MiFID II Target Market Assessment Template (Product Governance)

Target Market Assessment: [Product name]

Product governance record that an investment firm keeps when it manufactures or distributes a financial instrument: product description, the identified target market in the five categories used in EU practice (client type, knowledge and experience, financial situation with focus on ability to bear losses, risk tolerance and compatibility of the risk and reward profile, objectives and needs including sustainability-related objectives), the negative target market, distribution strategy, scenario analysis, charges review, conflicts, approval, distributor feedback and periodic review. Based on MiFID II (Directive 2014/65/EU) Articles 16(3), 16a and 24(2), as amended by Directive (EU) 2021/338, Commission Delegated Directive (EU) 2017/593 Articles 9 and 10, as amended by Delegated Directive (EU) 2021/1269 (sustainability factors, applied from 2022-11-22), and the ESMA Guidelines on MiFID II product governance requirements (ESMA35-43-3448, applied from 2023-10-03). Replace every [bracketed] value and every row marked Example. This is a document format, not financial, investment or legal advice. Obtain the directive, the delegated act, national transposing rules and the guidelines for the normative text.

Document control

Example: TMA-2026-007 for the Kestrel Bay Euro Equity Participation Note 2031 (fictional), co-manufactured by Kestrel Bay Capital Europe (fictional MiFID investment firm, product design) and Fernhollow Bank (fictional EU credit institution, issuer). One target market is set for both co-manufacturers.

Approvals

Revision history

Contents

1. Scope and firm role
2. Product description
3. Target market in five categories
4. Negative target market
5. Distribution strategy
6. Scenario analysis
7. Charges and value review
8. Conflicts of interest and market integrity
9. Information to distributors
10. Distributor feedback and sales monitoring
11. Periodic review and trigger events
12. Governance and traceability
13. Glossary and references
14. Standard and licence note

1. Scope and firm role

Explain whether the firm creates, develops, issues or designs the instrument (manufacturer, Delegated Directive 2017/593 Article 9(1)) or decides to offer or recommend it (distributor, Article 10(1)). Where several firms work together, record the written agreement that sets out their responsibilities (Article 9(8)) and which firm holds the direct client relationship (Article 10(10)).

Example: Kestrel Bay Capital Europe designed the payoff, the target market and the distribution plan; Fernhollow Bank issues the notes, hedges the payoff and runs the secondary market. The co-manufacturing agreement CMA-2026-03 assigns target market and review tasks to Kestrel Bay Capital Europe and pricing, hedging and issuer disclosures to Fernhollow Bank. Both firms also distribute the note to their own clients and act as distributors under Article 10 for that activity.

2. Product description

Example payoff of the note, per EUR 1,000 nominal, with $I_0$ the index level at the strike date and $I_T$ the level at the final valuation date:

Other Example features: EUR denomination of 1,000, issue 2026-12-15, maturity 2031-12-15 (five years), underlying a European large-cap equity price index [index name], 90% capital floor at maturity only, unsecured senior preferred debt of Fernhollow Bank and subject to bail-in under the EU bank resolution framework, daily secondary bid by the issuer under normal market conditions with a target spread of 1%, PRIIPs summary risk indicator 3 on the 1 to 7 scale, sustainability factors not considered. The note embeds a derivative and is therefore treated as complex.

3. Target market in five categories

For each category describe the clients for whose needs, characteristics and objectives the product is compatible (Delegated Directive 2017/593 Article 9(9), as amended), and the reasoning from the product features in section 2.

Example for the note:

Map the categories to the client profile used by distributors, so that an adviser can test a client against the target market. For example, TM-3 maps to the capacity for loss in the Client Risk Profile (finance/client-risk-profile) section 5.2 and TM-5 to sections 3 and 6.

4. Negative target market

Name the client groups to whom the product must not be distributed, and explain why. Distributors may sell to clients outside the positive target market in justified cases, such as diversification or hedging in a portfolio context under a suitability assessment, but sales into the negative target market should be rare, justified and reported.

5. Distribution strategy

Example: portfolio management, yes, for Balanced or higher mandates with a 5% position limit per structured note; investment advice, yes, for clients matching TM-1 to TM-5; non-advised with appropriateness, yes, for informed investors only; execution-only, no (complex product); online advertising aimed at the general public, no. Kestrel Bay Capital Europe's own Cautious model (Model C) does not use the note, because the model excludes structured products by design. Mandates for clients with no knowledge or experience of structured products, such as the sustainable variant of Model B used in the MiFID Suitability Report (compliance/mifid-suitability-report), also exclude the note, because those clients fall outside TM-2.

