The Investment Association (IA) thanks the Commission for the opportunity to comment on proposed changes to the MiFID II Suitability Assessment.
Asset managers are increasingly seeking to integrate an assessment of environmental, social and governance (ESG) factors in their investment process and decisions and to monitor and mitigate their risks and opportunities, where these factors are deemed to have a material impact on performance. Along with integrating material ESG factors into the investment decision-making process, asset managers often actively engage with companies to identify and reduce ESG risks in order to ensure they remain a sustainable long-term investment proposition. This will include engagement on not just the company’s governance, but also on the company’s management of social and environmental risks, such as climate change and human capital development.
As asset managers, it is our role to help end investors achieve their goals and objectives – both financial and non-financial – as well as contributing to economic growth through the efficient allocation of capital. We also recognize the key part that our industry can play in signposting opportunities/products for investors that contribute to sustainable growth and in the development of innovative products to contribute to such goals.
We stand ready to work together with the Commission and other key stakeholders to progress the sustainable finance agenda in its aim of boosting the role of finance in achieving a well-performing economy that delivers on environmental and social goals as well. We are of course supportive of efforts to align investments with investors’ preferences and for asset managers to take account of sustainability risks. However, we have a number of concerns around possible unintended consequences arising from certain aspects of the current drafting.
Below is a summary of our key concerns. Please see attached file for our full response.
1. Scope of the Definitions (Article 1(1))
We are concerned that the definitions as set out in Article 1(1) scope sustainable investing too narrowly. It is of greatest importance that the proposed amendments to the MiFID II Suitability Assessment reflect that ESG considerations extend beyond clients’ preferences for a particular sustainable investment and we would stress the crucial role that the consideration of all relevant and material environmental, social and governance risks and opportunities play in meeting investors’ needs and in growing sustainable finance.
2. Interaction with the Proposal for a new Sustainable Finance Taxonomy
We have concerns around the interaction between proposed changes to the Delegated Act and the Proposal for a new sustainable finance taxonomy. It is imperative that industry receives clarity on the interaction between the amended Delegated Act and the Proposal for a new sustainable finance taxonomy and that asset managers are able to take as their reference existing best practice where a Taxonomy does not yet exist.
3. Hierarchy of Risks
In the interests of protecting investors, we would stress the importance of treating ESG considerations proportionately, alongside other relevant risks.
4. Most suitable products vs suitable products
Recital 9 of the draft MiFID II delegated regulation should refer to “suitable products” not “most suitable products”.
5. Information Flow
We have concerns around the mechanics of the process needed to carry out the proposed requirements. It is unclear how we can ensure the necessary information flow, where there are no rules to facilitate this on the part of the product manufacturer.
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