being
distributed to, their target market in accordance with ■ PROD 6.3.1R.

6.3.4 G A firm to which the record-keeping rules in ■ SYSC 3 or ■ SYSC 9 apply should
maintain, in relation to its distribution of pathway investments, a record of
the process undertaken to select each pathway investment, and of the
review conducted for each pathway investment to comply with ■ PROD 6.3.3R.

Obligations on firms where retail clients are not acting in their

interests
.....................................................................................................
6.3.5 R Where a firm (A) refers retail clients to another firm (B), where B can offer a
pathway investment to the retail client if the retail client transfers to the
personal pension scheme or stakeholder pension scheme operated by B, both
A and B must comply with ■ PROD 6.3.6R.

PROD 6/4 [Link] ■ Release 33 ● Feb 2024

PROD 6 : Product governance: Section 6.3 : Distribution of pathway
additional provisions for investments
pathway
investments and default…
6.3.6 R Where:

(1) A becomes aware of a pattern of retail clients choosing to stay with A

and not transferring to B; and

(2) A considers that this choice is unlikely to be in the interests of those

retail clients, having regard to their objectives and characteristics;
then

(3) A must promptly inform B of its concerns in (1) and (2); and

(4) A and B must each take reasonable steps to minimise the potential
harm to retail clients.

6.3.7 G Reasonable steps for the purposes of ■ PROD 6.3.6R may include A and B
making it easier for retail clients to transfer to the personal pension scheme 6
or stakeholder pension scheme operated by B.

■ Release 33 ● Feb 2024 [Link] PROD 6/5

 PROD 6 : Product governance: Section 6.4 : Manufacture of default options
additional provisions for
pathway
investments and default…

6.4 Manufacture of default options

6.4.1 R When designing a default option, a manufacturer should take into account,
among other considerations, the fact that ■ COBS 19.12 requires operators to
offer the default option to non-advised clients for inclusion in their non-
6 workplace pensions. As a result, the default option must be designed to be
compatible with the needs, characteristics and objectives of a typical non-
advised client in the default option’s target market.

6.4.2 R A manufacturer must also ensure that:

when specifying the investment strategy of the default option, and

its costs and charging structure, it takes into account what the
manufacturer considers, on reasonable grounds, to be the likely
needs, objectives and characteristics of a typical non-advised client in
the target market;

the investment strategy of the default option:

(a) takes into account the target retirement age of a typical non-
advised client in the target market, and their likely strategy for
accessing their pension;
(b) includes lifestyling, unless lifestyling is not appropriate for the
needs, objectives and characteristics of the typical non-advised
client in the target market or the default option is based on
target date funds; and
(c) seeks growth, while managing risks, through an appropriate and
diversified asset allocation; and

the default option has appropriate and competitive price and

charges, which bear a reasonable relationship with the services being
provided.

6.4.3 G Manufacturers are expected to take reasonable steps to understand the

likely needs, objectives and characteristics of a typical non-advised client in
the default option’s target market. This could include carrying out sufficient
research and consumer testing in support of its conclusions. What amounts
to a typical non-advised client may be based on the needs, objectives or
characteristics that are most commonly seen among non-advised clients
within the target market.

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PROD 6 : Product governance: Section 6.4 : Manufacture of default options
additional provisions for
pathway
investments and default…
6.4.4 R Manufacturers must review their default options at least once every 3 years
to ensure that they:

(1) remain consistent with the needs, characteristics and objectives of a

typical non-advised client in the target markets; and

(2) are being distributed to their target markets.

■ Release 33 ● Feb 2024 [Link] PROD 6/7

 PROD 6 : Product governance: Section 6.5 : Distribution of default options
additional provisions for
pathway
investments and default…

6.5 Distribution of default options

6.5.1 R A firm must not distribute a default option unless it is compatible with the
needs, characteristics and objectives of the retail clients to whom the firm
distributes the default option.
6
6.5.2 R When carrying out the compatibility assessment in ■ PROD 6.5.1R, a firm must
also take into account:

(1) the manufacturer’s compliance with the requirements in ■ PROD 6.4;

and

(2) the financial strength of the manufacturer.

6.5.3 R A firm must review the distribution arrangements for the default options it
distributes at least every 3 years.

PROD 6/8 [Link] ■ Release 33 ● Feb 2024

 Product governance: funeral plans

Chapter 7

Product governance: funeral

plans

■ Release 33 ● Feb 2024 [Link] PROD 7/1

 PROD 7 : Product governance: Section 7.1 : General
funeral plans

7.1 General

Other requirements
.....................................................................................................
7.1.1 G This chapter does not affect the application of other requirements in the FCA
Handbook applying to funeral plan providers or firms in relation to funeral
plan distributions, including but not limited to:

7 (1) Identification and management of conflicts of interest

(■ SYSC 10.1 (Conflicts of interest));

(2) Funeral plan remuneration incentives (■ SYSC 19F.3 (Funeral plan

remuneration incentives));

(3) Structure arrangements (■ FPCOB 3 (Structure provisions- arrangements

underpinning a funeral plan contract));

(4) Disclosure (■ FPCOB 6 (Information about the firm and its services) and
■ FPCOB 9 (Product information));

(4) Remuneration (■ FPCOB 6.4 (Charging for funeral plan distribution)

and ■ FPCOB 6.5 (Payments to funeral plan intermediaries)).

PROD 7/2 [Link] ■ Release 33 ● Feb 2024

PROD 7 : Product governance: Section 7.2 : Manufacture of funeral plans
funeral plans

7.2 Manufacture of funeral plans

Product governance arrangements: product approval

.....................................................................................................
7.2.1 R A manufacturer must maintain, operate and review a process for the
approval of:

(1) a funeral plan product; and

7
(2) any significant adaptation of an existing funeral plan product,

in each case before it is marketed or distributed to customers.

