Suitability versus Sustainability in the Regulation of Investment Services

Firms providing investment services to clients are required by MiFID II Level 2 regulation to take account of their sustainability preferences. This article critiques the way in which sustainability has been integrated into the complex suitability frame work, highlighting the inherent conflicts between the two principles involved and discussing the problems raised by this integration. It argues that the difficulties arising from this integration stem from deeper theoretical foundations within the legal system, noting a significant shift from a liberal-individualistic paradigm, characterised by systemic stability, endogeneity of production and linearity of evolution, to a positivist-collectivist paradigm introducing elements of discontinuity, exogenous norma tive production and non-linear evolution. This transition reflects a broader shift in European regulatory policy, with profound legal implications. It also examines the practical consequences of the conflict, revealing its potential adverse effects and suggesting that these issues can be addressed through hermeneutic solutions that emphasise a clear conceptual distinction between a client’s investment preferences and investment circumstances, the differentiation of sub-types of the suitability canon and a broad application of the proportionality principle.