COVER STORY 5
„ The new regulatory changes will add to the complexity and challenges distributors and advisers are facing. Christophe Girondel Global Head of Institutional and Wholesale Distribution at NAM
As Benjamin Franklin, one of the founding fathers of the US, once famously expressed: ‘nothing is certain except death and taxes’. However, in the European investment industry, there has been another certainty in life over recent years: regulatory change. Interest in investments that consider environmental, social and govern- ance (ESG) factors has been rapidly rising in recent years. At the same time, EU regulators have been rolling out a raft of new initiatives to improve disclosure levels and overall investor understand- ing of sustainable investments with the aim of directing investments towards a more sustainable future. Earlier this year, regulators implemented the Sustainable Finance Disclosure Regulation (SFDR), requiring financial market participants and advisers to disclose relevant information related to the sustainability of their products and processes. One of the major aspects of SFDR is the classifi- cation of investment strategies into three groups: Article 6, 8 and 9 products. Strategies promoting environmental or social characteristics are labelled as Article 8, while those with sustainable invest- ments as the investment objective are Article 9. New regulatory challenges While SFDR was a major step forward in terms of labelling and disclosures in relation to investment vehicles, it was merely the tip of the regulatory iceberg. The next major stop on the regulatory journey for asset managers, distributors and advis- ers is the amendment of the Markets in Financial Instruments Directive, or MiFID II for short, which comes into effect on 2 August 2022. Among a host of MiFID II requirements is one major change: going forward, distributors and financial advisers need to incorporate sustainability preferences in the overall client suitability assess- ment. “While determining client sustainability preferences is something some advisers and dis- tributors are currently choosing to do, it will soon become something everyone must do,” Christophe
Girondel, Global Head of Institutional and Whole- sale Distribution at Nordea Asset Management (NAM), explains. “And even though it may seem like August is still quite a way in the distance, the clock has started ticking and preparation must begin right away.” Increasing complexity Should the end investor indicate sustainability preferences, the identification of a suitable product will rest with the distributor or adviser, not the asset manager. However, asset managers will need to provide all the product suitability information re- quired by the distributor and adviser in the assess- ment process. Even though some advisers may still be grappling with the SFDR fund classifications, the MiFID II regime goes above and beyond the SFDR product categorisation. “The new MiFID II requirements will add to the complexity and chal- lenges that distributors and financial advisers are facing. For example, a fund classified under SFDR as Article 8 today may not be suitable under MiFID II,” Girondel explains. “Distributors and advisers have a lot of choices ahead. Firstly, there is a need to choose whether you will operate a sustainabil- ity product offering alongside a more traditional
At a glance ` On 2 August 2022, changes to MiFID II will come into effect that make it mandatory for distributors and financial advisers to actively inquire after their clients’ sustaina- bility preferences and incorporate them in the overall suitability assessment ` NAM strives to be a strategic partner to distributors and advisers, supporting them every step of the way and helping them understand what is required ` In addition, NAM has invested to be able to offer all the building blocks needed for distributors and advisers to construct their sustainable offerings
ISSUE 02.2021
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