ESMA finalises product governance guidelines

ESMA has published its final report on product governance guidelines under MiFID 2. It received over 100 responses to its consultation on the guidelines, which were generally supportive. However, ESMA has made some changes to the guidelines as a result of the comments. The final guidelines will now apply from 3 January 2018 and will apply to all investment firms, credit institutions that provide investment services, UCITS managers and AIFMs when providing relevant services. The guidelines comprise:

  • guidance for product manufacturers on the identification of the potential target market, including a list of 5 categories which should be considered; differentiating the target market on the basis of the nature of the product; and articulating the distribution strategy of the manufacturer and its definition of the target market; and
  • guidelines for distributors on the timing and relationship of their target market assessment with other product governance processes; the relation between product governance requirements and the suitability and appropriateness assessment; categories to be considered in identifying the target market and differentiation on the basis of the nature of the product; interaction with investment services offered; the distributor’s distribution strategy; and portfolio management advice and related issues
  • reviews by both manufacturers and distributors;
  • distribution of products whose manufacturers are not subject to MiFID 2 or which were manufactured before MiFID 2 takes effect;
  • identifying the negative target market and sales outside the positive target market;
  • applying the target market requirements to firms dealing with non-retail clients; and
  • examples and case studies to illustrate the guidelines.