ESMA consults on the update of its MiFID II suitability guidelines

On 27 January 2022, the European Securities and Markets Authority (ESMA) published a Consultation Paper in relation to an update of its “Guidelines on certain aspects of the MiFID II suitability requirements”, following the amendments to the MiFID II framework relating to sustainability:

Consultation Paper – Guidelines on certain aspects of the MiFID II suitability requirements (ESMA35-43-2998)

The Consultation Paper is addressed to investors and consumer organisations; to investment firms and credit institutions providing investment advice or discretionary portfolio management services; to UCITS management companies and external Alternative Investment Fund Managers (AIFMs) when providing the investment services of investment advice or individual portfolio management; and to any relevant trade association.

The consultation closes on 27 April 2022. The CSSF encourages all stakeholders to provide their comments on the proposed update of the guidelines through the internet site of ESMA.

The main changes to the guidelines proposed by ESMA concern the integration of clients’ sustainability preferences in the assessment of the suitability of investment advice and discretionary portfolio management decisions, following the adoption of the Commission Delegated Regulation 2021/1253 of 21 April 2021. From 2 August 2022 onwards, the providers of investment advisory and discretionary portfolio management services are required to obtain specific information on their clients’ preferences regarding sustainable investments and investments which consider adverse impacts on environment and society. Transactions recommended or entered into in the course of providing a portfolio management service, will have to meet the client’s sustainability preferences besides meeting his or her other investment objectives and taking into account his or her financial situation and knowledge and experience.

Entities providing investment advice or discretionary portfolio management services, as distributors of financial instruments, will also have to take into account the changes made to the MiFID II product governance requirements introduced by the Commission Delegative Directive 2021/1269 of 21 April 2021. The updated requirements will apply from 22 November 2022, once transposed into national legislation.

The new requirements should be read in conjunction with Regulation 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector (“SFDR”), which includes requirements, applicable to all entities providing investment advice or discretionary portfolio management services, related to disclosures but also, for example, related to the management of sustainability risk borne by clients.