0000005166 00000 n We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. For more information about our organization, please visit ey.com. 685 0 obj
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In the coming years, the implementation of sustainable finance legislation will be a major project for the asset management industry. 0000026475 00000 n
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Recognising that many investment funds will not meet investor preferences when they are expressed in the abstract and without regard to the types of investment funds available, ESMA has proposed the option of getting the investor to adapt their preferences. 0000001175 00000 n
The answers given by clients will have to be translated into a specific offer, although this la carte model presents a major challenge, with the aim being to align clients' selection criteria with the characteristics of the funds offered. 
On 27 January 2022, the European Securities and MarketsAuthorities (ESMA) published a consultation paper on theGuidelines on Certain Aspects of MiFID II Suitability Requirementsin order to add the sustainability risks and preferencerequirements included by the last MiFID II Delegated Regulation1(the Guidelines). Enabled by data and technology, our services and solutions provide trust through assurance and help clients transform, grow and operate. Portfolio Monitoring & Claims Verification, ISS ISO-Information Security Whitepaper (June 2021), Governance Analytics (Corporate Issuer Data Verification), Privacy (including cookies), Social Media & Legal. The MiFID questionnaire used to harvest the investment preferences and determine product suitability will be key. New York, NY 10017-4036, Chicago Office esg suitability mifid2 Are You Ready for Sustainability Preferences Under MiFID II and IDD? Under the MiFID ESG Regulation, it will also be mandatory to obtain information and assess investment suitability on the basis of a third element, that is, the client's sustainability preferences. Where a client does not answer the question whether he has sustainability preferences or answers no, the firm may consider this client as sustainability-neutral and recommend products both with and without sustainability-related features. Other financial products can still be offered to clients, but they will not be eligible for recommendation to clients that have expressed specific sustainability preferences. One specific aspect of the Delegated Acts is: (i) Commission Delegated Regulation (EU) 2021/1253 (the "MIFID ESG Regulation"); and (ii) Commission Delegated Directive (EU) 2021/1269 ("MIFID ESG Directive") to integrate sustainability considerations into the suitability assessment and product governance obligations under MIFID II. Click on the different category headings to find out more and change our default settings. In this context, appropriate training should be provided to exposed staff. This update examines the changes under the MIFID ESG Regulation on suitability assessment obligations and considers how this may impact the distribution of ESG-focused investment funds in the EU. If you do not allow these cookies we will not know when you have visited our site, and will not be able to monitor its performance. Like any major upheaval, the transition will take place over time and require the help of all stakeholders: Distributors, asset managers, regulators and of course investors. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. 0000029850 00000 n
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ifas esg urged nextwealth In coming years, implementing sustainable finance legislation will be a major project for the financial services industry. The market opportunity in U.S. residential mortgage-backed securities, Credit Indices Evolve with Enhanced Data Inputs, For institutional investors, ETFs can make meeting liquidity needs easier, Gold: the most effective commodity investment, 2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios, Ten ways retirement plan professionals add value to plan sponsors. : some disclosures related to taxonomy-alignment and principal adverse impacts are not yet available due to the future application dates of: swiftly adapt their client information collection processes in a fast- moving and highly competitive environment. Starting on 2 August 2022, product manufacturers and distributors will have to consider customer sustainability preferences as part of the suitability assessment. How will data be exchanged between product manufacturers and distributors? It was submitted and edited under Pensions & Investments guidelines, but is not a product of P&I's editorial team. In line with the stated objectives, funds will have to either: Currently, BNP Paribas Asset Managements offering includes a product range integrating ESG criteria with more than EUR 330 billion in assets under management (end December 2021) covering a broad set sectors and geographies. 
