Updated ESMA Guidelines on product governance requirements taking effect

The AFM is alerting investment firms to ESMA’s updated product governance guidelines, which provide clarity on handling new developments and product requirements. Emphasizing the importance of good product governance, it ensures products serve clients‘ best interests by defining suitable product ranges and distributions.
Investment firms must now consider sustainability objectives when determining the target market for financial instruments. This change recognizes the growing importance of sustainability for investors and aims to enable them to invest in instruments aligning with their sustainability preferences. Guideline 25 provides further details on this requirement.
Investment firms offering non-advised services must ensure a suitable online choice environment. They are responsible for not distributing financial instruments outside the target market, especially for complex products with limited target markets. ESMA offers guidance in Guideline 64, which suggests measures like avoiding the display of complex instruments as standard options and refraining from using gamification or influencer techniques to prevent distribution outside the target market.
Furthermore, clear criteria must be included in their policies for evaluating various aspects, including their distribution strategy. After establishing a distribution strategy, they should assess its effectiveness in practice. These evaluations must be thorough and reliable, and the policies should specify the criteria used for these evaluations.
The updated guidelines include case studies that offer practical tools for decision-making regarding the introduction of complex products in non-advised services. These case studies, available in the ESMA Final Report Guidelines on MiFID II product governance requirements, provide insights into the substantiation and explanation required when defining target markets and distribution strategies.