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In depth

Deep dive into the key characteristics of the EU sustainable finance regulation

Markets in Financial Instruments Directive II (MiFID II)

Markets in Financial Instruments Directive II (MiFID II)

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The Markets in Financial Instruments Directive (MiFID II – Directive 2014/65/EU) is a Directive introduced by the European Commission to regulate and foster fair, transparent and efficient financial markets in the EU and to improve investor protection. Its rules are intended to boost trust and confidence in the financial industry while promoting the development of well-functioning and interconnected European capital markets.

MiFID II imposes a series of measures, which include:

  • The suitability assessment: when providing any type of investment advice and portfolio management services, investment firms shall assess whether any given investment is suitable for their clients, based on the clients’ characteristics (e.g., knowledge and experience, loss-bearing capability, investment objectives);
  • Greater transaction transparency: MiFID II strengthens the requirements regarding the “appropriate information” that an investment firm must provide in good time to its clients.

In April 2021, the EU adopted the Delegated Regulation (EU) 2021/1253 to further strengthen sustainability ambitions, which expands the existing MiFID II suitability assessment to include clients’ “sustainability preferences”.

Article 1 of this Delegated Regulation defines “sustainability preferences” as a client’s choice to invest in financial instruments that:

  • Pursue a minimum proportion of environmentally sustainable investments as defined by the EU Taxonomy Regulation (EU Taxonomy); and/or;
  • Pursue a minimum proportion of sustainable investments as defined in Article 2, point 17 of the Sustainable Finance Disclosure Regulation (SFDR); and/or;
  • Consider Principal Adverse Impacts (PAIs) on sustainability factors.

Following the amendments to the MiFID II, the European Securities and Market Authority (ESMA) updated the Guidelines on MiFID II suitability requirements (“Guidelines on certain aspects of the MiFID II suitability requirements”, the “Guidelines”), which provide guidance to financial firms in scope of MiFID II on the application of certain aspects of the MiFID II suitability requirements.