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The Notion of Insurance-Based Investment Products Read chapter Read first chapter

2019 | OriginalPaper | Chapter

The Product Oversight and Governance: Standards and Liabilities

Author : Pierpaolo Marano

Published in: Distribution of Insurance-Based Investment Products

Publisher: Springer International Publishing

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Abstract

This paper investigates the rules on product oversight and governance, which are among the most significant, if not the most significant among those introduced by the IDD. The paper focuses on the profiles that have more relevance to insurance-based investment products. Thus, the starting point of the survey is the origin of the new rules that were then adopted by the IDD. After examining the events that led to the definition of the current European framework, the survey examines the process required to insurers and intermediaries who manufacture and/or distribute these products. The possible shortcomings in the fulfilment of the new obligations are then taken into consideration together with the different profiles of responsibility that it is reasonable to assume from the new regulatory framework not only in relation to the producers and distributors, but also with respect to the supervisory authorities.

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previous chapter The Legal Regime and the Relevant Standards
next chapter ADR and Insurance-Based Investment Products
Footnotes
1
Some inspiration can be found in the Resolution n. 9019104 of 2 March 2009 on illiquid investment products, which was issued by the Italian authority responsible for regulating the Italian financial market (CONSOB). The principle of “acting honestly, fairly and professionally in accordance with the best interest of customers” (see Article 19.1 MiFID) was interpreted in the sense of requiring issuers of illiquid investment products to design their commercial policy evaluating the compatibility of each product with the characteristics and needs of the customers to whom they are offered. Thus CONSOB requires the definition of business processes to allow, even in abstracts terms, the assessment of the financial needs of the selected target market compared to those satisfied by the products which should be offered to them, in the concrete selection phase of the products to be distributed and, more importantly, in the possible engineering phase. In addition, the activities above shall be approved by the administrative body and verified by the compliance function.
 
2
See Recital no. 87 of MiFID II.
 
3
HM Treasury, A new approach to financial regulation: judgement, focus and stability.
 
4
See Perry et al. (2011), pp. 1–33.
 
5
FSA, Discussion Paper on Product Intervention, January 2011, p. 16.
 
6
See FSA, Discussion Paper, cit., p. 23 ff.
 
7
FSA, Feedback on Discussion Paper on Product Intervention, June 2011.
 
8
See Annex II, point 15: “Given the EC’s willingness to consider similar issues in the MiFID review, responses to this DP may be used to influence our position in EU negotiations rather than to set new standards at UK level. It may be that an appropriate action for us is to work with our colleagues at EU level, rather than pursuing a national approach”.
 
9
Authority assesses whether firms ensure that the fair treatment of customers is built into their oversight arrangements. What they look for includes:
  • A board engaged in ensuring products deliver the right outcomes for consumers;
  • Clearly allocated responsibilities for oversight of product governance; and
  • The effective inclusion of control functions such as Compliance in oversight arrangements.
 
10
Product strategy covers such areas as the firm’s plans to develop and distribute its existing and new products over the next few years, how the firm sees the market for its products developing and where it considers strategic opportunities will arise. Supervisory approach considers how firms set their product strategy and whether they include adequate challenge of it, including:
  • Controls in place to ensure that customers’ needs are reflected in setting and implementing the product strategy; and
  • Evidence that these controls have led to improvements from a customer perspective.
 
11
Supervisory approach considers how the firm has defined its target market; how it tests that this is the right approach and the surrounding governance procedures. What authority looks for includes:
  • Policies and procedures that support the design of products appropriate to a specified target market;
  • A design process that leads to an appropriate matching of products to the needs of the target market;
  • Clear consideration of what customer usage or needs the product would not fulfil;
  • A target market that is plausible in terms of size or shape; and
  • Products designed to meet customer needs, not simply to copy a competitor’s product, for example.
 
12
Authority asks firms to provide evidence that the fair treatment of customers is built into the development and oversight of the distribution strategy. Therefore, supervisory approach includes:
  • Controls in place that ensure the distribution channels and strategy are compatible with the needs of the target market;
  • Details of the target market, product features and risks being accurately conveyed to distributors;
  • Interactions and communications with distributors that are likely to lead to fair customer outcomes; and
  • The firm taking action to address any mismatches between the actual distribution/sales and the intended target market.
 
