On 1 April 2021, Bank of Italy published the guidelines on product oversight and governance process for retail banking products ("POG") (the "Guidelines").
In accordance with the relevant regulation, POG rules must be placed at the heart of supervised intermediaries' business strategies. In particular, they must take into consideration the needs and characteristics of the customers to whom the products are reserved in all phases of such product life cycle.
With the Guidelines, the Bank of Italy has therefore drawn the attention of supervised intermediaries to the importance of having a governance and control process that is compliant with these objectives.
To this end, the Guidelines refer to recent reports of the European Banking Authority (so-called, "EBA") (1), which highlight good practices and critical issues in European countries. Similarly, the Guidelines illustrate the critical issues identified by the Bank of Italy in its supervisory activities to protect customers. Specifically, the following is a summary of the anomaly profiles identified by the Bank of Italy:
- limited top management commitment to the application of POG arrangements and deficiencies in the reporting of activities related to the development, monitoring and review of products and services;
- inadequate involvement of the compliance function in the product preparation and review process;
- deficiencies in the design of a new product, due to (a) an unclear and imprecise definition of "new" or "significantly modified" product to be submitted to the "POG" process as well as, in the so-called "concept" phase, (b) a limited involvement of potential customers (through market surveys or other tools to identify customers' needs);
- incomplete product review activity, which does not always extend to timely updating of the relevant transparency documentation and, more generally, of the catalogue of products place;
- inadequate training of personnel involved in the processing or distribution of the product and deficiencies in the IT procedures necessary to assist the distribution network in meeting customer needs;
- excessive complexity and articulation of the product portfolio, also as a result of previous corporate transactions, some of which often belong to the same category without presenting clear elements of distinction from each other.
It should also be noted that the Guidelines also intend to make the banking system aware of the potential risks of financial exclusion of customers from certain products and services, particularly digital ones, linked, for example, to the level of financial or digital skills.
Finally, the Bank of Italy invites the supervised intermediaries to take into account the needs of the most vulnerable customers from the product design phase, in accordance with the objectives set out in European legislation, and to ensure the accessibility of websites and apps to customers with disabilities, in line with national legislation.
(1) See, in particular, the '"EBA report on the application of the guidelines on product oversight and governance (pog) arrangements" (EBA/GL/2015/18) and the "second EBA report on the application of the guidelines on product oversight and governance (pog) arrangements (eba/gl/2015/18)" (EBA/REP/2020/28)
Authors: Luca Lo Pò and Claudio Saba