Product Intervention Powers and Design and Distribution Obligations in Financial Services: A Cross-Border Perspective

Authors: Hannah Cassidy, Clive Cunningham, Natalie Curtis, Javier de Carlos, Katherine Dillon, Matthias Gippert, Leopoldo Gonzalez Echenique, Vincent Hatton, Patricia Horton, Pierre Le Ninivin, Kai Liebrich, Natasha Mir, Stuart Paterson, Fiona Smedley, Jenny Stainsby, Jennifer Xue

Many regulators view their ability to intervene as one of their key supervisory tools to reduce harm in cases where there is a risk of significant consumer detriment or threat to financial markets.

At the same time, many jurisdictions have put in place product governance regimes for financial services firms which aim to avoid, or at least mitigate from an early stage, any potential risks of failure to comply with investor protection rules. In particular, the design and distribution obligations under these product governance regimes aim to overcome the limitations of disclosure and ensure that firms which manufacture and distribute financial products take some responsibility and adopt a more targeted customer-centric approach.

The stages of development, level of detail, scope and coverage of regulators’ product intervention powers, and the product design and distribution obligations under product governance regimes, vary across jurisdictions.

Our guide (which can be found here) summarises the frameworks in selected jurisdictions, allowing a high-level comparison of the different regimes and offering a glimpse of the direction of travel.

KEY CONTACTS

Clive Cunningham
Clive Cunningham
Partner, London
+44 20 7466 2278
Fiona Smedley
Fiona Smedley
Partner, Sydney
+61 2 9225 5828
Hannah Cassidy
Hannah Cassidy
Partner, Hong Kong
+852 21014133
Natalie Curtis
Natalie Curtis
Partner, Singapore
+65 6868 9805

EU: MiFID Review – phase two begins

The European Securities and Markets Authority (ESMA) is consulting on the implementation of the revised Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR).  MiFID II and MiFIR are expected to come into application by end 2016/early 2017, and will apply across the European Union, extending also to member states of the European Economic Area under the European Economic Area Agreement.    For a more detailed briefing, click here.

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Updates to European Commission’s MiFID Q&A website

The European Commission has published new questions and answers on several issues related to the Markets in Financial Instruments Directive (MiFID).  The answers consider:

To view the MiFID Q&A website, please click here.

PRIPs: Proposed Regulation on pre-sale disclosures for Packaged Retail Investment Products – interaction with RDR and MiFID II

The European Commission has now published its final proposal for a Regulation on mandatory pre-sale disclosures for Packaged Retail Investment Products (PRIPs).  The Regulation aims to close gaps and inconsistencies in current rules across Europe by introducing uniform rules on product disclosures.  The Commission last consulted on these reforms in January 2010, so the draft Regulation has been a long time coming.

Our briefing summarises the new PRIPs Regulation and considers the interplay with disclosures required by the RDR and revised MiFID.  This Regulation is likely to considerably increase the costs and resource already being expended in implementing related rules under the FSA’s RDR and the Commission’s review of MiFID (MiFID II).  Estimated industry compliance costs are €171 million initially and €14 million per year thereafter.

MiFID II: European Commission publishes legislative proposals to amend MiFID

The European Commission finally published its legislative proposals to revise the Markets in Financial Instruments Directive (MiFID) on 20 October, nearly 4 years after the MiFID implementation date of 1 November 2007. The proposed changes to MiFID will result in a significant overhaul of the way in which financial markets operate in Europe.

The proposed legislation is divided in two: a new Directive and a new Regulation:

  • MiFID Level 1 Directive (2004/39/EC) will be recast, with a new directive amending the following provisions:

    • Specific requirements regarding the provision of investment services
    • Scope of exemptions from the current Directive
    • Organisational and conduct of business requirements for investment firms
    • Organisational requirements for trading venues
    • Authorisation and on-going obligations applicable to providers of data services
    • Powers available to competent authorities
    • Sanctions
    • Rules applicable to third-country firms operating via a branch
  • Regulation on the Markets in Financial Instruments (MiFIR), which establishes uniform and directly applicable requirements in relation to:

    • Disclosure of trade transparency data to the public and transaction data to competent authorities
    • Removing barriers to non-discriminatory access to clearing facilities
    • Mandatory trading of derivatives on organised venues
    • Specific supervisory actions regarding financial instruments and positions in derivatives
    • Provision of services by third-country firms without a branch

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Harmonising the regulation of market abuse in Europe

The European Commission has published its proposals for a Regulation on insider dealing and market manipulation (“the Regulation”) and a Directive on criminal sanctions for intentional market abuse (“the Directive”). The new measures will extend the scope of the existing regime to ensure that regulation keeps pace with market developments, to reinforce the investigative and sanctioning powers of regulators, and to better combat market abuse across commodity and related derivative markets.

The Commission has also published Frequently Asked Questions on the proposals and Frequently Asked Questions on Emissions Allowances. The proposals accompany revisions to the Markets in Financial Instruments Directive which aim to increase financial market oversight and transparency.

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Consultation on the review of MiFID: inducements

The European Commission published a wide ranging consultation (the Consultation) on its review of the Markets in Financial Instruments Directive (MiFID) in December 2010. The Consultation, which closed on 2 February 2011, sought views of market participants, regulators and other stakeholders on a range of potential changes to the existing MiFID legislation. The responses submitted to the Commission will be used to inform its formal proposal to amend MiFID, which is expected to be published in June.

In advance of the formal Commission proposal, this paper considers some of the issues raised by the Consultation in relation to the regulation of inducements under MiFID.

Click here to view our briefing.

The MiFID Review: “Execution-only” business

More than three years after its implementation, the European Commission published its consultation on the review of the Markets in Financial Instruments Directive (“MiFID”) on 8 December 2010. In light of lessons learnt from the recent financial crisis, it was considered that a revision of several key investor protection provisions was necessary, including the specific conduct of business obligations relating to “execution-only” business. The consultation closed on 2 February 2011, with final proposals expected to be published later this year. This briefing comments on the Commission’s recent regulatory proposals for execution-only business.

Click here to view our briefing.

Consultation on the review of the Markets in Financial Instruments Directive: Investment advice and the FSA’s Retail Distribution Review

The European Commission published its consultation (the “Consultation”) on the review of the Markets in Financial Instruments Directive (“MiFID”) in December 2010. The Consultation, which closed on 2 February 2011, sought views of market participants, regulators and other stakeholders on possible changes to MiFID’s regulatory framework. The Commission Services envisage that the responses will provide “important guidance” in preparing a formal Commission proposal, currently scheduled for adoption in the second quarter of 2011. Continue reading