The European Banking Authority (EBA) is seeking feedback on draft guidelines on product oversight and governance arrangements for retail banking products including structured deposits. The guidelines, which apply to both manufacturers and distributors of retail banking products, aim at ensuring that the interests, objectives and characteristics of consumers are taken into account when such products are designed and brought to market.
The EBA said that all forms of deposits, including ‘structured deposits’ as defined by Markets for Financial Instruments Directive (Mifid II), will make part of the new guidelines as financial institutions issuing them are subject to the Capital Requirements Directive (CRD IV) and the Deposit Guarantee Scheme Directive (DGSD).
In addition, the Commission is currently developing delegated acts under Mifid II, on specific aspect of the selling and advising of structured deposits. The EBA will also monitor the development of the European Commission’s delegated acts, so as to ensure the respective requirements are clearly expressed and spell out in the final EBA guidelines.
“Developments in the markets for financial services in recent years have shown that failures in the conduct of financial institutions towards their customers can cause not only significant consumer detriment but also undermine market confidence, financial stability and the integrity of the financial system,” said the EBA in its consultation report. “In addition, conduct failure can result in direct costs for financial institutions, as a result of redress and compensation pay-outs, penalties, fines, and loss of income.”
The new guidelines are aimed at addressing some of the causal drivers of conduct failure. Following the initial work carried out by the Joint Committee of the three European Supervisory Authorities (the European Securities and Markets Authority (Esma), the European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (Eiopa) in 2013, the EBA has developed detailed guidelines for the product oversight and governance of retail banking products, which also include mortgages, loans, credit cards, payment services, payment accounts and electronic money.
The EBA guidelines will provide a framework for “robust and responsible product design and distribution” to avoid future cases of detriment.
“When designing its products, the banking sector must consider the interests, objectives and characteristics of its customers,” said the EBA. “This is crucial to help re-establish and maintain confidence in retail banks.”
The requirements for manufacturers will cover product development internal control functions, identification of the target market, product testing, product monitoring, remedial actions, the selection of distribution channels, and information to distributors; while the requirements for distributors will address distributor’s internal arrangements, identification and knowledge of the target market, and information requirements.
The consultation will run until 10 February 2015. The EBA expects to publish its final guidelines in Q2 2015, which will be applied as of 1 April 2016.
Click in the link to read the EBA consultation paper.
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