The Financial Conduct Authority has announced that it will not extend its Sustainability Disclosure Requirements to portfolio management at this time, in a move that was welcomed by the industry.
In an update, the FCA said it wants to take time to carefully consider the challenges and ensure that portfolio managers are positioned to implement the regime effectively before introducing requirements.
It comes after the regulator announced in February that it would delay its decision on portfolio management.
“We have decided that it is not the right time to finalise rules on extending SDR to portfolio management,” the regulator said in a statement. “We intend to prioritise the forthcoming multi-firm review into model portfolio services. This review will focus more broadly on how firms are applying the Consumer Duty to provide confidence that investors are receiving good outcomes from model portfolio services.”
The announcement was welcomed by industry commentators.
Gemma Woodward, head of responsible investment at Quilter Cheviot, said: “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 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.”
Woodward said the adoption of SDR labels has taken far longer than most would have expected and after initial confusion around what could and could not qualify, the fund industry faces a lengthy backlog.
“Applying SDR to portfolio management at this stage, therefore, was clearly not an option,” Woodward continued.
While it appears the move has been kicked down the road, it is not clear whether it has been cancelled altogether and Woodward noted that 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 added: “Wealth managers and financial advisers too should take note. Furthermore, the FCA has made it clear that the Consumer Duty will still play a role in ensuring customer understanding of what they are investing in, while the anti-greenwashing rule applies across the board so consideration still has to be made.
“What is needed now is clear communication from the FCA and wide engagement from the industry to ensure that any future change that can be implemented is done so with plenty of time and comprehensive understanding of what is expected.”
Jake Moeller, associate director, responsible investment at Square Mile Investment Consulting and Research, commented: “We have been supportive of the SDR to eliminate the misrepresentation of sustainability credentials in the fund management industry, but we welcome the postponement for its application to portfolio management services (PMS).
“The FCA has recognised the concerns that have previously been raised including the 70% threshold for labelling, the appropriate criteria for PMS and the use of currently out-of-scope building blocks, to name a few. There are considerable touch points and moving parts for PMS providers, not just with respect to construction but also distribution.
“The anti-greenwashing rules are already in effect to all authorised firms so the FCA’s willingness to listen and potentially engage further on achieving a workable PMS application within SDR is to be commended.”
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