While MiFID practitioners may have been hoping to enjoy a moment of relative calm pending further evolutions and clarifications regarding the EU's retail investment strategy, a recent surge of activity in regulatory enforcement by the FSMA and some legal courts has forced Financial Institutions’ Management and Compliance Officers to rethink and adapt some of their MiFID processes, and properly assess the impact on pricing strategies, distribution methods, and value propositions.
These events should remind distributors of financial instruments to remain vigilant and reassess whether their internal processes are equipped to deal with these events and evolutions. In this context, a solid product governance system plays a pivotal role in addressing and overcoming these challenges. This is particularly true if the distributor succeeds in establishing a robust product approval and review process (banking) or product governance and oversight process (insurance). In doing so, the relatively high-level principles set out in MiFID / IDD should be translated into a thorough assessment and (periodical) review of the distributed financial instruments, involving all relevant stakeholders in the decision-making process.
The outcome of such an assessment should be that financial instruments are distributed in line with regulatory requirements, that the products suit the client’s needs, that a target market and a distribution strategy are defined and, most importantly, that the products are offered in the client’s interest. To make this possible, many internal steps need to be taken, and a variety of assessments need to be done by stakeholders, each from their own field of expertise. A sound product governance framework should ensure that all these are done in a timely manner and that the results are well-documented.
