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ESMA issues Consultation Paper for Guidelines on certain aspects of the MiFID II suitability requirements

27 January 2022

The assessment of suitability is one of the most important requirements for investor protection in the MiFID II framework.

This framework applies to the provision of:

  • any type of investment advice (whether independent or not)
  • portfolio management.

Such firms having to provide suitable personal recommendations to their clients or have to make suitable investment decisions on behalf of their clients. Suitability has to be assessed against clients’ knowledge and experience, financial situation and investment objectives. To achieve this, investment firms have to obtain the necessary information from clients.

The consultation covers a number of core elements:

  • Sustainability
  • Switching of financial instruments
  • Qualifications and competence
  • Enhancing record keeping including records of sustainability preferences.

Scope/ Application

This paper will be of primarily interest to firms that are subject to Directive 2014/65/EU on Markets in Financial Instruments (MiFID II) and their clients.

As the paper focuses on investor protection issues, the consultation may be of interest to:

·         investors

·         investment firms and credit institutions providing investment

·         advice or discretionary portfolio management services

·         to UCITS management companies

·         external Alternative Investment Fund Managers (AIFMs) when providing the investment services of investment advice or individual portfolio management


The recent amendments to the MiFID II Delegated Regulation aim to integrate sustainability preferences in the advisory and portfolio management processes to ensure that clients’ sustainability preferences are taken into account by firms. Firms should have in place appropriate arrangements to ensure the inclusion of sustainability factors in their processes.

Definition of ‘Sustainability Preferences‘ and collection of sustainability preference information

A definition of “Sustainability Preferences” has been included under the amended MiFID II Delegated Regulation. Firms will need to incorporate such definition in their processes and procedures concerning the suitability assessment.

Firms should collect information from clients regarding their preferences in relation to the different types of investment products included in the definition of sustainability preferences.

Process for the assessment of sustainability preferences

Clients’ sustainability preferences should be considered as part of the clients’ suitability assessment.

Firms should first assess the suitability of a transaction in accordance with the criteria of:

·         knowledge and experience

·         financial situation

·         other investment objectives

·         the client’s sustainability preferences

This represents the following changes:

1.       client’s preferences in terms of sustainability are treated as a top up to the suitability assessment and

2.       investment firms providing investment advice should first assess a client’s or potential client’s other investment objectives, time horizon and individual circumstances, before asking for his or her potential sustainability preferences

Where no financial instrument meets the client’s sustainability preference

the client or potential client to adapt the sustainability preferences in the case where no financial instruments meet the client’s sustainability preferences


Guideline amended


Guideline 1- Information to clients about the purpose of the suitability assessment and its scope

As part of the suitability assessment, firms should help clients:

·         in understanding the concept of “sustainability preferences”,

·         the different types of products included under the definition of “sustainability preferences” and

·         the features and the choices to be made in this context

Guideline 2-

Arrangements necessary to understand clients

Proposed amendment to incorporate a new requirement to collect information from the client on the sustainability preferences.

Guideline 5 - updating client information (sustainability transition)

Client sustainability preferences could be updated as part of the next regular update of the client’s information or during the first meeting with the client following the entry-into-application of the amendments to the MiFID II Delegated Regulation.

Guideline 7 - arrangements necessary to understand investment products

Firm’s policies and procedures should set out the process to:

·         understand the characteristics, nature and features of investment products

·         take into consideration of the investment products’ sustainability factors

Guideline 8 - arrangements necessary to ensure the suitability of an investment

Amendment to clarify the approach to be used to assess the sustainability preferences of the client as part of the suitability assessment.

The sustainability preferences of the client have to be assessed as a second step (top-up), once the suitability of the product has been first assessed in accordance with the criteria of knowledge and experience, financial situation and other investment objectives.

Firms can only recommend products that do not meet the sustainability preferences of the client once the client has adapted such preferences.

Implications of Switching financial instruments


Amendments reflecting the Capital Markets Recovery Package

Guideline 10 - costs and benefits of switching investments

Proposed new guidance:

When providing either investment advice or portfolio management that involves the switching of financial instruments, investment firms shall obtain the necessary information on the client’s investment and shall analyse the costs and benefits of the switching of financial instruments. When providing investment advice, investment firms shall inform the client whether or not the benefits of the switching of financial instruments are greater than the costs involved in such switching.

Staff Competence in Sustainability


Guideline 11 - qualifications of firm staff

Staff giving investment advice or information about financial instruments should have the necessary knowledge and competence with regard to the criteria of the sustainability preferences and should be able to explain to clients the different aspects in non-technical terms. To that effect, firms should give staff appropriate trainings.

Record Keeping


Guideline 12 - record-keeping

Slight amendment to clarify that the firms should keep records of the sustainability preferences of the client and any updates of these preferences


ESMA will consider all comments received by April 27, 2022.

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