13
Firms need to include measures to avoid conflicts of interest in their remuneration policies. Therefore, the review of remuneration and other incentive practices for in-house staff includes:
  • How sales staff are incentivised;
  • Whether the incentives increase the risk of mis-selling; and
  • Whether those risks are adequately controlled.
 
14
By ‘stress testing’ authority is referring to scenario modelling or other forms of analysis used to identify how the product might function under a range of market conditions and how the customer could be affected. In the consumer protection context, supervisory approach is considering the stress testing of a product from the consumer’s point-of-view, rather than stress and scenario testing for prudential purposes, to manage risks to the firm. Therefore, it considers the depth and breadth of risk assessment and stress testing undertaken, looking for, among other things:
  • Clear identification and management of the risks to the customer;
  • Robust stress and scenario testing to ensure the delivery of fair customer outcomes; and
  • Evidence that subsequent changes to product features actually mitigate the risks to the customer.
 
15
Supervisory approach looks for warning signals that indicate a product may not offer reasonable value for money for customers, including whether:
  • Product design is driven by features that benefit the customer and not by a business model that is dependent on poor customer outcomes;
  • Product costs are compatible with the objectives of the product; and
  • Conflicts of interest have been avoided or managed effectively.
 
16
Authority also expects firms to ensure that their products continue to work well for their customers. Supervisory approach considers the quality of their regular reviews, the use they make of customer feedback and the ongoing active management of the product. Therefore, it includes:
  • No outstanding risks to customers resulting from flawed implementation;
  • Appropriate mechanisms in place to ensure that lessons learned (e.g. from complaints) are fed back into the product development process;
  • Evidence that post-sale analysis is used to make changes that have improved customer outcomes in existing or new products; and
  • Appropriate action is taking place if the product is no longer behaving as expected (for instance because of changes to wider market conditions or legislative changes). It may be, for example, that the firm should stop selling the product to new customers on the same basis, contact existing customers to explain the problem and suggest ways in which they could deal with it.
 
17
See FSA, Discussion Paper on Product intervention, point 4.15.
 
18
In particular, the term “provider” include persons who offer services such as portfolio management (through distributors or otherwise) as well as those who develop, manage or package products such as life insurance, general insurance or investment products or who develop or enter into home finance transactions (i.e. mortgages, home reversion plans and home purchase plans).
 
19
In particular, a firm:
(1)
Should identify the target market, namely which types of customer the product or service is likely to be suitable (or not suitable) for;
 
(2)
Should stress-test the product or service to identify how it might perform in a range of market environments and how the customer could be affected;
 
(3)
Should have in place systems and controls to manage adequately the risks posed by product or service design.
 
 
20
In particular, a firm:
(1)
Should make clear if that information is not intended for customer use;
 
(2)
Should ensure the information is sufficient, appropriate and comprehensible in substance and form, including considering whether it will enable distributors to understand it enough to give suitable advice (where advice is given) and to extract any relevant information and communicate it to the end customer. As part of meeting this standard, the provider may wish to consider, with regard to each distribution channel or type of distributor, what information distributors of that type already have, their likely level of knowledge and understanding, their information needs and what form or medium would best meet those needs (which could include discussions, written material or training as appropriate).
 
 
21
In particular, a firm:
(1)
Should decide whether this is a product where customers would be wise to seek advice;
 
(2)
Should review how what is occurring in practice corresponds to (or deviates from) what was originally planned or envisaged for the distribution of its products or services given the target market. This involves collecting and analysing appropriate Management Information such that the firm can detect patterns in distribution as compared with the planned target market, and can assess the performance of the distribution channels through which its products or services are being distributed;
 
(3)
Should act when it has concerns, for example by ceasing to use a particular distribution channel.
 
