This framework applies to the provision of:
- any type of investment advice (whether independent or not)
- portfolio management.
Such firms having to provide suitable personal recommendations to their clients or have to make suitable investment decisions on behalf of their clients. Suitability has to be assessed against clients’ knowledge and experience, financial situation and investment objectives. To achieve this, investment firms have to obtain the necessary information from clients.
The consultation covers a number of core elements:
- Sustainability
- Switching of financial instruments
- Qualifications and competence
- Enhancing record keeping including records of sustainability preferences.
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Scope/ Application |
This paper will be of primarily interest to firms that are subject to Directive 2014/65/EU on Markets in Financial Instruments (MiFID II) and their clients. As the paper focuses on investor protection issues, the consultation may be of interest to: · investors · investment firms and credit institutions providing investment · advice or discretionary portfolio management services · to UCITS management companies · external Alternative Investment Fund Managers (AIFMs) when providing the investment services of investment advice or individual portfolio management |
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Sustainability |
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The recent amendments to the MiFID II Delegated Regulation aim to integrate sustainability preferences in the advisory and portfolio management processes to ensure that clients’ sustainability preferences are taken into account by firms. Firms should have in place appropriate arrangements to ensure the inclusion of sustainability factors in their processes. |
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Definition of ‘Sustainability Preferences‘ and collection of sustainability preference information |
A definition of “Sustainability Preferences” has been included under the amended MiFID II Delegated Regulation. Firms will need to incorporate such definition in their processes and procedures concerning the suitability assessment. Firms should collect information from clients regarding their preferences in relation to the different types of investment products included in the definition of sustainability preferences. |
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Process for the assessment of sustainability preferences |
Clients’ sustainability preferences should be considered as part of the clients’ suitability assessment. Firms should first assess the suitability of a transaction in accordance with the criteria of: · knowledge and experience · financial situation · other investment objectives · the client’s sustainability preferences This represents the following changes: 1. client’s preferences in terms of sustainability are treated as a top up to the suitability assessment and 2. investment firms providing investment advice should first assess a client’s or potential client’s other investment objectives, time horizon and individual circumstances, before asking for his or her potential sustainability preferences |
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Where no financial instrument meets the client’s sustainability preference |
the client or potential client to adapt the sustainability preferences in the case where no financial instruments meet the client’s sustainability preferences |
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Implications of Switching financial instruments
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Amendments reflecting the Capital Markets Recovery Package |
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Staff Competence in Sustainability |
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Record Keeping |
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ESMA will consider all comments received by April 27, 2022.
