August 2022 will see the demand for updated WpHG forms.
Under the revised Delegated Regulation (EU) 2017/565, investment advisors and asset managers have specific organizational obligations to integrate clients' sustainability preferences into their services. These obligations aim to foster sustainable investment flows in line with EU policy goals.
Firstly, firms must obtain information on clients' sustainability preferences regarding environmentally sustainable and sustainable investments before providing investment advice or portfolio management services. This means asking clients formally about their interest and preferences in incorporating sustainability factors into their investments.
Secondly, advisors and asset managers must adapt their product offerings and advice to reflect the preferences expressed by clients. The characteristics of offered products should be consistent with these sustainability preferences.
Thirdly, appropriate operational and control systems are necessary to capture, record, and implement these sustainability preferences throughout the advice or portfolio management process.
Fourthly, clear disclosure to clients is essential. Firms must disclose how their sustainability preferences are taken into account, including pre-contractual disclosures about the proportion of investments aligned with environmental, social, and governance (ESG) factors.
These obligations are part of a broader sustainable finance regulatory framework that includes the Sustainable Finance Disclosure Regulation (SFDR, Regulation (EU) 2019/2088) and the EU Taxonomy Regulation (Regulation (EU) 2020/852), which complement MiFID II requirements by adding transparency and disclosure rules around sustainability factors in investments.
Financial instruments where the main adverse sustainability impacts are taken into account are typically products under Article 8 and 9 of the disclosure regulation. ESG criteria with clients may be limitedly defined and agreed upon due to sustainability preferences. Sustainability preferences are also linked to the taxonomy regulation and its rules. Article 2(17) of the disclosure regulation describes social goals and good governance objectives.
In summary, under the revised Delegated Regulation 2017/565, firms must actively integrate clients' sustainability preferences into their advisory and portfolio management processes through appropriate client assessments, product alignment, disclosure, and internal controls. Conflicts of interest in relation to clients' sustainability preferences must be taken into account, and investments may include those that align with the client's personal values, prioritize ESG factors, or exclude investments in companies that violate specific ethical or moral standards.
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