ESMA Guidelines on aspects of MiFID II suitability requirements
The European Securities and Markets Authority (“ESMA”) has published its Final Report on Guidelines on certain aspects of the Markets in Financial Instruments Directive (“MiFID II”) suitability requirements.
The assessment of MiFID II suitability is one of the most important requirements for investor protection in the MiFID framework. It applies to the provision of any type of investment advice, whether independent or not, and portfolio management.
Investment firms providing investment advice or portfolio management must, under Article 25(2) of MiFID II and Articles 54 and 55 of the MiFID II Delegated Regulation, provide suitable personal recommendations to their clients or make suitable investment decisions on behalf of their clients.
The Guidelines in the Final Report build on the text of ESMA’s 2012 MiFID I Guidelines on suitability (“2012 Guidelines”), which have been largely confirmed and broadened in order to:
- consider technological developments of the advisory market, notably the increasing use of automated or semi-automated systems for the provision of investment advice or portfolio management (robo-advice);
- build on supervisory experience on the application of suitability requirements (including the 2012 Guidelines);
- take into account the outcome of studies in the area of behavioural finance; and
- provide additional details on some aspects that were already covered under the 2012 Guidelines.
The Guidelines support a consistent and harmonised application of MiFID II suitability requirements.
The European Commission have stated that “[…] firms should ask about their clients’ preferences (such as environmental, social and governance factors) and take them into account when assessing the range of financial instruments and insurance products to be recommended, i.e. in the product selection process and suitability assessment.”
Accordingly, ESMA has included, pending changes to the legal framework, a good practice for firms addressing this issue. The good practice will contribute to raise firms’ and supervisors’ attention and awareness of this issue. ESMA will monitor the European Commission legislative proposals and will consider making focused amendments to the Guidelines to reflect changes to the MIFID II delegated acts on the topic of sustainability.
Publication of the English version of these ESMA Guidelines on 28 May 2018 triggered a two-month period for the FCA to notify ESMA whether they comply or intend to comply with the Guidelines with effect from the end of October 2018 at the latest.