05 May 2021

SMSG advice to ESMA on its Consultation Paper on “Guidelines on certain aspects of appropriateness and execution-only”

I. Executive summary

1.  The SMSG takes a positive view on the approach of building on relevant
parts from ESMA’s Guidelines on certain aspects of the MiFID II suitability requirements, adjusting
them to the appropriateness and execution-only framework. It also remarks, however, that MiFID II
foresees different regimes, and that these differences should find a balanced consideration in the
present GLs.
2. That having been said, given the nature of non-advised services subject to this framework, further
adjustments should be envisaged, for example regarding the update of client information. The
SMSG is of the opinion that it is important that the right balance is kept between a high level of
investor protection and the availability of products for clients who buy on their own initiative.
3. The SMSG appreciates that the GLs take into account the results of the common supervisory action
(CSA) on appropriateness conducted by national authorities. However, the SMSG observes that
the CSA is not available to the public, and therefore suggests that at least the main findings of this
and, as a general rule, future actions are made public.
4. The SMSG acknowledges the efforts made, particularly in guideline 8, to improve the consistency
at firm level of the qualification of clients and subsequent matching with products. The SMSG fears,
however, that the present guidelines cannot guarantee consistency of qualification of clients and
subsequent matching with products and services across firms. The SMSG therefore encourages
ESMA to perform a peer review aimed to detect best practices.
5. Finally, given the increasing automation in the assessment, the SMSG finds the introduction of
guidelines dedicated to the consistency of these automated tools particularly useful.

6. Additionally, the SMSG also has a number of remarks:
 First, the SMSG believes that a balance should be struck between the legitimate need to
inform and the clarity and accessibility of information. For this purpose, the SMSG proposes
that whenever possible the information to clients might be provided in standardised form.
For instance, to improve the clarity the SMSG proposes that ESMA presents a standardised
template specifying the difference in protection in advised and non-advised services.

 Second, given the nature of the relationship firms have with clients when offering non-advised
services, the SMSG is sceptical of a strictly prescriptive approach (e.g. limiting the
number of attempts or imposing a cooling off period in the case of assessment retakes;
updating clients’ information without a consistent motivation). In this respect, it acknowledges
the importance of prominent, effective, and intelligible warnings as a way to prevent
possible harmful transactions.
 Third, the SMSG has a general concern with the concept of “more complex products” as
mentioned in the CP and does not agree with the introduction of a further classification of
complex products according to lower and higher levels of complexity, unless clearly specified.
A simple mention of “more complex” products leaves ground to heterogeneous interpretations
to the detriment of investor protection. The SMSG advises ESMA to delete the
distinction and, if ESMA is of the view that further distinction of product complexity is required,
existing GLs regarding complex products should be amended and updated accordingly.
 The SMSG advises to clarify that the assessment of knowledge and experience “of a specific
type of product”, should take into consideration these specificities.
 Finally, the SMSG fully recognises the importance of sustainable finance, but believes it is
necessary to avoid the risk of ‘overshooting’, which could undermine the credibility of both
the appropriateness test and sustainability goals. It is not aware of any evidence that ESG
products exhibit risk/ reward profiles materially different from conventional products to such
an extent that sustainability risks and factors should be incorporated in the appropriateness
test.

ESMA

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