1The 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.

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.

Good product governance should result in products that:

1. (1)

   meet the needs of one or more identifiable target markets;

2. (2)

   are sold to clients in the target markets by appropriate distribution channels; and

3. (3)

   deliver appropriate client outcomes.

One of the effects of PROD 1.3.6R is to override the application of this sourcebook to the overseas establishments of EEA firms in circumstances covered by MiFID.

The guidance in this chapter provides a general overview only and is not comprehensive.

When considering the impact of a directive on the territorial application of a rule, a firm will first need to consider whether the relevant situation involves a non-UK element. PROD 1.3.6R is unlikely to apply if a UK firm is doing business in a UK establishment for a client located in the United Kingdom in relation to a UK product, in other words PROD 3 will apply to the UK firm. However, if there is a non-UK element, the firm should consider whether:

1. (1)

   it is subject to the directive (in general, directives only apply to UK firms and EEA firms, but the implementing provisions may not treat non-EEA firms more favourably than EEA firms);

2. (2)

   the business it is performing is subject to the directive; and

3. (3)

   the particular rule is within the scope of the directive.

If the answer to all three questions is ‘yes’, PROD 1.3.6R may change the application of the rules in this sourcebook.

When considering a particular situation, a firm should also consider whether two or more directives apply.

PERG 13 contains general guidance on the persons and businesses to which MiFID applies.

For a UK MiFID investment firm, rules in this sourcebook that are within the scope of MiFID generally apply to its MiFID business carried on from an establishment in the United Kingdom. They also generally apply to its MiFID business carried on from an establishment in another EEA State, although in the case of rules that implement article 24(2) MiFID only where that business is not carried on within the territory of that EEA State. Where a MiFID investment firm carries on MiFID business from a branch in another EEA State, organisational requirements, including rules implementing product manufacture obligations under article 16 MiFID are home state requirements and therefore FCA responsibility (see SUP 13A Annex 1G).

[Note: see articles 34(1) and 35(1) and (8) of MiFID]

For an EEA MiFID investment firm, rules in this sourcebook that are within the scope of MiFID generally apply only to its MiFID business if that business is carried on from an establishment in, and within the territory of, the United Kingdom and only to the extent that the rules implement article 24(2) of MiFID.

[Note: see articles 35(1) and (8) of MiFID]

The guidance on the Electronic Commerce Directive in COBS 1 Annex 1, Part 3, paragraph 7 applies equally in relation to the rules in PROD 3.

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.