ESMA consults on burdensome “sustainability preferences” revisions to its Suitability Guidelines

ESMA's proposed amendments to its Suitability Guidelines provide a better idea of how it expects sustainability considerations to be built into the suitability process, ahead of sustainability preferences becoming integrated into the MiFID II suitability requirements from August 2022. The proposed amendments would increase the anticipated burden on asset managers and those providing investment advice.

By way of background, from 2 August 2022, EU investment managers and financial advisers are required to obtain and incorporate their clients’ “sustainability preferences” in the suitability assessment they undertake when making investment decisions / personal recommendations. A sustainability preference is defined as a client preference for (i) a minimum proportion of EU Taxonomy aligned investments; (ii) a minimum proportion of SFDR sustainable investments; or (iii) consideration of principal adverse impacts on sustainability factors set out in the SFDR RTS (“PAIs”) on either a qualitative or quantitative basis – with the client able to specify the minimum proportions or qualitative / quantitative elements in each case.

ESMA has now issued proposed amendments to its Suitability Guidelines to provide a better idea of how it expects sustainability considerations to be built into the suitability process, ahead of these sustainability preferences becoming integrated into the MiFID II suitability requirements from August 2022. These proposed amendments would increase the anticipated burden on asset managers and those providing investment advice, as they more explanation and communication will be needed with clients, with more tailoring for individual clients and increased record keeping burdens. Whilst the proposed amendments mainly focus on sustainability preferences, ESMA also suggests changes in the suitability process more generally, drawing on good and bad practices that have been observed since 2018, when the current version of the guidelines were published. Comments are requested by 27th April 2022.

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Consultation document

Published 2 February, 2022

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