MiFID II will introduce extensive product governance requirements on both manufacturers and distributors of investment products. Manufacturers will need to identify, and take reasonable steps to distribute to a target market of end clients. They will need a product approval process and to review periodically the target market and performance of the investment products they offer. Distributors will need sufficient understanding of manufacturers’ products and product approval process so as to identify and sell to their own identified target market.

A key challenge will be managing the dual responsibility between manufacturers and distributors and ensuring that arrangements are in place to exchange the necessary information. This will be particularly important where the manufacturer or distributor is a non-MiFID or third country firm. While ESMA set out to make the rules proportionate, there is also still uncertainty around how the rules should be applied in the context of execution-only business.