 
22
In particular, a firm:
(1)
Should pay regard to its target market, including its likely level of financial capability;
 
(2)
Should take account of what information the customer needs to understand the product or service, its purpose and the risks, and communicate information in a way that is clear, fair and not misleading;
 
(3)
Should have in place systems and controls to manage effectively the risks posed by providing information to customers.
 
 
23
In particularly a firm:
(1)
In supplying information direct to the customer, must ensure that the information is communicated in a way which is clear, fair and not misleading;
 
(2)
Should periodically review products whose performance may vary materially to check whether the product is continuing to meet the general needs of the target audience that it was designed for, or whether the product’s performance will be significantly different from what the provider originally expected and communicated to the distributor or customer at the time of the sale. If this occurs, the provider should consider what action to take, such as whether and how to inform the customer of this (to the extent the customer could not reasonably have been aware) and of their option to seek advice, and whether to cease selling the product;
 
(3)
Should communicate to the customer contractual ‘breakpoints’ such as the end of a long tie-in period that may have a material impact on a customer that the customer cannot reasonably be expected to recall or know about already;
 
(4)
Should act fairly and promptly when handling claims or when paying out on a product that has been surrendered or reached maturity. In doing this, the provider should meet any reasonable customer expectations that it may have created with regard to the outcomes or how the process would be handled;
 
(5)
Must establish, implement and maintain effective and transparent customer complaint-handling systems.
 
 
24
In particular, a firm:
(1)
Should have in place systems and controls to manage effectively the risks posed by financial promotions;
 
(2)
In passing on a promotion created by a provider, must act with due skill, care and diligence. A firm will not contravene the financial promotions rules where it communicates a promotion produced by another person provided the firm takes reasonable care to establish that another firm has confirmed compliance with the relevant detailed rules, amongst other matters.
 
 
25
In particular, a firm:
(1)
Should consider, when passing provider materials to customers, whether it understands the information provided;
 
(2)
Should ask the provider to supply additional information or training where that seems necessary to understand the product or service adequately;
 
(3)
Should not distribute the product or service if it does not understand it sufficiently, especially if it intends to provide advice;
 
(4)
When providing information to another distributor in a distribution chain, should consider how the further distributor will use the information, such as whether it will be given to customers. Firms should consider what information the further distributor requires and the likely level of knowledge and understanding of the further distributor and what medium may suit it best for the transmission of information.
 
 
26
In particular, a firm:
(1)
Should consider the nature of the products or services offered by the provider and how they fit with the customer’s needs and risk appetite;
 
(2)
Should consider what impact the selection of a given provider could have on the customer in terms of charges or the financial strength of the provider, or possibly, where information is available to the distributor, how efficiently and reliably the provider will deal with the distributor or customer at the point of sale (or subsequently, such as when queries/complaints arise, claims are made, or a product reaches maturity).
 
 
27
In particular, a firm:
(1)
Should comply with any contractual obligation it has to the customer, for example to provide ongoing advice or periodic reviews. In connection with this, it should also consider its responsibility to maintain adequate systems and controls to deliver on such reviews;
 
(2)
Should consider any implied or express representation it made (during meetings, correspondence or promotional material, for example). Where a customer has reasonable expectations based on the prior statements of a distributor, for example that performance will be monitored, the distributor should meet these expectations;
 
(3)
Where involved in handling claims or paying out on a product that has been surrendered or reached maturity, should meet any reasonable expectations that the distributor has created in the customer’s mind with regard to how the process would be handled;
 
(4)
Must establish, implement and maintain effective and transparent customer complaint-handling systems;
 
(5)
Should pass any communications received from customers (intended for or suited to providers to act upon) to providers in a timely and accurate way.
 
 
28
HM Treasury, A new approach to financial regulation: building a stronger system, February 2011.
 
29
The joint FSA and Office of Fair Trade document on Payment Protection Products, issued in November 2011, is in the same path, while FSA’s guidance on Retail Product Development and Governance—Structured Product Review, issued in March 2012, focus on the key issues of governance which arise in the development and marketing of structured products by applying FSA Handbook on “The Responsibilities of Providers and Distributors for the Fair Treatment of Customers” to these products.
 
