Updated 22/10/2024
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Initial Legal Act
Amendments
ESMA European Securities and Markets Authority Decision 2018/796 (32018X0601(02))
Art. 19
ESMA European Securities and Markets Authority Decision 2018/795 (32018X0601(01))
Art. 19
ESMA European Securities and Markets Authority Decision 2019/155 (32019X0131(01))
Art. 19
ESMA European Securities and Markets Authority Decision 2019/509 (32019X0327(01))
Art. 19
ESMA European Securities and Markets Authority Decision 2019/679 (32019X0430(01))
Art. 19
ESMA European Securities and Markets Authority Decision 2018/1636 (32018X1031(01))
Art. 19
ESMA European Securities and Markets Authority Decision 2018/2064 (32018X1227(01))
Art. 19
ESMA European Securities and Markets Authority Decision 2018/1466 (32018X1001(01))
Art. 19
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Article 19

Article 19 - Criteria and factors for the purposes of ESMA temporary product intervention powers (Article 40(2) of Regulation (EU) No 600/2014)

Article 19

Criteria and factors for the purposes of ESMA temporary product intervention powers

(Article 40(2) of Regulation (EU) No 600/2014)

1.   For the purposes of Article 40(2)(a) of Regulation (EU) No 600/2014, ESMA shall assess the relevance of all factors and criteria listed in paragraph 2, and take into consideration all relevant factors and criteria in determining when the marketing, distribution or sale of certain financial instruments or financial instruments with certain specified features or a type of financial activity or practice creates a significant investor protection concern or a threat to the orderly functioning and integrity of financial markets or commodity markets or to the stability of the whole or part of the financial system of the Union.

For the purposes of the first subparagraph, ESMA may determine the existence of a significant investor protection concern or a threat to the orderly functioning and integrity of financial markets or commodity markets or to the stability of the whole or part of the financial system of the Union based on one or more of those factors and criteria.

2.   The factors and criteria to be assessed by ESMA to determine whether there is a significant investor protection concern or a threat to the orderly functioning and integrity of financial markets or commodity markets or to the stability of the whole or part of the financial system of the Union shall be the following:

(a)

the degree of complexity of the financial instrument or type of financial activity or practice in relation to the type of clients, as assessed in accordance with point (c), involved in the financial activity or financial practice, or to whom the financial instrument is marketed or sold, taking into account, in particular:

—

the type of the underlying or reference assets and the degree of transparency of the underlying or reference assets;

—

the degree of transparency of costs and charges associated with the financial instrument, financial activity or financial practice and, in particular, the lack of transparency resulting from multiple layers of costs and charges;

—

the complexity of the performance calculation, taking into account in particular whether the return is dependent on the performance of one or more underlying or reference assets which are in turn affected by other factors or whether the return depends not only on the values of the underlying or reference assets at the initial and maturity dates, but also on the values during the lifetime of the product;

—

the nature and scale of any risks;

—

whether the instrument or service is bundled with other products or services; or

—

the complexity of any terms and conditions;

(b)

the size of potential detrimental consequences, considering in particular:

—

the notional value of the financial instrument;

—

the number of clients, investors or market participants involved;

—

the relative share of the product in investors' portfolios;

—

the probability, scale and nature of any detriment, including the amount of loss potentially suffered;

—

the anticipated duration of the detrimental consequences;

—

the volume of the issuance;

—

the number of intermediaries involved;

—

the growth of the market or sales; or

—

the average amount invested by each client in the financial instrument;

(c)

the type of clients involved in a financial activity or financial practice or to whom a financial instrument is marketed or sold, taking into account, in particular:

—

whether the client is a retail client, a professional client or an eligible counterparty;

—

clients' skills and abilities, including the level of education, experience with similar financial instruments or selling practices;

—

clients' economic situation, including their income and wealth;

—

clients' core financial objectives, including pension saving and home ownership financing; or

—

whether the instrument or service is being sold to clients outside the intended target market or whether the target market has not been adequately identified;

(d)

the degree of transparency of the financial instrument or type of financial activity or practice, taking into account, in particular:

—

the type and transparency of the underlying;

—

any hidden costs and charges;

