The UK Financial Conduct Authority’s (FCA’s) forthcoming Consumer Duty rules – due to be published in July 2022 – have significant potential to creatively disrupt the way financial services firms perform product governance.

In the past, new FCA rules have driven disruption in other areas of firms’ operations, and this has usually taken the form of technology change. In fact, the FCA has long been a supporter of RegTech innovation and has sometimes shaped its rules to encourage technology disruption and adoption where it believes processes could be improved.

One good example is the UK’s Retail Distribution Review, which led to significantly more digitisation of business processes. Another is the Know Your Customer (KYC) requirements within Anti-Money Laundering (AML) regulations, which saw firms adopt new approaches to both data and automation.

Product governance is ripe for this kind of evolution – in most wealth management firms it is an area that has only been lightly touched by technology, even though their financial product ecosystem has grown increasingly complex.

The new Consumer Duty rules, which will probably have an implementation deadline in the spring of 2023, are about to increase the amount of focus product governance attracts from the board, senior management, and the business. These stakeholders will be faced with both business and compliance challenges as a result of the new rules, and general under-investment in product governance over the past decade. They will see that digital transformation in product governance is long overdue.

Product data needs a fresh approach
Wealth management firms are distributors of financial products, and can often be manufacturers of them too. Each comes with its own product governance challenges.

For distribution, most firms struggle to have a consistent approach to product governance across all existing product lines, which can include investments, banking, mortgages, loans, credit cards, and more. Today each product line is usually managed in a siloed and often bespoke system. For example, the fund platform will capture some product descriptive information, such as the international securities identification number (ISIN) and the share class. However, it is unlikely that the firm’s mortgage platform captures product descriptive information in the same way, if at all.

Also, some product governance data – such as target market, ESG metrics, and value-for-money measures – can come from both outside and inside the firm, and wind up being stored in a variety of different places. As a result, most firms today do not have a single source of truth for information about the products they distribute.

When manufacturing products, the product governance data challenges firms face are even more extensive. Regulations for manufacturers require the capture of the entire product development process, from idea generation and development, to the go-to-market strategy. Then, the product must be monitored on an ongoing basis, across its lifecycle, through to its eventual retirement.

Today most wealth management firms have well-defined processes to manage products across the lifecycle, but are capturing information about those processes – such as data, decisions and activities – manually. This will make it truly challenging to evidence many of the new Consumer Duty compliance requirements to internal committees, boards and regulators. This lack of systematic evidence capture also means firms can lack corporate history around products – for example, if a product manager moves on, or if historic issues are raised by regulators or clients.

Consumer Duty increases accountability
The FCA’s Consumer Duty rules are designed by the regulator to create transformational change in how product governance is managed in three key ways.

Firstly, the new rules raise the governance requirements of all products offered to at least the same level as investment products. This will significantly expand the amount of data and reporting required for regulatory compliance.

Secondly, the new rules place much more focus on evidencing the decision-making processes. For example, firms will have to provide the rationale behind a product’s development or selection, and also undertake ongoing due diligence once it has been released.

Thirdly, the consequences of a compliance failure are now greater than ever before for wealth management executives. This is because FCA is planning to amend the Senior Managers & Certification Regime (SM&CR) conduct rules to reflect the Consumer Duty Principle contained in the proposals. This will mean that the regulator will hold individuals directly accountable for product governance compliance failures within their organisations.

These regulatory changes mean that wealth management firms will need to robustly document all the stages of the product lifecycle for a far more comprehensive range of offerings. Using manual methods to do this is cumbersome, and will likely result in compliance failures. A strong audit trail is essential to evidencing duty of care and product oversight, and it is virtually impossible to create this manually. And now, an inability to provide a strong audit trail can result in individual executives being sanctioned.

Meeting the Consumer Duty challenge
To ensure compliance with the Consumer Duty rules – and to drive true business value from those activities – wealth management firms need to engage with technology that can:

• Capture and store all product lifecycle data, decisions and processes in one single location.
• Enable the firm to control and perform product governance processes consistently across the organisation.
• Record product development and selection information in an auditable way.
• Support the ongoing monitoring of products, and the capture of monitoring data, across the lifecycle.
• Allow the firm to easily provide auditable evidence of product governance processes, data, and reporting to regulators, senior management, and the board.

Kore delivers these capabilities to its clients. It is the first product relationship management-as-a-service platform, enabling financial firms to create, manage, and monitor financial products, from ideation to retirement.

In addition, wealth management firms are able to use Kore to increase product collaboration across businesses, corporate functions, teams and geographies. That’s because Kore is modular, adaptable to any product process, and portable across product families, business units, and geographies, helping to deliver significant efficiencies in an increasingly resource-intensive regulatory environment.

Delivering true transformation
Now that the FCA is publishing its Consumer Duty rules, wealth management firms will need to evolve their product governance processes – and how they capture those processes – in order to comply with the new requirements. However, wealth management firms can also embrace this opportunity to transform product governance into a strategic competitive advantage. With data and process information readily accessible at the touch of a button, boards, senior management and the business can better understand how products are truly performing, enhance the firm’s reputation with its clients, and capture and replicate best practices.

This article is from The Wealth Mosaic’s UK WealthTech Landscape Report 2022. Access the full report here.