30
HM Treasury, A new approach to financial regulation: building a stronger system, February 2011, p. 69.
 
31
In a broader perspective, see Marcacci (2017), pp. 305 ff.
 
32
Ferran (2012), pp. 264 ff. See also: Tomic (2018), pp. 229–255; Busch (2017), pp. 409–420.
 
33
P. Brandt, Product distribution round-up, in Compliance Officer Bulletin, April 2011, p. 8 noted “This is not to say that current supervisory staff are inadequate; however, it appears that what the FSA is proposing is a radical and challenging benchmark which requires a significant investment in resourcing levels, training and overall staff quality”.
 
34
About the genesis of product intervention, see Moloney (2012), pp. 186 ff.
 
35
See Joint Position of the European Supervisory Authorities on Manufacturers’ Product Oversight & Governance Processes, at point 22. The Joint position is available at https://​www.​eba.​europa.​eu/​documents/​10180/​15736/​JC-2013-77+%28POG+-+Joint+Position%29.​pdf.
 
39
Recital No. 55 of IDD asserts: “In order to ensure that insurance products meet the needs of the target market, insurance undertakings and, in the Member States where insurance intermediaries manufacture insurance products for sale to customers, insurance intermediaries should maintain, operate and review a process for the approval of each insurance product. Where an insurance distributor advises on, or proposes, insurance products, which it does not manufacture, it should in any case be able to understand the characteristics and identified target market of those products. This Directive should not limit the variety and flexibility of the approaches which undertakings use to develop new products”.
 
40
Recital No 87 of MiFID II states “Investments that involve contracts of insurance are often made available to customers as potential alternatives or substitutes to financial instruments subject to this Directive. To deliver consistent protection for retail clients and ensure a level playing field between similar products, it is important that insurance-based investment products are subject to appropriate requirements”.
 
41
Recital No. 87 of MiFID II states “Whereas the investor protection requirements in this Directive should therefore be applied equally to those investments packaged under insurance contracts, their different market structures and product characteristics make it more appropriate that detailed requirements are set out in the ongoing review of Directive 2002/92/EC rather than setting them in this Directive. Future Union law regulating the activities of insurance intermediaries and insurance undertakings should thus appropriately ensure a consistent regulatory approach concerning the distribution of different financial products which satisfy similar investor needs and therefore raise comparable investor protection challenges”.
 
42
Cousy (2009), pp. 245–254; Marano (2017b), pp. 219–234; Marano (2017a), and Cousy (2017), pp. 10 ff. and 45 ff.
 
43
See Article 25(1) of IDD.
 
44
See Technical Advice on possible delegated Acts concerning the Insurance Distribution Directive, EIOPA-17-048 (https://​eiopa.​europa.​eu/​Publications/​Consultations/​EIOPA%20​Technical%20​Advice%20​on%20​the%20​IDD.​pdf).
 
45
In particular, an insurance intermediary shall be considered as a manufacturer: “if the insurance intermediary has a decision-making role in designing and developing an insurance product for the market”. Furthermore, the manufacturing activity is defined by reference to activities/practices (e.g. handling customer—claims, tailor made contracts which are designed at the request of a customer to meet the individual demands and needs of that customer), that cannot qualify as manufacturing and that suffice for a distributor to be characterised as a manufacturer.
 
46
See Joint Position of the ESAs’ on Manufacturers’ Product Oversight & Governance Processes, 2013, cit., at p. 2, point 6.
 
47
See article 3(1) of the Commission Delegated regulation.
 
48
See Article 49(1) of Solvency II.
 
49
Article 4(4) sets forth that PRIIPs manufacturer is: (i) any entity that manufactures PRIIPs, or (ii) any entity that makes changes to an existing PRIIP including, but not limited to, altering its risk and regard profile or the costs associated with an investment in PRIIPs.
 
