EUROPEAN UNION: ESMA Publishes Guidelines on Complex Debt Instruments and Structured Deposits

Friday February 5 2016

The European Securities and Market Authority (ESMA) has published translation of its guidelines on complex debt instruments and structured deposits. The purpose of these Guidelines is to ensure a common, uniform and consistent application of these definitions.

The guidelines apply in relation to Article 25(4) of Directive 2014/65/EU (MiFID II) and will apply from 3rd January 2017.

The purpose of the guidelines is to specify the criteria for the assessment of (i) debt instruments incorporating a structure which makes it difficult for the client to understand the risk involved and (ii) structured deposits incorporating a structure which makes it difficult for the client to understand the risk of return or the cost of exiting the product before term.

Additionally, the guidelines also clarify the concept of “embedded derivatives” in order to provide an overall framework for the application of Article 25(4)(a) of MiFID II in relation to debt instruments.

ESMA expects the guidelines to strengthen investor protection and to promote greater convergence in the classification of “complex” or “non-complex” financial instruments or structured deposits for the purposes of the appropriateness test/execution-only business in accordance with Article 25(3) and 25(4) of MiFID II.

Click on the link above for further details.