Retail banking: product governance review

The latest stage of our supervision work looked at product governance in small and medium-sized retail banks. It examined how well banks consider customers’ needs when they design and sell products and provide after-sales services. We found common themes across all the firms we looked at.

What we looked at

Our review looked at two-year fixed rate savings products from a sample of small to medium-sized banks. We focused particularly on how firms’ product governance frameworks help them identify and manage the ongoing conduct risks of their products.

We looked at firms’ review processes to assess:

  • how firms identify and respond to risks from both their customers changing needs and external factors
  • whether firms’ product governance frameworks provide sufficient challenge to their risk assessment assumptions
  • how these product reviews identify potential customer harm, provide effective management information and use customer feedback

We did not set out to test how well firms were complying with our rules. However, firms may find it useful to look at our findings in the context of our  Banking Conduct of Business Source Book (BCOBS) rules as well as European Banking Authority guidelines on product oversight and governance and the British Bankers Association (BBA) Industry Guidance for FCA BCOBS.

What we found 

  • All firms have product-focused committees to discuss product issues and make decisions. Some have separate product conduct and commercial committees, while others used one committee for both.
  • Staff with senior manager functions were involved in all stages of the decision-making process. Those we spoke to were very clear about what they were accountable for and said the Senior Managers and Certification Regime (SM&CR) had helped clarify this.
  • All firms used a product governance framework that covered all stages in the product lifecycle, including policies and procedures for product design, launch and product reviews. They continually develop and improve their frameworks.
  • Product design processes appear established and embedded. However, this was not always the case for product review processes, where firms re-assess products once they are on sale.
  • All firms’ product review processes included capturing feedback from existing customers.

We also found examples of positive practice and others, where improvements could be made. We did not find any breach of rules or guidance so the ‘areas for improvement’ simply highlight where firms can improve their practices to help achieve good outcomes.

Examples of good practice

  • The most effective product governance frameworks focused on delivering good customer outcomes during all stages of the product lifecycle, from design to review. In these cases, firms set the measures of customer outcomes at the design stage and used them to assess continuing performance.
  • Some firms were particularly active in seeking customer feedback, both for existing products and services and for new communications. While some use traditional means, such as customer surveys, others have set up dedicated customer panels and focus groups. Some firms also use feedback to test customer outcomes as well customer satisfaction. This is important, as a satisfied customer is not necessarily being treated fairly.
  • Firms reviewed a range of customer and commercially focused Management Information (MI) to help identify potential conduct risks. Metrics included: if products are being sold to the intended target market, the volume of early withdrawal requests and the number of complaints upheld by the Financial Ombudsman Service.
  • Most of the firms in our sample monitored service and complaints MI on a daily, weekly and monthly basis with the aim of responding to issues quickly.
  • Most firms senior management provided a positive ‘tone from the top’, usually coming from the CEO to the front line and encouraging a focus on customers and conduct.
  • All firms contacted customers to let them know when savings rates expired or products matured. Most firms offered existing customers access to the same promotional rates available to new customers.

Areas for improvement

  • Some firms needed to strengthen their product review processes to ensure they act on any identified lessons or risks. For example, recording the outcome of product reviews more clearly.  
  • All firms’ gave clear and concise information in their letters to customers. However, some firms need to be clearer in their terms and conditions and other product information about whether customers can withdraw funds before the term ends without penalty.
  • None of the firms in our sample tested customer understanding. We encourage firms to familiarise themselves with the Parliamentary Commission on Banking Standards’ (PCBS) recommendations about testing customer understanding, which we have responded to, as well as our Thematic Review on Customer Understanding.