CMVM strengthens financial instruments value-for-money rules

CMVM Circular 001/2025 establishes guidelines to ensure that financial instruments on the national market offer a good cost-benefit ratio (value for money)

This initiative reflects the CMVM’s commitment to protecting investors and promoting good practices in the sector, reinforcing the need for full compliance with the current regulatory framework on product governance. It is in lign with the guidelines of the European Securities and Markets Authority (“ESMA”) on the requirements of the Markets in Financial Instruments Directive (“MiFID II”) regarding product governance.

The circular states that financial intermediaries, as producers and distributors of financial instruments, must adopt measures to ensure that costs and charges do not compromise the expected profitability of the financial instruments. This requires clear and documented grounds for proposing cost structures for the financial instrument that are appropriate to the needs, objectives, and characteristics of the target market.

Recommended best practices include performing scenario analyses at the product design stage, establishing internal limits for financial charges, and comparing similar products available on the market to avoid disproportionate cost deviations.

• Distribution of financial instruments

When distributing financial instruments, intermediaries must understand the financial instruments they are distributing, assess whether the products marketed correspond to the needs, objectives, and characteristics of the identified target market, and ensure that they are only distributed to interested clients.

Inappropriate practices include the distribution of instruments with high initial charges to short-term investors or the marketing of instruments whose profitability depends exclusively on automatic early repayments, without proper consideration of the impact on clients.

• Recommendations for management companies

The circular reiterates that while management companies are not subject to the approval obligations for producing and distributing financial instruments established in the Securities Code, they must adopt equivalent product governance procedures to bolster investor protection and ensure transparency in offers of financial products.

Financial intermediaries must therefore reassess their practices and adjust their internal policies in the light of these guidelines, mitigating regulatory risks and aligning themselves with best practices in the sector.

•  Importance of compliance

Compliance with the CMVM guidelines is crucial for capital market participants, ensuring investor protection and bolstering the credibility and sustainability of financial transactions.