Key takeaways

• When launching fund products, European investment firms will need to establish product governance rules. In a nutshell, this means that they will have to define their target investor base to ensure that it is consistent with their marketing strategy, the risk profile of the funds they are marketing to that particular group, and the expected performance of the fund.
• European fund managers themselves are generally not subject to the new rules unless required by the national laws or regulatory authority of their home member state. This is the case, for example, in France and the UK.
• However, fund managers should anticipate that they will become indirectly subject to the rules whenever they engage EEA placement agents or investment advisors to market funds in Europe. To meet their own compliance obligations, those agents and advisers will have no choice but to impose these compliance obligations on the fund managers they represent.
• On the positive side, MiFID II introduces a passport regime for non-EU investment firms, such as investment advisors and portfolio managers, that are based in countries recognized as providing equivalent supervision. This will allow those firms to provide their services to European clients on a cross-border basis without the need to comply with individual member state laws or to establish separate subsidiaries in those member states.