ESMA Publishes Guidelines on MiFID II Suitability Requirements, Affecting Malta’s Financial Firms

Introduction

The European Securities and Markets Authority (ESMA) has published its Final Report on Guidelines on Certain Aspects of the MiFID II Suitability Requirements, effective September 23, 2022. The guidelines aim to update existing regulations by integrating sustainability factors, risk, and client preferences into organizational requirements and operating conditions for investment firms in Malta.

Key Areas Addressed

The updated guidelines primarily address three key areas:

Sustainability

• Consideration of sustainability preferences when advising clients
  • Obtaining clear information from clients about their sustainability preferences
  • Assessing those preferences
  • Identifying suitable products that match client objectives
• Importance of staff training to ensure accurate and clear information to clients

2020 Common Supervisory Action (CSA) on Suitability Requirements

• Addressing common issues arising from the lack of sustainable products available
• Instances where clients do not specify suitability preferences or provide insufficient detail

General Guidance on the Suitability Process

• List of “good” and “poor” practices observed by National Competent Authorities during the 2020 CSA as guidance for firms

Impact on Maltese Financial Firms

Maltese financial firms must now consider sustainability preferences when advising clients. This includes obtaining clear information from clients about their sustainability preferences, assessing those preferences, and identifying suitable products that match client objectives.

Timeline

• Publication of translated versions on ESMA’s website: six months after publication
• Previous 2018 guidelines cease to apply: at the same time as the new guidelines take effect

Recommendations

Firms operating in Malta are advised to:

• Familiarize themselves with the updated guidelines
• Seek specialist advice to ensure compliance with the new regulations