The EACB welcomes the opportunity to participate in the ESMA’s public consultation (ESMA35-43-2998) on guidelines on certain aspects of the MiFID II suitability requirements. This is because we believe that such guidance can serve as a necessary accompaniment to the upcoming Delegated Act (EU) 2021/1253 amending Delegated Regulation (EU) 2017/565 (“ESG DA amending MiFID II”), which introduces ESG elements into MiFID II. That said, we wish to draw ESMA’s attention to the following key messages:
- Legal and sequencing issues: The EACB is concerned with some legal inconsistencies and the level of granularity in the proposed guidelines when taking into account that: (i) the upcoming ESG DA amending MiFID II becomes applicable on 2 August 2022 but is still unclear in some aspects; and (ii) the regulatory technical standards (RTS) under the EU Taxonomy Regulation and the Sustainable Finance Disclosures Regulation (SFDR) – on which the ESG DA amending MiFID II depends – are still not finalised, and in themselves contain some pending legal issues. We understand that ESMA has no mandate to change neither the content of the RTS under the Taxonomy and SFDR, nor their respective application dates; and that ESMA cannot mandate a deferred application date of the ESG DA amending MiFID II. However, in the absence of legal and practical clarity we urge ESMA to: i) postpone publication of the ESMA guidelines; and ii) make legislators more aware that the RTS and Guidelines will only be as efficient and effective as the Level 1 text of the Regulations themselves, and thus the application of the ESG DA amending MiFID II should be on a ‘reasonable best efforts basis’ without any supporting Guidelines until all relevant legal matters are clarified. Furthermore, we expect supervisors to take proportionality into account in their supervisory practice: without guidelines or legal certainty sustainability preferences could be requested from retail clients, for which there is no answer, and thus, co-operative banks will have to find a proportionate and flexible solution. Furthermore, the data related to PAIs will mostly be dependent on reporting under the Corporate Sustainability Reporting Directive (CSRD), of which data cannot be expected before January 2025. It would thus be helpful if the guidelines would indicate that the mandatory PAIs as laid down in the SFDR RTS, do not need to be considered.
- Negative effects on consumers: It has already been observed by clients of co-operative banks that the introduction of MiFID II heralded information overload issues via the quantity and complexity of questions asked to clients and transparency documentation. With these proposed guidelines, the client will be faced with additional information regarding sustainability preferences and to a level of detail that was unprecedented in any client information to date. It will prove to be very difficult to educate clients on sustainability preferences as mentioned in the ESG DA amending MIFID II, as these complex concepts are currently moving targets and the level of technical jargon is hard to translate to clients (even though it has to be used as this is the complex language mandated by current regulations). Furthermore, it should be taken into account in this context that at the present time there are very few products that precisely cover all specific ESG objectives. An unnecessarily detailed query process would have to be established, for whose client preferences there is no sustainable instrument in accordance with Article 2 (7) Delegated Regulation (EU) 2017/565 in case of doubt. We thus propose tht a non-mandatory common consumer dictionary could be set up by ESMA that translates the technocratic language into understandable elements for consumers, as an Annex to the Guidelines. We also request ESMA to go into more detail on how behavioral insights have played a role in the construction of the Guidelines.
- Costs and benefits: ESMA has included a cost-benefit analysis in the consultation paper which states that the proposed guidelines provide more benefit than costs in the form of legal certainty and harmonised application of the requirements across the Member States. We do not agree with this rather favorable analysis conducted by ESMA, although it is impossible for us to state how much implementation of these guidelines would cost for co-operative banks. We believe assessing sustainability is something completely different than testing the current financial risk/return parameters, and there are certain legal uncertainties in the Level 1 regulation and RTS that cannot be fixed via the Guidelines. We therefore do not support the assumption ESMA makes about overall costs, and that very few changes must be implemented by firms because most of the relevant systems, processes, and docunmentation are already in place since MiFID II.
Please download our position paper for our detailed responses to the questions in ESMA’s consultation paper.