6. Scenario analysis

Show outcomes in money and as an annualised return so that clients and distributors can compare them with alternatives. State the assumptions and that scenarios are illustrations, not forecasts. The annualised return over $T$ years is:

Article 9(10) adverse conditions (Example assessment):

7. Charges and value review

The distribution fee is a third-party payment. Kestrel Bay Capital Europe does not keep it in portfolio management (MiFID II Article 24(8)); in non-independent advice it is disclosed and must meet the inducement conditions of Article 24(9). Record the treatment in the Conflicts of Interest Register (compliance/conflicts-of-interest-register).

Example value check: a five-year term deposit at an illustrative 2.0% a year would return EUR 1,104.08 per EUR 1,000 (1,000 x 1.02^5), with deposit protection up to the statutory limit. The note beats the deposit only if the index rises by more than about 14.9% over five years, because 1 + 0.70 x 0.149 = 1.104. The committee accepted the value case for clients who seek equity participation with a partial floor, and required the comparison to be shown in adviser training material.

8. Conflicts of interest and market integrity

Example: Fernhollow Bank hedges the index exposure with external counterparties and holds no opposite position; no sales targets apply to advisers; issue size is small relative to index liquidity. Conflict COI-021 (group issuer, group distributor) is recorded with controls: independent pricing check by Kestrel Bay Capital Europe's valuation function and disclosure to clients.

9. Information to distributors

Many firms exchange target market data through an industry template such as the European MiFID Template maintained by FinDatEx; record the version used and the mapping of its fields to sections 3 and 4.

10. Distributor feedback and sales monitoring

Example Q1 2027 report: sales EUR 18,400,000, of which 96.2% through advice and 3.8% through portfolio management; EUR 410,000 (2.2%) sold outside the positive target market for diversification within advised portfolios, each with a suitability justification; no sales into the negative target market; no complaints. Check: 96.2% + 3.8% = 100%; 410,000 / 18,400,000 = 2.2%.

11. Periodic review and trigger events

Possible actions under Article 9(15) include informing clients or distributors, changing the approval process, stopping further issuance, changing the product terms, reconsidering the sales channels, contacting or terminating distributors and informing the competent authority.

12. Governance and traceability

The compliance function reports to the management body on the products manufactured or distributed, including the distribution strategy, and these reports are available to the competent authority on request.

Jurisdiction notes, as of 2026-10 (check local law):

13. Glossary and references

References (obtain the official texts):

• Directive 2014/65/EU (MiFID II), Articles 16(3), 16a, 24(2), 24(8), 24(9) and 25(4), as amended by Directive (EU) 2021/338.
• Commission Delegated Directive (EU) 2017/593, Articles 9 and 10, as amended by Delegated Directive (EU) 2021/1269.
• ESMA Guidelines on MiFID II product governance requirements, ESMA35-43-3448.
• Regulation (EU) No 1286/2014 (PRIIPs) and Commission Delegated Regulation (EU) 2017/653, for the key information document and the summary risk indicator.
• FinDatEx European MiFID Template, cited by name only.
• FCA Handbook PROD and PRIN 2A, cited by reference only.

Standard and licence note

Based on Directive 2014/65/EU (MiFID II), Directive (EU) 2021/338, Commission Delegated Directive (EU) 2017/593 and Delegated Directive (EU) 2021/1269 as published on EUR-Lex (reuse authorised with acknowledgement under Commission Decision 2011/833/EU), and on the category structure of the ESMA Guidelines on MiFID II product governance requirements, ESMA35-43-3448 (source: ESMA, esma.europa.eu; this template is not endorsed by ESMA, and the guidelines are free on the ESMA website). FCA Handbook modules and the FinDatEx template are cited by name only. All text is original; no legislative or guideline text is reproduced. The product, Kestrel Bay Capital Europe, Fernhollow Bank and all figures are fictional. Check the current consolidated texts, national transposition and any adopted Retail Investment Strategy changes before use. This is a document format, not financial, investment or legal advice. Template licence: MIT.