Defining proportionality under the mifid ii product governance regime is undoubtedly one of the key challenges for firms facing implementation projects. Esma final report on mifid ii product governance requirements. The new product governance rules, as laid down in articles 163 and 242 of mifid ii as well as in article 9 and 10 of the mifid ii delegated directive 2017593, cover a broad range of topics, especially in terms of the development and placement of products. In the delegated directive, manufacturer is defined as investment firms.
Among the most striking novelties in mifid ii are without doubt the product governance rules, which to this day cause a lot of interpretation and implementation. Product governance requirements apply to all mifid ii. The financial regulatory focus in europe on product governance is forcing fundamental changes in how financial products are expected to be manufactured and distributed. The fca expects to publish its feedback and final rules in the first half of 2017. Mifid ii product governance introduction mifid ii brings with it many challenges, one of which is the new product governance regime which aims to ensure that manufacturers and distributors of investment products act in the clients best interests during all stages of the lifecycle of products and services. They assumed that if the sales process worked, everything would be well. Mifid ii product governance pg and euro commercial. Mifid ii product governance distributor reporting useful guide under mifid ii product distributors are periodically required to make available relevant information to product manufacturers. As a result they are required to provide a target market and distribution strategy for all investment products they manufacture. High ranking in the top ten of challenges for the financial sector in 2018 was the entry into force of the second version of the markets in financial instruments directive mifid ii. Mifid ii product governance the product governance rules under mifid ii, including guidelines issued by esma, take effect from 3 january 2018.
The rules originated from an existing fca regime, which derived from a need to protect retail investors who were sold complicated andor risky investment products. However, we expect that market practice will continue to evolve over the coming months. As part of its consultation paper on mifid ii, esma has recommended that the mifid implementing directive be amended to include product governance obligations specifically for manufacturers, and product governance obligations specifically for distributors. The product governance requirements are set out in article 163 and article 242 mifid ii and elaborated on in articles 9 and 10 of the commission delegated directive of 7. Mifid ii product governance how to assess target market. Mifid ii introduces rules for the development of investment products product governance. The said document concentrates mainly on the target market assessment, as this aspect was identified as the most important. Mifid ii new product governance rules insights linklaters. Mifid ii product governance citis mifid ii product approval process pursuant to certain product governance obligations set out in mifid ii1, citi as a manufacturer of structured deposits and financial instruments, including structured products, is required to make available certain information to you as a. Mifid ii product governance framework changing the face of. Mifid ii is looming and the entire industry is still grappling with some of the additional obligations some of them unusually burdensome and costly to implement the recast directive will impose on market participants.
The mifid ii approach to product governance has created a benchmark for investment services and products, but the same principles can be applied across all activities and services. The proposals are relevant for both manufacturers and distributors. Mifid ii lays down a number of product governance requirements in articles 16 3 and 24 2 predominantly and states that the requirements on product governance apply without prejudice to any assessment of the appropriateness or suitability to be subsequently carried out by the firm while providing services to their clients. Mifid ii corporate governance norton rose fulbright. This guide sets out these obligations in greater detail and proposes a good practice approach for the industry and is relevant for product manufacturers. Impact of the mifid ii product governance rules hogan lovells. The fcas consultation which closed on 04 january 2017 sets out the fcas proposals for the implementation of the mifid ii provisions on product governance.
Mifid ii product governance rules place a requirement on investment product providers to ensure that their products are distributed to the correct target market. Mifid ii product governance pg and euro commercial paper ecp introduction 1. Each edition will explore a mifid ii theme, setting out the key changes and practical implications for financial institutions. Directive 201465eu on mifid ii, repealing directive 200439ec. Widespread confusion among advisers about mifid ii rules. According to a survey carried out for financial technology business iress, more than half of the advisers surveyed were not yet aware of the product governance rules introduced by mifid ii. Esma has also issued guidelines under article 161 of the esma. The product governance requirements of mifid ii aim to ensure that firms which manufacture and distribute financial instruments products act in the best interests of investors at all stages of a product s development and distribution lifecycle.
