PRIN 2A.3 Consumer Duty: retail customer outcome - products and services

1A manufacturer must maintain, operate and review a process for the approval of:

1. (1)

   a product; and

2. (2)

   significant adaptations of a product,

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

1For each product that is not a closed product, a manufacturer’s product approval procedures must:

1. (1)

   specify the target market for the product at a sufficiently granular level, taking into account the characteristics, risk profile, complexity and nature of the product;

2. (2)

   take account of any particular additional or different needs, characteristics and objectives that might be relevant for retail customers in the target market with characteristics of vulnerability;

3. (3)

   ensure that all relevant risks to the target market, including any relevant risks to retail customers with characteristics of vulnerability, are assessed;

4. (4)

   ensure that the design of the product:

   1. (i)

      meets the needs, characteristics and objectives of the target market;

   2. (ii)

      does not adversely affect groups of retail customers in the target market, including groups of retail customers with characteristics of vulnerability; and

   3. (iii)

      avoids causing foreseeable harm in the target market;

5. (5)

   ensure that the intended distribution strategy is appropriate for the target market; and

6. (6)

   require the manufacturer to take all reasonable steps to ensure that the product is distributed to the identified target market.

1. (1)

   1A manufacturer of a closed product must maintain, operate and review a process to assess and regularly review whether any aspect of the product results in the firm not complying with the cross-cutting obligations (PRIN 2A.2) in relation to existing retail customers.

2. (2)

   The manufacturer’s process in (1) does not have to comply with PRIN 2A.3.2R, PRIN 2A.3.4R, PRIN 2A.3.7R, PRIN 2A.3.9R, PRIN 2A.3.10R, PRIN 2A.3.11R or PRIN 2A.3.12R.

1The manufacturer’s process must also assess and regularly review whether the closed product affects groups of retail customers in different ways and in particular whether any retail customers in the target market with characteristics of vulnerability are adversely affected by any aspect of the product.

1A manufacturer must regularly review its products taking into account any event that could materially affect the potential risk to the target market. In doing so, the manufacturer must assess at least the following:

1. (1)

   whether the product meets the identified needs, characteristics and objectives of the target market, including identified needs, characteristics and objectives of retail customers in the target market with characteristics of vulnerability; and

2. (2)

   whether the intended distribution strategy remains appropriate, including whether the product is being distributed to the target market or reaching retail customers outside the target market.

1Where a manufacturer identifies any circumstances related to the product that may adversely affect retail customers, the manufacturer must:

1. (1)

   take appropriate action to mitigate the situation and prevent any further harm; and

2. (2)

   where appropriate, promptly inform other relevant persons in the distribution chain about the circumstances that led to action being taken and the remedial action taken.

1. (1)

   1Manufacturers must test their products appropriately, including scenario analyses where relevant.

2. (2)

   A manufacturer must, as part of discharging its obligations in (1), assess whether the product meets the identified needs, characteristics and objectives of the target market, including identified needs, characteristics and objectives of retail customers in the target market with characteristics of vulnerability.

3. (3)

   Manufacturers must test their products in a qualitative manner and, depending on the type and nature of the product and the related risk of detriment to retail customers, quantitative manner.

1If the results of the testing show that the product does not meet the identified needs, characteristics and objectives of the target market, including identified needs, characteristics and objectives of any group or groups of retail customers in the target market with characteristics of vulnerability:

1. (1)

   in relation to a new product or a significant adaptation of an existing product, the manufacturer must not bring the new or adapted product to the market;

2. (2)

   in relation to an existing product, it must immediately:

   1. (a)

      cease marketing or distributing the product (whether directly or indirectly);

   2. (b)

      cease any renewals for existing retail customers, provided that existing retail customers are easily able to move to an alternative product that provides at least the same level of benefit at an equivalent cost to the customer, whether with the firm or with another firm; and

   3. (c)

      (where the firm intends to continue to market and distribute the product), make such changes as are necessary for the product to meet the identified needs, characteristics and objectives of the target market, including identified needs, characteristics and objectives of any group or groups of retail customers in the target market with characteristics of vulnerability.

