MiFID II suitability areas requiring improvement

The European Securities and Markets Authority (“ESMA”) published the results of the 2020 Common Supervisory Action (“CSA”) on MiFID II suitability requirements noting inter alia, that on the whole, firms do comply with the essential elements of the suitability requirements already regulated under MiFID II.

Nonetheless, the CSA has also pinpointed out areas whereby improvements can be made such as:

  1. The requirement to consider the cost and complexity of equivalent products;
  2. The costs and benefits of switching investments; and
  3. Suitability reports.

The CSA was made in order to assess the application of MiFID II across the European Union and to strengthen the already prevailing network of supervisory knowledge among National Competent Authorities (NCAs).

In furtherance to this exercise, ESMA will update its guidelines on suitability to address areas where convergence is on the decline and to promote further clarification on some of the new MiFID II requirements. Examples of good and poor practices which emerged from the CSA will also accompany the said guidelines to further clarify the suitability guidelines on appropriateness.

Lastly, NCAs are to ensure that regulatory breaches as well as other shortcomings are identified and remedied through the means of looking into individual cases, where the need arises, and by following up accordingly.

Feel free to contact us should you require any further information on the suitability requirements applicable to investment firms.