MiFID II & PROD rules

While it could be argued that a Centralised Investment Proposition (CIP) may not be considered a product for MiFID II purposes and so does not directly fall under the PROD rules, the elements contained within the CIP appear to fall under PROD rules.

Distribution of products and investment services

A distributor must:

  • understand the financial instruments it distributes to clients
  • assess the compatibility of the financial instruments with the needs of the clients to whom it distributes investment services, taking into account the manufacturer’s identified target market of end clients
  • ensure that financial instruments are distributed only when this is in the best interests of the client.

A distributor should consider what impact the selection of a given manufacturer could have on the end client in terms of charges or the financial strength of the manufacturer, or possibly, where information is available to the distributor, how efficiently and reliably the manufacturer will deal with the distributor or end client at the point of sale (or subsequently, such as when queries/complaints arise, claims are made, or a financial instrument reaches maturity).

Obtaining information from manufacturers

Distributors must obtain from MiFID manufacturers information to gain the necessary understanding and knowledge of the financial instruments they intend to distribute in order to ensure that the financial instruments will be distributed in accordance with the needs, characteristics and objectives of the target market.

In ensuring that they have obtained sufficient information about the financial instruments they distribute and in ensuring they understand the financial instruments or investment services distributed, distributors:

  • should consider whether they understand the materials provided by the manufacturer or distributor earlier in the sales chain
  • should ask the manufacturer to supply additional information or training where this seems necessary to understand the financial instrument or investment service adequately
  • should not distribute the financial instrument or investment service if they do not understand it sufficiently
  • when providing information to another distributor in a distribution chain, should consider how the further distributor will use the information, such as whether it will be given to end clients. Firms should consider what information the further distributor requires and the likely level of knowledge and understanding of the further distributor and what medium may suit it best for the transmission of information.

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