[Newsflash n. 48]
On 28 May 2018 ESMA published the Final Report on the “Guidelines on certain aspects of the MiFID II suitability requirements”, which confirm, broaden and replace the existing MiFID I guidelines on suitability issued in 2012.
The Guidelines apply in relation to the provision of investment advice and portfolio management, whereby firms have to provide suitable personal recommendations to their clients or have to make suitable investment decisions on behalf of their clients (according to Article 25(2) of MiFID II and of Articles 54 and 55 of the MiFID II Delegated Regulation).
The Guidelines, built on the text of the 2012 guidelines, take into account the results of supervisory activities conducted by national competent authorities (NCAs) as well as the technological evolution of the advisory markets (including robo-advisory) and recent studies on behavioral finance. The Guidelines are divided in the following main sections:
- Information to clients on the purpose of suitability assessment;
- “Know your client” and “know your product”;
- Matching clients with suitable products;
- Other requirements.
Among the many provisions, it is worth mentioning some clarifications applicable to robo-advisors. In particular, while the Guidelines do not intend to introduce additional requirements for robo-advisers, they rather highlight certain aspects that may be of particular importance when services are provided through fully or semi-automated tools. In the Section “Know your client and know your product”, more attention is indeed given to the moment of gathering information through questionnaires: questionnaires shall be clear, exhaustive and comprehensible; the layout should be carefully elaborated and should avoid orienting investors’ choices (font, line spacing…); presenting questions in batteries (collecting information on a series of items through a single question, particularly when assessing knowledge and experience and the risk tolerance) should be avoided; firms should carefully consider the order in which they ask questions; in order to be able to ensure necessary information is collected, the possibility not to reply should generally not be available (particularly when collecting information on the investor’s financial situation).
Finally, two completely new guidelines should be flagged in the Section “Matching clients with suitable products”, i.e. “Costs and complexity of equivalent products” (general guideline 9: before a firm makes a decision on the investment product(s) to be recommended or invested in, a thorough assessment of the possible investment alternatives should be undertaken, taking into account products’ cost and complexity) and “Costs and Benefits of switching investments” (general guideline 10: an analysis of the costs and benefits of a switch should be undertaken such that firms are reasonably able to demonstrate that the expected benefits of switching are greater than the costs).
The Guidelines apply to both competent authorities and firms and mainly address situations where services are provided to retail clients. They should also apply, to the extent they are relevant, when services are provided to professional clients.
The Guidelines will take effect as from about 120 days as from the date of publication of the guidelines on ESMA’s website in all official languages of the EU (i.e. 60 calendar days after the two-month period when competent authorities must notify ESMA whether they comply or intend to comply with the guidelines, which is triggered by the said publication). The previous ESMA guidelines issued under MiFID I will cease to apply on the same date.
Please do not hesitate to contact us should you need any clarification on this and other MiFID II related matters.
Contacts:
Vito Vittore
Partner
Elena Pagnoni
Partner
Chiara Di Torrice
Associate