Products manufactured and distributed before 3 january 2018 will not fall within mifid ii product governance requirements. Mifid ii introduces significant product governance rules for the manufacture and distribution of products and services including discretionary investment managers. Directive mifid ii a new product governance regime was introduced which sets out a highlevel framework for manufacturers and distributors of financial. Product governance under mifid ii a uk perspective lexology. From 3 january 2018, mifid ii the revised markets in financial instruments directive came into effect in eea member states, and introduced various changes including new rules around product governance. Please note that the inital polish translation published on 05022018 is superseded by the amended. Mifid ii article 414 disclosure in relation to the offer of financial instruments. Jun 16, 2017 on 2 june 2017, esma published the much anticipated final report on product governance guidelines, which closes the process launched in october 2016 with the publication of a consultation paper that has been subject to a lot of comments from the industry. The mifid ii rules go beyond the fcas existing product governance guidance contained in the responsibilities of providers and distributors for the fair treatment of consumers rppd in a number of ways as summarised below. For many investment professionals, mifid iis focus on product governance is a muchneeded, sensible approach to making sure the client is at the heart of every decision in the investment. The revision of mifid i leads to important changes in rules and regulations with regard to investor protection. Mifid ii investor protection product development mifid.
A welldesigned and wellexecuted product governance process is central to an integrated conduct risk framework and operating a successful business strategy. Uk finance mifid ii guidance on product governance and retail costs and charges. Suitability and appropriateness assessment on product. The requirements on product governance were introduced under mifid ii to enhance investor protection by regulating all stages of the lifecycle of products or services in order to ensure that firms which manufacture and distribute financial instruments and structured deposits act in the clients best interests. Based on the concept of corporate governance, this term signifies a responsible and sustainable manufacturing and distribution process for financial products that is not. Mifid ii product governance introduction mifid ii brings with it many challenges, one of which is the new product governance regime which aims to ensure that manufacturers and distributors of investment products act in the clients best interests during all. The markets in financial instruments directive mifid ii introduced the requirement for closer engagement between product manufacturers and distributors in relation to the sales process, introducing a series of product governance obligations on both manufacturers and distributors of products, including the obligation. Firms to which the obligations apply are mifid ii investment firms. Product governance postmifid and your clients investments. Bank of america merrill lynch bofaml offers through its entities that are in scope for mifid ii to its. Mifid ii is a european union packet of financial industry reform legislation, instituted to regulate financial markets, rolled out on january 3. Directive 2017593 of 7042016 on markets in financial instruments mifid ii sets out new requirements relating to product governance.
The investor protection is enhanced due to stricter and new rules of conduct under mifid ii. Markets in financial instruments directive ii mifid ii. Uk finance mifid ii guidance on product governance and. Mifid ii product governance provisions burges salmon. Product governance and investor protection the hedge. The afme mifid ii product governance regime equity capital markets transaction protocol for ordinary shares the memorandum is intended for general. Guidelines on mifid ii product governance requirements. Mifid ii introduced new product governance obligations on mifid firms when they manufacture or distribute financial instruments. Sep 03, 2019 mifid ii is a european union packet of financial industry reform legislation, instituted to regulate financial markets, rolled out on january 3, 2018. Suitability and appropriateness assessment on product governance. Bank of america merrill lynch bofaml offers through its entities that are in.
The march mifid buster focuses on the requirements around product governance. The product governance rules under mifid ii, including guidelines issued by esma, take effect from 3 january 2018. Report, entitled guidelines on mifid ii product governance requirements esma final guidance. The product governance element of mifid ii is aimed at making sure advisers are offering their clients suitable solutions by requiring product manufacturers and distributors such as advisers to. Guidelines on target market identification 3 the target market requirements are at the heart of the mifid ii product life cycle, and impose a number of obligations on an investment firm which manufactures i. Mifid ii is made up of two parts, the mifid ii directive 201465eu and the mifir regulation 2014600eu, which together are referred to as mifid ii in this briefing. Carrying on from our previous article the enhanced product governance under mifid ii, in this commentary, we aim to provide more clarity on what information is required for the firms to conduct adequate suitability or appropriateness assessment, prior to the onboarding of the client and of the product distribution. Guidelines on certain aspects of the mifid ii product governance requirements are proposed by esma in the consultation paper of 5 october 2016, draft guidelines on mifid ii product governance requirements, esma20161436. In addition, mifid ii is a very extensive piece of legislation and the product governance regime is only a small part of it. Product governance requirements in mifid ii seminar. Nov 28, 2017 product governance under mifid ii a uk perspective. An approach for the eurobond markets icma11, the pg regime differentiates between.
