The European Securities and Markets Authority (ESMA) has published a consultation paper containing draft guidelines on MiFID II product governance requirements.
Articles 16(3) and Article 24(2) of MiFID II introduce product governance obligations for manufacturers and distributors which are further specified in Articles 9 and 10 of Commission Delegated Directive of 7 April 2016 with regard to safekeeping of financial instruments and funds belonging to clients, product governance obligations and the rules applicable to the provision or reception of fees, commissions or any monetary or non-monetary benefits.
The product governance requirements cover a broad range of topics, both product and process related. However, the draft guidelines that ESMA has produced mainly address the target market assessment, as this aspect was identified as the most important one for ensuring the common, uniform and consistent application of the above mentioned articles. In addition, establishing consistent, efficient and effective supervisory practices on the target market assessment is important, especially given the fact that the implementation of the target market assessment by market participants is complex and will benefit from further clarity.
ESMA also states that the guidelines, when finalised, should be applied in a proportionate manner, taking into account the nature, scale and complexity of a firm’s business and the nature and range of financial services and activities undertaken.
ESMA has also provided draft examples in order to explain some areas firms could consider when identifying the target market. Such examples would not form part of the guidelines but would help firms in understanding how the requirements in the guidelines can be met.
The deadline for comments on the consultation paper is 5 January 2017.
ESMA will consider the feedback it receives to the consultation in Q1 2017 and expects to publish a final report in Q1/Q2 2017.
View ESMA consults on product governance guidelines to safeguard investors, 5 October 2016