It is a powerful accelerator that gives investors power and improves supply transparency in a particularly dense regulatory environment where the fight against greenwashing is ubiquitous. Each distributor must draw up a questionnaire. A financial product that meets all three criteria will be best placed to be recommended for investment. The answers to these questions will lead to an advanced level of portfolio customization, as well as allowing the harmonization of the ESG offering. The enthusiasm for sustainable finance is more than tangible, and the efforts led by European regulators are intensifying and involving all stakeholders. Shantanu Naravane,Senior Associate,Herbert Smith Freehills LLP, Moderator: esg
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Regulators will nonetheless be vigilant when interpreting legislation: The European Securities and Markets Authority (ESMA) has recently clarified this point further by providing the first elements of the prescriptive framework. risks sustainability integrating consultation esma sri paper services factors mifid response ii into Substance: Juggling with tax, TP, regulatory and operational requirements, Lassurance de demain na jamais t aussi prsente. taxonomy sfdr facing mifid Sign up and get the best of News delivered straight to your email inbox, free of charge. 684 0 obj Striving for a positive footprint, professionally and personally. 0000021282 00000 n
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We welcome and will contribute to regulators' efforts to increase the transparency of available information, and actively engage with policymakers and governments to help them shape the markets we invest in and the rules that guide and govern corporate behavior. Asking the better questions that unlock new answers to the working world's most complex issues. Our Financial Services Regulatory group in Ireland comprises of leading lawyers and experienced industry professionals with a wealth of experience in advising clients on regulatory requirements and how to manage regulatory risk within their business.
Pierre Moulin is global head of products and strategic Marketing at BNP Paribas Asset Management, based in Paris. Seasoned business advisor with a focus on strategy, customer & operations in the financial services industry. However, matching financial products to what could be highly specific and aspirational preferences could be quite a challenge and it may, therefore, be quite difficult to design a financial product that is fully 'sustainability preferences' eligible in all cases. Speakers: This is part of the European agenda to direct capital to companies most active in the transition to a low carbon and inclusive economy. Please check the boxes below to subscribe, Investment strategies and asset allocation, Our latest regular features, outlooks and reports, Article "{postName}" added to your bookmarks, Article "{postName}" removed from your bookmarks, Limit negative impacts such as greenhouse gas emissions or gender wage inequality, Integrate a proportion of assets defined as sustainable. : since ESMA will collect feedback until the end of April 2022, the final Guidelines should be published shortly before, or more probably after, the application date (2 August 2022) of the Delegated Regulation. Australia: +61.2.8048.3999 ESMA has provided some useful guidance on this issue in its revised guidelines on MIFID II suitability requirements that are currently under consultation.
They integrate sustainability issues and considerations into the following EU legislative regimes: The Delegated Acts complement the obligations in Regulation (EU) 2019/2088("SFDR") and Regulation (EU) 2020/852("Taxonomy Regulation") and form part of the European Commission's 'ambitious and comprehensive' package of measures to help improve the flow of money towards sustainable activities across the EU. Europe (Germany): +49.89.462.248.100. Press inquiries should be directed to the ISS Press Office. Since 2018, we have been using a proprietary methodology to collect data on E, S, and G criteria from more than 13,000 issuers, complemented by data of different types and from other sources. This information might be about you, your preferences or your device and is mostly used to make the website work as you expect it to. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Starting in August, advisers and distributors of financial products will have to ask clients to specify their sustainable development investment preferences as part of the European agenda to direct capital to companies most active in the transition to a low carbon and inclusive economy. %%EOF Guidelines on certain aspects of the MiFID II suitability, Commission Delegated Regulation (EU) 2021/1253 of 21, April 2021 amending Delegated Regulation (EU) 2017/565, as regards the integration of sustainability factors, risks and, preferences into certain organizational requirements and, operating conditions for investment firms, The clients knowledge and experience in the investment field relevant to the specific type of product or service, The persons financial situation including their ability to bear losses and, Their investment objectives including their risk tolerance so as to enable the investment firm to recommend to the client or potential client the investment services and financial instruments that are suitable for him/her and, in particular, that are in accordance with their risk tolerance and ability to bear losses, Detailed reporting requirements applicable to investment products, which will become applicable as from 1 January 2023, Reporting of taxonomy-alignment by companies in scope of the Non-Financial Reporting Directive, which will become applicable as from 1 January 2023 for non-financial undertakings and from 1 January 2024 for financial undertakings, Whether the client has any sustainability preferences, If so, to what extent the client has sustainability preferences with regard to (a) environmentally sustainable investments,(b) sustainable investments and (c) financial instruments that consider principal adverse impacts (PAIs), For aspects a) and b), what are the clients preferences in terms of minimum proportion, For aspect c), which PAIs should be considered including quantitative and qualitative criteria demonstrating that consideration, Whether the client has a focus on either environmental, social or governance criteria or a combination of them or whether the