7.2.2 G (1) ■ PROD 7.2.1R(1) includes any funeral plan product whether a new
product manufactured on or after 29 July 2022 or any existing funeral
plan product. In relation to an existing funeral plan product,
references in ■ PROD 7.2 and ■ 7.3 to ‘marketing’ or ‘distributing’
includes reference to any future activity regardless of whether the
product has previously been made available for marketing or
distribution.

(2) For the purposes of ■ PROD 7.2.1R(2):

(1) whether a proposed change to the product would be a
‘significant adaptation’ should include consideration of the
potential impact that the adaptation may have on an existing or
potential customer (when compared to the unadapted version of
the product);
(1) a ‘significant adaptation’ in relation to a funeral plan product
may include, but is not restricted to, a proposed change to the
undertaking to provide funeral arrangements, services added or
removed, level of monetary benefits (other than adjustments for
inflation or other cost variations) costs, and any other significant
change to the terms and conditions.

Product governance arrangements: identifying the necessary

approval process
.....................................................................................................
7.2.3 R The product approval process in ■ PROD 7.2.1R must be proportionate and
appropriate to the nature of the funeral plan product.

7.2.4 G A manufacturer should take into account the following when considering
whether the product approval process is proportionate and appropriate:

(1) the complexity of the funeral plan product;

■ Release 33 ● Feb 2024 [Link] PROD 7/3

 PROD 7 : Product governance: Section 7.2 : Manufacture of funeral plans
funeral plans

(2) the degree to which publicly available information can be obtained;

(3) the nature of the funeral plan product and the risk of consumer
detriment related to it;

(4) the characteristics of the target market;

(5) the scale and complexity of the relevant business of the manufacturer
or distributor;

(6) the potential risk, and possible levels, of harm to customers if the
product design is flawed, in particular, due to the potential scale of
harm if the product is intended for a wide target market;

(7) the nature of the cover that the product is intended to provide;

(8) whether the distribution arrangements could mean customers are at a

greater risk of not receiving fair value from the product;

7 (9) any particularly notable features of, or relating to, existing products
(including how it has been distributed); and

(10) the nature and complexity of the firm’s existing or intended customer
base, for example whether it includes or is likely to include:
(a) different types of customers with varying characteristics including
in relation to their understanding of financial matters; and
(b) a significant number of vulnerable customers.

Product approval process: outcomes, measures and

procedures
.....................................................................................................
7.2.5 R A manufacturer must have a product approval process that:

(1) ensures the design of a funeral plan product:

(a) identifies how funeral arrangements will be provided;
(b) delivers fair value;
(c) takes into account the intended customers including their
objectives, interests, needs and characteristics;
(d) does not adversely affect customers; and
(e) is driven by features that benefit the customer and not by a
business model which relies on poor customer outcomes to be
profitable;

(2) prevents or mitigates customer detriment; and

(3) supports a proper management of conflicts of interest.

7.2.6 R The product approval process must contain appropriate measures and
procedures for:

(1) the design, distribution, monitoring and review of a funeral plan

product;

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PROD 7 : Product governance: Section 7.2 : Manufacture of funeral plans
funeral plans

(2) identifying whether the product is, or remains, appropriate to be

marketed or distributed to customers; and

(3) taking corrective and/or mitigating action for funeral plan products
where actual or potential customer detriment is identified.

Product approval process: written policy and record keeping

.....................................................................................................
7.2.7 R A manufacturer must set out the product approval process in a written
document (“product oversight and governance policy”), which is made
available to the relevant staff.

7.2.8 R A manufacturer must make and retain a record of any relevant actions taken
in relation to the product approval process. The record must be made
available to the FCA upon request.

Product approval process: governing body responsibility

..................................................................................................... 7
7.2.9 R A manufacturer’s governing body must:

(1) endorse and be responsible for establishing, implementing and

reviewing the product approval process; and

(2) verify internal compliance with that process on an ongoing basis.

Product approval process: staff competence

.....................................................................................................
7.2.10 R A manufacturer must ensure that any of its staff involved in the manufacture
of a funeral plan product has the necessary skills, knowledge and expertise
to properly carry out this role and, in particular, to understand the funeral
plan product and the interests, objectives and characteristics of the
customers belonging to the target market. (Also see ■ SYSC 5.1.1R (competent
employee rule)).

7.2.11 R Where a manufacturer uses a third party to undertake any part of the
manufacture of the funeral plan product on its behalf, the manufacturer
remains fully responsible for compliance with the product approval process.

Product approval process: review of process

.....................................................................................................
7.2.12 R (1) A manufacturer must regularly review its product approval process to
ensure that the process is still appropriate and up to date.

(2) Where the process is identified to no longer be appropriate, the

manufacturer must:
(a) amend the product approval process;
(b) review any product approved since the approval process was last
deemed to be appropriate to:
(i) ensure these products were correctly approved for marketing
and/or distribution; and
(ii) take all necessary steps for the mitigation and remediation of
any actual or potential harm to customers.

■ Release 33 ● Feb 2024 [Link] PROD 7/5

 PROD 7 : Product governance: Section 7.2 : Manufacture of funeral plans
funeral plans

Product approval process: manufacture by more than one

manufacturer
.....................................................................................................
7.2.13 R (1) Where two or more firms collaborate to manufacture a funeral plan
product, the firms must outline their mutual responsibilities in a
signed written agreement.

