FCA proposes extending SDR to include portfolio managers and confirms anti-greenwashing rule

Experts are concerned the timeframe for the new rules is too tight

Rules designed to help investors understand the sustainability of UK-based funds could be expanded to include portfolio managers, following an announcement by the Financial Conduct Authority. It also announced that its new anti-greenwashing rule will come into force at the end of May.

Coming into effect in December 2024, the Sustainability Disclosure Requirements offer funds four voluntary labels that can be used to describe their sustainability characteristics. The regulator estimates that around 630 UK-based funds use sustainability-related terms, 45 per cent of which will use its investment labels.

On April 23, the FCA said it would consult until June 14 on whether to include portfolio management within the scope of the SDR. It has proposed extending the same sustainability disclosure requirements to portfolios that will be applied to funds. 

For a portfolio to use a label, at least 70 per cent of its assets will need to be invested in line with the label’s sustainability criteria, the consultation said. This threshold sat at 90 per cent for portfolios in a previous proposal by the FCA.

“The tricky part … is the very tight timeframe,” said law firm Linklaters financial regulation partner Raza Naeem. “The FCA expects UK portfolio managers to comply with the naming and marketing rules from December 2 … when in fact the final rules will only be published in the second half of 2024.”

Paris Jordan, head of responsible investing at wealth management company Charles Stanley, described the proposal as “very ambitious, bordering on unrealistic”, adding that it “fails to recognise that portfolio managers have not been required to train or upskill in sustainability and will struggle to meet its ambitions within the timeframes proposed”.

A spokesperson for the FCA said: “We are proposing to apply a similar approach to labelling for portfolio managers as introduced for fund managers last year, to have a consistent approach and create a level playing field with voluntary labels.” 

“We received detailed, supportive feedback from the consultation last year and our recent engagement with portfolio managers has helped us refine our proposals for this sector,” they added.

‘Very tight turnaround’

The regulator provided some clarifications about its anti-greenwashing rule, which will compel all companies under its remit to ensure their products are “fair, clear and not misleading” in their communications.

As well as confirming when the rule will enter into force, the FCA provided examples of good practice that include social and environmental case studies.

“We welcome clarifications around the rule’s application to products and services’ sustainability claims, and the additional good practice case studies,” said Oscar Warwick Thompson, head of policy and regulatory affairs at the UK Sustainable Investment and Finance Association.

“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.

Linklaters managing associate James Morris said: “Lots of firms had been hoping for a delay to the FCA’s anti-greenwashing rule and guidance to give time for implementation as they are so broad.”

Paul Dennis, investment director at financial adviser Holden & Partners, added: “There is a lot to do and for many smaller firms they are going to struggle from a resource perspective.”

This article was updated on April 24 to include comments from the FCA.