On 6 May 2020, the European Securities and Markets Authority (ESMA) issued a public statement reminding firms of their conduct of business obligations under MiFID II. ESMA has issued this public statement after several Member State national competent authorities noticed a significant increase in the number of investment accounts opened by retail clients and a surge in trading by retail clients.

ESMA believes that firms have even greater duties when providing investment or ancillary services to investors, especially when they are new or have limited investment knowledge or experience, who decide to invest during these times of intensified market volatility.

ESMA reminds firms of their obligation to act honestly, fairly and professionally in accordance with the best interests of their clients when providing investment or ancillary services and to comply with all relevant MiFID II conduct of business and related organisational requirements. In particular, ESMA covers in the statement product governance, information disclosure, suitability and appropriateness requirements.

In relation to suitability and appropriateness, ESMA reminds firms that when providing investment advice or portfolio management they should obtain the necessary information regarding the client’s or potential client’s knowledge and experience, his/her financial situation including his/her ability to bear losses, and his/her investment objectives including his/her risk tolerance to assess whether the financial instrument or service is suitable for the client. ESMA emphasises that firms should pay particular attention to the possible ramifications of the COVID-19 pandemic for the client’s personal situation and the risk profile of his/her financial instruments to ensure that these financial instruments are suitable.

ESMA also reminds firms that when providing services other than investment advice or portfolio management they must obtain information regarding the client’s or potential client’s knowledge and experience to assess whether the financial instrument or service is appropriate for the client. ESMA stresses that this appropriateness assessment is particularly important for new clients wishing to invest in complex financial instruments during these times of intensified market volatility. Firms should also be sure they correctly categorise financial instruments for the purpose of the appropriateness assessment.