(2) The written agreement in (1) must specify:

(a) their respective roles in the product approval process; and
(b) how they will collaborate to comply with the requirements in
■ PROD 7.2 (Manufacture of funeral plans), including the
procedures through which they will agree on the identification of
the target market.

Product approval process: fair value

.....................................................................................................
7.2.14 R A manufacturer must only approve a funeral plan product where it provides
fair value to customers in the target market.
7
7.2.15 R (1) A manufacturer must:
(a) be able to clearly demonstrate how any funeral plan product
provides fair value; and
(b) make and retain a record of the value assessment required by
■ PROD 7.2.14R.

(2) Where a manufacturer is unable to both:

(a) identify; and
(b) clearly demonstrate,
that the funeral plan product will provide fair value, the
manufacturer must not:
(c) market the funeral plan product; or
(d) permit the funeral plan product to be distributed (whether
directly or through another person),
unless the manufacturer has ensured appropriate changes have been
made so that fair value will be provided.

Product approval process: meaning of value

.....................................................................................................
7.2.16 R In ■ PROD 7 “value” means the relationship between the total price to the
customer and the quality of the product(s) and/or services provided. The
assessment of value must include consideration of at least the following:

(1) the nature of the product, including the benefits that will be
provided, their quality, and any limitations (for example, in the scope
of the funeral arrangements or other features);

(2) the type and quality of services provided to customers;

(3) the expected total price to be paid by the customer when buying the
funeral plan product, and the elements that make up the total price.
This will need to include consideration of at least the following:

PROD 7/6 [Link] ■ Release 33 ● Feb 2024

PROD 7 : Product governance: Section 7.2 : Manufacture of funeral plans
funeral plans

(a) the overall cost to the manufacturer of the funeral plan product
of:
(i) operating the product, including the costs of the trust or
premiums paid towards an insurance policy to meet the
requirements in ■ FPCOB 3 (Structure provisions -
arrangements underpinning a funeral plan contract); and
(ii) the delivery of funeral benefits under it; and
(b) the individual elements of the expected total price to be paid by
the customer including, but not limited to:
(i) the funeral plan product;
(ii) the costs of the distribution arrangements, including the
remuneration of any relevant person in the distribution
arrangements, and including where a manufacturer delegates
the final decision on setting the price to another person; and

(4) how the intended distribution arrangements support, and will not
adversely affect, the intended value of the product. 7

7.2.17 R A manufacturer must not rely on individual customers to consider whether

they are making fair value purchases in place of any part of the
manufacturer’s own assessment.

Product approval process: compliance with fair value

requirement
.....................................................................................................
7.2.18 G The following evidential provision provides examples of arrangements that
the FCA considers will breach ■ PROD 7.2.14R.

7.2.19 E (1) A manufacturer should not have a funeral plan product where:
(a) the difference between the cost of delivering the funeral plan
contract obligations to the manufacturer and the total price paid
by the customer bears no reasonable relationship to:
(i) the actual costs incurred by the manufacturer or any other
person involved in the distribution arrangements;
(ii) the quality of any benefits (including of the funeral plan
product); or
(b) any difference between the cost of the funeral arrangements
under the funeral plan product and the cost of the equivalent
funeral arrangements purchased without a funeral plan contract
does not have an objective and reasonable basis.

(2) Contravention of any of (1) may be relied on as tending to establish

contravention of ■ PROD 7.2.14R.

Product approval process: information to be used when

assessing a product for approval
.....................................................................................................
7.2.20 R When assessing whether a product should be approved for the purposes of
■ PROD 7.2.1R, a manufacturer must use the full range of data and
information available to it including, but not limited to:

■ Release 33 ● Feb 2024 [Link] PROD 7/7

 PROD 7 : Product governance: Section 7.2 : Manufacture of funeral plans
funeral plans

(1) information available to the manufacturer internally including:

(a) customer research;
(b) the performance of the funeral plan product or other funeral
plan products of the manufacturer, including for example:
(i) how the estimated costs of funerals compare to actual costs;
(ii) number of customers cancelling the funeral plan contracts;
(iii) number of missed instalment plan payments by the customer;
and
(iv) number of funeral plan contracts expected to be claimed but
have not been redeemed;
(c) complaints data (including root cause analysis and handling
times), both expected for the product itself and/or any actual
information from a comparable product;

(2) public information or information obtainable by the manufacturer

7 from external sources, including analysis of similar funeral plan
products available from other firms; and

(3) information available to the manufacturer specifically from persons in

the distribution arrangements or external funeral provider, including:
(a) any remuneration and its impact on the value of the product;
(b) levels or quality of service provided by any person in the
distribution arrangements;
(c) any results of monitoring and oversight of the processes of any
persons in the distribution arrangement (for example, call
monitoring or file checks), including in relation to other products
that person distributes; and
(d) the wholesale and retail prices of a funeral not paid for using a
funeral plan contract (whether paid for in advance or after the
death of a person).

Product approval process: product backing arrangements

.....................................................................................................
7.2.21 R A manufacturer must only approve a funeral plan product where it has
established adequate processes and procedures to ensure:

(1) any funeral plan contracts entered into using that product will have
the necessary and robust trust or insurance arrangements required to
comply with ■ FPCOB 3 (Structure provisions – arrangements
underpinning a funeral plan contract); and

(2) at a product level, there is sufficient oversight and management of

those trust or insurance arrangements to mitigate the risk of
customer harm.

