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AFME suggests that structured insurance products and other products which embed a derivative (but excluding products linked to investment funds which utilise derivatives solely for the purpose of efficient portfolio management) should be subject to the appropriateness test. Also, products which include a material element of leveraging and/or for which liquidity is restricted should be subject to the appropriateness test.
Whilst AFME supports harmonisation of regulatory requirements and welcome remuneration provisions that incentivise all sales advisors to act in clients’ best interests, we have previously raised a number of significant concerns with regard to the MiFID product governance requirements and would caution against extending them to insurance based investment products and pensions without further consultation and proportionate application to these specific products.
AFME members are concerned by the proposal to introduce MiFID client categorisation for non MiFID business in the absence of any EU mandate to do so or a cost-benefit analysis clearly showing the case for such an extension of requirements. Members have requested confirmation that the proposal does not extend to non-investment products and therefore will not capture such services as e.g. payment services and rolling credit facilities, as any such extension would be unnecessary and disproportionate given the nature and risk profile of those non-investment products/services.
However, even if the proposal is confined to investment products, the proposal would be problematic for those firms which do not service retail clients and has the potential to create confusion as an extra layer of classification is planned to be introduced solely for local authorities. Local authorities may be denied access to products going forward if classifications are introduced where they did not exist before and this may be particularly true depending upon the outcome of outstanding ESMA consultations on complex products.