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PROD 1.4 Application of PROD 4

PROD 1.4.1 R

1 PROD 4 applies to:

  1. (1)

    an insurance intermediary; and

  2. (2)

    an insurer,

with respect to:

  1. (3)

    manufacturing insurance products; 8

  2. (3A)

    product governance and distribution arrangements for legacy non-investment insurance products (see PROD 4.6); and8

  3. (4)

    distributing insurance products.

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

PROD 1.4.-1A R

6A TP firm and a Gibraltar-based firm8 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);8

  2. (2)

    7PROD 1.4 and PROD 4 in relation to a pathway investment;8

  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.8

PROD 1.4.1A R

5 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 1.4.2 G

1In PROD an insurance product may be read as being a reference to the product for distribution to customers generally and is not intended to refer to each individual contract of insurance being sold or underwritten (unless the context indicates otherwise).

PROD 1.4.3 R

1 PROD 4 does not apply in relation to an insurance product that is:8

  1. (1)

    a contract of large risks where the insurance product meets the conditions in PROD 1.4.-3AR;11 or

  2. (2)

    a reinsurance contract.

[Note: article 25(4) of the IDD]

PROD 1.4.-3A R

11The conditions in PROD 1.4.3R(1) are that the insurance product is used exclusively for effecting contracts of large risks 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.

Manufacturing and distributing pathway investments and default options

PROD 1.4.3A G

3 4A firm that is within the scope of PROD 4 (Product governance: IDD) when it9manufactures pathway investments or default options9 other than in connection with its operating of a retail client’s personal pension scheme or stakeholder pension scheme, is also subject to PROD 6 (Product governance: additional provisions for pathway investments and default options9) as guidance with respect to that manufacturing activity (see PROD 1.6.1R(2)).

PROD 1.4.3B R

3 4Where a firm:

  1. (1)

    manufactures or distributes pathway investments or default options9 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 or onshored regulations7 in PROD in relation to that manufacturing or distribution activity, then PROD 4, PROD 1.4.4UK and PROD 1.4.10G, apply7 with respect to that manufacturing or distribution activity.

PROD 1.4.3C G

3 4The effect of PROD 1.4.3BR is to apply PROD 4 to any firm, such as a SIPP operator, which:

  1. (1)

    manufactures or distributes pathway investments or default options9 in connection with its operating of a retail client’s personal pension scheme or stakeholder pension scheme; and

  2. (2)

    before the entry into force of PROD 1.4.3BR, was not subject to the rules or onshored regulations in PROD.

When an intermediary may be considered to be manufacturing

PROD 1.4.4 UK

2For the purposes of [PROD 4.2.1R, PROD 4.2.2R, PROD 4.2.29R, PROD 4.2.34R, PROD 4.3.1R and PROD 4.3.2R], insurance intermediaries shall be considered manufacturers where an overall analysis of their activity shows that they have a decision-making role in designing and developing an insurance product for the market.

3(2) A decision-making role shall be assumed, in particular, where insurance intermediaries autonomously determine 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) Personalisation of and adaptation of existing insurance products in the context of insurance distribution activities for individual customers, as well as the design of tailor-made contracts at the request of a single customer, shall not be considered manufacturing.

[Note: article 3 of the IDD POG Regulation]

PROD 1.4.5 G

1The effect of PROD 1.4.4UK2 and PROD 1.4.6R is that an insurance intermediary needs to consider if it is manufacturing an insurance product or if it would be a manufacturer for a legacy non-investment insurance product for PROD 4.6,8 and, if so, should comply with PROD 4.2 (Manufacture of insurance products).

Scope of ‘manufacturing’

PROD 1.4.5A G
  1. (1)

    8PROD 4.2 applies to firms that manufacture insurance products. The terms ‘firm’ and ‘manufacturer’ are used in that section interchangeably to refer to such persons.

  2. (2)

    The Glossary term ‘manufacture’ includes ‘designing, developing, creating and/or underwriting’ which cover activities prior to the insurance product being approved for marketing and distribution, and on a continuing basis after such approval.

Effect of provisions marked “UK” for certain manufacturers and distributors of insurance products7

PROD 1.4.6 R
  1. (1)

    1Subject to (2) and PROD 1.4.3R, provisions in this section and in PROD 4 marked “UK”2 apply to firms :8

    1. (a)

      manufacturing or distributing insurance products, but to whom the IDD POG Regulation does not apply;8

    2. (b)

      in relation to product governance and distribution arrangements for legacy non-investment insurance products,8

    as if they were rules.

  2. (2)

    For the purposes of (1), a word or phrase used in the IDD POG Regulation and referred to in column (A) has the meaning indicated in Column (B) of the table below:

    (a)

    (b)

    2

    2

    “Article 8(2)”

    PROD 4.2.30UK2

    2

    “customer” and “potential customer”

    customer

    2

    “insurance-based investment products”

    insurance-based investment products

    “insurance distribution activities” and “distribution activities”

    insurance distribution activities

    “insurance distributor”

    distributor

    “insurance intermediary”

    insurance intermediary

    “insurance undertaking”

    insurer

    “manufacturer” and “manufacturers within the meaning of Article 2 of this Delegated Regulation”

    manufacturer

    “manufacturing”

    manufacturing

    “shall”

    must

  3. (3)

    In this sourcebook, where a reproduced provision of an article of the IDD POG Regulation refers to another part of the IDD POG Regulation, that other provision must also be read with reference to the table in (2).