Product approval process: identifying the target market

.....................................................................................................
7.2.22 R A manufacturer must ensure that for each funeral plan product the product
approval process:

(1) specifies an identified target market;

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PROD 7 : Product governance: Section 7.2 : Manufacture of funeral plans
funeral plans

(2) assesses all relevant risks to the identified target market;

(3) identifies that a funeral plan product offers fair value to the specified
target market, taking into account in particular their needs,
objectives, interests and characteristics;

(4) permits only the approval of funeral plan products that are
compatible with the needs, characteristics and objectives of the
customers belonging to the target market;

(5) verifies that the intended distribution strategy is consistent with the
identified target market; and

(6) requires reasonable steps are taken to ensure that the funeral plan
product is distributed to the identified target market.

7.2.23 R A manufacturer must identify the target market at a sufficiently granular

level, taking into account the characteristics, risk profile, complexity and
nature of the funeral plan product. 7

7.2.24 R A manufacturer must identify groups of customers for whose needs,

characteristics and objectives the funeral plan product is generally not
compatible.

7.2.25 R When assessing whether a funeral plan product is compatible with a target
market, a manufacturer must take into account:

(1) the level of information available to the customers belonging to that

target market and their financial literacy; and

(2) vulnerable customers.

7.2.26 G (1) The identification of the target market should describe a group of
customers sharing common characteristics at an abstract and
generalised level in order to enable the manufacturer to adapt the
features of the product to the needs, characteristics and objectives of
that group of customers.

(2) The identification of the target market should be distinguished from

the individual assessment at the point of sale to determine whether a
product meets the demands and needs of the individual customer.

Product approval process: product testing

.....................................................................................................
7.2.27 R (1) A manufacturer must test a funeral plan product appropriately,
including scenario analyses, in a qualitative manner and quantitative
manner.

(2) The product testing in (1) must assess whether the funeral plan
product over its lifetime meets the identified needs, objectives and
characteristics of the target market.

(3) The requirement in (1) must be carried out:

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 PROD 7 : Product governance: Section 7.2 : Manufacture of funeral plans
funeral plans

(a) before approving the product for marketing or distribution;

(b) when the product is being significantly adapted; and
(c) where the target market has significantly changed.

7.2.28 R A manufacturer must not bring a funeral plan product to the market if the
results of the product testing show that the product does not provide fair
value including where it would not meet the identified needs, objectives and
characteristics of the target market.

Distribution channels: selecting channels

.....................................................................................................
7.2.29 R A manufacturer must carefully select distribution arrangements, including
specific distribution channels that are appropriate for the target market,
taking into account the particular characteristics of the relevant funeral plan
product.

7
7.2.30 R (1) When selecting any distribution arrangements, including any
particular distribution channel, a manufacturer must be able to
demonstrate clearly that these arrangements:
(a) result in fair value to the customer;
(b) are consistent with the requirements in ■ FPCOB 6.4 (charging for
funeral plan distribution); and
(c) prevent or mitigate the risk of customer detriment arising from
the distribution of the product, for example by verifying that any
proposed distributor has the necessary knowledge, expertise and
competence; and
(d) do not pose a significant risk of a distribution channel failing to
meet the requirements in FPCOB.

(2) A manufacturer must not use a distribution channel unless it is able

to demonstrate the requirements in (1) are met.

7.2.31 G Manufacturers should only select distributors that have the necessary
knowledge, expertise and competence to understand the features of a
funeral plan product and the identified target market.

7.2.32 R Whenever making a change to the distribution arrangements, including

adding a further distribution channel, a manufacturer must:

(1) obtain all necessary information from the distributor or any other
person who will be involved with the distribution arrangement,
including that set out in ■ PROD 7.2.35R; and

(2) identify whether the proposed change to the distribution

arrangements is consistent with the fair value requirement in
■ PROD 7.2.14R.

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Distribution channels: information disclosure to distributors

.....................................................................................................
7.2.33 R (1) A manufacturer must make available to a distributor all appropriate
information on the:
(a) funeral plan product, including to enable the distributor to
understand the intended value established by the manufacturer;
(b) product approval process;
(c) identified target market of the funeral plan product, including
any type of customer for whom the funeral plan product is
unlikely to provide fair value; and
(d) suggested distribution strategy.

(2) The information in (1) must:

(a) include information on the main features and characteristics of
the funeral plan products, their risks and costs, including implicit
costs, and any circumstances which might cause a conflict of
interest to the detriment of the customer;
7
(b) be clear, complete and up to date.

7.2.34 R (1) The information a manufacturer has to make available to any

distributor under ■ PROD 7.2.33R(1) must be of an adequate standard
to enable distributors to:
(a) understand the funeral plan products;
(b) comprehend the identified target market for the funeral plan
products;
(c) identify any customers for whom the funeral plan products are
not compatible with their needs, characteristics and objectives;
and
(d) carry out distribution activities for the relevant funeral plans in
accordance with the best interests of their customers as
prescribed in ■ FPCOB 2.1.2R.

(2) A manufacturer is not required to disclose specific information

objectively considered to be commercially sensitive if the information
it does make available would still allow distributors to meet
■ PROD 7.2.34R(1) and ■ PROD 7.2.35R(1)(a) and (b).

Distribution channels: obtaining information from distributors

.....................................................................................................
7.2.35 R A manufacturer must obtain from any person in the distribution
arrangements all necessary and relevant information to enable it to identify
the remuneration associated with the distribution arrangements to allow it
to assess the ongoing value of the product, including at least:

(1) the type and amount of remuneration of each person in the

distribution arrangement where this is part of the funeral plan
contract price or otherwise paid directly by the customer, including in
relation to additional products;

(2) an explanation of the services provided by each person in the

distribution arrangements; and

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 PROD 7 : Product governance: Section 7.2 : Manufacture of funeral plans
funeral plans

(3) confirmation from any firm in the distribution arrangements that any
remuneration is consistent with their regulatory obligations, including
■ SYSC 19F.3 (Funeral plan remuneration incentives).

