Response to the ESMA consultation on guidelines for MiFID II suitability requirements

27 April 2022

Consultation response

The assessment of suitability is a crucial protection for investors under MiFID II. Finance Watch urges policymakers to properly integrate sustainability preferences into suitability assessments and recommends several improvements of investors’ rights with regard to sustainable finance products

Properly integrating sustainability preferences into suitability assessment is essential in the context of the EU sustainable finance agenda and regulatory framework. These guidelines need to ensure that advisors are able and required to guide clients towards the right products for them and their objectives. Sustainability preferences must be part of suitability assessment on an equal footing with its other components.

In our response, we provide feedback aimed at improving the draft guidelines and we point out several level 1 issues which have strong implications for the integration of sustainability considerations in the suitability test. ESMA could use the opportunity of collecting feedback and drafting guidance to raise these issues with the European Commission, European Parliament and the Council of the EU.

Our key recommendations are:

  • Allow the definition of sustainability preferences to cover a wider range of sustainability-related options and strategies especially in light of the current limitations of the EU Taxonomy and SFDR-related product categories and concepts. The aim is to enable clients to express their preference for specific type of investments, e.g. focused on impact or to exclude some investments due to environmental, social or ethical concerns;
  • Ensure that the definition of sustainability preferences recognises the different capacity of financial instruments to effectively fund sustainable economic activities (equities or bonds vs synthetic ETFs or derivatives);
  • Require a sustainable by default basic product offer;
  • Ensure advisors receive comprehensive professional training on sustainability requirements and requiring certification;
  • Develop a new Q&A on sustainability preferences and key sustainability-related terms;
  • Establish the minimum criteria for sustainable investments and products with ESG criteria under SFDR (see this joint NGOs’ briefing for details);
  • Properly deal with the issue of conflicts of interest that arise where advisors receive inducements to distribute certain products and prevent it under MiFID II.

Detailed response