FCA eyes extension of ‘anti-greenwashing’ SDR rules to investment portfolio managers
The UK’s Financial Conduct Authority (FCA) is considering extending rules designed to combat ‘greenwashing’ among asset managers to additionally apply to investment portfolio managers, as part of fresh proposals launched for consultation yesterday.
The Sustainability Disclosure Requirements (SDR), which were introduced for asset managers in November 2023, are aimed at improving trust among consumers in sustainable financial products, setting out green labels and marketing rules for investment products to help consumers understand what their money is being used for.
But in a new consultation paper published yesterday, the regulator confirmed its previously trailed intention to further extend the scope of the rules to apply to investment portfolio managers, covering model portfolios, customised portfolios and/or bespoke portfolio management services.
It noted that, since the requirements and the labelling regime had initially been developed “primarily for retail investors”, the proposals in the consultation paper are targeted at “wealth management services for individuals and model portfolios for retail investors”.
By extending the requirements, the FCA said it was aiming to “minimise greenwashing” and protect consumers from the “associated harms”, as well as increase the use of standardised information on sustainability to help support informed decisions on sustainable investments.
Success of the rules is to be measured in several different ways, including through the FCA’s usual supervisory work, the assessment of the usefulness of SDR labels and disclosures to consumers, and monitoring for signs of greenwashing by analysing complaints and supervisory intelligence.
If the proposals are adopted, it would mean portfolio management offerings would be able to use one of the four SDR labels – Sustainability Impact; Sustainability Mixed Goals; Sustainability Focus and/or Sustainability Improvers – if at least 70 per cent of the gross value of the assets within the portfolio are invested in line with the sustainability objective and other qualifying criteria.
Naming and marketing rules will also apply if the offerings are aimed at a retail audience, alongside a requirement for portfolio managers to produce consumer-facing disclosures if using a label or adopting sustainability-related terms without a label, the FCA consultation states.
Portfolio managers will also need to produce pre-contractual sustainability disclosures and ongoing product-level disclosures, the FCA added.
“Confirming the new anti-greenwashing guidance and our proposals to extend the Sustainability Disclosure Requirements and investment labels regime are important milestones that maintain the UK’s place at the forefront of sustainable investment,” said Sacha Sadan, director of environmental, social and governance at the FCA. “Our good and poor practice anti-greenwashing examples will help firms market their products in the right way. We continue to work closely with the ASA and CMA to address greenwashing.
“Consumers care about investing in products that have a positive impact on the planet and people. That is why we want to boost the integrity of the market and ensure people can make informed decisions about how to invest their money.”
The consultation runs until 14 June, with the intention of allowing portfolio managers to use labels alongside compliance with naming and marketing rules from 2 December 2024. It also plans to hold a review of the SDR rules and labelling regime after three years.
Fund managers will be able to begin adopting the four SDR labels from 31 July 2024. From 2 December 2024, the naming and marketing rules will come into force for fund managers as well, while the deadline for first ongoing product-level and entity-level disclosures for firms with over £50bn AUM will be 2 December 2025; and a year later for firms with more than £5bn in AUM.
The FCA noted, however, that foreign funds will be exempt from complying with SDR for the time being, as the Treasury previously signalled it will consult on whether the requirements should be added to the upcoming Overseas Funds Regime (OFR).
Oscar Warwick Thompson, head of policy and regulatory affairs at the UK Sustainable Investment and Finance Association (UKSIF) welcomed the FCA’s updated guidance on its greenwashing rules today, but warned that “we do have concerns on the tight implementation timetable”.
“We fully support the FCA’s efforts to address greenwashing risks and introduce high-quality standards to address exaggerated and misleading claims that fail to meet consumer expectations,” he said. “The turnaround for implementation is very tight, and we will continue to work with our members to help them get to grips with this guidance and the rule.”
He added that it was “great to see” the FCA consulting extending SDR rules to portfolio management services. “We saw risks in the original proposals in the CP on potentially very few portfolio management services being able to qualify for the labels,” he said. “Now we are committed to working with the FCA and others to ensure other gaps are addressed, such as gaining clarity on the approach to overseas funds and pensions products.”
A version of this article originally appeared at Investment Week.
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