7.2.36 G (1) Where the manufacturer is considering the effects of the distribution
arrangements on value, it should consider whether the additional
costs of any individual party in the arrangements that add to the
total price paid by the customer deliver any, or a proportional,
additional benefit. If not, a manufacturer should consider how it can
be satisfied that the arrangements are consistent with its obligations
to be able to clearly demonstrate fair value to the customer.

(2) A benefit that could be consistent with fair value might include
where the party’s inclusion in the distribution arrangements increases
access to the product for customers in the target market in a way that
is proportionate to the additional cost involved.

7 Monitoring and review of funeral plan products

.....................................................................................................
7.2.37 R A manufacturer must regularly review the funeral plan products it offers or
markets taking into account any event that could materially affect the
potential risk to the identified target market, the main features or the
guarantees of the funeral plan product. In doing so, the manufacturer must
assess at least the following:

(1) whether the funeral plan product remains consistent with:

(a) the identified target market, including their interests, needs,
characteristics and objectives;
(b) the fair value assessment required under ■ PROD 7.2.14R; and

(2) whether the intended distribution strategy remains appropriate,

including whether those products are being distributed to the target
market or are reaching customers outside the target market.

7.2.38 R A manufacturer must ensure that the review process:

(1) has the necessary measures to be able to identify if the funeral plan
product is not providing fair value; and

(2) provides that appropriate actions be taken:

(a) for the mitigation and any potential remediation of the harm to
existing customers; and
(b) to prevent harm to new customers.

Monitoring and review of funeral plan products: minimum

review period
.....................................................................................................
7.2.39 R A manufacturer must undertake the regular review:

(1) every 12 months; or

(2) more frequently where the potential risk associated with the funeral
plan product makes it appropriate to do so.

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7.2.40 R When determining the appropriate interval for review of a funeral plan
product, a manufacturer must take into account:

(1) the nature of the customer base, including whether there are
significant numbers of vulnerable customers;

(2) any specific indicators seen in the manufacturer’s assessment of the

product’s value to the customer;

(3) the nature and type of distribution arrangements being used;

(4) any indicators of customer harm potentially emerging from the

performance of the product (for example, through redemptions of
funeral plan contracts, missed instalment plan payments by the
customer, and/or the number of funeral plan contracts expected to be
redeemed but have not been redeemed and complaints data); and

(5) any relevant external factors, such as changes to the applicable legal
rules, technological developments, or changes to the market
situation. 7

Product monitoring and review: monitoring through lifetime of

the plan
.....................................................................................................
7.2.41 R (1) A manufacturer must identify during the lifetime of a funeral plan
product any circumstances related to the funeral plan product that
may adversely affect a customer of that product.

(2) Where a manufacturer identifies an event that may adversely affect a

customer of the product, the manufacturer must:
(a) take appropriate action to mitigate the situation and prevent
further occurrences of the detrimental event; and
(b) promptly inform concerned distributors and customers about the
remedial action taken.

Product monitoring and review: monitoring distribution

arrangements
.....................................................................................................
7.2.42 R (1) A manufacturer must take appropriate steps to monitor:
(a) that a funeral plan product distributor acts in accordance with
the objectives of the manufacturer’s product approval process;
and
(b) any impact which the distribution arrangements are having on
the value including whether the distribution channels remain
appropriate.

(2) A manufacturer must verify on a regular basis whether the funeral

plans products are distributed on the identified target market.

(3) The monitoring activities must be reasonable, taking into

consideration the characteristics and the legal framework of the
respective distribution channels.

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 PROD 7 : Product governance: Section 7.2 : Manufacture of funeral plans
funeral plans

7.2.43 G ■ PROD 7.2 does not require the manufacturer to monitor a distributor’s
compliance with general regulatory requirements when carrying out funeral
plan distributions for individual customers.

7.2.44 R A manufacturer must:

(1) ensure that it has sufficient, good quality management information;

and

(2) use the full range of data and information available to it (whether it
holds this information already, the information is publicly available,
or it is able to obtain it from another person),

to enable it to properly understand and monitor the funeral plan product.

7.2.45 G A manufacturer should identify whether there is a risk to its continuing to

provide fair value where there is a material change in the relationship
7 between the price to the customer and the actual costs to the manufacturer
or another party involved in the ongoing service/distribution of the product.

Product monitoring and review: considering changes to funeral

plan products
.....................................................................................................
7.2.46 R For the purposes of showing that the requirement in ■ PROD 7.2.1R is met,
where a manufacturer makes a change to a funeral plan product, it must
make and retain a record of:

(1) the assessment of whether that change would amount to a significant

adaptation of the funeral plan product; and

(2) where the assessment in (1) is that the change would not be a
significant adaptation, the reasons for that decision.

Product monitoring and review: remedial and mitigating action

.....................................................................................................
7.2.47 R Manufacturers considering that the distribution of their funeral plan
products is not in accordance with the objectives of their product approval
process must take appropriate remedial action including but not limited to:

(1) amending the distribution arrangements, including ceasing to use

certain distributors or distribution channels;

(2) amending remuneration structures;

(3) withdrawing the funeral plan product from continued marketing or

distribution; or

(4) paying redress as appropriate.

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PROD 7 : Product governance: Section 7.3 : Distribution of funeral plans
funeral plans

7.3 Distribution of funeral plans

Distribution arrangements: general requirements

.....................................................................................................
7.3.1 R A distributor must have in place product distribution arrangements
containing appropriate measures and procedures to:

aim to prevent and mitigate customer detriment;

7
be consistent with the aim of providing fair value to the customer;

support a proper management of conflicts of interest; and

ensure that the objectives, interests and characteristics of customers

are duly taken into account.