50
Article 2 sets forth “This Regulation shall apply to insurance undertakings and to insurance intermediaries that manufacture insurance products that are offered for sale to customers (‘manufacturers’) (…)”. Furthermore, Article 3(4) sets forth “An insurance intermediary and an insurance undertaking that are both manufacturers within the meaning of Article 2 of this Delegated Regulation, shall sign a written agreement which specifies their collaboration to comply with the requirements for manufacturers referred to in Article 25(1) of Directive (EU) 2016/97, the procedures through which they shall agree on the identification of the target market and their respective roles in the product approval process.”
 
51
See Article 3(2) of Commission Delegated Regulation.
 
52
See Article 3(4) of Commission Delegated Regulation.
 
53
See Article 9(9) of Commission Delegated Directive (EU) 2017/593 of 7 April 2016 supplementing MiFID II.
 
54
See Article 1(6) of IDD.
 
55
EIOPA was requested to introduce such a limit in the Technical advice to the European Commission. However EIOPA decided to be silent on this issue asserting that it was not in EIOPA’s remit to address this question as this is a legal question falling in the competence of the European Commission and, ultimately, in the competence of the EU Court of Justice (see Technical advice, at p. 8).
 
56
EIOPA does generally not expect insurance undertakings to change existing contracts, in particular, in cases where this would contradict rules of national law. Depending on market developments, EIOPA may issue further guidance on this issue to explain best practices that have been developed by market participants (see Technical advice, p. 14).
 
57
See Article 4(3) of Commission Delegated Regulation.
 
58
See Article 9(2)(4) of Commission Delegated Directive (EU) 2017/593 of 7 April 2016 supplementing MiFID II.
 
59
See Articles 16(2) (a) and 17(2) (a).
 
60
See EIOPA, Final Report on Consultation Paper n. 16/006 on Technical Advice on possible delegated acts concerning the Insurance Distribution Directive, February 2017, p. 34.
 
61
See Article 41(3)(2) of Solvency II.
 
62
See EIOPA, Final Report on Consultation Paper n. 16/006, cit., p. 35.
 
63
See EIOPA, Final Report, cit., p. 35.
 
64
In addition, EBA Guidelines on product oversight and governance arrangements for retail banking products, issued in March 2016, require the manufacturer’s management body to endorse the establishment of the arrangements and subsequent reviews in order to ensure that product oversight and governance arrangements are an integral part of its governance, risk management and internal control framework (see Guideline No. 2).
 
65
Article 9(7) sets forth “Member States shall require investment firms to ensure that the compliance function monitors the development and periodic review of product governance arrangements in order to detect any risk of failure by the firm to comply with the obligations set out in this Article”.
 
66
See EBA Guidelines, cit, which identify senior management, with support from representatives of the manufacturer’s compliance and risk management functions, as responsible for continued internal compliance with the product oversight and governance arrangements. Thus, “They should periodically check that the product oversight and governance arrangements are still appropriate and continue to meet the objectives as set out in Guideline 1.1 above, and should propose to the management body that the arrangements be amended if this is no longer the case” (see Guideline No. 2).
 
67
See Article 4(4) of Commission Delegated Regulation.
 
68
See Article 5(4) of Commission Delegated Regulation.
 
69
See Guideline No 2.4 issued by EBA, cit., p. 10.
 
70
See EIOPA, Final Report on Consultation Paper n. 16/006, cit., p. 38.
 
71
EIOPA, Final Report, cit., p. 38 makes reference to (i) the level of the target market’s knowledge and understanding of the complexity of the product and (ii) the objectives, demands and needs of the customers belonging to the target market.
 
72
EIOPA, Final Report, cit., p. 38 f. quotes: (i) the age of the customers belonging to target market; (ii) the occupational situation of the customers belonging the target market; (iii) the level of risk tolerance of the customers belonging the target market; (iv) the financial situation of the customers belonging the target market; (v) the financial and non-financial objectives and investment horizon of the customers belonging the target market.
In addition, these criteria are detailed by EIOPA in the Q&A on Regulation, (EU) 2017-2358, published on the 16th July 2018. Thus, the description of the target market could include the age (category) of the customers belonging to target market, the personal household and dependents situation of the customers belonging to the target market, the occupational situation and the relevant occupational pension and insurance scheme of the customers belonging the target market, the level of risk tolerance of the customers belonging the target market, the financial situation of the customers belonging the target market, the financial and non-financial objectives and investment horizon of the customers belonging to the target market. Further criteria to define the target market may also include the pay-out characteristics of the IBIP (e.g. life long payments, lump sum or insurance coverage for surviving spouse in case of death), the tax deductibility for premiums, the need for capital guarantees, natural premiums depending on age, and a possible cut-off coverage at a certain age.
 
