PRODUCT GOVERNANCE for financial products is an increasingly important area for banks and regulators. In part, this reflects the increasing complexity of financial products as a result of technological innovation (for a discussion of related issues in Lexicon, see “Fintech and smart contracts” in China Business Law Journal, volume 7, issue 8; “Cryptocurrencies” in China Business Law Journal, volume 8, issue 9; and “Regulating crypto assets” in China Business Law Journal, volume 13, issue 4). This article explains the concept of product governance, outlines operational and regulatory fundamentals, and considers developments in jurisdictions such as the UK, Australia, Hong Kong and mainland China.
WHAT IS PRODUCT GOVERNANCE?
A simple definition of product governance as the concept applies to financial products is:
“How firms design, operate and sell [or distribute] financial products.”
A more detailed definition refers to the processes and procedures across the life cycle of financial products and makes reference to the need to comply with the design and distribution obligations:
“Product governance arrangements are the systems, processes and procedures in place across the life cycle of financial products that can help ensure that an issuer or distributor complies with the design and distribution obligations.”
In recent years, regulators across the world have imposed obligations requiring financial institutions to design financial products to meet the needs of customers in the relevant target market and to distribute their products appropriately. These obligations are particularly relevant to financial products that are distributed to retail customers. However, such compliance also concerns business banking and wholesale or institutional markets.
Recently there has been increased emphasis on product governance for the whole product life cycle. This includes both upstream processes, which covers product development and design, and downstream activities such as marketing, distribution, and post-sale monitoring and handling. In other words, the relevance of the concept of product governance does not end with product development and design, but continues to apply to downstream activities in respect of the banking or financial product.
The emphasis on processes and procedures throughout the product life cycle is important, as experience has shown that achieving appropriate product governance and oversight is as much about having the correct procedures and processes as it is about having the right products and documentation (such as terms and conditions). This emphasis on procedures and processes captures the need for effective communications (both internal and external), record-keeping, monitoring, product testing and training. It also captures the need to have the right communications with the right people at the right times. In this regard, the right people include management and the risk and compliance team.
You must be a
subscribersubscribersubscribersubscriber
to read this content, please
subscribesubscribesubscribesubscribe
today.
For group subscribers, please click here to access.
Interested in group subscription? Please contact us.
你需要登录去解锁本文内容。欢迎注册账号。如果想阅读月刊所有文章，欢迎成为我们的订阅会员成为我们的订阅会员。
Andrew Godwin is currently a member of a World Bank team that is advising a central bank in Asia on potential reforms to its mandate. He previously practised as a foreign lawyer in Shanghai (1996-2006) before returning to his alma mater, Melbourne Law School in Australia, to teach and research law (2006-2021). Andrew is currently Principal Fellow (Honorary) at the Asian Law Centre, Melbourne Law School, and a consultant to various organisations, including Linklaters, the Australian Law Reform Commission and the World Bank.
