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.

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.

MiFID II also requires distributors to provide clients, and potential clients, with appropriate details of all costs and charges within ‘good time’. From a data perspective, this requires an effective means of communicating costs and charges data – both ‘ex-ante’ (pre-sale) and ‘ex-post’ (post-sale) – to be established across the distribution chain, including manufacturers.

There may, however, be a handful of instruments that fall beyond the reach of vendors, such as non-European products. A distributor with a US mutual fund in its portfolio, for example, may have no other option but to ascertain the product cost from published information sources in the US.

With this in mind, firms urgently need to identify any instruments in their portfolio where MiFID II data is required but the characteristics of the instrument mean that the data many not be readily available from an existing provider. Firms also need to engage with their vendors sooner rather than later around onboarding the full requirements of their portfolio to ensure coverage from all their manufacturers.

Under MiFID II, manufacturers of products will also need to collect information from their distributors confirming whether products have been sold to a suitable investor – i.e. according to the target market information. One aspect that remains unclear, however, is how distributors will accurately define sales as being ‘inside the target market’, ‘outside the target market’, or ‘in the negative target market’.

What is clear, however, is that distributors are taking their responsibilities around sales suitability reporting extremely seriously. Although it has traditionally been carried out in-house, 44% of webinar attendees are now using intermediaries for sales reporting. And while 22% are as yet undecided on their sales suitability reporting strategy, anecdotal evidence suggests that they are searching for a one-stop-shop arrangement, plugging them in to all the necessary manufacturers in a way that keeps their sensitive data secure.

While it may not be data challenge as such, another significant hurdle facing the industry right now is the lack of working groups targeting the above issues – at least ones that represent the interests of both manufacturers and distributors equally – and setting out to find common solutions.

Ultimately, manufacturers and distributors both have significant obligations to meet under MiFID II’s new investor protection regime. And with many other regulatory, operational, and financial burdens to contend with, a dialogue to help both parties meet their obligations with the minimum amount of upheaval can only be beneficial.