ESMA finalises MiFID II product governance guidance with minor changes… but suggests further guidance may follow in Q&A

ESMA has published its final report on guidelines on product governance, which includes ESMA’s response to feedback on ESMA’s 2022 consultation paper (Annex IV). 

ESMA has retained the flexible approach from the CP, allowing firms to specify sustainability-related objectives by reference to any of the buckets relevant to “sustainability preferences” or to whether the product is focused on environmental, social and/or governance criteria. 

ESMA has only made minimal changes in response to feedback. Not wanting to be too prescriptive in respect of sustainability at this early stage, ESMA has indicated that further guidance on certain concerns raised may follow through Q&A and other guidance as the new product governance requirements bed down. Notably, ESMA has rejected comments requesting changes to reflect the current lack of relevant ESG data, taking the view that the final guidelines allow firms sufficient flexibility, and that ESG data is, in any event, developing and improving already.

More broadly, the final report contains helpful comments on how the principle of proportionality applies to different aspects of the product governance rules, including when applying a clustering approach for complex products. 

ESMA also acknowledges that the principle of proportionality applies in the context of ongoing review obligations of firms that are manufacturers by virtue of their role in advising on the launch of corporate issues, noting that the Commission should look into whether there may be a case for limiting the periodic review requirements for such firms by changing the relevant Level 2 text.

Read our summary note on our Knowledge Portal for key points from ESMA’s final report.