Good culture and consumer outcome focused decision making in firms contributes to the provision of financial products that meet the needs, interests and objectives of consumers. Product governance through the product life cycle is a significant focus for policy makers seeking to provide a framework for consumer centric systems, processes and outcomes. On the other hand, poor culture and misconduct in financial firms often derive from a lack of focus on the consumer and can result in consumer detriment and undermine trust and stability in the financial system.
This report from FinCoNet in conjunction with the G20/OECD Task Force on Financial Consumer Protection presents findings on product governance and culture in relation to banking products. The report is based on 29 responses collected from 25 participating jurisdictions and provides information on policy development in this area, the use of product governance tools by supervisors and the importance of firm culture to motivate consumer focused outcomes. The report includes examples and case studies to illustrate various approaches outlined in the report.
The report and accompanying literature review, published as a companion document, identify a strong link between good organisational culture and product governance. Culture in financial services firms refers to the shared values and norms that drive behaviours and decision making within the organisation. While culture is challenging to measure, product governance frameworks provide for systems, controls and process for consumer-centric decision making and a means to monitor drivers of good culture.
Nearly all respondents have statutory product governance requirements for banking products in their jurisdiction, requiring internal control systems in firms, governing strategies for product design and methods used to reach the market. Respondents frequently use suitability requirements, including target market definitions, to necessitate the consideration of consumer needs, objectives and constraints. Other approaches include the oversight of firms’ internal procedures for product approvals and/or requiring firms test banking products before they are launched.
Product governance usually applies to all distribution channels, although critically in some jurisdictions, product governance requirements do not apply to newer electronic means of distribution. In a context of accelerated digital innovation, this should be a focus for policy makers.
Risks for consumers associated with poor product design and inappropriate product distribution were examined for different banking products. For credit products, risks identified were consumer affordability and the suitability of products or specific product features. Product governance is important to mitigate risks associated with product design, such as fee structures, and are used in combination with other regulatory requirements, including individual suitability assessments. Few respondents reported using product governance provisions to provide protections for specific vulnerable consumers groups, such as the elderly.
Approaches used by supervisory authorities to detect and enforce failures of product governance include the use of consumer complaint information, inspections, market monitoring and data reporting. Complaints monitoring is important to ensure product assessments are robust and consumers’ needs are met. Most respondents reported that they have enforcement and sanctioning powers.
Policy makers and supervisors around the world are implementing a variety of product governance tools to drive consumer-centric product design and sales of banking products. Future reviews of the effectiveness of these various frameworks will inform refinements to product governance approaches and tools, particularly in relation to distribution.
Further, defining good culture in financial firms and working to identify measures of drivers of good and poor culture will assist to better achieve consumer focused decision making in financial firms and in turn promote confidence in financial firms and their products.
