EU flags waving in front of European Parliament building. Brussels, Belgium

Suitability and the costs of investing will be the targets of a sweeping compliance review by regulators in the European Union (EU).

The European Securities and Markets Authority (ESMA) announced the launch of a review, along with Europe’s national regulators, to assess compliance with new suitability requirements that were adopted under reforms of the updated Markets in Financial Instruments Directive, known as MiFID II.

With MiFID II, regulators have strengthened suitability obligations in several ways.

Among other measures, it requires firms to provide clients “suitability reports” before recommended transactions are consummated. It also requires firms to factor product cost and complexity into suitability assessments and to analyze the costs and benefits of switching from one investment to another.

The review, which will be carried out later this year, will focus on the application of the MiFID II requirements on suitability assessments.

ESMA said that the exercise will allow the regulators to gauge the industry’s progress at adopting the MiFID II requirements, and “whether, and how, the costs of investment products are taken into account by firms when recommending an investment product.”

The review is intended to enhance investor protection and to help ensure that the rules are being consistently implemented throughout the region.