Distribution arrangements: obtaining and understanding

information
.....................................................................................................
7.3.2 R (1) A distributor must ensure the product distribution arrangements
contain effective measures and procedures to:
(a) obtain from the manufacturer all appropriate information
sufficient, adequate and reliable about the funeral plan products
they intend to offer to their customers to ensure that they will be
distributed in accordance with the characteristics, objectives and
needs of the target market; and
(b) fully comprehend those funeral plan products, taking into
account the level of complexity and the risks related to the
products as well as the nature, scale and complexity of the
relevant business of the distributor.

(2) The information in (1) must be sufficient to understand:

(a) the characteristics of each funeral plan product;
(b) the outcome of the value assessment required by ■ PROD 7.2.14R,
including:
(i) the value that the funeral plan product is intended to
provide to the customer; and
(ii) the impact that the distribution arrangements (including any
remuneration it, or another person in the distribution chain
to which it belongs, receives) has on the overall value of the
funeral plan product to the customer; and

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 PROD 7 : Product governance: Section 7.3 : Distribution of funeral plans
funeral plans

(c) the identified target market of each funeral plan product,

including any identified group of customers for whom the
funeral plan product is not expected to provide fair value.

7.3.3 R For the purposes of ■ PROD 7.3.2R, a distributor must consider at least the
following:

(1) the benefits the product is intended to provide to the customer;

(2) the characteristics, objectives, interests and needs of the target

market;

(3) the interaction between the price paid by the customer and the
extent and quality of any services the distributor (or any person
connected to it) provides; and

(4) whether any remuneration it receives in relation to the funeral plan

product would result in the product ceasing to provide fair value to
7 the customer.

Distribution arrangements: events indicating contravention of

fair value
.....................................................................................................
7.3.4 G The following evidential provision provides examples of what the FCA
considers will breach ■ PROD 7.3.1R.

7.3.5 E (1) A firm’s distribution arrangements, including any distribution strategy

it sets up, should not result in:
(a) the firm receiving a level of remuneration which does not bear a
reasonable relationship to the firm’s actual costs, or their
contribution, level of involvement or the benefit added by them,
to the arrangements for the distribution of the product, including
where the firm provides little or no benefit beyond that which
the customer would receive if they obtained the funeral plan
product through another distribution channel;
(b) the firm having remuneration arrangements which give an
incentive to propose or recommend a funeral plan product which
either does not meet the customer’s needs (or not as well as
another product would) or is not in accordance with the
customer’s best interests rule; and
(c) the level of any remuneration (for which the firm is responsible
for setting) not being reasonably reflective of the costs actually
incurred.

(2) Contravention of any of (1) may be relied upon as tending to

establish contravention of ■ PROD 7.3.1R.

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funeral plans

Distribution arrangements: disclosing information to

manufacturers
.....................................................................................................
7.3.6 R A distributor must, upon request, provide manufacturers with:

(1) information on the distributor’s remuneration in connection with the

distribution of the funeral plan product;

(12) information on any additional product or service that the distributor

provides to the customer, which may affect the manufacturer’s
intended value of the product;

(3) relevant sales information, including, where appropriate, information

on the regular reviews of the product distribution arrangements; and

(4) confirmation that the distribution arrangements are consistent with

the obligations of the firm under the FCA Handbook, including in
particular in ■ SYSC 10.1 (Conflicts of interest) and ■ SYSC 19F.3 (Funeral
plan remuneration incentives).
7
Distribution arrangements: record keeping
.....................................................................................................
7.3.7 R A distributor must set out the product distribution arrangements in a written
document and make it available to their relevant staff.

7.3.8 R A distributor must ensure that all relevant actions taken by it or any other
party in relation to their product distribution arrangements are:

(1) duly documented;

(2) kept for audit purposes; and

(3) made available to the FCA upon request.

Distribution arrangements: senior management responsibility

.....................................................................................................
7.3.9 R A distributor’s governing body must:

(1) endorse and be ultimately responsible for establishing, implementing

and reviewing the product distribution arrangements; and

(2) verify internal compliance with those arrangements on an ongoing

basis.

Distribution arrangements: consistency with target market

.....................................................................................................
7.3.10 R A distributor must ensure that any specific distribution strategy that it sets
up or applies is consistent with:

(1) the distribution arrangements set up by the manufacturer; and

(2) the target market identified in ■ PROD 7.2 (Manufacture of funeral

plans), including any customers to whom the product should not be
distributed.

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 PROD 7 : Product governance: Section 7.3 : Distribution of funeral plans
funeral plans

Distribution arrangements: review of distribution

arrangements
.....................................................................................................
7.3.11 R (1) A distributor must regularly review, at least every 12 months, its
product distribution arrangements to ensure that those arrangements
are still valid and up to date.

(2) When determining the appropriate intervals for the regular review of
their product distribution arrangements, a distributor must take into
account the size, scale and complexity of the funeral plan product
involved.

7.3.12 R When reviewing the product distribution arrangements, a distributor must

verify that the funeral plan products are distributed to the identified target
market.

Distribution arrangements: amending distribution

7 arrangements after review
.....................................................................................................
7.3.13 R A distributor must amend the product distribution arrangements, where
appropriate, in view of the outcome of the review of the product
distribution arrangements.

7.3.14 R When a distributor becomes aware:

(1) that a funeral plan product is not in line with the interests, objectives
and characteristics of its identified target market; or

(2) of other product-related circumstances that may adversely affect the

customer,

it must promptly:

(3) inform the manufacturer; and

(4) where appropriate, amend the distribution arrangements for that

funeral plan product.

