On 8 July 2022, the European Securities and Markets Authority (ESMA) published a Consultation Paper on the review of the Guidelines on MIFID II product governance requirements.

The Consultation Paper is primarily of interest to Member State competent authorities, firms that are subject to MIFID II and investors.

The ESMA proposes updating its 2017 guidelines on certain aspects of the MiFID II product governance requirements to take into account:

• Recent regulatory and supervisory developments.
• The European Commission’s Capital Markets Recovery Package and subsequent Amending Directive. On 26 February 2021, Directive 2021/338/EU (MiFID II Amending Directive) was published and entered into force on the day following its publication. The MiFID II Amending Directive introduces two exemptions from the product governance requirements: i) where a firm provides an investment service relating to bonds with no other embedded derivative than a make-whole clause; and ii) where the financial instruments are marketed or distributed exclusively to eligible counterparties (ECPs). The ESMA has updated the guidelines taking these exemptions into account.
• The sustainability-related amendments to the MiFID II Delegated Directive (Commission Delegated Directive 2017/593). The MiFID II Delegated Directive has been updated to integrate sustainability factors into the product governance obligations. The sustainability-related amendments to the MiFID II Delegated Directive have mainly led the ESMA to propose amendments in the guidelines covering the target market categories to be considered and the negative target market assessment.
• The recommendations on the product governance guidelines by the ESMA’s Advisory Committee on Proportionality (ACP). The ACP’s recommendations have been considered in the ESMA’s review of the guidelines, for example, in relation to the additional guidance proposed on the clustering approach and on the application of the proportionality principle when performing product reviews.
• The findings of the ESMA’s 2021 Common Supervisory Action (CSA) on product governance. The ESMA has issued a public statement presenting the results of the CSA on product governance. The CSA revealed that there was room for improvement in firms’ compliance with several aspects of the product governance requirements. Where relevant, such aspects have been addressed in the updated guidelines, for example by providing more guidance on how firms should specify a compatible distribution strategy, on product reviews, and on the exchange of information between manufacturers and distributors.

The deadline for comments on the Consultation Paper is 7 October 2022.

The ESMA will consider the feedback it receives to the consultation in Q4 2022 and expects to publish a final report in Q1 2023.