ESMA publishes guidelines on appropriateness and execution-only requirements

The European securities and markets authority (ESMA) publishes the final report on its guidelines on certain aspects of the MiFID II appropriateness assessment and execution only requirements.

The final guidance was created following public consultations with participant organisations with the intent of improving clarity in the approach of investors’ protection under MiFID II.

MiFIDII appropriateness and execution-only requirements

Under MiFID II regulation, institutions providing advisory services must make sure their customers understand the investment services that will be supplied by them. The ESMA’s final guidelines was very necessary to precise what is expected from the financial advisers to be in line with the MiFIDII requirements.

After the ESMA conducted a public consultation on these guidelines, the European securities authorities issued revised directives relating to appropriateness and execution-only requirements. MiFID II’s appropriateness requirements require investment advisers to assess potential clients’ knowledge and experience of investments to assess how the specific services are appropriate and what products would be useful to them.

There are exceptions for this requirement in the execution-only framework with the conditions that they must satisfy. This new legal framework is intended to enhance the European Union’s investment advisers adherence to the ESMA standards.

The main objective of MiFIDII is to create a considerable protection for investors through the EU. Though, being an accumulation of several different regulations such as Disclosure, Taxonomy and various adopted or about to be adopted delegated acts for each of them, the whole legal framework is sometimes really complex to apprehend.

Clarity was needed. The purpose of those guidelines is to enhance clarity and to foster convergence in the application of the cited requirements.

The aspects covered by the guidelines

The Common Supervisory Action conducted in 2019 by the ESMA highlighted the need for such convergence.

As a response to this need, the guidelines cover several important aspects. This goes from the information to be provided by the clients for the appropriateness assessment, the arrangements necessary to understand clients and products, to the matching of clients with appropriate products according to the assessment, the appropriateness of warnings and some other related requirements.

The report contains a feedback statement summarising the responses received.

Next step

After the translation of the report, it will rely on each national competent authorities to notify the ESMA whether they comply or are intending to comply with the guidelines, which will be enforceable six months after the ESMA’s website in all EU official languages.

Our solution to be in line with MiFID II

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