Mon. Oct 14th, 2019

Planet Compliance

Innovation & Regulation in Finance

ESMA urges better supervision of investment advice to retail clients

3 min read

The European Securities and Markets Authority (ESMA) has today published a peer review on how national regulators assess compliance with MiFID’s suitability requirements when firms provide investment advice to retail clients.

These requirements are designed to ensure that firms only recommend suitable investment products, based on the investor’s profile.

Overall, ESMA found that while most national regulators have a good understanding of the investment advice market in their jurisdictions and regularly review the distribution methods and business models of investment firms, there is scope to adopt more proactive supervisory approaches and strengthen enforcement activities.

Steven Maijoor, ESMA Chair, said:

“The MiFID suitability requirements are a key component of Europe’s investor protection framework and ESMA expects national competent authorities to be vigilant in ensuring firms comply with these important requirements. Supervisory convergence is high on ESMA’s agenda, as we stated in our 2016-2020 strategy, and the findings from this review show the importance of this work.”

ESMA found that:

  • National regulators have a good understanding of the types of distribution methods used in their jurisdictions and where the boundary between investment advice and information lies. However, limited supervision was performed to verify whether clients are receiving investment advice in practice or have the perception that they are receiving advice.
  • Most regulators do not perform supervision which is targeted at the particular behaviour of a firm or group of firms as part of a specific suitability project.
  • Most regulators stated they used a wide range of tools to monitor the main aspects of advice suitability but only a limited number of regulators provided specific information on the tools they use to supervise compliance with the suitability requirements;
  • Enforcement action, such as imposing fines or placing restrictions on firms’ activities, was rarely taken. Many regulators considered their supervisory approach alone was sufficient to address issues; and
  • In many cases, regulators could improve how they publicly communicate with stakeholders on their supervision and enforcement activities and findings.

The findings of this peer review will help ESMA identify those areas where there is a need for further supervisory convergence among regulators. The ESMA statement and the report can be found here.

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