BaFin on the new sustainability exploration in investment advice and financial portfolio management

By Annabelle Rau on August 17, 2022

In a publication dated August 3, 2022, BaFin referred to the now applicable obligation of investment advisors and financial portfolio managers to conduct customer exploration with regard to the sustainability preferences of customers.

Customer exploration now also includes sustainability factors, which is why the suitability check and declaration is expanded to include the aspect of the customer’s sustainability preference.
The background is the Delegated Regulation (EU) 2021/1253 of the European Commission, which regulates the inclusion of sustainability factors, risks and preferences in certain organizational requirements and conditions for the operation of securities firms.
In practice, this means that investment advisors must now ask their clients about their sustainability preferences and may only recommend financial instruments to them that meet these sustainability preferences.
Sustainability preferences are divided into three categories:
- environmentally sustainable investments within the meaning of the Taxonomy Regulation (Regulation (EU) 2020/852)
- sustainable investments within the meaning of the Disclosure Regulation (Regulation (EU) 2019/2088).
- according to whether a financial instrument should take into account the most significant adverse impacts on sustainability, thereby excluding financial instruments with certain negative impacts, such as human rights violations and greenhouse gas emissions.
Concrete specifications on the design of the exploration are still pending, but are expected with regard to guidelines of the European Securities and Markets Authority (“ESMA“), which are only available in draft form so far.

BaFin points out that it will closely monitor the implementation of the new regulations and – where necessary – request securities companies to make improvements. Compliance with the new regulations will also be examined in the annual audit under the German Securities Trading Act.

Tags: BaFin, ESMA

Annabelle Rau

Annabelle Rau focuses on banking and financial services law, European financial supervisory law, and corporate law. Her advisory practice ranges from issues related to the regulation of traditional financial services to new FinTech business models, including crypto regulation. In addition, Annabelle Rau advises several listed companies on their general meetings and ongoing capital markets legal obligations.