An investment firm that manufactures financial instruments to be sold to clients must have a process for the development, approval and revision of investment products. In this process, the target market of end clients (target group) must be identified for every financial instrument. The financial instrument must meet the needs, characteristics and objectives of the target group. This is tested by inter alia an assessment of the risk/return profile of the product. In addition, it must be ensured that the financial instrument meets the needs, characteristics and objectives of the target group.
In addition, the investment firm must ensure that all relevant risks for the target group are evaluated. To this end, the investment firm must perform scenario analyses. The cost structure must also be assessed. Finally, the manufacturer must ensure that the intended distribution strategy is consistent with the target group. .
Before the investment firm markets the product, it must check whether the financial instrument poses a threat for the orderly functioning or the stability of the financial markets.
Investment firms have to regularly review the financial instruments, taking into account any event that could materially affect the potential risks to the target group. In addition, the investment firm must assess at least whether the financial instrument remains consistent with the needs of the target group sufficiently and whether the intended distribution strategy remains appropriate.