MiFID II and MiFIR – ESMA | Updated Q&As and final report on appropriateness and execution-only requirements

Since we last provided an update on ESMA's Questions and Answers ("Q&As") on Directive 2014/65/EU of 15 May 2014 on markets of financial instruments ("MiFID II") and Regulation (EU) 600/2014 of 15 May 2014 on markets of financial instruments ("MiFIR") in our July 2021 newsletter, the following have been updated:

• Q&A on MiFID II and MiFIR investor protection topics (the "Investor Protection Q&A")
• Q&A on MiFID II and MiFIR transparency topics
• Q&A on MiFIR data reporting

In this article, we will only focus on the Investor Protection Q&A, which includes one new Q&A relating to product governance.

In addition, on 3 January 2022, ESMA published its final report (the "Final Report") on the guidelines on certain aspects of the appropriateness and execution-only requirements under MiFID II (the "Guidelines").

Investor Protection Q&A - Product Governance

This new Q&A clarifies that the mere presence of a make-whole clause is not sufficient for a financial instrument to be exempt (according to Article 16a of MiFID II) from product governance requirements. For illustrative purposes, ESMA has included practical examples of bonds and indicated which are subject to the product governance requirements and which are not.

Final Report - Guidelines

The Guidelines contained with the Final Report provide guidance on:

• the appropriateness process, including the information to be provided to clients about the purpose of appropriateness assessment, the arrangements necessary to understand clients and products, and the effectiveness of warnings;
• the level of record-keeping and controls necessary to ensure compliance with the appropriateness requirements;
• the circumstances during which the 'execution-only' exemption applies.

The Guidelines will be translated into the official languages of the EU and published on ESMA's website. Upon the publication of the translations, a two-month period will ensue during which national competent authorities must notify ESMA whether they comply or intend to comply with the Guidelines. The Guidelines will apply six months after the date of the publication on ESMA’s website in all EU official languages.