Product Governance and Product Intervention Under MiFID II/MiFIR

Abstract

Some of the financial products sold in recent years have not been in the interests of the client, such as interest rate swaps sold to small and medium-sized enterprises in many European countries. This is why consideration has been given to ways of nipping this problem in the bud, in other words by preventing harmful products from even reaching the market. Under MiFID II this has taken the form of a mandatory product approval process. But, as usual, firms will look for ways around these requirements. It would be naive to think that product approval schemes could in practice guarantee that harmful products are no longer marketed. This is why there must be a safety net. This safety net takes the form of a power for the national competent authorities (NCAs) and also for ESMA and EBA to remove harmful products from the market – a system known as product intervention. In this chapter, the new MiFID II/MiFIR rules on product governance and product intervention are analysed and discussed.