PROD 1 Product Intervention and Product Governance Sourcebook (PROD)

PROD 2 sets out the FCA’s approach to issuing temporary product intervention rules. It is of relevance to all firms.

PROD 3 applies to

1. (1)

   a MiFID investment firm;

2. (2)

   a CRD credit institution;

3. (3)

   a MiFID optional exemption firm; and

4. (4)

   branches of third country investment firms;

5. with respect to:

6. (5)

   manufacturing financial instruments and structured deposits; and

7. (6)

   distributing financial instruments, structured deposits and investment services.

[Note: articles 1(3), 1(4), 16(3), 24(2) and 41(2) of MiFID]

A TP firm and a Gibraltar-based firm must also comply with the provisions in PROD 1.3 and PROD 3 in relation to a pathway investment, with respect to activities carried on from an establishment maintained by it, or its appointed representative, in the United Kingdom.

1. (1)

   Subject to (2) other firms which manufacture or distribute financial instruments or structured deposits should take account of PROD 3 as if it were guidance on the Principles and other relevant rules and as if “should” appeared in PROD 3 rules instead of “must”.

2. (2)

   Paragraph (1) does not apply to a firm to the extent that it is required to comply with Principle 12 (Consumer Duty) and PRIN 2A in relation to a product.

PROD 3.3.1R does not apply to eligible counterparty business.

[Note: article 30(1) of MiFID]

PROD 3 applies to a firm with respect to activities carried on from an establishment maintained by it, or its appointed representative, in the United Kingdom.

1. (1)

   PROD 3 also applies to a firm with respect to activities from an establishment overseas with a client in the United Kingdom.

2. (2)

   But PROD 3 does not apply to those activities if the office from which the activity is carried on were a separate person and the activity:

   1. (a)

      would fall within the overseas persons exclusions in article 72 of the Regulated Activities Order; or

   2. (b)

      would not be regarded as being carried on in the United Kingdom.

PROD 4 applies to:

1. (1)

   an insurance intermediary; and

2. (2)

   an insurer,

with respect to:

1. (3)

   manufacturing insurance products;

2. (3A)

   product governance and distribution arrangements for legacy non-investment insurance products (see PROD 4.6); and

3. (4)

   distributing insurance products.

[Note: articles 1(2) and 25 of the IDD]

A TP firm and a Gibraltar-based firm must also comply with the provisions in:

1. (1)

   PROD 1.4 and PROD 4.5 (Additional expectations for manufacturers and distributors in relation to value measures data);

2. (2)

   PROD 1.4 and PROD 4 in relation to a pathway investment;

3. (3)

   PROD 1.4, PROD 4 and (where applicable) PROD TP 1 in relation to non-investment insurance products (including legacy non-investment insurance products) that are, or will be, marketed or distributed, or there are policies under the product that remain in force, in the United Kingdom.

PROD 4.5 (Additional expectations for manufacturers and distributors in relation to value measures data) applies regardless of when the product was first manufactured.

PROD 4 does not apply in relation to an insurance product that is:

1. (1) (a) a specialist risks contract; or
2.      (b) a general insurance contract (other than a specialist risks contract) distributed to larger commercial customers who make the arrangements preparatory to them concluding the contract of insurance (directly or through an agent),
3.       which meets the conditions in PROD 1.4.3-AR;
4. (2) a reinsurance contract; or
5. (3) a bespoke insurance contract within the meaning of PROD 1.4.3-CR. 

The conditions in PROD 1.4.3R(1) are that the insurance product is used exclusively for effecting the types of contract set out in PROD 1.4.3R(1)(a) or (b) where there are no:

1. (1)

    policyholder(s); or

2. (2)

    (where relevant) policy stakeholders, including, in relation to a multi-occupancy building insurance contract, any leaseholder,

who in that context are natural persons acting for purposes outside of their trade, business or profession.

1. (1) A bespoke insurance contract in PROD 1.4.3R(3) is a non-investment insurance contract where the requirements in (2) are met, and either:
   1. (a) it is an adaptation of one of the firm's existing insurance products beyond what the existing product covers; or
   2. (b) it is a new contract of insurance that has been created by the firm and not adapted from the firm's existing insurance products.
2. (2) A contract in (1) is only a bespoke insurance contract if:
   1. (a) the firm adapts or creates it solely and specifically for, and in response to the request of, a customer, in order to meet that customer's particular insurance needs, objectives, interests and/or characteristics, where those needs, objectives, interests or characteristics cannot currently be met by the firm's existing insurance products (unless adapted); and
   2. (b) the firm does not market it or offer it as available to any other customers.

1. (1) Reference to what the existing product covers in PROD 1.4.3-CR(1)(a) includes:
   1. (a) different variants of the product and any optional extras or extended cover generally offered with or part of the existing product. A contract resulting from an adaptation of an existing product to give effect to choices by selecting from those variants, optional extras or that extended cover, is not a bespoke contract; and
   2. (b) situations where insurers amend contracts to include conditions, restrictions or provisions (by endorsement or otherwise) to address particular risks arising in relation to a particular customer, and which risks could also apply to others within the existing target market. This only applies where it can reasonably be said that the cover as amended falls within the same general scope of cover envisaged by the existing product. For example, a home insurer may impose a condition in relation to the locks required to ensure cover in a particular post code area considered by the insurer to present higher risks.
2. (2) Reference to ‘on the request of a customer’ also includes where requests are made by agents with the appropriate authority of the customer – for example, an insurance intermediary who, on behalf of the customer, approaches the insurer and negotiates the terms of the bespoke insurance contract.
3. (3) A firm marketing itself in general terms as having specialist expertise in a particular field,for example, that on request the firm can consider bespoke products in relation to adventurous or hazardous sport activities, is not the kind of marketing envisaged in PROD 1.4.3.-CR(2)(b).
4. (4) An existing insurance product referred to in PROD 1.4.3-CR is a product manufactured by the firm in line with PROD 4.2.

