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

European securities regulators are launching a review of the investment industry’s compliance with new governance rules for financial products.

The European Securities and Markets Authority (ESMA) announced that, along with the various national regulators, it is undertaking a common supervisory action on the application of new requirements for financial products that were adopted as part of recent reforms, known as MiFID II.

Those rules, which took effect in 2018, introduced a variety of requirements designed to bolster investor protection by ensuring that firms act in clients’ best interests when developing and distributing financial products.

The review, which will take place this year, will allow the regulators to assess how product manufacturers are ensuring that products’ costs are aligned with the needs of their target markets and do not undermine their return expectations.

It will also enable regulators to examine how manufacturers and distributors review the target market and distribution strategy for particular investment products, and to look at the information that firms exchange in this process.

ESMA said the review will give the regulators an opportunity to “assess the progress made by manufacturers and distributors of financial products in the application of these key requirements.”

Ultimately, it said that the initiative will enhance investor protection and ensure that the rules are being applied consistently across the EU, which will contribute to “ESMA’s mandate on building a common supervisory culture.”