European Securities and Markets Authority Publishes Guidelines on MiFID II Appropriateness and Execution-Only Requirements

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The European Securities and Markets Authority has published new Guidelines on the appropriateness and execution-only requirements under the revised Markets in Financial Instruments Directive. The appropriateness requirements under MiFID II require investment firms providing investment advice to assess a potential client's knowledge and experience in the investment field, to ascertain whether a particular service or product is appropriate for the client. There are exemptions from these requirements under the execution-only framework, subject to certain conditions being met. ESMA's new Guidelines are designed to enhance convergence across the EU on the application of these requirements.

ESMA published a consultation on the proposed Guidelines in January 2021. The final Guidelines are largely in the form consulted upon, although certain changes have been made, including:

  • clarification that, where firms have an ongoing relationship with a client, information about the appropriateness assessment need only be provided before the initial non-advised service and not each time another non-advised service is provided;
  • clients should be permitted to continue with transactions even where they have not satisfied a firm's appropriateness questionnaire, provided that the firm has imposed appropriate procedures to limit the risk of clients circumventing the questionnaire and has given a warning to the client if the questionnaire reveals they do not have adequate knowledge and experience; and
  • clarification on the steps that firms would be expected to take to check the reliability of information provided by clients; taking this into account, ESMA also clarifies that firms are entitled to rely on information provided by clients unless it is manifestly out of date, inaccurate and incomplete.

The guidelines will now be translated into all official EU languages and published on ESMA's website. Within two months of publication on ESMA's website, national regulators must notify ESMA whether they comply or intend to comply with the Guidelines.

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