A focus on your PROD obligations

What is PROD?

PROD is essentially shorthand for the Product Intervention and Product Governance Sourcebook. The purpose of PROD is to make sure that investment products recommended to clients:

  1. fulfil the needs of one or more identified target markets
  2. are distributed appropriately
  3. deliver appropriate client outcomes

In January 2020, the FCA published a Dear CEO letter to financial advisers setting out its approach to tackling key areas of concern and summarising the actions they expect financial advice firms to take in relation to:

  • assessing suitability of advice and disclosure
  • defined benefit pension transfer advice
  • pension and investment scams
  • adequate financial resources and professional indemnity insurance
  • speculative mini-bonds
  • senior managers and certification regime
  • EU withdrawal

The FCA expects firms to consider and discuss the Dear CEO Letter at a board level and agree what further action they should take. The FCA also expects principal firms to share the letter with their appointed representatives.

Of particular importance is the top bullet, 'assessing suitability of advice and disclosure' and the fact that the FCA will be conducting a second 'Assessing Suitability Review'.

This will focus on initial and ongoing advice to people taking an income in retirement. Firms need to make sure that the advice they provide is suitable, the costs and charges are disclosed early and that they act in the best interests of their clients. Conflicts of interest must be identified and where they cannot be prevented, disclosed and managed.

Following the PROD rules can help you meet these regulatory requirements.