Thu, Apr 19, 2018
Client Protection at the Heart of MiFID II
To create long-term viable businesses, investment firms must provide products that serve clients’ needs.
Executive Summary
Apr 19, 2018
Too Much of a Good Thing?
Apr 18, 2018
Too Much Too Soon?
Apr 19, 2018
Cyber Risks Beyond Your Four Walls
Apr 19, 2018
Brexit: The Catalyst for Substance Over Style in Asset Management
Apr 19, 2018
A Reality Check
Apr 19, 2018
New Priorities at the SEC
Apr 19, 2018
The Consequences of Concentration in Private Equity
Apr 19, 2018
The SEC Looks to the Most Vulnerable
Apr 27, 2018
Client Protection at the Heart of MiFID II
Apr 19, 2018
The Paradise Papers: The Unreported Facts
Apr 19, 2018
What’s in a Name? It’s a Question Regulators Are Increasingly Asking
Apr 19, 2018
New Guidance From The Trump Administration Regarding FCPA Prosecutions
Apr 19, 2018
Lifting the Veil
Apr 19, 2018
A Fool’s Errand
Apr 19, 2018
Alternative Data Brings Different Problems
Apr 19, 2018
The Price of Everything but the Value of Nothing
Apr 19, 2018
Counting the Cost
Apr 19, 2018
A Big Step Towards Consistency in Fair Value
Apr 19, 2018
Finally Addressing Forgotten Assets
Apr 19, 2018
- View all articles

This article was contributed by Michel Hodson, Director of Asset Management Supervision, Central Bank of Ireland.
Read Global Regulatory Outlook 2018
In the majority of cases, even when dealing with a professional client, the ultimate beneficiary of these products is a retail investor. It is therefore incumbent on investment firms to ensure they are providing suitable products.
Markets in Financial Instruments Directive (MiFID) II introduces and strengthens a wide range of conduct of business requirements. First, its product governance framework aims to ensure entities act in the best interests of clients at all stages of the product life cycle. For example, product manufacturers must ensure that, in designing financial instruments, they do not adversely affect the target market or create problems with market integrity. Moreover, distributors are responsible for ensuring the investment offering is compatible with the needs, characteristics and objectives of the client. As a regulated entity, businesses must first consider whether they are a product manufacturer, distributor or both.
Turning to the client life cycle, correct client categorization remains the starting point to ensure clients receive the appropriate level of service and protection. Communication with prospective and existing clients must be fair, clear and not misleading.
In this regard, as the client relationship develops, MiFID II also introduces enhancements aimed at tackling the risks to the delivery of fair client outcomes. For example, the definition of non-complex instruments has narrowed. This will increase the appropriateness testing that firms must undertake. Furthermore, the MiFID II regulations apply significant changes to the suitability requirements, with a number of the European Securities and Markets Authority (ESMA) Guidelines placed on a statutory footing. Finally, MiFID II introduces new requirements, such as the need to ascertain information from clients regarding their risk tolerance and capacity for loss.
It is important to note that the regulations recognize that investing is not without risk. Firms are not expected to mitigate all risks. Rather, in providing a service to clients, they are responsible for ensuring the level of risk is appropriate to the client and that the client is aware and understands this risk. Taking this a step further, the way firms frame and present their investment offering to a client can greatly influence the client’s approach. There is a growing body of work in behavioral economics, and firms should use this to understand a client’s needs and risk tolerance, rather than to simply direct clients into products sold by the firm.
The time and money put into preparing for MiFID II have been significant for the industry and regulators. Both should strive to achieve the maximum possible return from this. At its core, MiFID II aims to improve standards of service to clients, increase investor protection and avoid client detriment. Firms that have embraced the new regulatory requirements should find they are in a stronger position to build long-term, mutually beneficial relationships with their clients.
To prosper over the long term, a firm’s goals and its clients’ must be aligned. Embracing MiFID II and putting client protection at the heart of the firm’s culture will play no small part in delivering this prosperity.
Financial Services Compliance and Regulation
End-to-end governance, advisory and monitorship solutions to detect, mitigate, drive efficiencies and remediate operational, legal, compliance and regulatory risk.
Financial Crime Prevention
Financial crime risk has again risen to the top of the regulatory agenda, and remains one of the most immediate risks for many firms, with criminals constantly seeking new ways to circumvent protective controls.
U.S. Compliance Services
Comprehensive support for asset managers registering in the U.S.
European Compliance Services
Comprehensive compliance and regulatory support for EU firms.
French Regulation
A range of support from a review of your suitability arrangements, training, controls and procedures to conducting bespoke reviews on past business activities.
UK Compliance Services
Comprehensive compliance and regulatory support for FCA authorized firms.
Irish Regulation
Kroll is uniquely placed to assist firms in negotiating the regulatory landscape.
Singapore Regulation
Kroll's experienced team provides practical compliance and regulatory advice to financial institutions in Singapore.
Channel Islands Regulation
Kroll provides a range of regulatory and compliance consulting services for firms registered in the Channel Islands.
Regulatory Advice and Consulting Services
Assistance to develop, implement, and manage global compliance and regulatory consulting programs.