The results of the CSA revealed that:
- firms generally define a target market for the products they manufacture and/or distribute and that firms follow the list of five target market categories set out in the ESMA guidelines but that this exercise is approached by some firms as a formalistic exercise without sufficient granularity or the use of clearly defined terms;
- the definition of a target market by firms does not always translate into a compatible distribution strategy that enables the product to reach said target market; and
- firms continue to struggle with the requirements to perform:
- scenario analyses as required under Article 9(10) of the MiFID II Delegated Directive; and
- charging structure analyses as required under Article 9(12) of the MiFID II Delegated Directive.
In light of these findings ESMA has launched a consultation setting out proposals which include:
- the specification of any sustainability-related objectives a product is compatible with;
- the practice of identifying a target market per cluster of products instead of per individual product;
- the determination of a compatible distribution strategy where a distributor considers that a more complex product can be distributed under non-advised sales; and
- the periodic review of products.
The consultation closes on 7 October 2022.