The Sustainability Disclosure Requirements (SDR) currently apply to asset managers (fund management groups such as Fidelity and Blackrock) but will capture portfolio managers (including DFMs and advisory firms running their own ESG aligned portfolios) from December 2024 onwards.
PS23/16 also makes it clear that distributors (financial advisers and platforms) have an important role to play in ensuring that consumers receive the right information at the right time when it comes to sustainability related information.
Distributors will therefore be required to make sure that information containing the new labels and consumer facing disclosures are readily available to retail investors. Additionally, where a consumer is invested in an overseas fund, they should be made aware that this product is not subject to the new labelling and disclosure requirements.
The FCA has confirmed that they are looking to set up an independent working group for the advice industry to investigate this area further, particularly when It comes to the expectations of how financial advisers should assess suitability of sustainable investments in this new landscape, as well as how it intersects with MiFID II and Consumer Duty.
Being able to demonstrate how well you know your client will be crucial here as many firms have not focused on ethical preferences in the past and given the level of importance that the FCA appears to be attributing to SDR, there is little doubt that there will be regulatory focus in this area going forward to ensure that firms take the regime seriously.
As the regulator has made it clear that there is no hierarchy between the four new SDR labels, advisers need to investigate their clients’ aims carefully and understand how the labels could meet their preferences, and whether there is overlap between them.
It might seem that there are more questions than answers right now when it comes to how the labelling and disclosure regime will affect financial advisers, and how they are expected to assess suitability of sustainable products going forward. At Thistle Initiatives we are keeping a close eye on this and will provide updates when they become available.
Author - Thomas Purcell - Compliance Consultant
If you have clients already invested in sustainable products, be prepared to see potential changes occur from 31st July and beyond. This might result in your clients’ raising questions that they will expect you to be able to answer. If you need help, you know where we are!