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ESMA Guidelines on “knowledge and competence” for investment personnel


The new importance of CPD: Capital Market Union (CMU) is designed to encourage citizens to hold a larger share of their savings in the form of securities – thus also encouraging them to take greater risks in return for the possibility of greater returns than those on `guaranteed’ bank deposits. Therefore the onus is being placed squarely on the financial services industry to market products to its clients that are suitable for them and `investor protection’ is a major priority. Indeed, ESMA's Maijor commented that "a high level of investor protection is essential for a successful CMU. Only when investors feel sufficiently protected will they be willing to enter financial markets."

Given the industry’s lamentable record in recent years and the consequent public distrust, it is not surprising that the public authorities are aiming to create a new degree of professionalism and ethical probity in virtually everyone engaged in financial services. So the ESMA Guidelines are designed to draw virtually everyone involved in the securities business into proper professional standards if they give information and, especially, advice to clients. 

These requirements in MiFID are simply the latest development in a now-lengthy line of demands that financial professionals be properly qualified – and remain up-to-date. For example, Article 13 of the 2006 Statutory Audit Directive required “programmes of continuing education”. After the Great Financial Crash of 2008, the G20 laid down Principles of Financial Consumer Protection in 2011; reinforced in the FSB 2014 task force recommendations with the OECD. Para 20 is explicit “Financial services providers and authorised agents make sure that the staff dealing with consumers are properly qualified and trained for the service they provide, prior to exercising their activity. They are also required to keep up to date and enhance their professional knowledge through programmes of continuing professional development (CPD) on an ongoing basis.”  Article 10 of the 2016 Insurance Distribution Directive even required “mechanisms.... assess the knowledge and competence of insurance and reinsurance intermediaries and employees of insurance and reinsurance undertakings and employees of insurance and reinsurance intermediaries, based on at least 15 hours of professional training or development per year,”

Accordingly, GrahamBishop.com continues to develop our CPD products  to map precisely onto the ESMA requirements set out below . Return to CPD home page >>>>>

 


 

Extracts from ESMA Final Guidelines

ESMA issued Final Guidelines for the assessment of knowledge and competence in January 2017 to enter into force on 3 January 2018. These specify criteria for the assessment of knowledge and competence of natural persons in investment firms that provide investment advice or information about financial instruments, investment services or ancillary services to clients. (See definitions below)

For staff giving `investment advice' (and the extracts below also apply to those only giving `information'), firms should ensure they have the necessary `knowledge and competence' including:

d. understand how financial markets function and how they affect the value and pricing of investment products on which they provide information to clients;

e. understand the impact of economic figures, national/regional/global events on markets and on the value of investment products on which they provide information;

g. understand issues relating to market abuse and anti-money laundering;

h. assess data relevant to the investment products on which they provide information to clients such as Key Investor Information Documents, prospectuses, financial statements, or financial data;

i. understand specific market structures for the investment products on which they provide information to clients and, where relevant, their trading venues or the existence of any secondary markets;

For Firms, they should:

a. ensure that staff providing relevant services to clients are assessed through the successful completion of an appropriate qualification and having gained appropriate experience...


b. carry out an internal or external review, on at least an annual basis, of staff members’ development and experience needs, assess regulatory developments and take action necessary to comply with these requirements. This review should also ensure that staff possess an appropriate qualification and maintain and update their knowledge and competence by undertaking continuous professional development or training for the appropriate qualification...


c. ensure that they submit to their CA, on request, records concerning knowledge and competence of staff providing relevant services to clients. These records shall contain information that enables the CA to assess and verify compliance with these guidelines;

MiFID II S e c t i o n 2: Provisions to ensure investor protection

Article 24: General principles and information to clients

1. Member States shall require that, when providing investment services or, where appropriate, ancillary services to clients, an investment firm act honestly, fairly and professionally in accordance with the best interests of its clients and comply, in particular, with the principles set out in this Article and in Article 25…

Article 25: Assessment of suitability and appropriateness and reporting to clients

1. Member States shall require investment firms to ensure and demonstrate to competent authorities on request that natural persons giving investment advice or information about financial instruments, investment services or ancillary services to clients on behalf of the investment firm possess the necessary knowledge and competence to fulfil their obligations under Article 24 and this Article. Member States shall publish the criteria to be used for assessing such knowledge and competence….

Appendix: Definitions in MiFID II

SECTION A: Investment services and activities

(1) Reception and transmission of orders in relation to one or more financial instruments;

(2) Execution of orders on behalf of clients;

(3) Dealing on own account;

(4) Portfolio management;

(5) Investment advice;

(6) Underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis;

(7) Placing of financial instruments without a firm commitment basis;

(8) Operation of an MTF;

(9) Operation of an OTF.

SECTION B: Ancillary services

(1) Safekeeping and administration of financial instruments for the account of clients, including custodianship and related services such as cash/collateral management and excluding maintaining securities accounts at the top tier level;

(2) Granting credits or loans to an investor to allow him to carry out a transaction in one or more financial instruments, where the firm granting the credit or loan is involved in the transaction;

(3) Advice to undertakings on capital structure, industrial strategy and related matters and advice and services relating to mergers and the purchase of undertakings;

(4) Foreign exchange services where these are connected to the provision of investment services;

(5) Investment research and financial analysis or other forms of general recommendation relating to transactions in financial instruments;

(6) Services related to underwriting.

(7) Investment services and activities as well as ancillary services of the type included under Section A or B of Annex 1 related to the underlying of the derivatives included under points (5), (6), (7) and (10) of Section C (relevant extracts below) where these are connected to the provision of investment or ancillary services.

SECTION C: Financial instruments

 (5) Options, futures, swaps, forwards and any other derivative contracts relating to commodities that must be settled in cash or may be settled in cash at the option of one of the parties other than by reason of default or other termination event;

(6) Options, futures, swaps, and any other derivative contract relating to commodities that can be physically settled provided that they are traded on a regulated market, a MTF, or an OTF, except for wholesale energy products traded on an OTF that must be physically settled;

(7) Options, futures, swaps, forwards and any other derivative contracts relating to commodities, that can be physically settled not otherwise mentioned in point 6 of this Section and not being for commercial purposes, which have the characteristics of other derivative financial instruments;

 (10) Options, futures, swaps, forward rate agreements and any other derivative contracts relating to climatic variables, freight rates or inflation rates or other official economic statistics that must be settled in cash or may be settled in cash at the option of one of the parties other than by reason of default or other termination event, as well as any other derivative contracts relating to assets, rights, obligations, indices and measures not otherwise mentioned in this Section, which have the characteristics of other derivative financial instruments, having regard to whether, inter alia, they are traded on a regulated market, OTF, or an MTF;

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