Speaking at a Good Money Week (GMW) event run by SRI Services on 5 October, manager of ESG policy and advisory team at the FCA Sara Woodroffe said the UK regulator was grateful for the “excellent engagement” with all stakeholders across the industry following the consultation, and added the team has been seeking to “balance concerns and find the middle ground” while also having consumers at the heart of the requirements and aligning with Consumer Duty.
In October 2022, the FCA announced its long-awaited proposals on fund labels – ‘focus’, ‘improvers’ and ‘impact’ – and disclosure requirements at two levels – one for consumers that outline the product’s key sustainability-related features, and more detailed disclosures for institutional investors.
The FCA then consulted with the industry until end of January 2022 with the aim of finalising the rules by mid-2023. However in July, in a regulatory initiatives grid update, the FCA said there had been a “range of comments” and the policy statement and final rules would be pushed back to Q4.
Driving transparency
At the GMW event, Woodroffe said with global ESG assets expected to reach $34trn in the next three years “sustainability claims are at a high”. She flagged FCA research that found 70% of investors agree with the statement investment claims around sustainability are questionable.
“We know the landscape is complicated for consumers and there is a risk of greenwashing. We need to drive transparency in the market and investors and consumers are at the heart of our work.”
See also: How the sustainability disclosure requirements will impact DFMs
She said the FCA been engaging with the industry on how to “protect the integrity of the market with a clear framework”.
Referring to the challenges seen in the EU market with the Sustainable Finance Disclosures Regulation (SFDR), where funds are labelled either Article 6, 8 or 9, Woodroffe emphasised the importance of avoiding an hierarchy with the SDR fund labels.
“There is no hierarchy in the labels and that’s how consumers want to see it. Each [label] is designed to deliver a different objective,” she said.
“SFRD has become a labelling regime and hierarchy, which is not we want to achieve. However, we have have sought to be compatible for the benefit of firms subject to both regimes. [But} we also wanted our SDR to show other jurisdictions we have robust rules and we are helping this market grow.”
Further guidance
Woodroffe also hinted at how the FCA will be supporting firms going forward following the feedback.
“We had a huge response to the consultation and we are very grateful for that – it is important to get it right.
“We heard that the labels and marketing rules were too tough, and then we heard that we were exactly in the right place.
“We have been working to balance those concerns and find the middle ground.”
She also highlighted the anti-greenwashing rule and emphasised the need for “products to do what they say on the tin”. However, the industry expressed confusion on the best way to carry this out, and Woodroffe confirmed the FCA will be releasing guidance on this by the end of the year.
“We moved out publication date to Q4 of this year – and we are on track.”
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