ESMA updates its guidance on product governance

The European Securities and Markets Authority (ESMA) has released an updated Final Report on Guidelines on MiFID II product governance requirements.
The report includes amendments to the guidelines on MiFID II product governance, such as
+ specifying sustainability-related objectives that a product is compatible with and
+ identifying a target market per cluster of products rather than per individual product,
+ the determination of a compatible distribution strategy where a distributor considers that a more complex product can be distributed under non-advised sales, and
+ the periodic review of products, including the application of the proportionality principle.
Under the MiFID II product governance requirements, firms that manufacture products for sale to clients or distribute products to clients are required to maintain, operate and review adequate product governance arrangements. This includes identifying a target market of end clients and periodically reviewing it for each product, as well as ensuring a distribution strategy that is consistent with the identified target market. The guidelines aim to ensure that financial instruments and structured deposits (“products”) are only manufactured and/or distributed when it is in the best interest of clients.
ESMA conducted a public consultation on these guidelines to gather feedback from relevant stakeholders. The report contains a feedback statement summarizing the responses received and highlighting the amendments and clarifications introduced in the final guidelines to consider the feedback received during this consultation.
ESMA believes that the implementation of these guidelines will strengthen investor protection, which is a key objective for ESMA. The guidelines aim to ensure a consistent and harmonized application of the product governance requirements, making sure that the objectives of MiFID II can be efficiently achieved.
Overall, these updated guidelines on MiFID II product governance aim to ensure that firms act in their clients’ best interests during all stages of the product’s life cycle, strengthening investor protection in the EU.