EBA published the second report on how the industry has implemented the EBA guidelines on product oversight and governance arrangements. The report identifies good practices of financial institutions and concludes that many of them do not sufficiently put the required focus on ensuring that needs of consumers are met in line with the guidelines. Therefore, EBA encourages financial institutions to ensure that the interests, objectives, and characteristics of consumers are taken into account when applying product oversight and governance arrangements, to avoid consumer detriment. The annex to the report sets out certain good practices, the application of which would contribute to compliance with the EBA guidelines and to the consistency of supervisory and consumer outcomes.
The report identifies ways for financial institutions to further strengthen the application of the EBA guidelines on product oversight and governance arrangements. It does so by outlining good practices identified in the sample concerning the scope of the EBA guidelines and general governance, also identifying the target market, product testing, product monitoring, remedial actions, and the product oversight and governance arrangements for distributors. The report confirms the conclusions reached in the first report; specifically, while surveyed manufacturers had implemented the internal processes in relation to product oversight for retail products, this was not necessarily done in a way that put the required focus on ensuring that consumer needs are met. Despite the objectives of the EBA guidelines to enhance consumer protection and to address the prudential risks arising from misconduct, financial institutions appeared to focus almost only on the requirements set out in the EBA guidelines on internal governance under the Capital Requirements Directive (CRD IV). The assessment also highlights that the application of the EBA guidelines varies significantly according to the size of the financial institutions, between the member states and also between financial institutions in the same member state.
The EBA guidelines on product oversight and governance arrangements consist of a set of eight guidelines for manufacturers and four guidelines for distributors; they are addressed to credit institutions CRD IV, payment institutions under the Payment Services Directive (PSD 1/PSD 2), electronic money institutions under the Electronic Money Directive (EMD), and mortgage creditors under the Mortgage Credit Directive (MCD) to the extent that those are financial institutions under the EBA Regulation. EBA conducted this review with 78 credit institutions, payment, and e-money institutions across 12 member states in EU. The EBA and relevant competent authorities will continue monitoring how financial institutions apply these EBA guidelines and whether they make use of the good practices identified in this report. However, EBA does not plan to carry out another analysis for the purpose of the supervisory convergence work of EBA on the guidelines on product oversight and governance arrangements in the immediate future.
Keywords: Europe, EU, Banking, Product Oversight and Governance, CRD IV, Governance, Digitalization, Good Practices, EBA
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