MiFID II Regulation: ESMA Updates Financial Advisory Definition

In a recent development, the European Securities and Markets Authority (ESMA) has updated the definition of financial advisory under the EU's Markets in Financial Instruments Directive (MiFID 2) and regulation. This guidance aims not only to guide competent authorities but also to provide direction to supervised companies. Moreover, ESMA in collaboration with national regulatory authorities has begun a joint supervisory action on sustainability-related disclosures and the integration of sustainability risks. The main objective of this initiative is to evaluate compliance with relevant provisions in SFDR, taxonomy regulation, and corresponding implementation measures among supervised asset managers. Furthermore, the focus is on assessing compliance with the relevant provision on the integration of sustainability risks in implementing acts to UCITS and AIFM directive.

MiFID II Financial Advisory Definition: Evolving Financial Regulations in the EU

As the regulatory landscape continues to evolve, financial institutions, particularly asset managers and investment firms, are required to adapt. The European Securities and Markets Authority (ESMA) has recently updated the definition of financial advisory under the Markets in Financial Instruments Directive (MiFID 2). This development promises a more comprehensive understanding of financial advice and is set to strengthen compliance while reducing the risk of breaches. Financial institutions now face a more transparent delineation of their roles and responsibilities, facilitating improved regulatory adherence.

Simultaneously, ESMA and national regulatory authorities have kick-started joint supervisory action focused on sustainability-related disclosures. This collaborative endeavour aims to promote greater transparency and accountability within the financial sector, bolstering investor decision-making while encouraging companies to adopt more robust sustainability practices. In addition, ESMA's ongoing evaluation of compliance with the Sustainable Finance Disclosure Regulation (SFDR), Taxonomy Regulation, and the Alternative Investment Fund Managers (AIFM) Directive implies a likely boost in the enforcement of these critical regulations.

Asset managers, under the new directives, are required to integrate sustainability risks into their investment decisions, heralding a potential shift in risk management strategies and portfolio composition. This indicates a promising step towards more sustainable investment practices, benefiting not just the financial sector, but society at large.

To navigate this changing regulatory environment, financial institutions should immediately begin reviewing and enhancing their internal policies and procedures to match the revised financial advisory definition under MiFID 2. Concurrently, firms should gear up to meet potential shifts in sustainability-related disclosures mandated by SFDR and Taxonomy Regulation. Developing a comprehensive approach to integrate sustainability risks into investment decisions will also be crucial in adhering to changes in the UCITS and AIFM directives.

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ESMA updates its guidance on the definition of advice in a supervisory briefing

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