The above-mentioned Directive will enter into force on the 22^nd of November 2022. Directive DI87-01(A), which amends Directive DI87-01, concerns the integration of sustainability factors into firms' product governance obligations. In summary, CIFs should consider the following:

• In general, investment firms manufacturing and distributing financial instruments will now be required to consider any sustainability factors (defined below) in the product approval process of each financial instrument and in the other product governance and oversight arrangements for each financial instrument that is intended to be distributed to clients seeking financial instruments with a sustainability-related profile.
• Investment firms manufacturing and distributing financial instruments should specify to which group of clients with sustainability related objectives, a financial instrument is supposed to be distributed. A general statement that a particular financial instrument has a sustainability-related profile should not be sufficient.
• To ensure that financial instruments with sustainability factors remain easily available also for clients that do not have sustainability preferences, investment firms should not be required to identify groups of clients with whose needs, characteristics and objectives the financial instrument with sustainability factors is not compatible (i.e., Firms are not required to perform a negative target market assessment in relation to any sustainability-related objectives identified for a product. I.e., where the product considers sustainability factors, negative market assessment is not needed in relation to these objectives.)
• Any sustainability factors of a financial instrument should be presented in a transparent manner to enable the distributor to provide the relevant information to its clients or potential clients.
• As per ESMA relevant Consultation paper, is aware that, when determining the potential target market, a manufacturer may specify sustainability-related objectives a product is compatible with by referring to the sustainability data (e.g. taxonomy alignment, KPIs concerning PAIs) of either i) the issuer of the product, or ii) the product itself (i.e. its underlying assets).

On 8 July 2022, the European Securities and Markets Authority (ESMA) consulted on reviewed guidelines on MiFID II product governance guidelines. ESMA proposed updating the 2017 product governance guidelines following a number of recent regulatory and supervisory developments, including the outcome of the 2021 common supervisory action (CSA) on product governance.

The main proposals are relating to the following:

• the specification of any sustainability-related objectives a product is compatible with
• the practice of identifying a target market per cluster of products instead of per individual product ("clustering approach")
• the determination of a compatible distribution strategy where a distributor considers that a more complex product can be distributed under non-advised sales
• the periodic review of products, including the application of the proportionality principle.

The product governance requirements have demonstrated being one of the most important elements of the MiFID II investor protection framework, as their aim is to ensure that firms act in their clients' best interests during all stages of the investment product's life cycle and to prevent mis-selling.

The consultation will close on 7 October 2022 and ESMA is expected to publish a final report in Q1 2023.

On 20 July 2022, the European Securities and Markets Authority (ESMA) published an article on the development of key retail risk indicators (RRIs) for the EU single market.

The proposed RRIs emphasize risks around:

• inexperience investors
• the use of digital tools by younger investors and
• the spikes in overall trading during periods of market stress.

This development of RRIs is based on the new mandate ESMA recently received in this regard. ESMA is building on existing consumer analysis and indicators from the Trends, Risks and Vulnerabilities Reports to propose a conceptual framework that defines key terms, considers how to measure risks practically and identifies sources of risks to consumers.

ESMA is going to continue refining and developing RRIs to increase its risks monitoring in this area.

On 21 July 2022, the European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) published final Guidelines on common procedures and methodologies for the supervisory review and evaluation process (SREP) for investment firms (IFs).

The base of the Guidelines is the Investment Firms Directive (IFD) and the aim is the harmonisation of the supervisory practices regarding the supervisory review and evaluation process of IFs.

The Guidelines were developed jointly with the EBA, setting out the common process and criteria for the assessment of the main SREP elements, including:

• business model
• governance arrangements and firm-wide controls
• risks to capital and capital adequacy and
• liquidity risk and liquidity adequacy.

Common procedures and methodologies for SREP are specified in the Guidelines, which are proportionate to the different sizes and business models of IFs, as well as the nature, scale and complexity of their activities.

The Guidelines will be translated into the official EU languages and published on the ESMA and EBA websites.

On 22 July 2022, the Financial Action Task Force (FATF) issued a data protection, technology and private sector information sharing report where it sets out the requirements for the jurisdictions to enhance, design and implement information collaboration initiatives among entities in the private sector to detect the criminal finance.

The report provides: (i) case studies that set out how members of the FATF and its Global Network have increased private sector information sharing within the legal requirements of their domestic data protection and privacy (DPP) framework, and (ii) non-binding recommendations to assist countries that are considering increasing private sector information sharing to design and implement such initiatives responsibly and effectively.

On 29 July 2022, the European Securities and Markets Authority (ESMA) published a Call for Evidence on pre-hedging. This paper aims to promote discussion among stakeholders and collect further evidence on the practice of pre-hedging that could help ESMA to develop appropriate guidance. It also depicts the arguments in favour and against such practice, and it requests contributions from stakeholders in order to properly delineate its admissibility in the context of Market Abuse Regulation (MAR) and MiFID/MiFIR.

Market participants can submit their responses by 30 September 2022.

On 1 August 2022, the Financial Conduct Authority (FCA) finalized its Policy Statement 22/10 for the strengthening of its financial promotion rules for high-risk investments and firms approving financial promotions.

The policy sets out final rules including the non-Handbook guidance on approving financial promotions, following the consultation paper CP 22/2.

The key changes, briefly:

1. The classification of high-risk investments: The FCA proposed to rationalize its COBS 4 promotional rules under the terms 'Restricted Mass Market Investments' and 'Non-Mass Market Investments'. Under the proposal CP22/2, Non-Readily Realisable Securities (NRRS) and Peer to Peer (P2P) agreements would be classified as 'Restricted Mass Market Investments'.
2. The consumer journey into high-risk investments: The FCA proposed a package of measures to strengthen the consumer journey by making changes to the following areas: strengthening risk warnings, banning inducements, introducing positive frictions, improving client categorization and stronger appropriateness tests.
3. Strengthening the role of firms approving and communicating financial promotions: The FCA introduced a package of measures to strengthening the role of a section 21 (s21) approver. They are also introducing a rule that firms communicating financial promotions must have the relevant competence and expertise in the product being promoted.

Crypto-assets promotions are currently outside the particular policy statement. The final rules for crypto asset promotions will be published along with relevant legislation which brings crypto assets within the financial promotions' regime.

The rules related to risk warnings for financial promotions of high-risk investments will have effect from 1^st of December 2022. All other rules will have effect from 1^st of February 2023.

FCA further issued a Press Release stating that the FCA has finalized stronger rules to help tackle misleading adverts that encourage investing in high-risk products. These rules are part of the FCA's Strategy to take more assertive and effective measures, aiming to the reduction of consumers losses due to the investment in high-risk products.