The new regime represents a fundamental change to european financial product distribution and will be challenging for firms to implement. The guidelines are designed to act as a tool so firms. Mifid ii product governance where citi markets and securities services a business within citis institutional clients group acting through a mifid ii regulated firm including citigroup global markets limited, citibank, n. This month we are featuring the third in a series of mifid busters. Uk finance has drafted guidelines to support firms and industry stakeholders in their implementation of some of the key mifid ii requirements for product governance and retail costs and charges. These are requirements firms should follow in the design, distribution and ongoing monitoring of products in scope of mifid, over their full lifespan. Where a product is manufactured before 3 january 2018 but distributed thereafter it will require the distributor to treat the manufacturer as if it was a non mifid ii entity see above.
Aug 14, 2018 the mifid ii approach to product governance has created a benchmark for investment services and products, but the same principles can be applied across all activities and services. Good practice guide for product distributors and product. According to the esma guidelines on mifid ii product governance requirements esma3543620. What are the mifid ii provisions on product governance. The european securities and markets authority esma has published today the final report on product governance guidelines under the markets in financial instruments directive ii mifid ii regarding the target market assessment by manufacturers and distributors of financial products. Esma publishes final report on product governance guidelines. Product governance requirements, suitability and appropriateness traditionally, regulators around the world focused on the way in which financial services products were sold. Final report on product governance guidelines deloitte. Summary of the product governance policy goldman sachs. Product governance under mifid ii a uk perspective.
Articles 163 and 242 mifid ii set out specific product governance requirements for investment firms which manufacture financial instruments or offer or. In this briefing we set out rules of the road some when determining how proportionality applies and illustrate how firms can use these to develop practical implementation solutions. The fcas cp 1629 consultation states that product governance means, in essence, the creation and management of products throughout their life cycle. The product governance requirements of mifid ii aim to ensure that firms which manufacture and distribute financial instruments products act in the best interests of investors at all stages of a products development and distribution lifecycle. Guidelines on mifid ii product governance requirements esma.
In complying with these guidelines, esma anticipates a corresponding. Please note that the inital polish translation published on 05022018 is superseded by the amended version published on 23052018. The regime in relation to product governance under mifid ii seeks to implement product related requirements and processes that establish a. Uk finance mifid ii guidance on product governance and retail. Speaking at a treasury select committee meeting in january, the ceo said that the regulator will.
Jan 15, 2019 carrying on from our previous article the enhanced product governance under mifid ii, in this commentary, we aim to provide more clarity on what information is required for the firms to conduct adequate suitability or appropriateness assessment, prior to the onboarding of the client and of the product distribution. Read more on the full practical considerations for dcm practitioners. Eimf subjectmatter experts deliver engaging and interactive courses across a broad spectrum of areas, that can be enjoyed in the comfort of your own. While the mifid ii product governance requirements cover a broad range of topics, esma decided to develop guidelines which mainly address the target market assessment, as this aspect was identified as the most important one for ensuring the common, uniform and consistent application of the product governance rules. The mifid ii product governance regime presents a number of implementation challenges for firms. Product governance and distributor governance rules the purpose of prod is to improve firms product oversight and governance processes the systems and controls firms have in place to design, approve, market and manage products throughout the products lifecycle to ensure that they meet legal and regulatory requirements and to. Mifid ii imposes a series of product governance rules on firms which manufacture andor distribute mifid type financial instruments or who sell or advise on structured deposits investment products. The markets in financial instruments directive mifid ii requires firms to meet certain product governance requirements. The product governance requirements of mifid ii aim to ensure that firms which manufacture and distribute financial instruments products act in the best. Mifid ii product governance fact sheet bnp paribas cib. Dec 12, 2017 uk finance mifid ii guidance on product governance and retail costs and charges published date. The company will comply with its product governance requirements in a way that is appropriate and proportionate, taking into account the nature of the investment product, the investment service and the products target market.
The new mifid ii framework applies to both the product development and sales process. Mifid ii product governance pg and euro commercial paper. In january 2018, two new european regimes aimed at enhancing the level of investor protection came into effect. The product governance rules in mifid ii represent a fundamental change in the way firms design and distribute financial instruments. Esma has also issued guidelines under article 16 1 of the esma. In particular, mifid ii introduced a new set of product governance rules designed to increase the level of investor. Mifid ii is made up of mifid 201465eu and the markets in financial instruments regulation mifir 6002014eu. Mifid iir product governance and priips introduction icma continues to focus on implementation of the mifid iir product governance pg and priips regimes ahead of their coming into effect in january 2018 and following esmas publication of its final report. Mifid ii commercial policy disclosure for published quotes. New product governance requirements came into force on 3 january 2018 in the shape of the amended european markets in financial instruments directive ii mifid ii and its transposition into national law.