Abstract
MiFID II (Markets in Financial Instruments Directive) introduces the requirements on product governance to enhance investor protection, by regulating of all stages of the life-cycle of financial products or services and to ensure that firms, which realize and distribute financial instruments or structured deposits, act in the clients’ best interest. To reach this scope, MiFID II set out several a set of rules about the creation and distribution of called Product Governance requirements (POG), that impose to financial intermediaries to implement a product approval process for each new financial instrument they are going to create or for significant changes to existent products. By implementing the product approval process, MiFID II redesigns the relationship between intermediaries and clients, internalizing this relationship into the intermediaries’ corporate governance processes, because the client’s interest has a central role during all life-cycle of financial instruments, from the creation to distribution of financial products. Clients’ features play a fundamental role since the early stage. In fact, financial products have to be designed to satisfy the target market’s needs and objectively identified for each product. The implementation of a product approval process has a great impact on corporate governance financial intermediaries because it involves a redefinition of function and assignment of the new tasks. The aim of this paper is to underline the main impacts of MiFID II Product Governance requirements on corporate governance of financial institutions and the necessary efforts to make intermediaries compliant to the new regulatory framework. At the same time, this essay wants to provide an insight into future research on a fintech solution, to let intermediaries face POG requirements. Furthermore, the author, with this food for thought about Blockchain, wants to underline the importance for financial service industry, of paying attention to fintech technologies and their several possible applications to win the challenges of new regulatory frameworks, such as MiFID II, and to survive in the new era of digital finance
Highlights
The financial crisis has shown that sometimes the application of conduct code of business rules, in the context of the provision of investment services to individual clients, may be insufficient to ensure that firms respect their duty of acting in the best client’s interest
MiFID II mustn’t be considered only a compliance’s challenge, because it doesn’t entail only a noncompliance-risk but has an impact both on each aspect of financial intermediary’s business and on risk management’s decision making process, involving the other functions such as: operations, IT, finance department, wealth management and risk management. This means that MiFID II should be faced involving the whole corporate governance structure, promoting the “risk-culture” from the top to the lowest level of internal control system, as underlined by James Williams1 “MiFID II should be treated as an enterprise risk management exercise, led by senior management involving every department”
The new regulatory framework introduces, with some differences between manufacturers and distributors, several rules that cover a wide range of topics, such as the implementation of a product approval process, especially with its phase of target market assessment, and the exchange of information flows between firms that create financial instruments and distributors
Summary
The financial crisis has shown that sometimes the application of conduct code of business rules, in the context of the provision of investment services to individual clients, may be insufficient to ensure that firms respect their duty of acting in the best client’s interest. The European Securities Markets Authority (ESMA), to ensure the investor protection and restore client’s confidence in financial markets, has decided to update the regulatory framework, introducing new and more restrictive requirements concerning the topics of: Product governance, inducements, ex-ante and ex-post cost-disclosure, advice service, best execution, transaction reporting and record keeping that are set out in MiFID II Directive, Delegate Directive (EU) 2017/593 and Delegate Regulation (EU) 2017/589. MiFID II comes into force on 3rd January 2018 and will require financial intermediaries to make significant changes in their internal control system and in the whole corporate governance structure. The first step to understanding the impact of the new regulatory framework and the related implementation costs is to conduct a Gap Analysis that allows identifying gap into the business processes, internal control system and in the procedures set out to manage the relationship with customers. Will provide food for thought about MiFID II’s implementation cost and will be showed an insight about a cuttingedge solution to let the exchange of information flows, making them faster safer and less onerous through the Blockchain technology
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