73
ESMA, Final Report, Guidelines on MiFID II product governance requirements, June 2017, p. 34.
 
74
ESMA, Final Report, cit., p. 34.
 
75
EIOPA, Final Report, cit., p. 39.
 
76
EIOPA, Final Report on Consultation Paper n. 16/006, cit., p. 39. See also EIOPA, Q&A on Regulation, (EU) 2017-2358.
 
77
EIOPA, Final Report, cit., p. 39.
 
78
EIOPA, Q&A on Regulation, (EU) 2017-2358 states “EIOPA considers it important that product testing of insurance-based investment products should always include scenario analysis. Events like declining stock prices should be identified and the effect on the outcomes of the product should be analyzed. In addition, the costs structure should be analyzed in light of such events and the connection with the needs and objectives of the target market. In general, costs always should be reasonable and transparent”.
 
79
EIOPA, Final Report, cit., p. 39 f.
 
80
Here is the list of questions:
  • What would happen to the risk and reward profile of the product following changes to the value and liquidity of underlying assets?
  • How is the risk/reward profile of the product balanced, taking into account the cost structure of the product?
  • When a product benefits from a certain tax environment or other condition; what happens if these conditions change?
  • What are the terms and conditions, and how do they affect the outcome of the product?
  • What will happen when the manufacturer faces financial difficulties?
  • What will happen if the customer terminates the contract early?
 
81
See Article 9(12) which requests to consider: (a) financial instrument’s costs and charges are compatible with the needs, objectives and characteristics of the target market; (b) charges do not undermine the financial instruments return expectations, such as where the costs or charges equal, exceed or remove almost all the expected tax advantages linked to a financial instruments and (c) the charging structure of the financial instrument is appropriately transparent for the target market, such as that it does not disguise charges or is too complex to understand.
 
82
EIOPA, Final Report on Consultation Paper n. 16/006, cit., p. 41, states: “Performance scenarios are disclosed to customers whereas scenarios for testing the products cover a large range of factors that determine the performance of the product”.
 
83
EIOPA, Final Report on Consultation Paper n. 16/006, cit., p. 41.
 
84
EIOPA, Final Report on Consultation Paper n. 16/006, cit., p. 41.
 
85
EIOPA, Final Report, cit., p. 43.
 
86
EIOPA, Final Report, cit., p. 42.
 
87
EIOPA, Final Report, cit., p. 42 lists: (i) the provision of any relevant information on the event and its consequences on the product to the customer, or the distributors of the product if the manufacturer does not offer directly the product to the customer; (ii) changing the product approval process; (iii) changing the product; (iv) proposing a new product to the customer; (v) changing the target market; (vi) stopping further issuance of the product; (vii) contacting the distributor to discuss a modification of the distribution process; (viii) terminating the relationship with the distributor; (ix) informing the relevant competent authority; (x) or informing the customer.
 
88
EIOPA, Final Report, cit., p. 42.
 
90
Article 8(3)(c) of Regulation (EU) No 1286/2014 requires a section of the Key Information Document (KID) entitled ‘What is this product?’ to outline the nature and main features of the PRIIP. Under point (ii) this shall include:
Its objectives and the means for achieving them, in particular whether the objectives are achieved by means of direct or indirect exposure to the underlying investment assets, including a description of the underlying instruments or reference values, including a specification of the markets the PRIIP invests in, including, where applicable, specific environmental or social objectives targeted by the product, as well as how the return is determined.
 
