ESMA issues good practices for structured retail product governance

27 March 2014

ESMA has published an opinion on structured retail products, setting out good practices for firms when manufacturing and distributing these products. ESMA considers these good practices will bridge the gap until the MiFID II product governance requirements are further developed and in place.

These good practices that product providers could put in place to improve their ability to deliver on investor protection in particular focus on:

• the complexity of the structured retail products they manufacture and distribute;
• the nature and range of investment services and activities undertaken in the course of business; and
• the type of investors they target.

ESMA expects national competent authorities to embed these good practices in their supervisory approaches to structured retail product providers. 

Steven Maijoor, ESMA chair, said: “The good practices published today provide a roadmap for both firms and national competent authorities on the practices they should embed, as manufacturers, distributors and supervisors, to ensure the existence of sound product governance arrangements and consistent supervisory practices needed for adequate investor protection across the European Union".

ESMA considers these good practices will bridge the gap until the MiFID II product governance requirements are further developed and in place. The good practices cover the following areas:

• general organisation of product governance arrangements;
• product design;
• product testing;
• target market;
• distributing strategy;
• value at the date of issuance and transparency of costs;
• secondary market and redemption; and
• review process.

Although the good practices focus on structured products designed for retail customers, they may also be a relevant reference for other types of financial instruments such as asset-backed securities, or contingent convertible bonds, as well as when financial instruments are being sold to professional clients.

Press release

Opinion

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