Bringing you live news and features since 2006 

ESMA Steven Maijoor

ESMA publishes MiFID guidelines to enhance investor protection

RELATED TOPICS​

The European Securities and Markets Authority has published two final sets of guidelines aimed at enhancing the protection of investors in the EU. 

The guidelines relate to the provisions under the Markets in Financial Instruments Directive  relating to the suitability of investment advice and the compliance function.
 
ESMA, by issuing these guidelines, expects to promote greater convergence in the interpretation of, and supervisory approaches to, the MiFID suitability and compliance requirements.

 The guidelines are aimed at both market participants and national competent authorities who should incorporate them into their supervisory practices.
 
Steven Maijoor, ESMA chair, says: “These new guidelines will provide clarification for market participants and national authorities on these key investor protection requirements, and ensure that we promote greater convergence in interpretation and supervisory approaches across the EU.
 
“The implementation of these guidelines will contribute to a system of pan-European safeguards which will allow investors to benefit from the same levels of protection regardless of where they are investing.”
 
Assessing suitability is an important MiFID investor protection requirement. Before providing investment advice or portfolio management services, investment firms must ensure that any investment product recommended is suitable for the client in question.
 
Therefore, investment firms must obtain the necessary information to be able to understand the essential facts about the client in order to assess the suitability of any investment for that client. This includes information about a client’s investment objectives, financial situation and knowledge and experience.
 
Based on the information collected, an investment firm must assess whether the specific transaction to be recommended or entered into in the course of providing portfolio management service is suitable.
 
ESMA found the following shortcomings in the implementation of the MiFID suitability requirements:
 
Failure to ask clients the right questions;
Failure to collect the necessary and relevant information;
Failure to interpret correctly the information provided by the client; and
Even where the right information is collected, failure to recommend a suitable investment.
 
These new guidelines focus on the need for firms to have in place appropriate arrangements to enable them to meet the suitability requirements on an on-going and consistent basis for any client, and irrespective of the distribution channel used.
 
MiFID requires investment firms to implement a series of systems and controls (appropriate to the nature, scale and complexity of their business) aimed at securing a robust governance framework, with a clear organisational structure and lines of responsibility, and effective risk management and compliance processes. This includes policies and procedures to ensure regulatory compliance and the establishment of a compliance function.
 
This second set of guidelines are focused on the responsibilities of the compliance function and are aimed at helping investment firms to increase the effectiveness, and importance, of the compliance function.  They focus on:
 
The responsibilities of the compliance function for monitoring, reporting and advising;
The organisational requirements of the compliance function for the standards of effectiveness, permanence and independence;
The extent of interaction of the compliance function with other functions, and the outsourcing of the tasks of the compliance function; and
Approaches for competent authority review of compliance function requirements.
 

Latest News

Saving and investing app, Moneybox, has doubled the number of ETFs available on the platform, in the light of ‘growing..
Global X ETFs has announced the appointment of Ryan O'Connor as its Chief Executive Officer effective as of April 8, 2024. ..
Value-driven structured credit investing firm, Angel Oak Capital Advisors, LLC, has announced the completed conversions of two of its mutual..
Confidence in the continuing strength of bitcoin and Ethereum is driving wider interest in altcoins and other digital assets, according..

Related Articles

Jeremy Senderowicz, Vedder Price
Jeremy Senderowicz, a member of the Investment Services Group at law firm Vedder Price, has witnessed a steady upswing in...
Graham MacKenzie, Toronto Stock Exchange
The evolution of ETFs has been a multi-decade experience for Toronto Stock Exchange says Graham MacKenzie, managing director, Exchange Traded...
Frank Koudelka, State Street Global Services
ETF data provider and ETF Express data partner, Trackinsight, has published its Global ETF Survey 2024 Report: ‘50+ Charts on...
Cryptocurrencies
Matteo Greco, Research Analyst at Fineqia International writes that bitcoin (BTC) ended the week at approximately USD52,150, showing a notable...
Subscribe to the ETF Express newsletter

Subscribe for access to our weekly newsletter, newsletter archive, updates on the site and exclusive email content.

Marketing by