ESMA_QA_1782
Status: ✅ Answer Published
Link to ESMA Q&A tool: https://www.esma.europa.eu/publications-data/questions-answers/1782
Regulatory Context
Regulation : MIFIR
Level 1 Regulation: Markets in Financial Instruments Regulation (MiFIR) Regulation (EU) No 600/2014 - Investor Protection and Intermediaries
Level 2 Regulation: No information available
Level 3 Regulation: No information available
Topic: Investment advice on an independent basis
Subject Matter: Investment advice on an independent basis
Question
Submission Date: 10 October 2016
Could a firm still hold itself out as being independent where it assesses and compares a sufficient range of financial instruments available (which are not limited to financial instruments issued or provided by the firm itself or by entities having close links) but that the outcome of such an assessment in a considerable number of cases is that the firm recommends financial instruments to its clients which are issued or provided by the firm itself or by entities having close links?
ESMA Answer
Answer Date: 10-10-2016
[ESMA 35-43-349 MiFID II Q&As on Investor protection, Ch. 5, question 1] When a firm holding itself out as being independent frequently assesses financial instruments which are issued or provided by the firm itself or by entities having close links as best suited for its clients, ESMA considers this could potentially conflict its status as ‘independent’. Independent advisers are reminded of their obligations stemming from MiFID II (and in particular Article 24(4) and 24(7)) and implementing measures (in particular Articles 52 and 53 of the MiFID II Delegated Regulation). A firm is also expected to manage conflicts of interest at all times. In doing so, the firm should establish, implement, maintain and update regularly adequate internal systems and controls in order to ensure that it is not bound by any form of agreement with a product provider that may limit the firm’s ability to provide a personal recommendation which is unbiased and based on an assessment of a sufficient range of financial instruments available on the market. Also a regular review of the service and financial instruments it offers should be performed by the firm. Consequently, ESMA expects that these internal controls and systems should provide for a permanent internal awareness of its independency status. In practice this means that the outcome of the unbiased and unrestricted analysis of the financial instruments available on the market could occasionally result in the firm recommending its own products. However, if the outcome is that the firm routinely recommends its own products or if there appears to be a systematic bias to advise clients to invest in its own products, the firm would most likely have problems in demonstrating the provision of advice on an independent basis. In such a case ESMA expects the firm to do thorough internal assessments determining if and to what extent clients’ interests are or could be affected. Such an internal assessment should at least consider information on how the firm assessed and compared financial instruments which are issued or provided by the firm itself or by entities having close links versus a sufficient range of financial instruments available on the market. Also it should make clear the factors the assessment has been based upon and which factors determined the outcome. The firm should be able to provide this analysis to its clients and on request to the supervisory authority.
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