New ESMA product governance guidelines: focus on the asset management sector


Curated by Salvatore Providenti, Marco Coluzzi, Enrico Barmann.

As is well known, the EU Directive 2014/65[1] (“MIFID II”) introduced the obligation for investment firms that make or distribute financial instruments to define and maintain adequate product governance arrangements.

These provisions affect, among other things, the asset management sector, due to the inclusion – from an objective standpoint – of units of collective investment schemes in the category of financial instruments and – from a subjective standpoint – of management companies among the firms that are partly recipients of the aforementioned obligations.

That being said, on March 27, 2023, ESMA published the updated version of the Guidelines on the governance obligations of financial products under MIFID II (“Guidelines”), which intervenes on the former rules.

This new version reflects recent regulatory developments in this area, with particular reference to the Capital Markets Recovery Package and the sustainability-related changes made to the MIFID II Delegated Directive.

The main changes contained in the new Guidelines are outlined below:

1. First, the possibility is recognized for producers to define the target market, rather than for a single product, by adopting a common approach for a number of products, provided that these products have sufficiently homogeneous characteristics among themselves (so-called cluster approach)[2].

In adopting such an approach, investment firms should consider several key factors in order to cluster multiple homogeneous products, such as: risk factors (market, credit, and liquidity); cost structure (level and type of costs); leverage; subordination clauses; capital repayment guarantees or capital protection clauses; and product liquidity.

This principle is also reiterated with specific reference to collective investment schemes[3], where the Guidelines expressly recognize that in such a case the cluster approach should still be based on certain differentiating factors, such as the type of assets in which the scheme invests, the investment strategy, the main risks, the cost structure (e.g., the level and types of costs), and the leverage used, if any[4].

2. Considering regulatory developments to give relevance to sustainability profiles in financial markets, the new Guidelines also require firms to specify the sustainability-related objectives with which the product is compatible. In particular, firms should specify, where appropriate, the following profiles:

  • the minimum share of the product invested in environmentally sustainable investments, as defined by EU Regulation 2020/852 (so-called “Taxonomy Regulation”);
  • the minimum share of the product invested in sustainable investments as defined by EU Regulation 2019/2088 (so-called “SFDR Regulation”);
  • the main negative impacts on sustainability factors considered by the product, including the quantitative or qualitative criteria supporting such evidence;
  • the product’s focus, if any, on environmental, social or governance criteria or a combination thereof.

In any case, with regard to products that include sustainability factors among their objectives, the Guidelines specify that companies are not required to identify a negative reference market with respect to these factors[5].

3. Building on what was already defined in the previous version, the new Guidelines then reiterate the onus on manufacturers and distributors to periodically check whether products and services remain consistent with the identified reference market. More generally, all products must be subject to periodic review, with it being made clear in each case that the frequency and intensity of such reviews depends on the nature of the individual product.

In this context, the need for distributors to proactively inform the manufacturer whenever they have relevant information that may affect the review of financial products has also been represented[6].

With reference to this last profile, it was noted in the public consultation that some producers of financial instruments-especially, collective investment schemes-are not subject to MiFID II and, therefore, to the obligations of identification and review of the reference market. In this regard, it was therefore suggested that the requirement for distributors to provide information on the reference market should be understood only in response to an explicit request from the producer.


The new Guidelines will apply from two months after the date of publication on ESMA’s website in all official languages of the European Union.


[1] See, in particular, Art. 16(3) (“Investment firms shall maintain and enforce effective organizational and administrative arrangements with a view to taking all reasonable steps to prevent conflicts of interest, as defined in Article 23, from adversely affecting the interests of their clients.“) and 24(2) (“Investment firms that make financial instruments for sale to clients shall ensure that such products are designed to meet the needs of a specified target market of end clients identified within the relevant client category and that the distribution strategy for the financial instruments is compatible with the target. The investment firm shall also take reasonable steps to ensure that the financial instrument is distributed to clients within the target market.“)

[2] See Guidelines No. 27-30.

[3] See Guidelines No. 47 et seq.

[4] In this regard, it should be noted that during public consultation some participants expressed doubts as to whether leverage used in some collective investment schemes should be taken into account, given that in most cases these are non-complex products available to retail investors.

[5] See Guideline No. 81.

[6] See Guideline No. 70.