The AMF publishes the findings of its inspections on the consideration of client sustainability preferences

Since August 2022, the new European regulatory framework under the Markets in Financial Instruments Directive (MiFID II), supplemented by the revised ESMA guidelines that came into force in October 2023, has required investment advisors to consider clients’ sustainability preferences throughout the advisory process, in order to offer investments that are both tailored to their investor profile and to their sustainability objectives.

Sustainability preferences are non-financial criteria that allow clients to indicate the extent to which their investment should integrate environmental, social and governance considerations, beyond financial performance alone. They relate to the portion invested in activities or investments identified as sustainable under the European regulations, and to the attention given to potential adverse impacts on the environment and society.

In this context, between April and July 2024, the AMF carried out a series of "SPOT" (Operational and Thematic Supervision of Practices) inspections on the implementation of this new regulatory framework. These inspections were carried out at five investment services providers (ISPs), covering all stages of the service of investment advice, from the Know Your Customer questionnaire to the suitability statement that the advice provided fits the client's investor profile.

The institutions on the panel demonstrated their willingness to respond to the sustainability preferences expressed by their clients, in accordance with the requirements applicable under MiFID II. This has led to a gradual expansion of the financial instruments they offer to include this type of product.

However, this trend has highlighted the complexity of regulatory requirements and the technical difficulties involved in implementing them, particularly in terms of defining sustainability preferences, the availability of non-financial data and the adaptation of internal tools. Last November, the AMF and the ACPR (Autorité de Contrôle Prudentiel et de Résolution) published a joint initiative to support professionals in taking into account clients' sustainability preferences in a complex regulatory environment.

The main challenge for investment services providers was to incorporate these new requirements without undermining the pre-existing suitability system, which is based on an assessment of the client's knowledge and experience, financial situation, risk tolerance and investment objectives.

Without overlooking the difficulties involved in implementing these recent and complex requirements, the inspection team checked that the commitments made to clients were effectively implemented.

Following the inspections, the AMF found significant shortcomings in compliance with the applicable requirements, revealing discrepancies in the operational implementation of the regulatory obligations. Although some good practices were identified, they were not uniform across the panel. Since 2024, corrective measures and efforts to ensure compliance have been intensified. This was confirmed after the inspection reports were sent out. The AMF encourages professionals to continue their efforts to bring their practices into compliance and provide appropriate guidance to clients.

Among the good practices, the AMF noted the following approaches: 

• providing sufficient mandatory training for advisors on the subject of sustainable savings as part of the advisory process;
• inserting pedagogical explanations into the questionnaire or a compulsory document to help clients understand the concepts and purpose of the suitability assessment;
• categorizing the principal adverse impacts taken into account for sustainability factors into distinct groups to make them easier for clients to understand;
• adopting a cumulative approach when taking into account the sustainability criteria expressed by clients.

Among the poor practices, the AMF identified the following:

• not introducing a final assessment at the end of training courses, which restricts the ability to measure advisors’ level of expertise. The latter are both the last link in the chain guaranteeing that clients receive suitable investment advice and the first point of contact for investors;
• not explaining to clients, in the collection document, how the proposed qualitative thresholds translate into minimum percentages for taking their sustainability preferences into account in their investment portfolio;
• not specifying, for clients who did not wish to specify their sustainability preferences in the collection document, the nature of the sustainability criteria taken into account by the investment services provider when a generic profile is assigned.

About the AMF
The AMF is an independent public authority responsible for ensuring that savings invested in financial products are protected and that investors are provided with adequate information. The AMF also supervises the orderly operations of markets. Visit our website: https://www.amf-france.org/en