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MiFID II - Product intervention

The revision of MiFID I leads to important changes in rules and regulations with regard to investor protection. The investor protection is enhanced due to stricter and new rules of conduct under MiFID II.

Under MiFID II, the AFM is attributed with product intervention powers. With these powers, the AFM can ban or restrict the marketing, distribution or sale of certain products or products with certain characteristics. These powers apply to financial instruments and structured deposits. In addition, the AFM also has the power to ban or restrict a specific financial activity or practice.

The AFM can use these powers only under specific circumstances. The AFM can use these powers when a financial instrument, structured deposit or activity or practice gives rise to significant investor protection concerns. The AFM can also use these powers when the orderly functioning and integrity of financial markets or commodity markets or to the stability of whole or part of the financial system within at least one Member State is threatened. Finally, the AFM can use these powers when a derivative has a detrimental effect on the price formation mechanism on the underlying market.

Under MiFIR aconditions are set out for the AFM to use the product intervention powers. The AFM can only use the product intervention powers when the following conditions are fulfilled:

  • existing regulatory requirements do not address the risks sufficiently
  • the issue would not be better addressed by improved supervision or enforcement of existing requirements, and
  • the action is proportionate and takes into account the nature of the risks identified, the level of sophistication of the investors or participants concerned, and the likely effect of the action on investor and market participants.

ESMA and EBA are attributed with comparable powers. They can also use these powers only in specific circumstances and when specific conditions are fulfilled. An important condition is that the national competent authority has not taken any effective measures to address the risks.

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