Order on Product Approval Procedures for Retail Banking Products

Order on Product Approval Procedures for Retail Banking Products

Pursuant to Section 71, paragraph 3, first sentence, and Section 373, paragraph 4, of the Act on Financial Business, cf. Act Consolidation No. 1731 of 5 December 2023, as amended by Act No. 718 of 13 June 2023 and Act No. 1546 of 12 December 2023, Section 25, paragraph 3, and Section 152, paragraph 7, of the Act on Payments, cf. Act Consolidation No. 53 of 18 January 2023, Section 8a, paragraph 6, and Section 22, paragraph 4, of the Act on Real Estate Credit Companies, cf. Act Consolidation No. 285 of 1 March 2023, and Section 7, paragraph 6, and Section 26, paragraph 4, of the Act on Financial Advisors, Investment Advisors and Mortgage Credit Intermediaries, cf. Act Consolidation No. 2016 of 1 November 2021, it is hereby ordered:

Chapter 1
Scope and Definitions

Scope

Section 1. This Order applies to the following entities when they develop, offer, or sell retail banking products to a consumer:
1) Credit institutions and mortgage credit institutions, cf. Section 5, paragraph 1, no. 1, letters a and b, of the Act on Financial Business.
2) Payment institutions and e-money institutions, cf. Section 7, no. 2 and 3, of the Act on Payments.
3) Real estate credit companies, cf. Section 1, paragraph 2, of the Act on Real Estate Credit Companies.
4) Financial advisors and mortgage credit intermediaries, cf. Section 2, no. 1 and 2, of the Act on Financial Advisors, Investment Advisors and Mortgage Credit Intermediaries.

Section 2. If the product developer uses a distributor that is not covered by this Order, it is the responsibility of the product developer to ensure that the distributor complies with the rules in this Order.

Definitions

Section 3. In this Order, the following definitions apply:
1) Retail banking product: A product directed at a consumer in the form of:
a) Credit agreements. b) Deposits. c) Payment services, cf. Section 7, no. 1, of the Act on Payments. d) Electronic money, cf. Section 7, no. 6, of the Act on Payments. e) Payment accounts, cf. Section 7, no. 16, of the Act on Payments. f) Payment instruments, cf. Section 7, no. 18, of the Act on Payments. g) Other means of payment, including travellers' cheques and bank drafts.
2) Product developer: An entity that develops, including designs, creates, combines, or makes significant changes to, products offered to a consumer, including an entity that participates in the development of the product regardless of whether it is also a distributor.
3) Distributor: An entity that offers or sells products to a consumer, including business units of product developers that are not involved in the development of the product but are responsible for marketing the product.
4) Product approval procedures: Product development and product management processes.
5) Consumer: A natural person acting for purposes which are outside their trade, business, craft, or profession.

Chapter 2
Rules for Product Developers

Organizational Requirements etc.

Section 4. The product developer shall establish, implement, and review effective product approval procedures.
Paragraph 2. The product approval procedures shall, in relation to the development and marketing of the products, ensure that the interests, objectives, and characteristics of the consumer are taken into account with a view to preventing any harm to consumers and minimizing conflicts of interest. Paragraph 3. The product approval procedures shall be proportionate to the nature, scale, and complexity of the product developer's relevant business and shall take into account the potential risk of the product to the target group and the complexity of the product. Paragraph 4. The product developer shall regularly review and update the product approval procedures.

Section 5. The product developer shall ensure that:
1) the product developer's employees participating in the development of a product have knowledge of the product approval procedures and possess the necessary qualifications to understand the characteristics and risks of the product in question,
2) the product approval procedures are an integrated part of the company's management, control, and governance framework,
3) the board of directors approves the establishment of the procedures and subsequent reviews, cf. Section 4, paragraph 1, and
4) the product developer's management, with support from the compliance function, is responsible for the internal compliance with the product approval procedures.

Definition of Target Group

Section 6. The product developer shall, as part of its product approval procedure, identify the relevant target group for the product.
Paragraph 2. The product developer shall ensure that the product is suitable for the interests, objectives, and characteristics of the identified target group. In this connection, the product developer shall assess the financial capacity of the target group. Paragraph 3. The product developer shall identify groups of consumers whose interests, objectives, and characteristics are not assessed to be suitable for the product.

Section 7. The product developer may only develop and market products with features, costs, and risks that align with the interests, objectives, and characteristics characterizing the target group identified pursuant to Section 6, paragraphs 1 and 2.
Paragraph 2. The product developer shall assess how the product fits into the product developer's existing product portfolio and whether the presence of too many product variants hinders the consumer from making informed decisions.

Product Testing

Section 8. The product developer shall, before a product is marketed or sold to a new target group, or before significant changes are made to an existing product, test the product to assess how the product will affect consumers in a number of scenarios, including stress scenarios.
Paragraph 2. If the tests, cf. paragraph 1, show that the product leads to poor results for the target group, the product developer shall make the necessary changes to the product so that it becomes suitable for the target group, cf. Section 6, paragraph 2.

Ongoing Assessment of Products

Section 9. The product developer shall continuously monitor marketed products to ensure that the product remains suitable for the interests, objectives, and characteristics of the identified target group, cf. Section 6, paragraph 2.
Paragraph 2. If the product developer identifies a problem with a product on the market, including in connection with the monitoring of marketed products, cf. paragraph 1, or based on information from the distributor, cf. Section 19, the product developer shall take the necessary measures to remedy the situation and prevent the harm from recurring. The product developer shall also immediately notify the distributor of changes to the existing products, cf. the first sentence, and of any additional measures that must be taken to remedy the situation.

