The new product governance requirements under MiFID II are designed to ensure that manufacturers and distributors of financial instruments act in the clients’ best interests during all stages of the product / service life-cycle. One of the most important – and difficult – aspects of this is the target market assessment.
According to ESMA’s guidelines for manufacturers, target market identification should consider, among other points, product characteristics including: complexity, risk-reward profile, liquidity, or even the innovative nature of the product. Identifying the precise target market is therefore especially challenging for collectives, structured products, and packaged products. But the bigger conundrum comes with the need to communicate that target market data from the manufacturer down to the distributor.
This data is required to help distributors fulfill their MiFID II product governance requirements, which are even more detailed than those placed on manufacturers. While this data is not sensitive per se, and can therefore be routed through market data vendors, the challenge is how manufacturers can disseminate the data down to hundreds of intermediaries in an efficient, standardized manner. As such, both parties need to carefully assess what their target market data needs are, and investigate solutions that enable this data to be disseminated by manufacturers and collected by distributors – in one place.