ARTICLE
24 October 2022

MFSA's Expectations In Relation To MiFID II Suitability Requirements

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Ganado Advocates

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Ganado Advocates is a leading commercial law firm with a particular focus on the corporate, financial services and maritime/aviation sectors, predominantly servicing international clients doing business through Malta. The firm also promotes other areas such as tax, pensions, intellectual property, employment and litigation.
On 23 September 2022, ESMA issued its Final Report on Guidelines on certain aspects of the MiFID II Suitability Requirements (the "Guidelines") following the coming into force of Commission Delegated Regulation...
Malta Finance and Banking

On 23 September 2022, ESMA issued its Final Report on Guidelines on certain aspects of the MiFID II Suitability Requirements (the "Guidelines") following the coming into force of Commission Delegated Regulation (EU) 2021/1253 (the "Regulation").

In this regard, the MFSA has now communicated its expectations to all investment firms and credit institutions ("Firms") providing investment advice or discretionary portfolio management services in relation to the necessary steps to be taken to ensure compliance with the Guidelines and the Regulation, including the Sustainable Finance Disclosure Regulation ("SFDR") legal framework. The MFSA's expectations can be categorised into the following:

  1. Incorporation of the necessary information about an existing client's or a potential client's ESG/sustainability preferences
    Firms should, inter alia, update MiFID questionnaires, suitability assessments and reports, and repaper pre-contractual information. To undergo this process, Firms need to have the necessary tools to recommend or select a suitable financial instrument. However, Firms need to ensure that, even though they might not have any financial instruments included in their product range that would meet the client's sustainability preferences, they should still collect all information concerning sustainability preferences and document it in the suitability report.

  2. Review of ESG Data Sourcing
    MFSA expects Firms to update and/or review processes relating to ESG data sourcing, including obtaining reliable ESG information from product manufacturers.

  3. Appropriate training to relevant staff
    Staff providing investment advice need to possess the necessary knowledge and competence to fulfil their obligations in terms of the relevant provisions of MiFID II.

As indicated in the Regulation, Firms should have new client questionnaires and collect the client's individual sustainability preferences to the client's profile in regular updates. However, Firms should also proactively invite clients to update their profiles regarding their sustainability preferences.

Concluding remarks

The MFSA is allowing Firms a six (6) month timeframe from the date of publication of the revised Guidelines on ESMA's website to implement these requirements, and should thus respond to the MFSA by latest 31 March 2023. By this date, a Director or Compliance Officer of the Firm should submit to the MFSA (i) an explanation of the changes which were implemented in the Firm's suitability policies and procedure; and (ii) an explanation of the changes which were implemented in the Client Fact Find.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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