FCA PROD 3 Product Governance: Manufacturers and Distributors

Product governance is the discipline of deciding who a financial product is for, checking that it works for them, and keeping watch after it is sold. In the UK, the FCA Handbook sets out detailed product governance rules for investment products in PROD 3, which applies the MiFID framework. This guide summarises PROD 3 as it appears in the FCA's published sourcebook, which says it was last updated in June 2026. It supports our course overview on product governance and target markets, and it sits alongside the FCA Consumer Duty.

Who PROD 3 applies to

According to the sourcebook, PROD 1.3.1R applies to MiFID investment firms, CRD credit institutions, MiFID optional exemption firms and branches of third-country investment firms. It covers manufacturing financial instruments and structured deposits, and distributing financial instruments, structured deposits and investment services. It applies to activities from a UK establishment, and to overseas establishments serving UK clients subject to exclusions. Other firms that manufacture or distribute these products should treat PROD 3 as guidance, but this does not apply where the Consumer Duty already governs the product. PROD 3.3.1R does not apply to eligible counterparty business.

What manufacturers must do (PROD 3.2)

• Product approval: maintain, operate and review a product approval process for each financial instrument and each significant adaptation, before it is marketed or distributed.
• Target market: identify a sufficiently granular target market, specifying compatible clients and any groups the product is not compatible with.
• Distribution strategy: make sure the strategy fits the target market and take reasonable steps to reach it.
• Product testing: assess the fit between risk and reward, run scenario analysis under negative conditions, and review charges.
• Information to distributors: provide adequate information on the product, the approval process, the target market and distribution channels.
• Regular review: review instruments regularly and after events that could materially affect risk to the target market, identifying crucial events and taking appropriate action such as informing distributors, changing the approval process or stopping issuance.
• Governance: manage conflicts of interest, ensure management body control, assign compliance oversight, maintain staff expertise and produce compliance reports available to the FCA on request.

What distributors must do (PROD 3.3)

Distributors must understand the instruments they offer, assess their compatibility with client needs and distribute only where it is in the client's best interests (PROD 3.3.1R). They must obtain sufficient information from manufacturers and must not distribute products they do not sufficiently understand. They must determine the target market themselves, even where the manufacturer has defined one, and set a distribution strategy using manufacturer information and client data. They must maintain product governance arrangements and review them periodically, and comply with the disclosure, suitability, appropriateness, inducements and conflicts rules.

After the sale, distributors must regularly review products and services, and if the target market was wrongly identified or no longer fits, they must reconsider it and update their arrangements. They must also send sales and review information to manufacturers to support their reviews. Each distributor is responsible for its own obligations, and a distributor selling to another distributor must pass on product information and enable sales data to reach the manufacturer.

Why the target market matters

The thread running through both sets of obligations is the target market: defined with enough granularity to say who the product is and is not for, then tested against how the product is actually distributed and what happens to customers over time. A target market that is a loose label, such as "retail investors", gives a firm little to test against. A specific one allows a firm to ask whether sales are reaching people outside it and whether outcomes for the intended group are what was expected.

Where the Consumer Duty comes in

The sourcebook text we read says that, for firms outside the MiFID scope, PROD 3 is guidance and does not apply where the Consumer Duty already governs the product. For firms in scope of both, the practical point is that the two frameworks ask similar questions about whether a product meets the needs of its intended customers, so one well-kept product record can serve both. Firms should confirm with their compliance team which rules are binding for each product line rather than assume.

Practical steps: our suggestions

These steps are our suggestions, not requirements in PROD 3. Keep a product record that shows the target market, the negative target market, the distribution channels and the date of the last review. Build a short list of events that would trigger an early review, such as unusual complaints, a market shock or a change in charges. Make sure the data flowing between manufacturer and distributor can be used, because a review is only as good as the information behind it. For structured learning, browse our CPD courses.

What we could not confirm

We read a summary of PROD 3 drawn from the FCA's sourcebook PDF, not every rule and guidance note in full. The FCA Handbook web pages themselves would not load for us, so we could not check the version history or confirm there have been no changes since the June 2026 update. We have not covered Irish product oversight rules, the Consumer Duty's own product and service outcome, or the separate product governance rules for other sectors. This post is general information, not legal advice.