The European Securities and Markets Authority (ESMA) published final guidance on Friday on so-called “product governance” requirements designed to bolster investor protection by ensuring that investment manufacturers and distributors act in clients’ best interests from the time a financial product is first developed.

The ESMA report notes that the financial crisis revealed that business conduct rules alone “may be insufficient to ensure that firms fulfill their duty of acting in the best interests of their clients.” As a result, regulators introduced product governance obligations to bolster that duty by “requiring firms to take responsibility, from the beginning, that products and the related services are offered in the interest of clients.”

The requirements cover firms that manufacture and distribute financial instruments and structured deposits and deal with issues that are specific to manufacturers, or distributors, as well as issues that are common to both types of firm.

Under the new requirements, manufacturers of financial products must specify, “as part of the product approval process, a target market of end clients for whose needs, characteristics and objectives the product is intended as well as a distribution strategy which is consistent with the identified target market.”

Manufacturers should share this information with distributors, which are “required to understand the features of the investment products they offer or recommend and, using the information obtained from manufacturers and the information on their own clients, identify a target market of clients to whom products and services are intended to be provided,” the report states.

ESMA issued a consultation paper on the issue in October and it has modified the guidance in the final version, based on the feedback it received. In particular, the regulators indicate that they modified the guidelines on the issue of portfolio diversification and that they aim to make compliance easier by providing additional practical examples.

“The new requirements aim to avoid and reduce from an early stage any potential risks of failure to comply with investor protection rules,” the ESMA report states.