MiFID - Investor Protection

Consultation on Guidelines on certain aspects of the MiFID II suitability requirements

This paper is primarily of interest to competent authorities and firms that are subject to Directive 2014/65/EU of the European Parliament and of the Council (MiFID II). In particular, this paper is addressed to investment firms and credit institutions providing investment advice or discretionary portfolio management services.

The European Securities and Markets Authority (ESMA) has published a Consultation Paper (CP) on draft guidelines on certain aspects of the suitability requirements under the Markets in Financial Instruments Directive (MiFID II).

The suitability requirements were introduced under MiFID to enhance investor protection by ensuring that firms which provide investment advice and portfolio management act in the clients’ best interests. Suitability has to be assessed against clients’ knowledge and experience, financial situation and investment objectives. In order to achieve this, investment firms have to obtain the necessary information from clients.

While the objectives of the suitability assessment under MiFID I remain unchanged under MiFID II, the obligations have been strengthened and specified further under the new legislative framework by including the following requirements:

  • an explicit reference to the fact that the use of electronic systems shall not reduce the responsibility of firms;
  • further details on conduct rules for firms providing a periodic assessment of the suitability;
  • the requirement for firms performing a suitability assessment to assess, taking into account costs and complexity, whether equivalent products can meet client’s needs;
  • the requirement for firms to analyse the costs and benefits of switching from one investment to another one;
  • the extension of suitability requirements to structured deposits; and
  • the requirement for firms to provide clients with a suitability report prior to the conclusion of the recommended transaction.

Proposed Guidelines on certain aspects of the MiFID II suitability requirements

The Consultation Paper includes proposals on the draft guidelines which confirm and broaden the existing guidelines, issued in 2012, in order to:

  • consider recent technological developments of the advisory market, including the increasing use of robo-advice, i.e. automated or semi-automated systems for the provision of investment advice or portfolio management;
  • give relevance to the results of supervisory activities conducted by national competent authorities (NCAs) on the suitability requirements;
  • incorporate some insights of studies in the area of behavioural finance; and
  • provide additional details on some aspects that were already covered under the ESMA’s 2012 guidelines.

Next Steps

The consultation closes on 13 October 2017. ESMA will consider the feedback it receives to the consultation in Q4 2017/Q1 2018 and expects to publish a final report in Q1/Q2 2018.

 

 

 

 

 

 

 

 

 

The European Securities and Markets Authority (ESMA) has added 2 new Q&A to its Questions and Answers (Q&A) document on the implementation of investor protection topics under the Market in Financial Instruments Directive and Regulation (MiFID II/ MiFIR). The new Q&A cover the topics of recording of telephone conversations and electronic communications, and best execution.

The overall MiFID II Q&A provide clarifications on the following topics:

•           Best execution;

•           Suitability and appropriateness;

•           Recording of telephone conversations and electronic communications;

•           Post-sale reporting;

•           Record keeping;

•           Investment advice on an independent basis;

•           Inducements (research);

•           Information on charges and costs;

•           Underwriting and placement of a financial instrument;

MiFID II applies from 3 January 2018 and will strengthen the protection of investors by both introducing new requirements and reinforcing existing ones. The purpose of this Q&A is to promote common supervisory approaches and practices in the application of MiFID II/ MiFIR for investor protection topics.

ESMA will continue to develop this Q&A on investor protection topics under MiFID II in the coming months, both adding questions and answers to the topics already covered and introducing new sections for other MiFID II investor protection areas not yet addressed in this Q&A.

The European Securities and Markets Authority (ESMA) has issued a statement updating on its work in relation to the sale of contracts for differences (CFDs), binary options and other speculative products to retail investors.

 

Statement Text:

ESMA has been concerned about the provision of speculative products such as CFDs, rolling spot forex and binary options to retail investors for a considerable period of time and has conducted ongoing monitoring and supervisory convergence work in this area. In this context, ESMA has previously published a number of Q&As on CFDs and other speculative products to foster supervisory convergence, having established a CFD Task Force in July 2015, and also issued a further investor warning on the sale of CFDs, binary options and other speculative products in July 2016.

However, ESMA remains concerned that these supervisory convergence tools may not be sufficiently effective to ensure that the risks to consumer protection are sufficiently controlled or reduced. ESMA is therefore discussing the possible use of its product intervention powers under Article 40 of MiFIR to address investor protection risks in relation to CFDs, rolling spot forex and binary options.

ESMA is in the process of discussing the possible use of its product intervention powers under Article 40 of MiFIR, the possible content of any such measures, and how they could be applied. However, ESMA can confirm that the measures being discussed for (i) CFDs and rolling spot forex and (ii) binary options include proposals that take into account a number of measures that have been adopted or publicly consulted on by EU National Competent Authorities. These measures include leverage limits, guaranteed limits on client losses, and / or restrictions on the marketing and distribution of these products.

In accordance with Article 40 of MiFIR, any intervention measures must be approved by the ESMA Board of Supervisors and can only come into effect from 3 January 2018 at the earliest.

 

Pages