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How ESMA is Responding to Securities Markets Shortcomings

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In our blog article last month, we discussed the shortcomings that had emerged from the FCA’s analysis of 8 asset managers and manufacturers examining the level of compliance with the MiFID II regulation on the governance of products.

These shortcomings included deficiencies in the exchange of information between financial product providers (manufacturers) and distributors throughout the product lifecycle, which the FCA considers fundamental to safeguarding end customers’ interests.

In turn, the European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, expects manufacturers and distributors in Europe and across the globe to work in a close collaborative relationship to ensure the interests of the end customer throughout the distribution chain. ESMA announced the launch of a Common Supervisory Action (CSA) with National Competent Authorities (NCAs) on the application of MiFID II product governance rules across the European Union (EU) in 2021.

This CSA follows the publication by ESMA on 2/6/2017 of its guidelines and, more recently, a series of Q&As, which revealed that before including a product in a distributor’s product range and selling it to customers, the manufacturer and distributor will have to assess – for every single product – its target market, as well as its distribution strategy.

Through the CSA, ESMA aims to analyse:

  • how manufacturers ensure that financial products are compatible with the needs, objectives, and characteristics of end customers and meet their expectations of returns;

  • how manufacturers and distributors identify and periodically review the target market and distribution strategy of financial products;

  • what information manufacturers and distributors exchange and how often they exchange it

ESMA aims to ensure harmonised implementation and application of the MiFID II product rules in all EU countries, as stated in its guidelines. ESMA believes that all efforts should positively affect standardising procedures, leading to a level-playing field and facilitating the exchange of information between manufacturers and distributors to support further supervisory convergence work.

Delta Capita’s inSPire Due Diligence is partnering with manufacturers and distributors that want to champion the mutual benefits of standardisation and convergence efforts pursued by national and supranational regulators.

Inspire Due Diligence is the first global utility service that enables manufacturers to control the entire distribution chain of the products they supply and satisfactorily meet the MiFID II requirements. The inSPire service coordinates a centralised outreach to counterparties to collect the KYC and KYD documentation that manufacturers need to complete their Distributor Due Diligence and product governance processes.

In Europe, inSPire DDQs have been shared with 12 manufacturers to date and over 500 Distributor Due Diligence requests. The service has expanded to cover the Americas and Asia. Delta Capita has peer-reviewed and standardised Distributor Due Diligence documentation and secure two-way information exchange for the mutual benefits of manufacturers and distributors, supporting compliance with clear expectations set by the NCAs and ESMA as part of the most recent product governance review.

Contact us to determine how Delta Capita inSPire Due Diligence can help you comply with product design, distributor governance and communication obligations.

Authors:

Oliver Perry is Head of Due Diligence, responsible for the design, launch, and growth of the service. Before joining Delta Capita, he was an Equity Derivatives COO in Hong Kong and London, where amongst other things, he was responsible for transforming the product approval and distribution governance frameworks before becoming Delta Capita’s Head of Due Diligence.

Sophia Gugel is a Due Diligence Analyst at Delta Capita. She has a robust legal background attributed to her enhanced master studies in France and Germany. Before joining Delta Capita, Sophia worked as a legal officer in the French bank and insurance sector. Currently, she is serving clients in German, French, Italian, and English in the KYD Due Diligence processes.