93
Better Finance, Press release, cit.
 
94
EIOPA, Final Report on Consultation Paper n. 16/006, cit., p. 43.
 
95
See also EIOPA, Final Report on Consultation Paper n. 16/006, cit., p. 45 f.
 
96
See Article 10(6)(3) of Commission Delegated Regulation.
 
97
See Article 10(6)(1) of Commission Delegated Regulation.
 
98
See Article 10(1)(2) of Commission Delegated Regulation.
 
99
See Article 10(2) of Commission Delegated Regulation.
 
100
See Article 10(5) of Commission Delegated Regulation.
 
101
See EIOPA, cit., p. 39.
 
103
ESMA Final Report, p. 42.
 
104
ESMA Final Report, p. 42.
 
105
ESMA Final Report, p. 42.
 
106
ESMA Final Report, p. 42.
 
107
ESMA Final Report, p. 46 f.
 
108
ESMA, Final Report, p. 46 make the example of “the sales outside the positive target market as a result of non advised sales i.e. where clients approach a firm to purchase a certain products without any active marketing by the firm or having been influenced in any way by that firm), where the firm does not have all the necessary information to conduct a thorough assessment of whether the client falls within the target market, which might be the case, for instance, for execution platforms that only operate under the appropriateness regime”.
 
109
ESMA Final Report, p. 47.
 
110
Concerning information requirements and conduct of business rules applicable to the distribution of insurance-based investment products.
 
111
See also EIOPA, Q&A on Regulation, (EU) 2017-2358.
 
112
FCA, Structured Products: Thematic Review of Product Development and Governance, March 2015, p. 14.
 
113
FCA, cit., p. 14.
 
114
FCA, cit., p. 17.
 
115
FCA, cit., p. 17. For example, the distribution of equity returns resulting from a local volatility model may not necessarily match the equity returns observed in the real world. Further, if the growth rate is adjusted to include an equity premium in a local volatility model, the distortion may increase.
 
116
FCA, cit., p. 18. For example, the relevant growth rate may differ if the underlying is an equity (investor receives dividends) or an equity index (investor pays the dividend). This distinction was not addressed by most firms, despite the majority of products offered being dependent on equity index performance.
 
117
FCA, cit., p. 18.
 
118
FCA, cit., p. 18.
 
119
FCA, cit., p. 18.
 
120
FCA, cit., p. 18.
 
121
FCA, cit., p. 18.
 
122
FCA, cit., p. 16.
 
123
FCA, cit., p. 16.
 
124
FCA, cit., p. 20.
 
125
FCA, cit., p. 21.
 
126
FCA, cit., p. 21.
 
127
FCA, cit., p. 21.
 
128
See Article 4 of Commission Delegated Regulation (EU) 2017/2359.
 
129
See Article 8 of Commission Delegated Regulation (EU) 2017/2359.
 
130
See Articles 9 to 11 and 17 of Commission Delegated Regulation (EU) 2017/2359.
 
131
See Articles 15 and 17 of Commission Delegated Regulation (EU) 2017/2359.
 
132
See Articles 12 and 14 of Commission Delegated Regulation (EU) 2017/2359.
 
133
See Article 9(2) of Regulation (EU) No 1094/2010.
 
134
Stuyck (2015), p. 732 ff., provides an overview of the ECJ’s rulings aiming to limit the concept of commercial practice as well as of trader.
 
135
Office of Fair Trading (OFT), Guidance on the Consumer Protection from Unfair Trading Regulations 2008, considers within the scope of Consumer Protection from Unfair Trading Regulations 2008 “Any aspect of a business-to-business practice that is directly connected to the sale of a product to consumers” (see page 15), specifying that “For example where a trader sells a product to a consumer, acts or omissions which occur further up the supply chain may also constitute commercial practices” (see point 4.3).
 
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Metadata
Title
The Product Oversight and Governance: Standards and Liabilities
Author
Pierpaolo Marano
Copyright Year
2019
Book
Distribution of Insurance-Based Investment Products

Print ISBN: 978-3-030-11667-5

Electronic ISBN: 978-3-030-11668-2

Copyright Year: 2019

DOI
https://doi.org/10.1007/978-3-030-11668-2_3