FCA delays next steps on sustainability disclosure requirements due to volume of feedback

The UK Financial Conduct Authority has announced a delay to the implementation of its Sustainability Disclosure Regulations (SDR), citing the volume of feedback it received in response to a recent consultation.

The FCA’s proposals set out a labelling and disclosures system aimed at reducing potential harm to retail investors from mislabelled or confusing products. The standard set out three labels, one for impact, a sustainable focus label with a minimum sustainability threshold, and a sustainable improvers label for transitioning firms and stewardship funds.

Around 240 market participants responded to the consultation, the FCA said in an update published on Tuesday. It will be therefore delay publication of its policy statement “to take account of the significant response”.

The UK regulator had said in its initial consultation that it would publish the final statement by the end of H1 this year, but it will now be published in Q3. The dates from which SDR will take effect will also be pushed back.

Feedback was broadly supportive of the proposed regime and its outcomes, the FCA said, and it received “rich, constructive” feedback on some details.

As it considers the responses, the FCA said it would be considering its approach to marketing restrictions, refining some specific criteria for the labels, and clarifying how different products, asset classes and strategies can qualify for a label, including multi-asset and blended strategies. The regulator will also consider how to “further support compatibility” with international rules.

These topics address specific areas of criticism raised by respondents. The Institutional Investors Group on Climate Change, for instance, said it had “serious concerns” that the proposals “do not fully reflect how institutional investors are implementing blended climate investment strategies in practice”.

Concerns were also raised by UKSIF and retail platform AJ Bell over the treatment of multi-asset and fund of funds.

The regulator had initially proposed that all retail funds that did not qualify for a label would be banned from using sustainability-related terms in their names, but indicated that this stance may be softening. Concerns over the treatment of these funds were raised by Royal London Asset Management and UKSIF among others.

The update said that there “will be a place for all in-scope products within the overall package of measures. We agree it is important that consumers can navigate to those products that meet their needs and preferences. This includes products that may not qualify for a label, but nevertheless have some sustainability-related characteristics”.

Finally, the FCA confirmed its stance on two matters ahead of the final policy statement publication. It said that primary and secondary channels for achieving sustainability outcomes would not be prescribed, and that it will not require independent verification of product categorisation in order to qualify for a label.

James Alexander, UKSIF’s CEO, said that while the delay was “somewhat disappointing”, he was not overly concerned by the delays, given that they do not diverge too significantly from the original timetable.

“We are very pleased, and reassured, to see the regulator identify a number of envisaged implementation challenges for our industry, which we highlighted in our response” Alexander continued, saying that he was optimistic that the challenges could be addressed by the FCA, its Disclosures and Labels Advisory Group and the wider industry.

“UKSIF remains committed to working at pace and constructively to recommend, where appropriate, alternative solutions with the objective of further enhancing the rules’ operation ahead of these being finalised,” he continued.