France to delay clients’ sustainability preferences
With less than two weeks to go, France’s financial regulator, the AMF, is reported to have announced that it is postponing the incoming requirement under MiFID II and the Insurance Distribution Directive (IDD) for advisers to ask their clients about any sustainability preferences when assessing suitability.
MiFID II and IDD already require distributors, advisers and providers of portfolio management services to consider factors such as clients’ ability to bear losses, their risk tolerance and their objectives and needs when assessing the suitability of the advice they are giving.
With the publication last year of Delegated Regulations EU/2021/1253 (for MiFID II) and EU/2021/1257 (for IDD), the requirement to consider any sustainability preferences was added to the list of factors with effect from 2 August 2022.
The changes to these directives define a product that could meet a client’s sustainability preferences as one that:
- meets the client’s minimum level of investments aligned with the EU’s taxonomy, or
- meets the client’s minimum level of sustainable investment, as defined in the Sustainable Finance Disclosure Regulation (SFDR), or
- considers principal adverse impacts on sustainability factors.
EU regulators have made two things clear. Firstly, that the consideration of sustainability preferences should only be made after the existing suitability factors, and, secondly, that products cannot be recommended if they fail to meet the chosen threshold (unless the client changes the sustainability preferences and this is documented). This has made the information supplied by product providers on the European ESG Template (EET) extremely important, as simply defining a product or fund as “green” or “sustainable” is no longer good enough.
Although, at the time of writing, there is no confirmation of this decision on the AMF’s website, the story has been published by the French financial news service L’Agefi, stating that the AMF will delay the need to consider sustainability preferences until 1st January 2023, when the detailed reporting templates for the SFDR also take effect.
It is believed that a lack of complete data and the consequent challenge of meeting clients’ preferences are behind the decision.
However, there is no indication from other regulators around the EU that they will follow the AMF’s lead.
FE fundinfo is continuing on developing our data collection and enabling distribution of ESG-related fund data and documents, and supporting groups to produce the necessary SFDR reports. Contact us and speak to our ESG specialists.