Ireland: MiFID II: ESMA Clears a Path for a Simple Form of Identified Target Market for UCITS

Following a set of draft guidelines issued in October 2016 as part of a public consultation, ESMA has now issued final guidelines on MiFID II product governance (the "PG Guidelines") available here.

This update considers specifically how this may impact sponsors and distributors of UCITS. For these purposes, the focus is on UCITS other than structured UCITS (i.e. "Non-Complex UCITS").

Identified Target Market

ESMA outlines five factors for product manufacturers to consider in assessing the Identified Target Market ("ITM") for a particular investment product, as follows:

  1. Type of client;
  2. Knowledge and experience;
  3. Financial situation and ability to bear loss;
  4. Risk tolerance and risk compatibility; and
  5. Client objectives.

There were six factors in the draft guidelines – the category Client Needs has been dropped.

The PG Guidelines also state that the ITM identification should consider the characteristics of the product including its complexity (including costs and charges structure), risk-reward profile or liquidity or its innovative character.

In addition, consideration should be given to (i) identifying any groups of investors who should not invest (i.e. the negative target market); and (ii) the appropriate distribution channel, to determine what is the optimal distribution channel for the product in light of the analysis on the target market.

The criteria above and how they should apply to UCITS are considered further in the Appendix.

UCITS as Simple Products and Proportionality

A new section has been added to the PG Guidelines acknowledging that simple, more common products may identify the target market with less detail. It is also suggested that a generic target market could apply consistently across a range of products of one type with sufficiently comparable features.

The PG Guidelines also indicate, as an example, that shares in Non-Complex UCITS may be suitable for distribution in mass retail markets and may have a widely defined target market that includes both retail and professional clients (based on MiFID categorisations). It follows that the product governance rules as they relate to Non-Complex UCITS can be applied in a proportionate manner and are therefore "relatively simple".

Collaboration on Identification of the Target Market

A new section has been added to the PG Guidelines on the identification of the target market by the distributor. The relevant extract is as follows:

"Usually, the target market assessment of the distributor will occur after the manufacturer has communicated its target market to him. However, it is possible that manufacturer and distributor could define both the manufacturer's target market and the distributor's target market, including any review and refinement process, at the same time. This could, for example, occur where the manufacturer and the distributor jointly develop a common target market standard for the products they usually exchange... A manufacturer has still to take reasonable steps to ensure that products are distributed to the identified target market and a distributor has to ensure that products are offered or recommended only when this is in the interest of clients. "

This is helpful from a practical perspective for product manufacturers and distributors who wish to work collaboratively on the process to formulate the ITM, jointly developing an understanding of both the investment products and the investors' needs.

Non-Complex UCITS Considered: A Case Study

The PG Guidelines include a new case study indicating how the product governance requirements should be applied in respect of Non-Complex UCITS. The Appendix summarises the case study details as they relate to the ITM and distribution channel criteria.


The PG Guidelines clearly characterise Non-Complex UCITS as capable of being simple products and thus acceptable for the mass retail market without a thorough assessment of ITM. Accordingly, the ITM for most Non-Complex UCITS will be capable of being quite widely framed, on the basis of generic specifications.

Further Information

We are engaged in a range of projects for our clients considering the impact of MiFID II on Irish investment funds. Should you have any questions relating to MiFID II from a funds perspective or would like to discuss the above, please contact your usual Maples and Calder contact in the Irish Funds Group.


Identified Target Market Criteria - Summary of UCITS Case Study

Identified Target Market Criteria Details Case study – ESMA's suggestion of how this might be applied to UCITS (other than structured UCITS)
Type of client This can be based on the MiFID categories of retail, professional and eligible counterparty and may also include others such as high net worth individuals. Given the nature of non-complex UCITS funds: retail, professional clients and eligible counterparties.
Knowledge and experience What does the product manufacturer expect of an investor in terms of their understanding of the product? Do they require the investor to have a minimum amount of market experience, for example? Clients with basic capital markets knowledge or experience (about funds' and bonds' characteristics and risks).
Financial situation and ability to bear loss Will the product manufacturer need to seek additional payments (for example, on a CFD margin call)? Will the appetite for loss need to be ability to incur total loss, for example? Or minor losses? Clients that can bear a [x] % capital loss (with the firm specifying the percentage figure based on the characteristics of the product).
Risk tolerance and risk compatibility Details of the general attitude that target clients should have in relation to the investment risk. Due to the volatility of the bond market, the product has an [x] risk & reward profile [based on the SRRI in the UCITS KIID] and is therefore compatible with clients need to have a low to medium* risk tolerance. They should be willing to accept price fluctuations in exchange for the opportunity of possible higher returns.
*In line with paragraph 20 of the guidelines, firms should clearly define concepts and terminology used.
Client objectives Any particular client objectives, for example, for liquidity or for retirement. Depending on the duration of the product, the UCITS may be suitable for clients who seek capital growth and have a medium-term investment horizon (at least 3 years).*
*The firm should quantify the investment horizon based on the specific duration of the product.
Client needs Any particular client needs. For example, country registrations, tax treatment, ESG specifications. N/A – omitted from the final version of the PG Guidelines.
The negative target market Any groups of investors who should not invest. This product is deemed incompatible for clients which (i) require full capital protection and / or seeking on-demand full repayment of the amounts invested; or (ii) are fully risk averse/have no risk tolerance.
Distribution channel What is the optimal distribution channel for the product in light of the analysis on the target market? Eligible for all distribution channels (e.g. investment advice, portfolio management, non-advised sales and pure execution services).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Peter Stapleton
Stephen Carty
Ian Conlon
Emma Conaty
Pádraig Brosnan
In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.