Distribution Channels

Section 10. The product developer shall select distribution channels that are suitable for the identified target group. In this connection, the product developer shall select distributors who have the necessary knowledge, expertise, and capacity to market the product correctly and to provide consumers with relevant information explaining the product's features and risks.

Section 11. The product developer shall take necessary measures to ensure that distributors act in accordance with the product developer's product approval procedures and take appropriate measures if a distribution channel proves to be unsuitable.
Paragraph 2. The product developer shall continuously monitor that the products primarily reach the identified target group through the used distribution channels, and that the products are only sold outside the target group in sufficiently justified cases.

Information to Distributors

Section 12. The product developer shall provide the distributor with relevant information about the product, including:
1) a description of the product's key features, risks, and any limitations, and
2) the total price to be paid by the consumer, including all fees, costs, and expenses associated therewith, to the extent that the product developer knows or can reasonably be expected to know of these matters.
Paragraph 2. The product developer shall ensure that the information provided to the distributor is clear, accurate, and up-to-date, and that the information includes all relevant details that enable the distributor to:
1) understand and market the product correctly, and
2) identify the target group for which the product is developed and the groups of consumers whose interests, objectives, and characteristics are not assessed to be suitable for the product, cf. Section 6, paragraphs 1 and 3.

Chapter 3
Rules for Distributors of Products

Organizational Requirements

Section 13. The distributor shall establish, implement, and review effective own product approval procedures.
Paragraph 2. The product approval procedures shall, when marketing the product, ensure that consumers' interests, objectives, and characteristics are taken into account with a view to preventing any harm to consumers and minimizing conflicts of interest. Paragraph 3. The product approval procedures shall be specific and proportionate to the size of the company and the role the company plays in connection with the marketing. Paragraph 4. The distributor shall regularly review and update the product approval procedures.

Section 14. The distributor shall ensure that the product approval procedures are an integrated part of the company's systems and control arrangements, and that the management body approves the establishment of the procedures and subsequent reviews, cf. Section 13, paragraph 1.

Knowledge of the Target Group

Section 15. The distributor shall use the information from the product developer, cf. Section 12, to identify whether a consumer belongs to the target group, cf. Section 6, and to identify the groups of consumers whose interests, objectives, and characteristics are not assessed to be suitable for the product, cf. Section 6, paragraph 3.

Distribution Outside the Target Group

Section 16. The distributor may only sell the product to a consumer who does not belong to the identified target group, cf. Section 6, in sufficiently justified cases, cf. Section 18.

Information to Consumers

Section 17. The distributor shall inform consumers about the product's key features, risks, and any limitations, and the total price to be paid by the consumer, including all fees, costs, and expenses associated therewith, cf. Section 12, paragraph 1, and shall make supplementary material from the product developer available to the target group.

Information to Product Developers

Section 18. The distributor shall be able to inform the product developer of the reasons why the product was offered to a consumer who does not belong to the identified target group, cf. Section 16.

Section 19. The distributor shall collect information for the product developer that enables the product developer to assess whether the marketed product remains suitable for the interests, objectives, and characteristics of the identified target group.
Paragraph 2. The distributor shall immediately notify the product developer if the distributor identifies problems with the product's features, product information, or target group in connection with the offering and sale of the product.

Section 20. The distributor shall document all measures that the distributor takes or performs, cf. Sections 13-19, and keep the documentation and, upon request, make the documentation available to the product developer.

Chapter 4
Supervisory and Penal Provisions

Supervision

Section 21. The product developer shall document all measures that the product developer takes or performs, cf. Sections 4-12, and keep the documentation, and upon request, provide the documentation to the Danish Financial Supervisory Authority, cf. Section 23.

Section 22. The distributor shall document all measures that the distributor takes or performs, cf. Sections 13-19, and keep the documentation, and upon request, provide the documentation to the Danish Financial Supervisory Authority, cf. Section 23.

Section 23. The Danish Financial Supervisory Authority ensures compliance with this Order.
Paragraph 2. The Danish Financial Supervisory Authority may issue orders to rectify matters that contravene the provisions of this Order.

Penalties

Section 24. A person who fails to comply with an order pursuant to Section 23, paragraph 2, shall be liable to a fine.
Paragraph 2. Companies and other legal entities may be subject to criminal liability pursuant to the rules in Chapter 5 of the Danish Criminal Code.

Entry into Force

Section 25. This Order enters into force on 1 July 2024.
Paragraph 2. This Order applies to products that are marketed for the first time on or after 1 January 2019, and to products that were marketed before 1 January 2019, if the product is significantly changed from 1 January 2019, cf. however paragraph 3. Paragraph 3. For products marketed by credit and mortgage credit institutions, this Order applies, regardless of paragraph 2, only to products that were marketed for the first time or significantly changed in the period from 1 January 2019 to 25 June 2021 or after 1 July 2024. Paragraph 4. Order No. 1645 of 18 December 2018 on product approval procedures for retail banking products is repealed.

Danish Financial Supervisory Authority, 29 May 2024 Louise Mogensen / Ulla Brøns Petersen