Luxembourg transposes certain provisions relating to the integration of sustainability factors into the product governance obligations

Author: Neil Bezzina
Published on

The Grand Ducal Regulation of 27 July 2022 (the “2022 GDR”) amends the Grand Ducal Regulation of 30 May 2018 relating to the safeguarding of financial instruments and funds belonging to clients, product governance obligations and the rules applicable to the provision or reception of fees, commissions or any monetary or non-monetary benefits (the “GDR”) for the purpose of transposing Delegated Directive 2021/1269 of 21 April 2021 amending Delegated Directive 2017/593 as regards the integration of sustainability factors into the MiFID II product governance obligations.

Applicability

The new product governance obligations are applicable to credit institutions and investment firms that i) manufacture, create, develop, issue and/or design financial instruments (which also includes the provision of advice to corporate issuers seeking to launch new financial instruments) (“Manufacturers”); and ii) distribute, offer or sell financial instruments and investment services (“Distributors”).

Added Definitions

The 2022 GDR introduce a new definition of “Sustainability Factors” which cross refers to the definition as set-out in Regulation (EU) 2019/2088 on Sustainability-Related Disclosures in the Financial Services Sector, which reads as follows:

‘sustainability factors’ “mean environmental, social and employee matters, respect for human rights, anti‐corruption and anti‐bribery matters.”

Product Governance Obligations

Various amendments are being made in view of the required integration of sustainability factors in the product governance obligations of firms acting as manufacturers or distributors in relation to investment services and financial instruments.

Manufacturers

Manufacturers will need to ensure that:

  1. when identifying and highlighting the target markets for financial instruments, clients’ sustainability objectives are duly assessed and considered;
  2. the financial instruments’ sustainability factors need to be examined to ensure that they are aligned and compatible with the target market’s identified needs, characteristics and objectives; and
  • they duly disclose and provide distributors with all the required relevant information for the latter to be able to consider the sustainability related objectives of the client.

Distributors

Distributors will need to ensure that:

  1. products and services being offered and/or recommended are compatible with the sustainability objectives (if any) of the target market; and
  2. regularly review this compatibility.

Entry Date

The product governance rules introduced by the 2022 GDR will enter into force on 22 November 2022.

Get in touch with our team in Luxembourg for more information.

Go back