Dates of entry into force of requirements regarding client sustainability preferences in MiFID context

On 2 August 2022, the CSSF released a Communiqué on the application of MiFID rules to sustainability and more specifically to the consideration of the requirements relating to client sustainability preferences.

In fact, credit institutions, investments firms, AIFM and management companies under Chapter 15 (the “In-Scope Entities”) must apply the Commission Delegated Regulation 2021/1253 of 21 April 2021 which amends Delegated Regulation 2017/565 as regards the integration of sustainability factors, risks and preferences into certain organisational requirements and operating conditions for investment firms as from 2 August 2022 (for more information : please refer to our eAlert on new requirements in governance policy and product distribution policy for credit institutions, investment firms, insurance and reinsurance undertakings regarding ESG).

When providing investment advisory or discretionary portfolio management services, In-Scope Entities must (i) collect all relevant information on their clients’ preferences regarding sustainability, (ii) take them into account, in addition to their other investment objectives, financial situation and knowledge and experience, (iii) update the existing client information at the latest at the next regular update of the client’s profile.

It is important to note that the assessment of sustainability preference of a client or potential client is closely linked to the sustainability-related disclosures required under Regulation (EU) 2020/852 of 18 June 2020 (the “Taxonomy Regulation”) and under Regulation (EU) 2019/2088 of 27 November 2019 (“SFDR”) at the level of the financial products. The sustainability preference of a client indeed refers to the choice as to whether and to what extent, his or her investment shall integrate financial instruments:

  1. for which a minimum proportion shall be invested in “environmentally sustainable investments” as defined under Article 2(1) of the Taxonomy Regulation (i.e. is “Taxonomy-aligned”);
  2. for which a minimum proportion shall be invested in “sustainable investments” as defined under Article 2(17) SFDR;
  3. that consider the principal adverse impacts on sustainability factors.

The CSSF expects In-Scope Entities to monitor the regulatory framework in this respect, notably (i) the forthcoming guidelines on certain aspects of the MiFID II suitability requirements by ESMA and (ii) Commission Delegated Directive (EU) 2021/1269 of 21 April 2021 amending Delegated Directive 2017/593 as regards the integration of sustainability factors into the product governance obligations, which shall apply as from 22 November 2022.

In such context, the CSSF points out that ESMA launched a consultation on the updating of its Guidelines on MiFID II product governance requirements, to which all firms manufacturing and/or distributing products (as defined under MiFID II), investors and consumers organisations may respond before the 7 October 2022.

Furthermore, on 4 August 2022, the Grand-Ducal Regulation of 27 July 2022 was published in the Official Journal of Luxembourg and shall enter into force on 22 November 2022. It aims at introducing sustainability factors (that are environmental, social and employee matters, respect for human rights, anti‐corruption and anti‐bribery matters) in the Grand-ducal Regulation of 30 May 2018 on the protection of financial instruments and funds belonging to clients, product governance obligations and the rules applicable to the provision or reception of fees, commissions or any monetary or non-monetary benefits. Consequently, credit institutions and investment firms which manufacture and/or distribute financial instruments will be subject to certain new requirements in light of such sustainability factors.

Aurélia Viémont - Partner | Avocat à la Cour

Aurélien Hollard - Partner | Avocat à la Cour

Sarah Hantscher - Managing Associate | Avocat à la Cour

Mélanie Poirrier - Managing Associate

Julie Pelcé - Managing Associate

Anne Picot-Guillot - Professional Support Lawyer, Luxembourg