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A poke or a PROD?

The Product Intervention and Product Governance Sourcebook (PROD) rules were introduced over 2 years ago, as part of the wider MifID II provisions.  These rules are aimed at ensuring that products and services are properly understood and distributed to their appropriate target markets.  The rules place requirements on both ‘manufacturers’ (e.g. insurance companies and fund managers) and ‘distributors’ (e.g. financial advisers).

Different rules apply to manufacturers and distributors of investment products and services. Most financial adviser firms will be classed as distributors, therefore this article focuses more on the requirements for financial advisers.  That being said, an adviser will need to assess and understand the products they distribute and, as such, will need an awareness of who they are manufactured for (the target market).

When recommending a product – be that fund, product or platform – an adviser must:

  • Understand the product it distributes to clients
  • Assess the compatibility of the product with the needs of the client
  • Ensure that products are only distributed when this is in the best interests of the client

A clearly defined and documented process will be important, not only in helping to ensure clients are only recommended products compatible with their requirements, but in demonstrating to the regulator compliance with the PROD rules.  This process naturally dovetails with any segmentation of clients work that has already been carried out by advisers.  It is also worth noting that the PROD rules necessitate regular reviews of the products being recommended (distributed), to ensure ongoing suitability.

A more detailed read concerning PROD rules can be found in the FCA Handbook:

https://www.handbook.fca.org.uk/handbook/PROD/

If you would like to discuss how we can help with PROD, please contact us.