As long as it meets the requirements set out in PROD 1.4.3-CR: 

1. (1) a bespoke insurance contract can be used again if other customer approach the firm for similar insurance cover without that use leading to the contract being considered an ‘insurance product’ for the purposes of PROD 4. However, in order to meet the requirements in PROD 1.4.3-CR the firm will need to be satisfied that the customer's approach does not result from the marketing or other offer by that firm to potential customers of the availability from the firm of that type of similar insurance cover (however small the target market or group of customers might be); and
2. (2) a contract that has been specifically created by a firm (PROD 1.4.3-CR(1)(b)) can contain existing insurance product wording.

Where a firm:

1. (1)

   manufactures or distributes pathway investments or default options in connection with its operating of a retail client’s personal pension scheme or stakeholder pension scheme; and

2. (2)

   is not otherwise within the scope of the rules in result matched startPRODresult matched end in relation to that manufacturing or distribution activity, then PROD 4, PROD 1.4.4R and PROD 1.4.10G apply with respect to that manufacturing or distribution activity.

1. (1)

    For the purposes of PROD 4, an insurance intermediary will be considered a manufacturer where an overall analysis of their activity shows that it has a decision-making role in designing and developing an insurance product for the market.

2. (2)

    For the purposes of (1), a decision-making role must be assumed, in particular, where an insurance intermediary autonomously determines the essential features and main elements of an insurance product, including its coverage, price, costs, risk, target market and compensation and guarantee rights, which are not substantially modified by the insurance undertaking providing coverage for the insurance product.

3. (3)

    [deleted]

[Note: article 3 of the IDD POG Regulation]

PROD 4 applies to a firm with respect to activities carried on from an establishment maintained by it, or its appointed representative:

1. (1)

   (for all insurance products and pathway investments) in the United Kingdom; and

2. (2)

   (in addition, for non-investment insurance products) overseas, in relation to an insurance product that is, or will be, marketed or distributed, or there are policies under the product that remain in force, in the United Kingdom.

[Note: in respect of (1), article 7(2) of the IDD]

PROD 4 applies in relation to an overseas non-investment insurance product with the following modifications:

1. (1)

   The changes made to PROD 4.2 and PROD 4.3 in Annex E of the Non-Investment Insurance: Product Governance, Premium Finance, General Insurance Auto-renewal and Home and Motor Insurance Pricing Instrument 2021 do not apply, unless otherwise specified in (2).

2. (2)

   The following rules and guidance in Annex E of the Non-Investment Insurance: Product Governance, Premium Finance, General Insurance Auto-renewal and Home and Motor Insurance Pricing Instrument 2021 continue to apply:

   1. (a)

      PROD 4.2.1AG;

   2. (b)

      PROD 4.2.21AG;

   3. (c)

      PROD 4.2.34AG; and

   4. (d)

      PROD 4.2.36BR.

[Note: the Non-Investment Insurance: Product Governance, Premium Finance, General Insurance Auto-renewal and Home and Motor Insurance Pricing Instrument 2021 can be found at [/instrument/2021/FCA_2021_19.pdf]]

PROD 5 applies to a firm which:

1. (1)

   offers to sell an extended warranty to a customer; or

2. (2)

   refers, invites or induces a customer to obtain an extended warranty from a person connected to the firm;

in connection with the entering into of a rent-to-own agreement with the firm.

PROD 5 applies to a firm with respect to activities carried on from an establishment maintained by it, or its appointed representative, in the United Kingdom.

PROD 6 applies to a firm:

1. (1)

   that manufactures or distributes pathway investments or default options in connection with its operating of a retail client’s personal pension scheme or stakeholder pension scheme;

2. (2)

   within the scope of PROD 4 when manufacturing pathway investments or default options, other than in connection with its operating of a retail client’s personal pension scheme or stakeholder pension scheme, as guidance with respect to that manufacturing activity;

3. (3)

   within the scope of PROD 3 when manufacturing pathway investments or default options, other than in connection with its operating of a retail client’s personal pension scheme or stakeholder pension scheme, as guidance with respect to that manufacturing activity.

A Gibraltar-based firm must also comply with the provisions in PROD 7 (Product governance: funeral plans).

1. (1)

   For the purposes of PROD 7, a funeral plan intermediary is a manufacturer of a funeral plan product where an overall analysis of their activity shows that they have a decision-making role in designing and developing a funeral plan contract for the market.

2. (2)

   A decision-making role will be assumed, in particular, where a funeral plan intermediary autonomously determines the essential features and main elements of a funeral plan contract, including any of its price, costs, target market or guarantee rights, which are not substantially modified by the funeral plan provider.

3. (3)

   Personalisation of and adaptation of existing funeral plan products in the context of funeral plan distributions for individual customers, as well as the design of tailor-made contracts at the request of a single customer, are not manufacturing.

PROD 7 applies to a firm with respect to activities carried on by it, or its appointed representative, in relation to:

1. (1)

   a funeral plan product; and

2. (2)

   a subsisting funeral plan.

1. (1)

   PROD 7 applies to:

   1. (a)

      a funeral plan provider; and

   2. (b)

      a funeral plan intermediary,

   with respect to:

   1. (c)

      manufacturing funeral plan products; and

   2. (d)

      distributing funeral plan products.