MiFID - Investor Protection

The European Securities and Markets Authority (ESMA) has today published an updated version of its supervisory briefing on MiFID II appropriateness requirements.

This supervisory briefing is an updated version of ESMA’s 2012 supervisory briefing on the same topic and takes into account the new version of ESMA’s guidelines on suitability published on 28 May 2018 with respect to aspects also relevant to the appropriateness rules.

This supervisory briefing covers the following topics: 

  • Determining situations where the appropriateness assessment is required;
  • Obtaining information from clients;
  • Assessment of appropriateness;
  • Warnings to clients;
  • Qualification of firm’s staff; and
  • Record-keeping.

This supervisory briefing is aimed at competent authorities as defined in MiFID II. It also aims to give market participants indications of compliant implementation of the MiFID II appropriateness provisions. The purpose of this supervisory briefing is to promote common supervisory approaches and practices in the application of the MiFID II appropriateness rules.

 

Steven Maijoor, the Chair of the European Securities and Markets Authority, has delivered the keynote speech at today's Better Finance 10th Anniversary Conference in Bucharest.

The speech focused on the costs and performance of retail investment products, drawing on ESMA's first annual costs and performance report on retail investment products.

​Key points in the speech were:

“In the case of retail investment funds, costs are fairly constant and not as variable as gross returns. Hence, investors take an extra hit in case of overall lower gross returns.

and

“The new ESMA Q&As adopt a broad definition of ‘benchmark referencing’ UCITS funds. The obligation for a wider range of funds to show past performance of the benchmark should allow investors to better evaluate investment choices of active funds against passive funds, and reduce the possibilities of adopting closet indexing strategies.”

Product Intervention

ESMA’s power to temporarily restrict or prohibit the marketing, distribution or sale of financial products has been applicable from 3 January 2018 as part of a strengthening of investor protection introduced by the new MiFID regime.

ESMA currently has two product intervention measures in effect under Article 40 of the Markets in Financial Instruments Regulation (MiFIR). 

The European Securities and Markets Authority (ESMA) has today issued four positive opinions on product intervention measures taken by the National Competent Authorities (NCAs) of the Netherlands, Poland and the United Kingdom. ESMA’s opinion finds that the proposed measures are justified and proportionate and that it is necessary for NCAs to take product intervention measures that are at least as stringent as ESMA’s measures.

ESMA’s has issued opinions on national product intervention measures from:

  • Authority for the Financial Markets of the Netherlands (AFM)Opinion on the proposed product intervention measure relating to binary options;  
  • Authority for the Financial Markets of the Netherlands (AFM)Opinion on the proposed product intervention measures relating to contracts for differences; 
  • Komisja Nadzoru Finansowego of Poland (KNF) - Opinion on the proposed product intervention measure relating to binary options; and
  • Financial Conduct Authority of the United Kingdom (FCA) - Opinion on the proposed product intervention measure relating to binary options.  

Background

NCAs may take product intervention measures in accordance with Article 42 of Regulation (EU) No 600/2014. At least one month before a measure is intended to take effect, an NCA must notify all other NCAs and ESMA of the details of its proposed measure and the related evidence, unless there is an exceptional case where it is necessary to take urgent action.

In accordance with Article 43 of Regulation (EU) No 600/2014, ESMA performs a facilitation and coordination role in relation to such product intervention measures taken by NCAs. After receiving notification from an NCA of its proposed measure, ESMA must adopt an opinion on whether the proposed measure is justified and proportionate. If ESMA considers that the taking of a measure by other NCAs is necessary, it must state this in its opinion. 

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