Let's get ready for the MiFID changes

Let's get ready for the MiFID changes

Advertising material for professional investors only, investing for their own account – according to MiFID definition

Let's get ready for the MiFID changes

02 August 2022 Deadline

MiFID II, Sustainable Investments, and how PAI could help you meet the new sustainability requirements

Key takeaways • Changes to MiFID II will come into force on August 2 nd 2022 that will drastically affect the way advisers interact with their clients • Distributors and advisers will need to ask clients if they have sustainability preferences, and offer them only MiFID-eligible ESG products if the answer is yes • PAI – Principle Adverse Impacts – is a new reporting requirement for asset managers introduced by the SFDR (Sustainable Finance Disclosure Regulation) that plays several roles in identifying MiFID-eligible products

What are the changes to MiFID II? From August 2 nd 2022, financial advisers and distributors will need to include sustainability preferences in the suitability as- sessments they carry out with their clients. • Advisers will have to ask each client if they have sustain- ability preferences • If the client says yes, the adviser can offer only MiFID-eligi- ble ESG products • It is therefore crucial that distributors and advisers identify a range of suitable products to be able to offer to clients with sustainability preferences

• With the new requirements only a fewmonths away , it is im- portant that distributors get a suitable product range in place

Howwill advisers identifyproducts as suitable for clients with sustainability preferences?

The “suitable” products that an adviser can offer their clients will be those that meet the client’s sustainability preferences as well as the financial suitability measures that are already in place. For these purposes, being Article 8 is not necessarily sufficient: there are additional requirements that MiFID-eligible products need to meet. For Article 8, this could create a new sub-category of products that could be referred to as 8+.

Sustainable Investments “Article 9”

Investments in an economic activity that contributes to a sustainable objective and does not significantly harm others

Financial products suitable for clients with sustainability preferences • Proportion of Sustainable Investments • Proportion of Taxonomy-aligned investments • Consideration of PAI

Products suitable for sustainability preferences so-called “Article 8+”

Products with ESG characteristics “Article 8”

Financial products that promote, among other characteristics, environmental or social characteristics, where the companies invested in follow good governance practices

Other financial products “Article 6”

Financial products that donot qualifyas sustainableorwithenvironmental or social characteristics

Any investment decision in the sub-funds should be made on the basis of the current prospectus and the Key Investor Information Document (KIID).

MiFID II offers three methods - which can used individually or in combination - of assessing a fund for its suitability for clients with sustainability preferences. These will be products:

1

2

3

...with a minimum proportion of Sustainable Investments

....with a minimum proportion of Taxonomy- aligned investments

...with an investment strategy that considers PAI elements

and/or

and/or

How will this work in practice? • A Sustainable Investment must meet three points1. 1 » It must invest in an economic activity that contributes to an environmental or social objective AND » must not significantly harm any environmental or social objective ( Do No Significant Harm, or DNSH ) AND » must follow good governance practices. Article 9 funds with Sustainable Investments will qualify. The most widely-used definition of Article 9 funds requires them to have Sustainable Investments as their objective, so most Article 9 funds will qualify as MiFID-eligible by this route. Not all Article 8 funds will qualify under this criteria, though some will.

• Taxonomy-aligned investments are investments that the EU Taxonomy classifies as environmentally sustainable. 2 » Taxonomy-aligned investments are currently difficult to identify because at this stage there is limited Taxonomy >Page 1 Page 2 Page 3 Page 4 Page 5

Made with FlippingBook Learn more on our blog