On October 5, the European Securities and Markets Authority (ESMA) published a consultation paper (Consultation) on draft guidelines for product governance under the amended and restated Markets in Financial Instruments Directive (MiFID II).

MiFID II introduces product governance requirements for firms manufacturing and distributing EU financial instruments. Article 16(3) of MiFID II specifically requires firms to implement product approval processes, which specify an “identified target market” for each financial instrument and ensure all relevant risks for that market are assessed (among other points). The Consultation focuses on the target market assessment aspect of the MiFID II product governance requirements and contains separate draft guidelines for: 1) manufacturers; 2) distributors; and 3) issues applicable to both manufacturers and distributors. Annex 4 of the Consultation also sets out three case studies on the application of the draft guidelines, with respect to: 1) structured investment products; 2) structured deposit product target markets; and 3) target market assessments for distributions in wholesale markets.

Comments on the Consultation must be submitted by January 5, 2017, and ESMA expects to publish a final report in the first or second quarter of 2017.