ESMA Consultation Paper Guidelines on certain aspects of the MiFID II suitability requirements.
- BETTER FINANCE highlights that the new concepts introduced by the recent regulatory amendments may be difficult to understand by individual, non-professional investors, creating the risk for them to avoid making a decision or making a wrong decision. In this sense, we suggest that advisors first explain the three approaches (Article 2, p.7) to the non-professional client and then ask the questions to determine the client’s sustainability preferences.
However, in January 2022, the European Commission signalled a potential reform of the suitability regime, which should be taken into account in these Guidelines in order to provide legal certainty in light of future changes. In the public consultation on the review of suitability and appropriateness assessment (ended March 2022, see BETTER FINANCE’s response here), the European Commission sought the view of stakeholders of improving the MiFID II questionnaires for advised and non-advised services by adding certain elements, most importantly the personalized asset allocation strategy (PAAS) and the personal investment plan (PIS). Although it is not clear how this reform will look like, BETTER FINANCE suggests to consider providing guidelines to accommodate (or lay down the framework to) in this new regime as well.
We agree that the lack of a clear explanation to the client regarding the sustainability preferences would negatively impact the final results of the suitability assessment. Explanations are also necessary due to possible lack of understanding and/or knowledge of sustainability features from the clients. Legal and technical concepts could be new to clients, (as for example: ESG, taxonomy, principal adverse impact) and it will be challenging to provide a clear and simple picture of this investment universe.