New Esma Guidelines in Poland

by | Oct 2, 2023 | law | 0 comments

The European Securities and Markets Authority (ESMA) published guidelines in early August 2023 concerning the requirements for managing products in accordance with MiFID II (Markets in Financial Instruments Directive). These guidelines have a significant impact on the operations of financial institutions, especially banking groups. The guidelines came into effect on October 3, two months after the document’s publication. As these are mandatory changes, individual EU member states are obligated to adapt them to their national laws.

The aim of these initiated changes is to establish consistent and effective supervisory practices within ESNF (European Securities and Markets Authority) and ensure the common, uniform, and consistent application of MiFID II requirements related to product management, thereby enhancing investor protection.

Who are the ESMA guidelines for?

The document provides guidelines for key participants in the financial product market, including manufacturers and distributors. The requirements also apply to firms operating in wholesale markets, i.e., with professional clients and eligible counterparties. The mentioned products are financial instruments (as defined in Article 4(1) point 15 of MiFID II), excluding bonds that additionally only have a make-whole clause (according to the exemption provided in Article 16a of MiFID II) and structured deposits (as defined in Article 4(1) point 43 of MiFID II).

What do ESMA regulations cover?

The guidelines pertain to, among other things:

  • Determining the potential target market by the manufacturer based on recommended categories, including the type of clients the product is intended for, client knowledge and experience, financial situation with an emphasis on awareness of potential loss, risk tolerance, alignment of risk/reward profile of the product with the target market, and the client’s objectives and needs.
  • Identifying the potential target market: differentiation based on the nature of the manufactured product.
  • The relationship between the distributor’s distribution strategy and its definition of the target market.
  • The timing of defining the target market and the relationship between the distributor’s target market assessment and other product management processes.
  • The relationship between product management requirements and suitability or appropriateness assessments.
  • Identifying categories to be considered when determining the target market by the distributor.
  • Differentiation based on the nature of the distributed product.
  • Interaction with investment services.
  • The distribution strategy defined by the distributor.
  • Portfolio management, portfolio approach, security, and diversification.
  • Conducting regular reviews before the manufacturer and distributor to properly assess whether products and services reach the target market.
  • Distribution of products produced by entities not subject to product management requirements in accordance with MiFID II.

Investors planning to establish a business in Poland or considering expansion into European markets should be aware that EFTA guidelines affect:

  • The product creation model in a given area.
  • The model of distributing investment funds.
  • The model of investment advice

In summary, according to ESMA, the introduced regulations will secure processes in the product, production, distribution, and stakeholders’ areas and will influence the stability of financial markets. If you need support in any of these areas, Niedziółka & Associates experts will propose the best solutions.