Posted: 21st May 2013
Donald Rumsfeld is not often mentioned these days, but his most famous quote remains relevant for uncertain situations such as the new temporary product intervention regulation. The industry is well aware that the temporary product intervention rules are now in play as of 1 April 2013. The existence of the rules is within our “known knowns”, but what lies beyond?
We know the recent policy statement confirms that the regulator can ban a product or promotion for up to 12 months. We also know that these powers embody the regulator’s aim to intervene earlier in the product lifecycle where it is concerned that actual or potential customer detriment will occur. In the Financial Conduct Authority’s (FCA) first risk outlook a high priority risk is this: “firms do not design products and services that respond to real consumer needs or are in consumers’ long-term interests.”
How can your firm mitigate against the known risk of product intervention?
Ensure products are transparent to consumers
Clearly explain all product features – including charges and ongoing costs – when sold
Target products at customers likely to need and understand them
Closely monitor trends through post implementation reviews, monitoring activity, complaints and claims and ensure a governance process that ensures feed back into continuous product improvement
Are you comfortable your product approval process meets these tests? Product intervention is a known known, therefore firms can prepare accordingly.
Consumer credit firms – unprepared for intrusive conduct regulation let alone product intervention – are concerned about the new powers’ impact on their products. Already FCA regulated firms clear about the regulator’s intrusive, evidence based approach should be fully aware of the major challenge of monitoring and analysing data to maintain knowledge of product risks.
However, even within currently regulated firms, weaknesses still exist. The more firms understand the regulator’s goals, the smaller the unknown space. While the FCA has stated that it is unlikely to use these powers often, the regulator will definitely ensure products are treating customers fairly and not causing widespread detriment. The unknown aspect for all firms is when it will act. Firms have the power to turn this “unknown” into a well predicted and measureable risk through effective product governance and root cause analysis, however.
By definition, firms can only speculate about unknown unknowns, but thinking in this area is vitally important. Questioning products that seem “too good to be true” is a challenge, as is acting on them in time if they are problematic. A system of product risk identification, risk management, testing theories and training staff to stay awake to issues which, with hindsight, would not make sense will help as we start seeing the first cases of temporary product intervention in 2013.
Those staff employees who achieve this, and the senior management which listens, allow themselves to look outside unknown knowns into unknown unknowns and bring them into the field of the known knowns.