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Published]","attribution":{"prepared_by":"ESMA","published_by":"ESMA","published_in":"ESMA Q&A tool","document_type":"qa_answer","legal_nature":"not_legislation","addressees":"not stated in the document","dates":{"published_on":"2020-11-06","question_submitted_on":"2020-11-06","locators":{"published_on":"ESMA Q&A Excel export ESMA_QA_1124, column 'Esma responses', date line","question_submitted_on":"ESMA Q&A Excel export ESMA_QA_1124, column 'Date of submission'"}},"adoption":null}},"provenance":{"official_url":"https://www.esma.europa.eu/publications-data/questions-answers/1124","check":{"result":"matched","checked_at":"2026-10-26","against":"the ESMA publication"},"repo_path":"spaces/mifid-ii/level-3/q-and-a/esma/esma-qa-1124-product-governance.md","body_sha256":"5a65d5fac77e2a325a8bbb9d118dcb54b9add099832d2550bf7177f0daea4eb0"},"units":[],"markdown":"---\ntitle: \"ESMA Q&A 1124 — Q&A — Product governance [Answer Published]\"\nshortTitle: \"ESMA Q&A 1124 — Q&A — Product governance [Answer Published]\"\nanswer_id: ESMA_QA_1124\ntopic: \"Product governance\"\nstatus: \"Answer Published\"\ntype: qa\ninstrument_type: qa\nauthority: ESMA\nbinding: false\nbinding_character: non_binding\nlegal_status: in_force\nregulation: \"MiFID II\"\nmifid_level3: true\nmica_level2: false\nlegal_basis: \"MiFID II\"\ndate: 6 November 2020\nsource_link: https://www.esma.europa.eu/publications-data/questions-answers/1124\nlifecycle: \"Answer Published\"\ntext_version: \"ESMA Q&A register, 6 November 2020\"\nsource_url: \"https://www.esma.europa.eu/publications-data/questions-answers/1124\"\ncheck_status: matched\nverified: true\nlast_checked: 2026-10-26\nchecked_against: \"the ESMA publication\"\nsource:\n  prepared_by: \"ESMA\"\n  published_by: \"ESMA\"\n  published_in: \"ESMA Q&A tool\"\n  evidence:\n    prepared_by: \"ESMA Answer\"\n    locator: \"ESMA Q&A entry ESMA_QA_1124: field 'ESMA Answer', no 'Answer provided by' line\"\ndocument_type: \"qa_answer\"\nlegal_nature: \"not_legislation\"\naddressees: \"not stated in the document\"\ndates:\n  published_on: \"2020-11-06\"\n  question_submitted_on: \"2020-11-06\"\n  locators:\n    published_on: \"ESMA Q&A Excel export ESMA_QA_1124, column 'Esma responses', date line\"\n    question_submitted_on: \"ESMA Q&A Excel export ESMA_QA_1124, column 'Date of submission'\"\nlifecycle_label: \"Answer Published\"\n---\n\n**Answer by ESMA, published in its Q&A tool · not legislation · published 6 Nov 2020 [Answer Published]**\n\n*Answer Published · ESMA Q&A register, 6 November 2020 · Checked against the ESMA publication on 26 Oct 2026 · [Official source](https://www.esma.europa.eu/publications-data/questions-answers/1124)*\n\n| | |\n|---|---|\n| **Full title** | ESMA Q&A 1124 — Q&A — Product governance \\[Answer Published\\] |\n| **Prepared by** | ESMA |\n| **Published by** | ESMA, in the ESMA Q&A tool |\n| **Reference** | ESMA_QA_1124 |\n| **Document type** | Q&A |\n| **Legal nature** | Not legislation |\n| **Addressees** | Not stated in the document |\n| **Dates** | Published 6 November 2020; question submitted 6 November 2020 |\n| **Legal basis** | MiFID II |\n| **Related instruments** | None recorded |\n| **Text on this page** | Word for word — the full text of the ESMA publication |\n\n**Product governance**\n\n### Question\n\nHow should firms manufacturing financial instruments ensure that costs and charges do not undermine the financial instrument's return expectations, as required by Article 9(12)(b) of the MiFID II Delegated Directive?\n\n***\n\n### Answer\n\n\\[ESMA35-43-439 Investor protection Product governance Q&A 3\\]\n\nDuring the product design phase the firm shall undertake a scenario analysis of their financial instruments\\[1\\] and, in this context, simulate product returns taking into account all costs of the instruments (implicit and explicit).\n\nIn order to ensure that charges do not undermine the financial instrument's return expectations firms could, for example, assess the consistency between costs and return of a complex product through the Monte Carlo methods. Alternatively, or additionally, firms could, for example, undertake a scenario analysis to assess whether the costs of the product (implicit and explicit) are inferior to the expected return. For instance, where the product qualifies as a PRIIPs, firms should assess whether the costs (implicit and explicit) do not undermine the product’s expected return in a “moderate” scenario as referred to in Article 3(3) of the PRIIPs RTS. Firms could also assess whether the expected net return is consistent with those expected for similar products available on the market.\n\nThe above list of illustrative examples is not exhaustive and firms could use other methodologies to ensure compliance with Article 9(12)(b) of the MiFID II Delegated Directive. The methodologies adopted to this end should in any case be robust and well documented, with a clear identification of roles and responsibilities in the process.\n\nFinally, manufacturers could calculate the fair value of a product and compare this value with the (expected) price of the product vis-à-vis the end client and assess if the result is consistent with the current practices for similar products available on the market.\n\nManufacturers should also include the typical taxes end-clients would have to pay (e.g. capital gains taxes) when calculating whether the costs and charges could undermine the financial instruments return expectations.\n\n\\[1\\] Article 9(10) of the MiFID II Delegated Directive.\n\n***\n\n**Source:** [ESMA original document](https://www.esma.europa.eu/publications-data/questions-answers/1124)\n"}