Following a compliance review to examine how firms are incorporating sustainability considerations into suitability assessments, the European Securities and Markets Authority (ESMA) is calling for regulators to prioritize efforts to enhance compliance over taking enforcement action.
In a statement Wednesday, the umbrella group of European regulators set out the findings of a supervisory review that took place across the region over the past couple of years — which involved 89 investment firms and 153 credit institutions and 29 regulators — to examine the firms’ progress at implementing sustainability requirements into their suitability and product governance processes.
While the review found that firms are generally making progress at complying with the latest requirements, it also found that industry practices “remain uneven across firms and jurisdictions, and that further improvements are needed in several areas.”
Following the review — which comes alongside ongoing reforms to retail investor protection standards, a review of sustainability rules and a growing emphasis on reducing needless compliance burdens — ESMA called for regulators to adopt a “proportionate approach” to supervision in this area.
“This includes fostering dialogue with firms … rather than prioritizing enforcement actions,” it said — except in cases involving clear breaches or mis‑selling.
Longer term, the review of the sustainability rules “is expected to lead to a clearer and more coherent framework for sustainability‑related product disclosures,” ESMA said.
This, in turn, will also lead to revisions to the requirements for integrating these considerations into suitability and product governance processes that ESMA said will produce “simpler and more usable information for investors while reducing unnecessary burden for firms.”