client does not have such a focus, Which part of the portfolio (if any) the client wants to be invested in products meeting the clients sustainability preferences. For further details, please see our previous Sustainable Finance: New EU Delegated Legislation client update. Firms inability to meet end investors sustainable needs: due to the required assessment granularity and the requirement to ask clients for minimum percentages of sustainable investments, firms may not be in a position to match products to clients preferences. Choose your news we will deliver. So, in theory, one investor could express a preference only for "environmentally sustainable investments and investments that consider sustainability factors" and another could express a preference for only "sustainable investments". How will July's numbers for the Consumer Price Index compare to June's? MIFID II currently provides that when an investment firm offers investment advice or portfolio management services to a client, it is first required to obtain information on (among other things): (i) the client's investment objectives (i.e. Marina Reason,Partner,Herbert Smith Freehills LLP Some emerging markets offer less security than the majority of international developed markets. In this new paradigm, the asset management industry plays a critical role: That of proposing a complete offering corresponding to the entire range of investor profiles, not only in terms of ESG preferences, but also risk appetite, portfolio diversification, liquidity, etc. All information collected is anonymous unless you provide personal information to us. A wide range of new EU sustainable finance measures come into force on 1 August 2022. <>stream There is further to go, not least to improve the quality and access of companies ESG data. Heike Schmitz,Partner,Herbert Smith Freehills LLP While much progress has already been made, there is further to go, not least to improve the quality and access of companies' ESG data. All Rights Reserved. Our highly technical team deliver pragmatic and solutions-focused advice to our clients. Case 2 - The investment firm cannot meet the clients sustainability preferences. Please note that articles may contain technical language. No personal information is shared with third parties. 0000035383 00000 n 0000003892 00000 n mifid aftermarket
Front office staff should also have the necessary knowledge and competence with regards to the criteria of the sustainability preferences and should be able to explain them to clients in non- technical terms. 0000012316 00000 n Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. In an explanatory memorandum to an earlier draft of the MIFID ESG Regulation, the European Commission noted that certain Article 8 products "might lack sustainability-related materiality". Impact on Demand for ESG Financial Products This exposure provides us with a 360-degree perspective as to how fund industry leaders are approaching ESG and we are therefore very well-positioned to action customised mandates for services incorporating ESG for managers of all sizes and across the spectrum of strategies.
Offering a product with sustainablefeatures to a client who expressed no interest (even when such features are disclosed) could undermine client relationships, in particular in case an ESG product underperforms from a financial perspective. These cookies allow us to advertise our products to you and allow us to pass this information on to our trusted third parties so that they can advertise our products to you on our behalf. 0000010289 00000 n While we welcome the progress resulting from this regulatory framework, the order of the regulations could have been better: If first companies disclose their ESG data in a transparent and harmonised way, asset managers can use them in the construction of their fund offerings, and finally distributors can assess investor preferences for sustainable investments. endstream Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors. We will also provide you with a brief overview of upcoming sustainability disclosure duties and investment labels in the UK. This means investment firms should already launch their project on the basis of Guidelines included in the consultation. Will your NFT investments soon be subject to VAT? Be in line with the European taxonomy goals such as climate change mitigation and ecosystem protection. 713 0 obj The decision of the client should be documented. The revision of the European Unions MiFID II directive taking effect this August and requiring investment firms to assess clients sustainability preferences sets a regulatory priority that will impact asset management professionals in 2022 and beyond. On 27 January 2022, the European Securities and MarketsAuthorities (ESMA) published a consultation paper on theGuidelines on Certain Aspects of MiFID II Suitability Requirementsin order to add the sustainability risks and preferencerequirements included by the last MiFID II Delegated Regulatiation1(the Guidelines). For this reason, they may not be suitable for readers without professional investment experience. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk. 0000016265 00000 n The asset management industry has a critical role to play in this new paradigm of ensuring a complete offer corresponding to the entire range of investor profiles, not only in terms of ESG preferences, but also in risk taking, portfolio diversification and liquidity.
This means investment firms should already launch their project on the basis of Guidelines included in the consultation. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. endobj Taxonomy and Sustainable Finance Disclosure Regulation (SFDR) have dominated the public discussion while the upcoming amendments to MiFID II and IDD have attracted significantly less public attention. 0000012682 00000 n 0000018125 00000 n Japan: +81.3.5217.7888 These Guidelines involve some challenges that investment firms are currently facing notably with regards to, inter alia: Short implementation timeline: since ESMA will collect feedback until the end of April 2022, the final Guidelines should be published shortly before, or more probably after, the application date (2 August 2022) of the Delegated Regulation. The investor may set its own minimum proportion for "sustainable investments" or its own elements to demonstrate that PAIs are being considered. basf Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).
