New rules from MiFID II come into force early next year and require the capture of clients’ ESG investment preferences and reports on the subsequent performance of investments against these criteria. A digital interface may be the solution to this latest compliance challenge.
The new rules regarding investments that account for Environmental, Social and Governance (ESG) conerns the latest requirements from MiFID II (EU Markets in Financial Instruments Directive), but compliance doesn’t have to mean more red tape. The right digital solution isn’t just a tick in the box or a way to avoid further administrative burden – it can enable an increase in client engagement and loyalty and deliver long-term growth.
What are the new rules?
From March 2021, clients must have the opportunity to express their preferences in relation to ESG issues and wealth management firms must demonstrate these have been addressed the same way as other suitability criteria. The requirement goes beyond asking the question – firms must demonstrate that they have taken sufficient care and have adequate processes in place to deliver against client goals and preferences.
In addition, reports must be provided in relation to these criteria. If, for example, the client expresses a strong preference for investing in companies with positive environmental outcomes and/or a low carbon footprint, then the performance of the portfolio must be assessed against these preferences.
