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October 18, 2017

ESMA published the responses received to its consultation on guidelines on certain aspects of the MiFID II suitability requirements. The finalized guidelines will replace the existing ESMA guidelines on this topic, which were issued in 2012. The consultation ran from July 13, 2017 to October 13, 2017 and ESMA expects to publish a final report in the first or second quarter of 2018.

The paper is addressed to investment firms and credit institutions providing investment advice or discretionary portfolio management services. The paper is also important for consumer groups, investors, and trade associations because the guidelines seek to implement enhanced provisions to ensure investor protection, with potential impact for anyone engaged in the dealing with, or processing of, financial instruments. The suitability requirements were introduced under MiFID to enhance investor protection by ensuring that firms that provide investment advice and portfolio management act in the clients’ best interests. The objectives of suitability assessment under MiFID II remain unchanged from the objectives under MiFID I. However, the obligations have been strengthened and specified further under the new legislative framework by including following requirements:

  • An explicit reference to that the use of electronic systems shall not reduce the responsibility of firms
  • Further details on conduct rules for firms providing a periodic assessment of the suitability
  • Requirement for firms performing a suitability assessment to assess, taking into account costs and complexity, whether equivalent products can meet client needs
  • Requirement for firms to analyze the costs and benefits of switching from one investment to another
  • Extension of suitability requirements to structured deposits
  • Requirement for firms to provide clients with a suitability report prior to the conclusion of the recommended transaction

 

Related Link: Consultation and Responses

Keywords: Europe, EU, Securities, MiFID II, Suitability Requirements, Investor Protection, ESMA

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