Dear CEO Letter: CBI Review of Structured MiFID Retail Products


As highlighted in our previous publicationAchieving fair outcomes for consumers and investors and putting their interests at the heart of financial services is an evergreen priority for the Central Bank of Ireland (CBI).

The CBI now has written to MiFID investment firmswhich presents its findings from a series of targeted reviews of retail structured products (SRPs) and his expectations of companies when implementing relevant MiFID II requirements. Both the CBI’s key findings from its SRP reviews and its expectations for companies that manufacture, distribute or otherwise provide SRPs are listed below.

insights and observations

The CBI identifies a number of bad practices and weaknesses in companies’ SRP arrangements and controls that increase risks for investors and include instances where companies have failed to: Identify a sufficiently granular target market

  • adequately account for the use of highly complex functionality in SRPs that are manufactured and distributed to retail customers, which may be difficult for those customers to understand
  • Present fair and balanced past performance information (backtesting) supported by appropriate context and presentation
  • Display capital risk warnings prominently for products where the customer’s capital is at risk
  • to ensure a consistent level of clarity and completeness in disclosures
  • adequately disclose the risk and potential impact of a reorganization to clients prior to the sale


The CBI expects firms to adhere to high investor protection standards and act in the best interests of their clients at all times. The CBI believes that the firms’ SRP arrangements and controls are keeping pace with the increasing complexity in the retail investment market and the increased likelihood that retail clients may not like the product or the way in which the return is generated fully understand and misinterpret the level of capital protection and the risk associated with their investment. Companies should be proactive and meticulous to ensure they are conducting business in a manner that protects customers when manufacturing and distributing SRPs. The CBI expects corporate governance processes to include at least the following:

  • Conducting an appropriate assessment of the target market, taking into account the nature and complexity of the product. The more complex the SRP, the more comprehensive and granular the target market assessment needs to be.
  • When complex features are proposed, companies need to consider whether they are appropriate for the end user market and whether they are likely to be understood by the target market. Permission to use such features should be subject to robust control and challenge, which should be clearly documented by the company. In particular, the CBI highlights a “decrement index” as an example of a complex SRP feature and sets out its expectation that the use of such complex features should be subject to robust governance and challenge to ensure they are justified and in the best interests of clients are .
  • When presenting backtesting information, firms must ensure that it is fair and balanced, supported by clear presentation and context and does not reduce the potential likelihood of a loss of capital. Care must be taken not to paint an overly optimistic or unbalanced picture of the likely outcomes for investors.
  • With complex products like SRPs, companies must take extra care when designing and presenting marketing information so that individual statements, tone and overall content, when read together, remain fair, clear and not misleading.
  • In addition to providing clients with fair, clear and not misleading information, firms must ensure that information on financial instruments includes appropriate warnings about the risks involved in investing in those instruments. The CBI considers transparency and effective disclosures to be key in enabling investors to make informed investment decisions. This is especially the case when the product or service is complex or when there are many similar types of products on the market.
  • Firms must ensure that capital risk warnings are prominently displayed in all marketing communications and advertisements.
  • Businesses must ensure that the risk that a product may be restructured is disclosed to customers prior to sale.

Measures required

The CBI expects that companies that manufacture, distribute or otherwise provide SRPs should review their SRP arrangements and controls in light of the expectations outlined above and make the necessary changes. In particular, companies are expected to:

  • Present the letter from the dear CEO as a formal agenda item for discussion at the next company board meeting and for recording the discussion in the minutes of the meeting.
  • Conduct a full review of current SRP arrangements and controls against the findings and expectations described above to include SRP design, manufacture and distribution, processes, procedures, training materials, templates and disclosures.
  • Document the review, including among other things, details of actions taken or planned to address the issues raised. This review should be completed by Q3 2022 and an action plan to be discussed and approved by the Company’s Board of Directors. The action plan must include clear and reasonable deadlines for implementing mitigation actions with proper governance and approval.

In addition, the CBI emphasizes that the expectations set out in the dear CEO’s letter are not exhaustive. The CBI expects firms to continuously assess the effectiveness of all arrangements and controls relating to the manufacture and distribution of SRPs to ensure they meet the highest standards of investor protection and deliver fair results that serve the interests of their clients in put in the foreground.

Next Steps

Firms that manufacture, distribute or otherwise provide SRPs must incorporate the CBI expectations outlined above into their compliance risk frameworks and adhere to the required controls. The CBI expectations outlined above should also inform the SRP arrangements and controls of companies beginning to manufacture or distribute SRPs in the future.

In addition to the CBI’s focus on delivering fair outcomes for consumers and investors, there is a strong focus on protecting retail investors at the European level with European regulators (ESAs) has recently been pointed out that retail investors are of particular concern and that national competent authorities should monitor the risks to retail investors, as highlighted in our recent report article. The ESA’s did that recently too recommended material changes to packaged retail investment products and insurance-based investment products (PRIIPs) regulation with the aim of improving the presentation of consumer information and simplifying product comparisons. The European Securities and Markets Authority (ESMA) has also made a number of recommendations to the European Commission to improve investor protection under MiFID II, with a focus on disclosures, digital disclosures and digital tools and channels.

Regulated entities should incorporate both the CBI’s and ESA’s focus on protecting retail investors into their horizon scanning and compliance risk frameworks. To support regulated entities in this regard, we will publish further insights on both ESA recommended changes to the PRIIPs Regulation and ESMA recommendations to enhance investor protection under MiFID II, along with further updates on the matter as soon as possible they surrender.


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