The Financial Conduct Authority (FCA) has reversed plans to extend its new Sustainability Disclosure Requirements across the wealth management industry.
Previously it had said this disclosure fund labelling system would also apply to portfolio management. But the regulator has said that after consultation with the industry would not introduce SDR at present due to “practical challenges firms may have adopting the regime”.
This follows a delay to implementation, announced in February. In an update to the industry the FCA said: “We have decided that it is not the right time to finalise rules on extending SDR to portfolio management.”
Although it has not ruled out including portfolio management within the SDR at a later date, no timetable has currently been set to look at this issue again.
The SDR now applies to the retail asset management industry, with four distinct labels aimed at improving transparency and avoiding greenwashing. Asset managers which market green, sustainable or ESG funds can apply for one of these new labels. However take-up has been relatively slow, with industry figures saying there have been delays in getting these new labels approved by the regulator.
Within the workplace sector, schemes are not obliged to apply for labels for funds used within pension schemes, although a small number have started to do so.
This latest move by the FCA comes amid a political backlash against net zero from some quarters in the UK, and a wider move against further ESG measures in the US since the re-election of President Trump.
The move by the FCA to pause any further extension was welcomed by the industry. Quilter Cheviot head of responsible investment Gemma Woodward says: “Extending the Sustainability Disclosure Requirements to portfolio management was always going to be a difficult task given the often-unique relationship between a client and their intermediary.
“Given the delays seen so far, it is pleasing to see that the FCA has listened to the industry and understood that there would have been a significant impact upon the wealth management sector.
“The FCA rightly set a high bar with SDR, but as a result we have seen the adoption of its labels take far longer than most would have expected.
“After initial confusion about what could and could not qualify, the fund industry is now responding but there is a lengthy backlog. Applying SDR to portfolio management at this stage, therefore, was clearly not an option.”
She adds: “While it appears this move has been kicked down the road, it isn’t clear whether it has been cancelled altogether. The FCA will be watching how SDR embeds within the asset management industry closely and what will need to be done to extend the regime.”
She adds that the new Consumer Duty rules will also play a role in ensuring customers understand what they are investing in, while the regulator has made it clear anti-greenwashing rules apply across the sector.
