Banks and insurers are assessing customers' sustainability preferences with MiFID II and IDD

19 July 2022 - 8 min Reading time

Starting August 2, 2022, the new MiFID and IDD regulations on sustainability will come into effect, requiring financial institutions to inquire about their customers' specific sustainability preferences. This aligns with the goals of the Green Deal and the transition to a sustainable and more circular economy.

The aim of the European directives MiFID II and IDD is to make European financial markets more efficient and transparent while better protecting the customers of banks and insurers.

What is the Grean Deal? Show less

The Green Deal is the European Commission's plan to make the European Union climate-neutral by 2050.

Assuralia and Febelfin, the professional associations of insurers and banks, emphasize the financial sector's commitment to making the necessary efforts to make the various sustainability legislations a success.

The financial sector plays an increasingly significant role in the transition to a sustainable society and intends to continue doing so. New rules are meant to provide greater clarity for private investors about what sustainability entails. Banks, insurers, or intermediaries will, if the customer desires, take into account the customer's sustainability preferences when providing advice on investment and insurance portfolios or mandates in the context of asset management. This becomes an essential part of a customer's profile..

What changes from August 2?


Starting August 2, financial institutions will ask customers whether they are interested in sustainable investment and insurance products or not.

Banks, insurers, and intermediaries will explain what these sustainability preferences mean, provide information about the current market situation, and offer details on the range of sustainable financial products and instruments. This way, private customers will have the opportunity to become familiar with the offerings of sustainable investment and insurance products.

If the customer indicates an interest in such sustainable investment solutions, financial institutions will be obligated to inquire about sustainability preferences after assessing the customer's knowledge and experience, investment objectives, and financial capacity. This will be a crucial aspect of determining the customer's profile.

According to the updated MiFID and IDD guidelines, financial institutions must inquire about sustainability interest with each new customer or at the next update of the profile of an existing customer.

The ultimate goal is to align investment and insurance products with sustainability preferences and ensure that investors have a better understanding of the range of sustainable products and instruments.

Questions that Determine Your Sustainability Preferences


Customers showing specific interest in sustainable investments will be asked, in addition to other profile-related questions, about their sustainability preferences. This will be done through a series of concrete questions:

  • How you want the bank/insurer/intermediary to take into account any potential negative impact of the investment on people, the environment, or society when providing advice or offering investment and insurance products.
  • Whether you want the bank/insurer/intermediary to offer so-called sustainable investments, possibly with a specific minimum requirement. These are investments that pursue a specific and measurable impact on ecological or social aspects, as determined by the SFDR (Sustainable Finance Disclosure Regulation).
    • The Sustainable Finance Disclosure Regulation, or the regulation on sustainability-related disclosures in the financial services sector, comprises obligations related to information provision about the organization, services, and products to standardize sustainability performance.
  • Whether you want the bank/insurer/intermediary to offer taxonomy investments, possibly with a specific minimum requirement. These are investments in economic activities deemed "green" by the European Commission.

This information will be used to create the customer's profile. If the customer expresses specific sustainability preferences, these will be taken into account when providing advice for a particular product.

Positive Progress


The new rules represent a significant step towards a more sustainable society and are supported by financial institutions. It benefits everyone when customers are correctly informed about the existence of sustainable financial instruments and have the choice to communicate their sustainability preferences to their bank, insurer, or intermediary.

It ensures that the products offered better align with customers' personal expectations and beliefs regarding sustainability. These expectations and beliefs can vary from one customer to another, and it is noted that customers increasingly prioritize the sustainability of an investment. According to a recent IndiVille study commissioned by Febelfin, sustainability takes precedence over returns for 1 in 3 Belgians (28%). Younger investors even place more importance on sustainability (48%) than on returns (38%).

IndiVille Studie uitgevoerd in opdracht van Febelfin in maart 2022, online panel met 2164 Nederlandstalige en Franstalige respondenten.

However, sustainability is just one aspect of a customer's profile. Sustainable investments can certainly have a place in a diversified portfolio, but it's essential that the bank/insurer/intermediary ensures compatibility with the customer's financial capabilities and expectations.

But Many Challenges Ahead


Lack of data makes it challenging to implement the legislation

The implementation still presents several significant challenges, primarily because there is currently a lack of data for financial institutions to apply the legislation properly.

"Banks, insurers, and intermediaries require a wealth of data to link customers' sustainability preferences to specific financial instruments or products. And that data is not yet or insufficiently available. Companies will only be obliged to report annually on their sustainability characteristics from 2023 onwards," says Karel Baert, CEO of Febelfin.

Currently, financial institutions find it challenging to assess the extent to which products represent a green investment because they lack all the necessary information. Moreover, companies' reporting obligations will be phased in, further complicating the task for banks, insurers, and intermediaries.

Due to the complexity and incompleteness of the current European regulations, it may take some time before banks, insurers, and intermediaries can offer a product range that aligns with all individual sustainability preferences of the customer.

For customers with very specific sustainability expectations, there may initially be a limited range of options.

Taxonomy activities are highly specific green activities that currently make up only a small share of the global economy. Very few companies exclusively engage in taxonomy activities, and most are involved in a mix of taxonomy and non-taxonomy activities. Moreover, the taxonomy is currently limited to the environment (the E of ESG) and specifically to climate. This means that products targeting sectors not yet included in the EU taxonomy (such as circular economy, healthcare, social housing, education) will have a very low or no taxonomy component, even though they may be a sustainable investment.

But important initial steps in the right direction have been taken, although it will be a journey that will take some time.

"Sustainable saving and investing are on the rise. It was, therefore, essential to expand the MiFID and IDD directives with sustainability requirements so that the financial sector can make a positive contribution to a more sustainable society and fully fulfill its societal role."
Hein Lannoy, CEO Assuralia

More Information?


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