On 27 March 2023, the European Securities and Markets Authority (“ESMA”) published a Final Report: Guidelines on MiFID II product governance requirements (the “Final Report”).

The Final Report builds on ESMA’s 2017 Guidelines on MiFID II product governance requirements following recent regulatory and supervisory developments, including the recent sustainability-related amendments to the MiFID II Delegated Directive. The product governance requirements are one of the most significant elements of the investor protection framework under MiFID II. Investment firms should ensure that financial products are manufactured and/or distributed in the client’s best interests at all times.

The full text of the revised guidelines is set out in Annex V of the Final Report. Annex V includes both general and service/ client specific guidelines for manufacturers and distributors.

The principal revisions in the Final Report concern:

  • the specification of any sustainability-related objectives in respect of the product;
  • the practice of identifying a target market per cluster of products instead of per individual product (i.e. a clustering approach) if possible;
  • the determination of a compatible distribution strategy where a distributor considers that a more complex product can be distributed under non-advised sales; and
  • the periodic review of products, including the application of the proportionality principle.

The revised guidelines in Annex V of the Final Report are currently being translated into the EU’s official languages. The revised guidelines will apply two months after the date of their publication on ESMA’s website in all EU official languages.

In the meantime, investment firms in Malta are encouraged to review their existing product governance policies and processes in line with the Final Report.