European Commission rules mean advisers will have to pass information to providers to ensure investment products are being sold only to target markets - and could be frozen out of recommending certain products if they end up in the wrong hands.
The delegated acts supplement Mifid II which is due to come into effect in January 2018 - a year later than planned.
Mifid II provids an updated harmonised legal framework for investment firms, intermediaries and similar companies across the EU.
Included in the new rules are product governance requirements which mean investment firms will be required to identify a potential target market for each product and specify the type of client for whose needs, characteristics and objectives it is compatible.
The delegated act said: “Member States shall require investment firms to ensure that the provision of information about a financial instrument to distributors includes information about the appropriate channels for distribution of the financial instrument, the product approval process and the target market assessment and is of an adequate standard to enable distributors to understand and recommend or sell the financial instrument properly.”
Distributors such as financial advisers are also required to provide manufacturers with information on sales and information to support product reviews they will carry out.
If the manufacturer requires information on product sales in order to comply with their product governance obligations, advisers will also have to enable them to obtain it.
If investment providers become aware that their products are not being sold as envisaged the rules, published yesterday (7 April), say they must either contact the adviser to change the distribution process, terminate the relationship with the distributor or inform the FCA.
Rob Swan, managing director of data services at Calastone, said: “Product manufacturers will, for the first time, be required to have the visibility into and oversight across the entire distribution chain, from the fund manufacturer to the end distributor, in order to ensure products are being distributed in line with the identified target market.
“All distributors in the distribution chain now have an obligation to pass on relevant information, notably on product sales, to the product manufacturer to enable them to comply with their own product governance obligations.
“What this means in practice is that more granular insight and up-to-date data on the sale of funds is therefore required along the entire distribution chain as both the manufacturer and the distributor could, at any given time, be called on by the regulator to report on their activity.”