1Where firms collaborate to manufacture a product, they must set out in a written agreement their respective roles and responsibilities in the product approval process in PRIN 2A.3.

1. (1)

   1A manufacturer must select distribution channels that are appropriate for the target market.

2. (2)

   A manufacturer must provide each distributor with adequate information in good time to enable it to comply with the rules applicable to it in this section.

3. (3)

   The information to be made available under (2) includes all appropriate information regarding the product and the product approval process from time to time to enable the distributor to comply with PRIN 2A.3.16R.

1Where a distributor distributes a product manufactured by a person to whom the rules in PRIN 2A.3 do not apply, it must take all reasonable steps to comply with PRIN 2A.3.14R to 2A.3.23G.

1A distributor must maintain, operate and review product distribution arrangements for each product it distributes that:

1. (1)

   avoid causing and, where that is not practical, mitigates foreseeable harm to retail customers;

2. (2)

   support a proper management of conflicts of interest; and

3. (3)

   ensure the needs, characteristics and objectives of the target market are duly taken into account.

1A distributor must ensure that the product distribution arrangements contain effective measures and procedures to obtain sufficient, adequate and reliable information from the manufacturer about the product to:

1. (1)

   understand the characteristics of the product;

2. (2)

   understand the identified target market;

3. (3)

   consider the needs, characteristics and objectives of any retail customers in the target market with characteristics of vulnerability;

4. (4)

   identify the intended distribution strategy for the product; and

5. (5)

   ensure the product will be distributed in accordance with the needs, characteristics and objectives of the target market.

1. (1)

   1This rule applies where a distributor sets up or implements a specific distribution strategy to supplement the manufacturer’s strategy under PRIN 2A.3.4R(5).

2. (2)

   Any strategy set up or implemented by a distributor must be consistent with:

   1. (a)

      the manufacturer’s intended distribution strategy; and

   2. (b)

      the identified target market.

1To support product reviews carried out by manufacturers, a distributor must, upon request, provide manufacturers with relevant information including, where appropriate, sales information and information on the regular reviews of the product distribution arrangements.

1. (1)

   1A distributor must regularly review its distribution arrangements to ensure that they are still appropriate and up to date.

2. (2)

   When reviewing the distribution arrangements, a distributor must verify that it is only distributing each product to the identified target market.

1Where a distributor identifies an issue following a review, it must:

1. (1)

   make appropriate amendments to the product distribution arrangements;

2. (2)

   where harm has been identified, take appropriate action to mitigate the situation and prevent any further harm; and

3. (3)

   promptly inform all relevant persons in the distribution chain about any action taken.

1Where a product has existing contracts entered into before 31 July 2023, unless the firm has identified a breach of rules in force at the time, the appropriate action a firm must take under PRIN 2A.3.8R or PRIN 2A.3.20R does not require a firm to waive its vested rights under those existing contracts.

1PRIN 2A.3 does not apply to any firm subject to PROD 3, PROD 4, or PROD 7 for any product they manufacture or distribute that falls within the scope of the relevant PROD chapter.

1A closed product not already subject to PROD must follow the closed product rules set out in PRIN 2A.3.5R to PRIN 2A.3.6R and 2A.3.21R to PRIN 2A.3.23G.

1PRIN 2A.3 does not apply to both:

1. (1)

   units in an authorised fund or the sub-fund of such a scheme, where the relevant authorised fund or sub-fund is in the process of winding up or termination under, or in accordance with, COLL 7.3, COLL 7.4, or COLL 7.4A; and

2. (2)

   units or shares in a fund or sub-fund which is not an authorised fund or a sub-fund of such a scheme or AIF, where the relevant fund or sub-fund is in a process of winding up or termination which is equivalent to that referred to in (1).