MiFID II, which took effect on January 3, 2018, together with the MiFIR Regulation, governs financial markets and the provision of investment services in the European Union, with the aim of enhancing market transparency and investor protection.

The regulations require intermediaries to act honestly, fairly, and professionally, in the best interests of their clients. Among other things, they establish disclosure and transparency requirements, safeguards for identifying and managing conflicts of interest, and specific assessments designed to verify the suitability or appropriateness of financial services and instruments in light of the client’s characteristics. The following is a summary of some of the main areas governed by MiFID II regarding the provision of investment services.

View the consolidated text of the MiFID II Directive available on EUR-Lex.

Consulting

MiFID II distinguishes between advice provided on an independent basis and advice provided on a non-independent basis.

Before providing the service, the intermediary informs the client:

• whether the consulting services are provided on an independent or non-independent basis;
• whether the valuation takes into account a wide range of financial instruments or a more limited range;
• whether the service includes a periodic assessment of the suitability of the recommended financial instruments.

In investment advisory services, the suitability assessment serves as a fundamental safeguard for clients. To this end, the intermediary gathers information regarding:

• the client’s knowledge and experience in investment matters, with regard to specific types of financial instruments or services;
• its financial situation, including its ability to absorb potential losses;
• his investment objectives, including his risk tolerance;
• in accordance with their sustainability preferences, if any.

The information collected allows the intermediary to assess whether the recommended instruments or services are appropriate for the client’s characteristics and objectives.

Product Governance

The product governance framework sets forth specific obligations for manufacturers and distributors of financial instruments.

Manufacturers must establish an approval process for each financial instrument, identifying the target market of customers for whom the product is intended and defining a coherent distribution strategy. They must also subject the products to periodic review.

Distributors must be familiar with the financial instruments they offer, identify the relevant target market—including based on information received from product manufacturers—and adopt distribution strategies consistent with the characteristics, needs, and objectives of the customers for whom the products are intended. Any sustainability objectives, where relevant, are also taken into account as part of these assessments.

For further details, you can review the following documents: