The Financial Conduct Authority has warned “too many” insurance firms are not fully meeting its product governance standards.

They will also likely be unprepared to meet new enhanced rules on product governance, which come into force on 1 October 2021.

The FCA recently conducted a review of how firms design, sell and review their products to ensure they met the needs of their customers.

It showed that although some firms had made good progress, many were lagging.

Specifically, it found “insufficient focus” on customers, outcomes, and product value, including when considering value in the context of Covid-19.

It also found shortcomings in governance and oversight of products.

As an example it was not always clear firms have adequate processes to assess whether intermediary remuneration (such as how much a broker is paid) bears a reasonable relationship to the costs or workload to distribute the product.

FCA executive director for supervision, policy and competition Sheldon Mills said: “We know some firms are doing the right thing but with the deadline for implementing our enhanced rules less than two months away, it’s worrying that some firms may not be ready.

“Where firms are not consistently meeting existing requirements and expectations, it risks harm through poor value products or products being sold to the wrong customers.

“These firms have significant work to do urgently to be able to comply with the enhanced product governance rules. Firms that fail to do that work risk regulatory action.”

The FCA’s enhanced product governance rules were introduced following its general insurance pricing practices market study.

The research found home and motor insurance markets were not working well for consumers, particularly loyal customers.

The rules are designed to ensure firms have processes in place to deliver products which offer fair value to customers.

They refer to all non-investment insurance contracts, not only home and motor insurance.