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ESMA review finds improvements with NCAs’ supervision of the suitability requirements

24 July 2018

The European Securities and Market Authority (ESMA) has issued today a follow-up report regarding oversight by national competent authorities (NCAs) of the Markets in Financial Instruments Directive (MiFID) suitability requirements. The Report assesses the actions ten NCAs have undertaken since the earlier peer review conducted in 2016.  The Report identifies enhancements in supervising the requirements and greater deployment of enforcement action by some NCAs. These improvements should lead to an increased level of EU-wide supervisory convergence of the suitability requirements.

Improvements since the 2016 Peer Review 

Specifically, the follow-up report identifies improvements in the supervision of the requirements by NCAs through thematic reviews and on-site inspections, improvements to IT systems to identify firms operating on a branch or freedom of service basis. The Report also highlights greater use by three NCAs of enforcement tools to address breaches of the requirements.  

Suitability follow up review image

Going forward 

MiFID II, which came into effect on 3 January 2018, expands the MiFID suitability provisions by adding additional requirements. ESMA stresses the importance of continued and meaningful supervisory and enforcement efforts by NCAs to ensure a high level of compliance with the suitability requirements, as only these actions can ensure the proper application of Union Law and high level of investor protection. 

Background

MiFID requires investment firms to assess the suitability of investment services and financial instruments, taking into account clients’ profiles, when providing investment advice or portfolio management. The requirements form a key element of the MiFID investor protection requirements and apply to both retail and professional clients. Investment firms’ compliance with the MiFID suitability requirements is paramount to the overall protection of investors. Therefore, it is important that NCAs are effectively overseeing and enforcing the conduct of firms.