The European Securities and Markets Authority has published a statement reminding banks and investment firms (together ‘firms’) of their responsibility to act in their clients’ best interests when selling bail-in-able financial instruments.
The statement states that with the introduction of the new bail-in rules in January 2016 firms are likely to issue a significant amount of potentially loss-bearing instruments to fulfil their obligations and ESMA is concerned that investors, particularly retail investors, are unaware of the risks they may face when buying these instruments.
The statement emphasises that firms must comply with their obligations under MiFID and the importance of:
- providing investors – existing and new – with up-to-date, complete information drafted under the supervision of the compliance function;
- managing potential conflicts of interest, in particular, when a firm sells its own bail-in financial instruments directly to its customers; and
- ensuring the product is suitable and appropriate for the investor which may entail collecting more in-depth information about the client than usual to reflect the fact a client could lose money without the firm entering into insolvency.
Our online briefing note on contractual recognition of bail-in powers by EU-regulated financial institutions can be found here
View ESMA reminds firms of responsibilities when selling bail-in securities, 2 June 2016