  4. (4)

    In relation to a legacy non-investment insurance product, the reproduced provisions of an article of the IDD POG Regulation must be read to be consistent with the application of product governance and distribution requirements in PROD 4.2 and PROD 4.3 to a legacy non-investment insurance product.8

Effect and interpretation of PROD 1.4 and PROD 4 for certain manufacturers and distributors of pathway investments and default options

PROD 1.4.6A R

3 4A firm to which PROD 1.4.3BR applies must

  1. (1)

    comply with provisions marked "UK"7 in PROD 1.4 and PROD 4 as if they were rules; and

  2. (2)

    read terms or phrases found in PROD 1.4 or PROD 4 as follows:

    1. (a)

      terms referred to in column (1) of the table below have the meaning indicated in the same row of column (2) of the table;

    2. (b)

      terms relating to insurance or insurance products have the meaning of the corresponding term relevant in the context of pathway investments or default options9; and

    3. (c)

      terms or phrases which are only relevant to firms manufacturing or distributing insurance products may be disregarded.

This table belongs to PROD 1.4.6AR(2)(a).

(1)

(2)

7 7
7 7

7ICOBS 2.5-1R and COBS 2.1.1R

7 COBS 2.1.1R

ICOBS

relevant conduct of business obligations

"PROD 4.2 requirements of the IDD POG Regulation)”7

PROD 4.2

7

“insurance-based investment products”

pathway investment or default option9

“insurance distributor”

distributor

“insurance distribution activities”

distribution activities

“insurance intermediary and an insurance undertaking”

firms

“insurance product”

pathway investment or default option9

“‘manufacturer’ and ‘manufacturers’ within the meaning of Article 2 of this Delegated Regulation”

manufacturer

“manufacturing”

manufacturing

“premiums”

costs and charges

“shall”

must

Where?

PROD 1.4.7 R

1 PROD 4 applies to a firm with respect to activities carried on from an establishment maintained by it, or its appointed representative:8

  1. (1)

    (for all insurance products and pathway investments) in the United Kingdom; and8

  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 Kingdom8.

[Note: in respect of (1),8 article 7(2) of the IDD]

PROD 1.4.8 R

[deleted]2

PROD 1.4.9 G

[deleted]2

1

Interaction of PROD 4 and the RPPD Guide

PROD 1.4.10 G

1A firm to which PROD 4 applies need not apply the guidance in RPPD for matters covered by PROD if the firm has complied with PROD 4 (see also PROD 4.4.2G). PROD 4.4 includes guidance based on the RPPD which firms subject to PROD 4 should apply.

Modification of PROD 4.2 and PROD 4.3 for overseas non-investment insurance products

PROD 1.4.11 R

10 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 [https://www.handbook.fca.org.uk/instrument/2021/FCA_2021_19.pdf]]

PROD 1.4.12 G
  1. (1)

    10The effect of PROD 1.4.11R is that, for an overseas non-investment insurance product, including where this is a legacy non-investment insurance product subject to PROD 4.6, a firm’s product approval process (and arrangements for ongoing monitoring) need only comply with:

    1. (a)

      the requirements in PROD 4.2 or PROD 4.3 as they stood on 30 September 2021, except for those provisions in PROD 1.4.11R(2); and

    2. (b)

      any subsequent changes made by an instrument other than the Non-Investment Insurance: Product Governance, Premium Finance, General Insurance Auto-renewal and Home and Motor Insurance Pricing Instrument 2021.

    PROD 1.4 and PROD 4 as it stood on 30 September 2021 can be accessed by using the timeline on the FCA Handbook website. Firms will need to consider any further changes to PROD after this date to consider if they apply in relation to overseas non-investment insurance products.

  2. (2)

    A non-investment insurance product:

    1. (a)

      that will be or is available for distribution or marketing to customers who are habitually resident or, if applicable, where the state of the risk is, in the United Kingdom; or

    2. (b)

      where, for any policy issued under the product, the policyholder is habitually resident in or, if applicable, the state of the risk is in, the United Kingdom,

    will not be an overseas non-investment insurance product and the firm will need to meet all applicable requirements in PROD 4 including PROD 4.2.14AR in relation to providing fair value.

  3. (3)

    A firm should also consider in relation to any overseas non-investment insurance product what is required to meet obligations under other rules in the FCA Handbook including, for example, the Principles and SYSC.

Meaning of ‘customer’ in PROD 4 for non-investment insurance contracts: consideration of policyholders, and policy stakeholders (including leaseholders)

PROD 1.4.13 G

11 Firms are reminded that in PROD 4, in relation to non-investment insurance contracts, as the context requires, ‘customer’ includes:

  1. (1)

    a person who is a policyholder, or a prospective policyholder, whether or not they make the arrangements preparatory to the conclusion of the contract of insurance; and

  2. (2)

    a policy stakeholder including a leaseholder.

PROD 1.4.14 G

11For a non-investment insurance product that is or will be used to effect a multi-occupancy building insurance contract, when meeting the requirements under PROD 4, including in particular whether the product provides fair value for the purposes of PROD 4.2.14AR, a firm should consider the interests of:

  1. (1)

    any policyholder making the arrangements preparatory to the conclusion of the contract of insurance;

  2. (2)

    the freeholder and any other policyholder of the product; and

  3. (3)

    leaseholders.