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29 September 2015

ERA interviews Markus Lange (KPMG Law, Frankfurt) on product governance under MiFID II

There will be a much stronger need for manufacturers and distributors to interact and mutually communicate…


Foto: Markus Lange.

Markus Lange


In advance of the conference “MiFID II: Latest Developments for Practice”, ERA has interviewed Markus Lange on product governance under MiFID II. We asked him the following three questions:


Mr Lange, please explain in few sentences the new product governance requirements introduced by MiFID II


Markus Lange: The new product governance regime addresses certain organizational aspects of investment firms which had not been specifically regulated before. So far, MiFID rules mainly focused on conduct issues relating to the distribution of investment products and the point of sale. Under MiFID II, new obligations will apply to product manufacturers, and corresponding additional obligations will be imposed on distributors. The rationale behind this revised regulatory approach and extended reach of relevant requirements is to avoid and reduce potential risks of failure to comply with investor protection rules from an early stage of the product and sales lifecycle.


What is the impact of the new rules on product manufacturers?


Markus Lange: Product manufacturers will be required to comply with a certain set of new rules, which are meant to ensure that clients’ interests are properly taken into account, and effectively preserved, when designing, developing or issuing investment products. These new rules include, inter alia, a sufficiently granular identification of a target market for the relevant product, the undertaking of a scenario analysis for each product assessing the risks of poor outcomes for clients, and the regular review of financial instruments manufactured. Thus, investment firms need to deal with operational impacts by implementing relevant processes, and may also face strategic/business impacts when being caused to consider their product offering and services proposition.


How will the relationship between manufacturers and distributors change?


Markus Lange: There will be a much stronger need for manufacturers and distributors to interact and mutually communicate, as the new rules require an ongoing and detailed exchange of information, and to some extent the prior conclusion of a distribution agreement. Market participants are generally still at an early stage of sounding and investigating how this could be practiced in a both compliant and efficient way. In any event, it appears that the rules will need to be applied to manufacturers and distributors in an adequate and customized manner, e.g. when considering the granularity and level of detail for the respective target market to be identified (as distributors are closer to the investors than manufacturers can be).


Markus Lange will be one of the speakers at our conference “MiFID II: Latest Developments for Practice” which will take place on 22 and 23 October at ERA in Trier. He will speak on the topic of product governance under MiFID II.


Find more information about the conference here.

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