—

the use of techniques drawing clients' attention but not necessarily reflecting the suitability or overall quality of the financial instrument, financial activity or financial practice;

—

the nature of risks and transparency of risks; or

—

the use of product names or terminology or other information that imply a greater level of security or return than those which are actually possible or likely, or which imply product features that do not exist;

(e)

the particular features or components of the financial instrument, financial activity or financial practice, including any embedded leverage, taking into account, in particular:

—

the leverage inherent in the product;

—

the leverage due to financing;

—

the features of securities financing transactions; or

—

the fact that the value of any underlying is no longer available or reliable;

(f)

the existence and degree of disparity between the expected return or profit for investors and the risk of loss in relation to the financial instrument, financial activity or financial practice, taking into account, in particular:

—

the structuring costs of such financial instrument, activity or practice and other costs;

—

the disparity in relation to the issuer's risk retained by the issuer; or

—

the risk/return profile;

(g)

the ease and cost with which investors are able to sell the relevant financial instrument or switch to another financial instrument, taking into account, in particular:

—

the bid/ask spread;

—

the frequency of trading availability;

—

the issuance size and size of the secondary market;

—

the presence or absence of liquidity providers or secondary market makers;

—

the features of the trading system; or

—

any other barriers to exit;

(h)

the pricing and associated costs of the financial instrument, financial activity or financial practice, taking into account, in particular:

—

the use of hidden or secondary charges; or

—

charges that do not reflect the level of service provided;

(i)

the degree of innovation of a financial instrument, a financial activity or a financial practice, taking into account, in particular:

—

the degree of innovation related to the structure of the financial instrument, financial activity or financial practice, including embedding and triggering;

—

the degree of innovation relating to the distribution model or length of the intermediation chain;

—

the extent of innovation diffusion, including whether the financial instrument, financial activity or financial practice is innovative for particular categories of clients;

—

innovation involving leverage;

—

the lack of transparency of the underlying; or

—

the past experience of the market with similar financial instruments or selling practices;

(j)

the selling practices associated with the financial instrument, taking into account, in particular:

—

the communication and distribution channels used;

—

the information, marketing or other promotional material associated with the investment;

—

the assumed investment purposes; or

—

whether the decision to buy is secondary or tertiary following an earlier purchase;

(k)

the financial and business situation of the issuer of a financial instrument, taking into account, in particular:

—

the financial situation of the issuer or any guarantor; or

—

the transparency of business situation of the issuer or guarantor;

(l)

whether there is insufficient, or unreliable, information about a financial instrument, provided either by the manufacturer or the distributors, to enable market participants at whom it is targeted to make an informed decision, taking into account the nature and type of the financial instrument;

(m)

whether the financial instrument, financial activity or financial practice poses a high risk to the performance of transactions entered into by participants or investors in the relevant market;

(n)

whether the financial activity or financial practice would significantly compromise the integrity of the price formation process in the market concerned, such that the price or value of the financial instrument in question is no longer determined according to legitimate market forces of supply and demand, or such that market participants are no longer able to rely on the prices formed in that market or in the volumes of trading as a basis for their investment decisions;

(o)

whether the characteristics of a financial instrument make it particularly susceptible to being used for the purposes of financial crime and, in particular whether those characteristics could potentially encourage the use of the financial instrument for:

—

any fraud or dishonesty;

—

misconduct in, or misuse of information in relation to a financial market;

—

handling the proceeds of crime;

—

the financing of terrorism; or

—

facilitating money laundering;

(p)

whether the financial activity or financial practice poses a particularly high risk to the resilience or smooth operation of markets and their infrastructure;

(q)

whether a financial instrument, financial activity or financial practice could lead to a significant and artificial disparity between prices of a derivative and those in the underlying market;

(r)

whether the financial instrument, financial activity or financial practice poses a high risk of disruption to financial institutions deemed to be important to the financial system of the Union;

(s)

the relevance of the distribution of the financial instrument as a funding source for the issuer;

(t)

whether a financial instrument, financial activity or financial practice poses particular risks to the market or payment systems infrastructure, including trading, clearing and settlement systems; or

(u)

whether a financial instrument, financial activity or financial practice may threaten investors' confidence in the financial system.