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Identify the target market for financial instruments |
Due Diligence |
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- Description:
- The company must identify the potential target market for each financial instrument at a sufficiently granular level, specify compatible client types and, except where financial instruments consider sustainability factors, identify groups of clients with whose needs, characteristics and objectives the instrument is not compatible.
- Frequency:
- Event-triggered
- Check frequency:
- -
- Products/Services:
- Financial instruments
- Checking responsibility:
- -
- Check method:
- -
- Rule set:
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- Source reference:
- Article 1, amendment (2)(a), Article 9(9)
- Source excerpt:
- Member States shall require investment firms to identify at a sufficiently granular level the potential target market for each financial instrument and specify the type(s) of client with whose needs, characteristics and objectives, including any sustainability related objectives, the financial instrument is compatible. As part of this process, the firm shall identify any group(s) of clients with whose needs, characteristics and objectives the financial instrument is not compatible, except where financial instruments consider sustainability factors.
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Assess financial instrument alignment with the target market |
Due Diligence |
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- Description:
- The company must determine whether each financial instrument meets the identified needs, characteristics and objectives of the target market, including by examining the risk/reward profile, relevant sustainability factors and whether the design benefits the client rather than relying on poor client outcomes.
- Frequency:
- Event-triggered
- Check frequency:
- -
- Products/Services:
- Financial instruments
- Checking responsibility:
- -
- Check method:
- -
- Rule set:
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- Source reference:
- Article 1, amendment (2)(b), Article 9(11)
- Source excerpt:
- Member States shall require investment firms to determine whether a financial instrument meets the identified needs, characteristics and objectives of the target market, including by examining the following elements:
- (a) the financial instrument’s risk/reward profile is consistent with the target market;
- (b) the financial instrument’s sustainability factors, where relevant, are consistent with the target market;
- (c) the financial instrument design is driven by features that benefit the client and not by a business model that relies on poor client outcomes to be profitable.
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Present sustainability factors transparently |
Record Keeping |
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- Description:
- The company must present the financial instrument’s sustainability factors transparently and provide distributors with relevant information so that they can duly consider the sustainability-related objectives of the client or potential client.
- Frequency:
- Event-triggered
- Check frequency:
- -
- Products/Services:
- Financial instruments with sustainability factors
- Checking responsibility:
- -
- Check method:
- -
- Rule set:
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- Source reference:
- Article 1, amendment (2)(c), Article 9(13)
- Source excerpt:
- The sustainability factors of the financial instrument shall be presented in a transparent manner and provide distributers with the relevant information to duly consider any sustainability related objectives of the client or potential client.
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Regularly review manufactured financial instruments |
Due Diligence |
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- Description:
- The company must regularly review the financial instruments it manufactures, taking into account events that could materially affect potential risk to the identified target market. It must assess in particular whether the instrument remains consistent with the target market and whether it is distributed to that market.
- Frequency:
- Other
- Check frequency:
- -
- Products/Services:
- Financial instruments manufactured by the company
- Checking responsibility:
- -
- Check method:
- -
- Rule set:
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- Source reference:
- Article 1, amendment (2)(d), Article 9(14)
- Source excerpt:
- Member States shall require investment firms to review the financial instruments they manufacture on a regular basis, taking into account any event that could materially affect the potential risk to the identified target market. Investment firms shall consider whether the financial instrument remains consistent with the needs, characteristics and objectives, including any sustainability related objectives, of the target market and if it is distributed to the target market, or reaches clients with whose needs, characteristics and objectives the financial instrument is not compatible.
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Establish product governance arrangements |
Governance |
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- Description:
- The company must have adequate product governance arrangements in place to ensure that products and services it intends to offer or recommend are compatible with the identified target market and that the intended distribution strategy is consistent with that target market.
- Frequency:
- Continuous
- Check frequency:
- -
- Products/Services:
- Products and services offered or recommended by the company
- Checking responsibility:
- -
- Check method:
- -
- Rule set:
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- Source reference:
- Article 1, amendment (3)(a), Article 10(2)
- Source excerpt:
- Member States shall require investment firms to have in place adequate product governance arrangements to ensure that products and services they intend to offer or recommend are compatible with the needs, characteristics, and objectives, including any sustainability related objectives, of an identified target market and that the intended distribution strategy is consistent with the identified target market.
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Assess client needs and incompatible client groups |
Due Diligence |
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- Description:
- The company must appropriately identify and assess the circumstances and needs of the clients it intends to focus on to ensure that client interests are not compromised by commercial or funding pressures; it must also identify incompatible client groups, except where financial instruments consider sustainability factors.
- Frequency:
- Event-triggered
- Check frequency:
- -
- Products/Services:
- Clients the company intends to focus on and products and services offered or recommended
- Checking responsibility:
- -
- Check method:
- -
- Rule set:
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- Source reference:
- Article 1, amendment (3)(a), Article 10(2)
- Source excerpt:
- Investment firms shall appropriately identify and assess the circumstances and needs of the clients they intend to focus on, so as to ensure that clients’ interests are not compromised as a result of commercial or funding pressures. As part of this process, firms shall identify any group of clients with whose needs, characteristics and objectives the product or service is not compatible except where financial instruments consider sustainability factors.
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Regularly review investment products and services |
Due Diligence |
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- Description:
- The company must regularly review the investment products it offers or recommends and the services it provides, assessing whether they remain consistent with the identified target market and whether the intended distribution strategy remains appropriate.
- Frequency:
- Other
- Check frequency:
- -
- Products/Services:
- Investment products offered or recommended and services provided
- Checking responsibility:
- -
- Check method:
- -
- Rule set:
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- Source reference:
- Article 1, amendment (3)(b), Article 10(5)
- Source excerpt:
- Member States shall require investment firms to review the investment products they offer or recommend and the services they provide on a regular basis, taking into account any event that could materially affect the potential risk to the identified target market. Firms shall assess at least whether the product or service remains consistent with the needs, characteristics and objectives, including any sustainability related objectives, of the identified target market and whether the intended distribution strategy remains appropriate.
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Reconsider the target market or update product governance |
Governance |
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- Description:
- If the company becomes aware that the target market was wrongly identified or that the product or service no longer meets the circumstances of the identified target market, it must reconsider the target market and/or update the product governance arrangements.
- Frequency:
- Event-triggered
- Check frequency:
- -
- Products/Services:
- Target market and product governance arrangements
- Checking responsibility:
- -
- Check method:
- -
- Rule set:
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- Source reference:
- Article 1, amendment (3)(b), Article 10(5)
- Source excerpt:
- Firms shall reconsider the target market and/or update the product governance arrangements if they become aware that they have wrongly identified the target market for a specific product or service or that the product or service no longer meets the circumstances of the identified target market, such as where the product becomes illiquid or very volatile due to market changes.
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Emtract Ingest