7.3.15 R (1) A distributor must take appropriate remedial and mitigating action,
including to amend its product distribution arrangements, where it
identifies:
(a) a product is not providing fair value for customers;
(b) any aspects of a product that may mean it does not offer fair
value; or
(c) the distribution arrangements, including remuneration structures,
may mean the customer is not being provided with fair value.

(2) The actions which the distributor takes for (1) must:
(a) aim to mitigate the situation and prevent further occurrences of
any possible harm to customers, including, where appropriate,
amending the distribution strategy for that product; and

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PROD 7 : Product governance: Section 7.3 : Distribution of funeral plans
funeral plans

(b) include informing any relevant manufacturers promptly about

any concerns they have and any action the distributor is taking.

7.3.16 G For the purposes of ■ PROD 7.3.15R, the steps a distributor may need to take
include (but are not limited to):

(1) amending its remuneration structures;

(2) amending the distribution arrangements;

(3) improving the quality of, or ceasing, any service or benefits it

provides;

(4) where the failure to provide fair value is due to the costs or quality of
additional products, renegotiating the terms of the current
arrangements relating to the additional products, or selecting
alternative providers or distributors of them, in order to provide for a
fair outcome;
7
(5) ceasing to distribute certain products, or ceasing to use certain
distribution channels;

(6) contacting existing customers to inform them of the issues and of the
measures being taken to rectify them; and

(7) providing redress to customers.

■ Release 33 ● Feb 2024 [Link] PROD 7/19

 PROD 7 : Product governance: Section 7.4 : Product governance
funeral plans requirements for subsisting funeral plans

7.4 Product governance requirements

for subsisting funeral plans

Product governance arrangements

.....................................................................................................
7.4.1 R This section applies to a funeral plan provider in relation to a subsisting
funeral plan.

7
7.4.2 R A funeral plan provider must ensure that, in relation to its subsisting funeral
plans, there are adequate product governance arrangements in place,
containing appropriate measures and procedures, to ensure a subsisting
funeral plan is carried out in way that complies with the firm’s regulatory
obligations under the FCA Handbook.

Monitoring and review of funeral plan products

.....................................................................................................
7.4.3 R A firm must:

(1) regularly review its subsisting funeral plans, taking into account any
event that could cause material harm to the customers; and

(2) ensure the review process in (1), provides that appropriate actions be
taken for the mitigation and any potential remediation of the harm
to existing customers.

Monitoring and review of funeral plan products: minimum

review period
.....................................................................................................
7.4.4 R (1) A firm must undertake the regular review at least every 12 months.

(2) When determining the appropriate interval for review of a funeral

plan product, a firm must take into account:
(a) the nature of the customer base, including whether there are
significant numbers of vulnerable customers;
(b) any indicators of customer harm potentially emerging from the
performance of the product; and
(c) any relevant external factors such as changes to the applicable
legal rules, technological developments, or changes to the market
situation.

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PROD 7 : Product governance: Section 7.4 : Product governance
funeral plans requirements for subsisting funeral plans

Product monitoring and review: remedial and mitigating action

.....................................................................................................
7.4.5 R (1) A firm must identify during the lifetime of a subsisting funeral plan
any circumstances related to it that may adversely affect a customer.

(2) Where a firm identifies an event that may adversely affect a customer
holding the funeral plan contract, the firm must:
(a) take appropriate action to mitigate the situation and prevent
further occurrences of the detrimental event; and
(b) promptly inform concerned customers about the remedial action
taken.

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 PROD 7 : Product governance: Section 7.4 : Product governance
funeral plans requirements for subsisting funeral plans

PROD 7/22 [Link] ■ Release 33 ● Feb 2024

PROD Transitional Provisions

Product Intervention and Product

Governance Sourcebook

PROD TP 1
Transitional Provisions
(2) Material to
which the (6) Handbook
transitional (5) Transitional provision:
provision (4) Transitional provision: coming into
(1) applies (3) provision dates in force force
1.1 PROD 4.5R (in R For the pur- From 1 January 1 January 2021
particular, poses of giving 2021 to 1 July
PROD 4.5.1R, effect to the 2021
PROD 4.5.2R, rules in PROD
PROD 4.5.4R(5) 4.5R only, any
and PROD reference to
4.5.7R(2)). being subject
to a reporting
requirement
within SUP
16.27R must be
read as if SUP
16.27R came
into force on 1
January 2021.
1.2 Rules in PROD R Where an ex- From 1 Oc- 1 October
4.2 that will be isting non-in- tober 2021 up 2021
made or vestment in- to and includ-
amended by surance ing 30 Sep-
the Non-Invest- product: tember 2022
ment Insur-
(1)has, before
ance: Product
1 October
Governance,
2021, been ap-
Premium Fin-
proved for
ance, General
marketing and
Insurance
distribution in
Auto-renewal
compliance
and Home and
with PROD 4.2;
Motor Insur-
and
ance Pricing In-
strument 2021 (2)remains
available for
distribution
(including re-
newals) or, if
not still being
marketed or
distributed,
there are pol-
icies under the
product that
remain in
force,

