Product governance

 As 2017 got underway, AMAFI shared an initial version of its guide to implementing product governance arrangements with the AMF and several French industry associations (FBF, AFG and AFTI). AMAFI will use the feedback to modify the draft before publishing it. The guide gives an overview of the legislative provisions, suggests criteria for identifying the target market, provides a contractual document to facilitate the negotiation of the agreements that must be established between producers and distributors, and contains a proposal to standardise exchanges between distributors and producers on sales outside the target market.

 AMAFI also replied to the consultation launched by ESMA in early October on the draft guidelines for product governance requirements (AMAFI / 16-61). AMAFI made the following key points in its feedback:

• A more proportionate approach needs to be taken to identifying the target market (e.g. only certain criteria need apply in the case of plain-vanilla products);
• Since automated processes are going to be needed to handle the volumes of data involved, it is important to enable the criteria for identifying the target market to be standardised;
• ESMA’s guidelines fail to take proper account of the issues raised by portfolio diversification;
• ESMA needs to confirm that target market assessments may be conducted only on the basis of the available information on the customer, which is in turn linked to the nature of the service provided by the distributor.

Package orders

ESMA has just completed a public consultation on the liquidity of package orders, i.e. involving the execution of at least two transactions that are interlinked in terms of risk and execution. The aim is to determine the conditions under which such orders may be considered to have a liquid market as a whole.

In its consultation feedback, AMAFI stressed the need to take great care, given the complexity of the issue, which has forced US authorities to delay the application of transparency rules for these transactions since 2014. AMAFI recommended that, at least initially, only packages whose components are all from the same asset class, traded on a trading platform, denominated in the same currency and liquid, should be considered as having a liquid market (AMAFI / 17-03).

Territorial scope

 Work has now been completed on clarifying the territorial scope of application of certain provisions of the MiFID 2 Directive and Regulation, notably as regards the application of these provisions to the branches of investment firms located outside the European Union (AMAFI / 17-05). As a general rule, subject to a few extensions outside the Union, the MiFID 2 framework is deemed to apply essentially to business conducted within the Union by European entities that are investment firms.

Cost disclosures

AMAFI is continuing its discussions with the AMF on the interpretation of provisions governing cost and expense disclosure obligations. AMAFI feels that ESMA should organise a consultation with the industry on finalising its Level 3 measures for these disclosure obligations. It teamed up with several other professional associations to make this point in a joint letter to ESMA (cf. AMAFI Info No. 127).