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    ESMA Guides on MiFID II

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    Stockholm (NordSIP) – It has hardly escaped the attention of European financial advisors that, according to the amended MiFID II framework, as of 2 August 2022, they are required to consider the clients’ sustainability preferences in their suitability assessments. The European Securities and Markets Authority (ESMA), the EU’s Securities Markets Regulator, has been working to provide the entities affected by the new regulation with some guidelines on MiFID II’s suitability requirements. After conducting a public consultation on these guidelines to gather the views of relevant stakeholders, on 23 September, ESMA published their Final Report.

    “The assessment of suitability is one of the most important requirements for investor protection in the MiFID framework,” states the report, stressing the importance of this aspect of the regulatory framework. “It applies to the provision of any type of investment advice, whether independent or not, and to portfolio management.”

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    Reflected in the guidelines are the main amendments introduced to the MiFID II Delegated Regulation and on the topic of sustainability. More specifically, the document covers four areas in detail:

    • Information to clients on the sustainability preferences – Firms will need to help clients understand the concept of sustainability preferences and explain the difference between products with and without sustainability features in a clear manner, and avoid technical language;
    • Collection of information from clients on sustainability preferences – Firms will need to collect information from clients on their preferences in relation to the different types of sustainable investment products and to what extent they want to invest in these products;
    • Assessment of sustainability preferences – Once the firm has identified a range of suitable products for the client, in accordance with the criteria of knowledge and experience, financial situation and other investment objectives, the firm shall identify the product(s) that fulfil the client’s sustainability preferences; and
    • Organisational requirements – Firms will need to give staff appropriate training on sustainability topics and keep appropriate records of the sustainability preferences of the client (if any) and any updates of these preferences.

    Once the document is translated into the official languages of the EU and published on ESMA’s website, national competent authorities have a two-month period during which they must notify ESMA whether they comply or intend to comply with the Guidelines, which will apply six months after the date of the publication.

    Image courtesy of William Bout on Unsplash
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