UK Financial Conduct Authority Consults on Extending Sustainability Disclosure Requirements Regime to Portfolio Management

The U.K. Financial Conduct Authority published a consultation paper on April 23, 2024 on the possibility of extending the Sustainability Disclosure Requirements and labeling regime to portfolio management firms. Responses to the consultation should be submitted by June 14, 2024.

The SDR regime was introduced in November 2023, applying a new anti-greenwashing rule to all FCA-authorized firms and a range of disclosure, labeling and naming/marketing requirements to U.K. asset managers.

The FCA is now proposing to extend the disclosure, naming/marketing and investment labeling requirements to U.K.-established portfolio management firms (i.e., those that manage investments or private equity and other private market activities involving advising on or managing investments). Wealth management services for private individuals and model portfolios for retail investors will primarily be captured given the consumer focus of the rules. The FCA is not intending to include services for clients based overseas nor where the portfolio management is provided to a client that is a fund.

It is proposed that portfolio managers would be able to use one of the four sustainability labels (sustainability impact, sustainability mixed goals, sustainability focus or sustainability improvers) if the relevant general and specific criteria for using those labels are met. If providing services to retail customers, firms must comply with naming/marketing and disclosure requirements whether they are using labels or only sustainability-related terms. Firms providing services to professional customers do not have to comply with naming and marketing rules and are only required to comply with the related disclosure requirements where they are using labels (not if they only use sustainability-related terms).

It is proposed that the labeling, naming/marketing requirements and consumer-facing and pre-contractual disclosures would come into force on December 2, 2024. Product-level disclosures would come into force on December 2, 2025. Entity-level disclosures will need to be made by December 2, 2025 for firms with AUM greater than £50bn, and from December 2, 2026 for firms with AUM greater than £5bn. The FCA plans to consider the feedback to the consultation and publish final rules in Q2 2024.

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