PRIN 2A.11 – Sale and Purchase of Product Books
PRIN 2A.11 govern what happens when financial firms buy and sell “product books” (portfolios of financial products and their associated customers). The regulations ensure that when ownership of these products changes hands, consumer protection standards are maintained and the new owner understands what they’re taking on.
Rules for Products Purchased Before 31 July 2023
PRIN 2A.11(1) – When a firm acquires a product book that was originally purchased before 31 July 2023, they must follow Principle 12 (treating customers fairly) and all the requirements set out in PRIN 2A.
PRIN 2A.11(2) – However, there are some relaxed requirements for firms in this situation. Unless the firm was originally involved in creating the product (as a co-manufacturer) or has made significant changes to the product since 31 July 2023, they only need to use their “best endeavours” to comply with the product governance rules in PRIN 2A.3 and the fair value assessment requirements in PRIN 2A.4. This acknowledges that it may be difficult for a new owner to fully comply with rules designed for product creators when they inherit an existing product.
Rules for Products First Sold After 31 July 2023
PRIN 2A.11(1)(a) – These stricter rules apply whenever a product book is sold for the first time after 31 July 2023.
PRIN 2A.11(2)(a) – The firm selling the product book has a clear obligation: they must provide all relevant information to the buyer so that the purchasing firm can immediately comply with Principle 12 and PRIN 2A from the moment they take ownership.
PRIN 2A.11(3)(a) – The firm buying the product book must conduct thorough due diligence to understand several key aspects of what they’re purchasing:
- Customer characteristics: They need to identify whether any groups of retail customers have vulnerability characteristics or share protected characteristics (such as age, race, or gender) that might affect how the product should be managed or sold.
- Product approval history: They must understand how the selling firm originally approved the product and review any subsequent product reviews that have been conducted.
- Product benefits and costs: They need a clear picture of what benefits the product is designed to provide to customers and what costs customers pay for these benefits.
- Fair value assessment: They must understand how the selling firm determined that the product provides fair value to customers, as this will inform their ongoing obligations.
PRIN 2A.11(4)(a) – The due diligence process must be comprehensive enough to enable the purchasing firm to fully comply with Principle 12 (treating customers fairly) and all PRIN 2A requirements once they own the product book. This means the buyer cannot simply rely on the seller’s assurances – they must independently verify that they can meet their regulatory obligations.
Key Takeaways
The rules create a clear framework where sellers must be transparent and buyers must be diligent, with the ultimate goal of ensuring that customer protection doesn’t suffer when product ownership changes hands. The different standards for pre- and post-July 2023 products reflect the evolution of regulatory expectations while being practical about legacy arrangements.