ESG mandates for UCITS, AIFs, and MiFID Investment Firms

Amendments to the MFSA’s Investment Services Rulebook

21 June 2022

On 2 August 2021, several European Commission (the ‘Commission’) Delegated Acts (non-legislative acts adopted by the Commission to amend or supplement EU legislation) were published in the Official Journal of the European Union amending the current Alternative Investment Fund Managers Regulation (Commission Delegated Regulation) (the ‘AIFMR’), the Undertakings for the Collective Investment in Transferable Securities Directive (the ‘UCITS Directive’), and the Markets in Financial Instruments Directive II (‘MiFID’).

The amending measures form part of a broader regulatory package adopted by the Commission in late April 2021 as part of the EU’s Sustainable Finance Agenda aimed at developing a cohesive and comprehensive EU framework which prioritises environmental, social and governance (‘ESG’) considerations in its financial system and aligning such system with the objectives of the EU Green Deal. To this end, the Delegated Acts, operating in tandem with the Taxonomy Regulation and the Sustainable Finance Disclosure Regulation (‘SFDR’), place a new obligation on asset managers and investment advisers to capture information about their clients’ sustainability preferences and to comply with these when managing client portfolios.


The Delegated Acts are set to become applicable in the early days of August 2022. By the end of July 2022, EU Member States are required to have affected all the necessary amendments in their domestic frameworks to comply with the precepts of the Delegated Acts. To this effect, the Malta Financial Services Authority (the ‘MFSA’) has enacted several changes to its respective Investment Services Rulebooks to transpose the UCITS and MiFID Directives and to implement the AIFMR. The revised Rulebooks have entered into force as of 24 May 2022.

Who is in scope?

The enacted amendments bring within scope:

i. EU/EEA Alternative Investment Fund Managers (‘AIFMs’) and self-managed Alternative Investment Funds (‘AIFs’) (excluding ‘sub - threshold’ / ‘De minimis’ AIFMs);

ii. EU/EEA UCITS management companies (‘ManCos’) and self-managed UCITS;

iii. EU/EEA MiFID investment firms providing financial advice or portfolio management.


What are the new requirements?


Organisational requirements

UCITS ManCos and AIFMs (including self-managed undertakings) are required to take into consideration ‘sustainability risks’ as part of their existing obligations in relation to their organisational structure/policies and decision-making procedures, and to retain the necessary resources and expertise to achieve the effective integration of sustainability risks. They are also required to ensure that the integration of sustainability risks in the performance of their existing business activities falls within the responsibility of senior management through adequate reporting channels.

In particular, UCITS ManCos and self-managed UCITS are required to ensure, on an ongoing basis, the effective integration of sustainability risks into the overall management of the UCITS and taking into account the nature, scale and complexity of the UCITS’ business - an obligation which is currently not envisaged for AIFMs and self-managed AIFs.

Operating requirements

When identifying and assessing the areas/types of conflicts of interest that may impair the interests of the undertaking, AIFMs and UCITS ManCos (including self-managed entities) are required to include in their ‘Conflicts of Interest Procedures’, considerations of any conflicts that may arise as a result of the integration of sustainability risks into their processes, systems and controls. Greenwashing, mis-selling and misrepresentation of investment strategies are all referred to as potential sources of conflicts in the recitals of the Delegated Acts.

In addition, the amending measures compel asset managers and self-managed undertakings to account for sustainability risks and, where applicable, the principal adverse impacts of investment decisions on sustainability factors, as part of their due diligence in the selection and ongoing monitoring of investments. The modus operandi in terms of fulfilling such requirement should be disclosed under the SFDR.

MiFID investment firms

Organisational requirements

By virtue of the amendments effected to MiFID, and in terms of the relevant MFSA Investment Services Rulebooks, investments firms are now required to take into consideration sustainability risks when complying with MiFID’s organisational prerequisites by ensuring that appropriate organisational arrangements are in place, while internal controls, systems and processes are effectively adjusted to capture sustainability factors/risks.

Furthermore, sustainability risks are to be regarded when establishing, implementing and maintaining risk management policies as well as when detecting the types of conflict that emerge in the provision of investment and ancillary services and whose occurrence may prove harmful to the interests of a client.

Operating requirements

In line with the general MiFID precepts, investment firms are required to undertake a suitability assessment when providing financial advice or deciding on a client’s portfolio. The Delegated Act places an enhanced obligation on investment firms to account for their clients’ sustainability preferences in the course of their assessment as well as detailing the reasoning underlying the recommendations being given along with the manner in which those recommendations are aligned with clients’ investment objectives (including sustainability preferences), risk profile and loss bearing capacity.

Deloitte Malta will be closely monitoring developments in the furtherance of the EU’s Sustainable Finance Agenda.

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