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Product Approval & Review Process (PARP)
Embracing the Product Approval & Review Process (PARP) in Financial Compliance
Since January 1, 2013, the Dutch Authority for the Financial Markets (AFM) has heightened its supervision over the product development process in financial institutions. Adherence to the Product Approval & Review Process (PARP) is crucial to prevent reputational, operational, and financial risks. This vigilance became even more pronounced following high-profile cases involving interest rate derivatives and endowment policies.
Legal Framework of PARP
The AFM's supervision is grounded in the standards laid out in Sections 32 to 32c of the Decree on Conduct of Business Supervision of Financial Undertakings Wft (BGfo). For entities under MiFID II, which came into effect on January 3, 2018, additional regulations apply, including Articles 16 and 24 of MiFID II, Articles 9 and 10 of delegated EU Directive 2017/593, and ESMA's product governance guidelines. Insurance distributors also face specific rules under the Insurance Distribution Directive (IDD).
Core Objectives of PARP
Regardless of the type of financial firm, the essential principle of PARP remains consistent: ensuring client interests are central in product development and distribution. It emphasizes that financial products should only be offered to suitable clients.
Enhanced PARP Requirements Under MiFID II
Organizations subject to MiFID II face stringent PARP requirements. These include detailed determinations of target groups, understanding the necessary knowledge and experience for evaluating products, assessing clients' financial situations, objectives, and risk tolerance.
FAQs
PARP is a regulatory process that financial institutions follow to ensure their products meet compliance standards and are aligned with client interests.
PARP is crucial for mitigating risks associated with product development, ensuring that products are suitable for clients and comply with regulatory standards.
PARP is governed by the Decree on Conduct of Business Supervision of Financial Undertakings Wft, MiFID II regulations, and the Insurance Distribution Directive, depending on the institution’s classification.
MiFID II imposes stricter PARP requirements, including detailed evaluations of target groups, product risks, and client suitability.