This set of rules is referred to as product oversight and governance (POG) and is laid down in the MiFID II framework.
EXECUTIVE SUMMARY
Manufacturers of investment products are held to certain obligations regarding the internal design and approval of the products they offer, including the requirement to determine what type of clients it targets (target market), how it should be marketed (distribution strategy), and whether it complies with sustainability goals.
The rules concern also distributors, which must correlate investment products with particular (more concrete) types of clients – not to be confused with the suitability or appropriateness assessments.
In implementing this framework, ESMA prepared Guidelines explaining what is expected from product manufacturers and distributors when complying with the law.
ESMA published this public consultation in order to update specific parts of its Guidelines.
Integration of sustainability-related objectives
BETTER FINANCE recommends ESMA to not align the definition of sustainability-related objectives with that of sustainability preferences as the latter is incomplete and does not capture the broad spectrum of client preferences.
Clearer rules on potential target market determination
All products should have a target market identification, albeit simple ones (as defined by MiFID II) should benefit of a simpler or abbreviated assessment. Manufacturers should reflect the complexity of the product in the target market assessment and not rely solely on the dichotomy between simple and complex.
Rules for distributors
Distributors should refine the distribution strategy and the actual target market assessment in line with the evaluations from the manufacturer. To facilitate such process, granular information should be received from the product manufacturer.
Compatibility with ancillary services
Manufacturer should assess whether the investment and ancillary services provided are compatible with the clients’ objectives and needs, including broad sustainability preferences.
List of good practices
BETTER FINANCE agrees and welcomes ESMA’s list on good practices to be used as a benchmark by product manufacturers.
BETTER FINANCE
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