The European Association of Co-operative Banks (EACB) has today submitted its feedback on the draft delegated acts to MiFID II, UCITS Directive, AIFMD, and IDD stemming from the goals of the European Commission’s ‘Action Plan: Financing Sustainable Growth’ to (i) integrate sustainability within investment advice (Action 4); and (ii) clarify the integration of sustainability in so-called fiduciary duties (Action 7).
Our members as co-operative banks mainly provide investment advice for and portfolio management in financial products within the scope of MiFID II, and thus, are particularly focused on the distributors’ obligations to the client and the relationship with the product manufacturer in this regard. However, we also see it relevant to provide our comments on the delegated acts of the other directives so as to ensure a harmonised approach in line with the Better Regulation Agenda.
The key messages we wish to convey are that:
- SFDR and Taxonomy should lead the way in terms of sustainable finance: In no way should such Level II amendments under the various sectoral legislation over-ride the basis for sustainable finance already established under the published Regulation (EU) 2019/2088 (“SFDR”) and Regulation (EU) 2020/852 (“Taxonomy Regulation”), in particular relating to terminologies (e.g. definition of sustainability preferences and distinction between Article 8 and 9 SFDR products). The only instances where the consideration of sectoral legislation is explicitly stated with respect to directives, regulations, delegated acts and regulatory technical standards, is within the “financial impact” of sustainability risks (recital 14 SFDR) and their integration in remuneration policies (Article 5 SFDR), marketing communications (Article 13 SFDR), supervision by NCAs (Article 14 SFDR) and the document in which pre-contractual disclosures and periodic reporting can be made (Article 6(3) and Article 11(2) SFDR and Article 7 Taxonomy). The risk of maintaining these inconsistencies or over-riding the SFDR and Taxonomy is that the different sets of obligations could create complexity for the client and the business. Transparency only works in terms of investor protection if the client is not overloaded with information and is able to understand the disclosures presented in a simple manner;
- Alignment with MiFID II/ MiFIR review: The Commission would also do well to consider the proposals made by all stakeholders during the consultation period on the review of MiFID II/ MiFIR conducted in Q1-12 2020, particularly with respect to product governance provisions and the suitability assessment. For example, the obligations between financial and sustainability characteristics, objectives and preferences should be cohesively implemented – failure to do so would mean repeating systems and documentation updates which is time consuming, costly and confusing for both investors and financial entities. Therefore, any proposals from the MiFID II/ MiFIR review which are eventually adopted should also be mirrored in the context of sustainable finance with the exception of the concept of the negative target market; and
- Timing: We also believe that for the same reasons stated above, it is only fair to ask for alignment with respect to timing of implementation of the draft delegated acts with the upcoming regulatory amendments under the holistic review of MiFID II and MiFIR. Implementation deadlines of the draft delegated acts should also be aligned with the SFRD, Taxonomy, NFRD and Climate Benchmarks Regulation.
For more detailed comments, please download our position paper.