POG - product oversight governance sustainability

Companies have to integrate the legal sustainability provisions in their product oversight & governance (POG) policy. They then have to evaluate the product range accordingly and avoid selling products without sustainability characteristics to investors who want to invest sustainably.

The purpose of POG is to ensure that financial products are designed, developed and distributed in a responsible and customer-oriented manner. This includes companies tailoring products to the needs of the right target audience, and not selling unsustainable products to investors with sustainability preferences. POG contributes to transparent and responsible market forces that protect investors and promote sustainable investments.

To whom does POG apply?

To investment firms and banks (MiFID II)

To life insurers (IDD).

What does the AFM expect from market participants?

Listed below are the main expectations:

Market participants know and check the quality and reliability of products’ sustainability-related information, also for the purpose of the suitability assessment.
Market participants have set up the customer journey (website, app, customer contact) according to the distribution strategy.
Market participants monitor the distribution of grey products to the negative target market and evaluate the effectiveness of their strategy to prevent this.

The main expectations apply to investment firms and banks and to advisers of insurances with an investment component. The additional clarification on this expectation only applies to investment firms and banks (MiFID II).

1. Market participants know and check the quality and reliability of products’ sustainability-related information, also for the purpose of the suitability assessment

Additional clarification on this expectation:

Provide clear sustainability-related information from the product developer, check it critically and regularly monitor whether new sustainability-related information is available. Define in your policy how this is applied consistently. Inform clients if information is missing.
Check sustainability-related information for reliability. The distributor remains responsible for determining the target markets and must have reliable product information.
It can help to use data from a data broker. Be critical of the meaning and scope of this information, especially if it is shared with clients.

2. Market participants have set up the customer journey (website, app, customer contact) according to the distribution strategy

Additional clarification on this expectation:

Ensure in policies and procedures that products only reach the right (positive) target market. Avoid selling to the negative target market, especially in the case of execution-only services.
Give clients clear information on the sustainability features of products. Also indicate when a product does not have sustainability features, or when information is missing.
You may use third-party sustainability labels, provided that you critically assess the underlying methodology. The AFM expects you to investigate how the label was determined, and additionally to test whether the information corresponds to practice, for example by means of random checks.

3. Market participants monitor the distribution of grey products to the negative target market and evaluate the effectiveness of their strategy to prevent this

Additional clarification on this expectation:

Define the negative target market in detail. It helps to do this on the basis of the three categories of sustainability preferences: taxonomy investments, sustainable investments within the meaning of the SFDR and investments that take into account principal adverse impacts (PAIs). This makes it easier to align investments with sustainability preferences.
In principle, grey products must not be offered to clients with a sustainability preference. This requires a clear and well-defined negative target market to prevent a mismatch.
Determine the target market at product level. Clustering of products with the same sustainability features is permitted, provided that the underlying sustainability-related information is sufficiently transparent and consistent.
Check whether grey products still reach the negative target market. Regularly assess the effectiveness of your strategies to prevent this from happening.

ESG update