Under Article 25(1) of MiFID 2 (2014/65) firms will be required to ensure (and to demonstrate to competent authorities on request) that persons giving investment advice or information about financial instruments, investment services or ancillary services to clients on behalf of the investment firm possess the required necessary knowledge and competence. ESMA was tasked with developing guidelines specifying criteria for the assessment of knowledge and competence required – see Regulatory Roundup 64 for further details.
ESMA published its final report on the guidelines just before Christmas, so comfortably meeting the 3 January 2016 deadline imposed under Article 25(9).
The guidelines define ‘knowledge and competence’ as having acquired an ‘appropriate qualification’ and ‘appropriate experience’ – both terms are also defined within the guidelines, albeit that it will be left to the competent authorities of Member States to set and determine the specific ‘appropriate qualifications’ and to publish information on the period of time required to gain ‘appropriate experience’ as well as the maximum period of time that a staff member can work under supervision (guideline 4 imposes a minimum period of six months for the former and a maximum period of 4 years for the latter, although a shorter period can be determined by the competent authority).
The actual guidelines are buried within the final report but can be found in Annex VI (page 32 onwards).
Although the guidelines will, of course, be applicable to MiFID firms, they will also be applicable to UCITS Management Companies and to (external) AIFMs that are undertaking the additional activities permitted under Article 6(3) of the UCITS Directive or Article 6(4) of the AIFMD. The guidelines will also apply to credit institutions when providing investment services (by virtue of Article 1(3)(b)) and to both investment firms and credit institutions when selling or advising clients in relation to structured deposits. Although the latter does not fall within the definition of a ‘financial instrument’ the effect of Article 1(4)(b) is to draw such products within the ‘knowledge and competence’ requirements.
The guidelines come into effect on 3 January 2017 which, of course, is the date that MiFID 2 applies (although note that this latter date may be subject to change – see ‘MiFID 2 Wobble’ in Regulatory Roundup 70).