ESMA Consults on Guidelines on MiFID II Suitability Requirements
On July 13, the European Securities and Markets Authority (ESMA) published a consultation paper (CP) on aspects of the suitability requirements under the revised Markets in Financial Instruments Directive (MiFID II).
While suitability requirements (designed to enhance investor protection through assessment of the clients’ knowledge, experience, financial situation and investment objectives) currently apply in the EU (under the predecessor to MiFID II), obligations will be strengthened under MiFID II by including requirements such as:
- firms performing a suitability assessment to assess, taking into account costs and complexity, whether equivalent products can meet client’s needs;
- the requirement for firms to analyze the costs and benefits of switching from one investment to another; and
- the requirement for firms to provide clients with a suitability report prior to the conclusion of the recommended transaction.
ESMA previously provided guidelines in 2012 (2012 Guidelines) on the current pre-MiFID II regime (available here)
The CP includes proposals on the draft guidelines, which confirm and broaden the existing guidelines, issued in 2012, in order to:
- consider recent technological developments of the advisory market, including the increasing use of robo-advice, i.e., automated or semi-automated systems for the provision of investment advice or portfolio management;
- give relevance to the results of supervisory activities conducted by national competent authorities on the suitability requirements;
- incorporate some insights of studies in the area of behavioural finance; and
- provide additional details on some aspects that were already covered under the 2012 Guidelines.
The CP consultation closes on October 13. ESMA will consider the feedback it receives to the consultation in Q4 2017/Q1 2018 and expects to publish a final report in Q1/Q2 2018.
The CP is available here.