■ Release 33 ● Feb 2024 [Link] PROD TP 1/1

PROD Transitional Provisions

(2) Material to
which the (6) Handbook
transitional (5) Transitional provision:
provision (4) Transitional provision: coming into
(1) applies (3) provision dates in force force
the manufac-
turer must,
within 12
months of 1
October 2021,
review the
product and
ensure it
meets the fair
value re-
quirements in
PROD 4.2.
1.3 PROD TP 1.2 G The effect of From 1 Oc- 1 October
PROD TP1.2 and tober 2021 up 2021
the require- to and includ-
ments in PROD ing 30 Sep-
4.2.14AR to tember 2022
PROD 4.2.14SR
is that where
the firm is un-
able to
identify that
the product or
package pro-
vides fair
value it will
need to im-
mediately:
(1) cease any
distribution of
the product,
whether dir-
ectly or
through an-
other person,
immediately;
and/or
(2) take any
necessary
steps to en-
sure the prod-
uct will pro-
vide fair value
in future.
1.4 Rules in PROD R Where a firm, From 1 Oc- 1 October
4.3 that will be to which PROD tober 2021 up 2021
made or 4.3 applies, dis- to and includ-
amended by tributes an ex- ing 30 Sep-
the Non-In- isting non-in- tember 2022
vestment In- vestment in-
surance: Prod- surance prod-
uct Govern- uct which was
ance, Premium approved for
Finance, Gen- marketing or
eral Insurance distribution

PROD TP 1/2 [Link] ■ Release 33 ● Feb 2024

PROD Transitional Provisions

(2) Material to
which the (6) Handbook
transitional (5) Transitional provision:
provision (4) Transitional provision: coming into
(1) applies (3) provision dates in force force
Auto-renewal before 1 Oc-
and Home and tober 2021 un-
Motor Insur- der PROD 4.2, it
ance Pricing In- must, within
strument 2021 12 months of
1 October
2021, update
its distribution
arrangements
to comply
with the re-
quirements in
column (2).
1.5 PROD 4.6.7R R A firm has 12 From 1 Oc- 1 October
months from 1 tober 2021 up 2021
October 2021 to and includ-
to make the ing 30 Sep-
determination tember 2022
required by
the rule in col-
umn (2).
1.6 PROD 4.6.8R R A firm must From 1 Oc- 1 October
put in the tober 2021 up 2021
place the to and includ-
necessary ing 30 Sep-
product distri- tember 2022
bution ar-
rangements
required by
the rule in col-
umn (2) within
12 months of
1 October
2021.
1.7 PROD TP 1.2 to G A firm to From 1 Oc- 1 October
PROD TP 1.6 which any of tober 2021 up 2021
PROD TP 1.2 to to and includ-
PROD TP 1.6 ap- ing 30 Sep-
ply may elect tember 2022
to apply the
guidance in
PROD 4.2.34EG
in relation to
the reviews
required.
1.8 PROD 4 G A TP firm or a Indefinitely 1 October
Gibraltar- 2021
based firm
may rely on
processes and
arrangements
that have
been applied
to a non-in-
vestment in-
surance prod-

■ Release 33 ● Feb 2024 [Link] PROD TP 1/3

PROD Transitional Provisions

(2) Material to
which the (6) Handbook
transitional (5) Transitional provision:
provision (4) Transitional provision: coming into
(1) applies (3) provision dates in force force
uct which was
approved for
marketing or
distribution
before 1 Oc-
tober 2021
where these
comply with
requirements
equivalent to
those in PROD
4 in:
(1)(for a TP
firm) the TP
firm’s Home
State (or,
where applic-
able, the EEA
state where it
has the estab-
lishment from
which the ser-
vice is pro-
vided); or
(2)(for a Gib-
raltar-based
firm) Gibraltar.

PROD TP 1/4 [Link] ■ Release 33 ● Feb 2024

Transitional Provisions for Transitional Provisions for Funeral Plan
Funeral Plan Products Products

Product Intervention and Product

Governance Sourcebook

PROD TP 2
Transitional Provisions for Funeral Plan Products
(2) Material to
which the (6) Handbook
transitional (5) Transitional provision:
provision (4) Transitional provision: coming into
(1) applies (3) provision dates in force force
2.1 Rules in PROD R Where an existing From 29 July 29 July 2022
7.2 in relation funeral plan 2022
to an existing product:
funeral plan
(1)has, before 29
product
July 2022, been
available for mar-
keting and distribu-
tion; and
(2)remains avail-
able for dis-
tribution,
a manufacturer
must ensure that
the requirements
in PROD 7.2 have
been met and that
it remains appro-
priate for that
product to con-
tinue to be mar-
keted and distrib-
uted from 29 July
2022.
2.2 PROD 7.2 and G The effect of PROD
PROD TP 2.1 TP 2.1 and the re-
quirements in
PROD 7.2 is that
where the manu-
facturer is unable
to demonstrate it
has satisfied these
requirements, then
the manufacturer
will need to:
(1)cease any distri-
bution of the prod-
uct, whether dir-
ectly or through
another person,
immediately; and/
or

■ Release 33 ● Feb 2024 [Link] PROD TP 2/1

Transitional Provisions for Transitional Provisions for Funeral Plan
Funeral Plan Products Products

(2) Material to
which the (6) Handbook
transitional (5) Transitional provision:
provision (4) Transitional provision: coming into
(1) applies (3) provision dates in force force
(2)take any neces-
sary steps to en-
sure the product
meets the require-
ments in PROD 7.2,
including that it of-
fers fair value be-
fore marketing or
distributing the
product from 29
July 2022.
2.3 PROD 7.2 G When identifying From 29 July 29 July 2022
the necessary prod- 2022
uct approval pro-
cess and arrange-
ments and
whether the re-
quirements in
PROD 7.2 are met, a
manufacturer may
take into account
any previous prod-
uct governance ar-
rangements, in-
cluding reviews
which the manu-
facturer (or where
there is more than
one manufacturer,
any other manufac-
turer) has under-
taken and the ex-
tent to which
these would or
would not have
complied with
PROD re-
quirements.

PROD TP 2/2 [Link] ■ Release 33 ● Feb 2024