ESMA publishes guidance on appropriateness and execution-only requirements under MiFID II
The European Securities and Markets Authority (ESMA), the EU’s securities regulator, has today published the final report on its Guidelines on certain aspects of the MiFID II appropriateness and execution-only requirements.
These requirements constitute an important element of investor protection in the provision of investment services other than investment advice or portfolio management. Under MiFID II, investment firms providing non-advised services are required to request information on the knowledge and experience of clients or potential clients to assess whether the investment service or product envisaged is appropriate, and to issue a warning in case the investment service or product is deemed inappropriate. The execution-only framework allows for an exemption to this assessment in certain conditions, including that the firm issues a warning to the client.
The purpose of the Guidelines is to enhance clarity and to foster convergence in the application of the appropriateness and execution-only requirements. The ESMA Common Supervisory Action (CSA) conducted in 2019 showed there was a need for such convergence in the area of appropriateness and execution-only. The Guidelines cover several important aspects of the appropriateness process, spanning from the information to be provided to clients about the purpose of the appropriateness assessment, the arrangements necessary to understand clients and products, to the matching of clients with appropriate products and the effectiveness of warnings. Moreover, other related requirements are clarified, such as the execution-only exemption and record-keeping and controls.
ESMA conducted a public consultation on these Guidelines to gather the views of relevant stakeholders. The report published today contains a feedback statement summarising the responses received and highlighting the amendments and clarifications introduced in the final guidelines to consider the feedback received during this consultation.
The Guidelines will be translated into the official languages of the EU and published on ESMA’s website. The publication of the translations will trigger a two-month period during which national competent authorities must notify ESMA whether they comply or intend to comply with the Guidelines. The Guidelines will apply six months after the date of the publication on ESMA’s website in all EU official languages.