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Written by Matthew Raver
Managing Director

On 23 April 2024, the FCA published two documents related to the FCA’s upcoming sustainability regime.

The first of these is Consultation Paper, CP24/8: Extending the Sustainability Disclosure Requirements (SDR) regime to Portfolio Management.

The second of these is the Finalised Guidance FG24/3 on the Anti-Greenwashing Rule.

We explore both of these publications below.

Extending SDR to Portfolio Management

SDR refers to the FCA’s flagship regime on sustainability following similar initiatives in other jurisdictions. It covers sustainability disclosure requirements, investment labelling and anti-greenwashing. As reported in our Q4, 2023 newsletter, in November 2023, the FCA finalised rules relating to so-called ‘fiduciaries’ such as fund managers, life insurers and pension providers. The various requirements for such firms take effect between 31 May 2024 and 2 December 2026.

The regime that has been finalised applies to fund managers which includes UK alternative investment fund managers (“ AIFMs”) managing a UK AIF and a UK undertaking for collective investments in transferable securities (“UCITS”) management company that manages a UK UCITS. Consultation Paper CP24/8 sets out the FCA’s proposal for extending the regime to cover other types of buy-side activity apart from acting as a fund manager.

A summary of the FCA’s proposals is as follows.

  • Scope – type of firms

The FCA proposes extending SDR to firms carrying out portfolio management services. This includes firms with the regulatory permission, ‘Managing investments’, which therefore covers the discretionary management of segregated accounts. It also includes investment advisory activity, in relation to private equity or other private market activities, on a recurring or ongoing basis.

  • Scope – location of activity

The SDR extension would apply to firms that are FCA authorised and where the portfolio management activity takes place in the UK. This means portfolio management activity conducted at a non-UK branch would be out of scope.

  • Scope – clients

The SDR extension would apply where the firm’s client is UK-based. However, it would not apply where the portfolio management activity is with respect to a fund i.e., where the client is either the fund itself or is a fund manager. This would mean, for example, that SDR would not apply to a firm that has been delegated portfolio management by an AIFM or a UCITS management company.

  • Requirements – retail v non-retail

Recognising that SDR is slanted towards consumer protection, the SDR extension would apply differently to retail versus non-retail clients.

Retail Non-Retail
Labels (1) Can be used Can be used
Naming and marketing rules Applies Does not apply
Disclosure: scope Where firms are using labels or sustainability-related terms Where firms are using labels
Disclosure: consumer-facing (2) Applies Does not apply
Disclosure: pre-contractual (2) Applies Applies
Disclosure: product level (2) Applies Applies
Disclosure: entity level (3) Applies Applies

It should be noted that the anti-greenwashing rule covers all FCA authorised firms and therefore this is unaffected by the proposed SDR extension.

  • Timeframe

The FCA would like to implement the SDR extension in the second half of 2024, and in doing so proposes aligning the timeframe for portfolio management activity to that for fiduciaries such as fund managers.

– 2 December 2024: Portfolio managers can begin to use labels with accompanying disclosures, and naming and marketing rules come into force (NB: fund managers can use labels from 31 July 2024)

– 2 December 2025: Deadline for first ongoing product level disclosures, and first entity-level disclosures for firms with AUM of over £50 billion

– 2 December 2025: Deadline for first entity-level disclosures for firms with AUM of over £5 billion but less than £50 billion

When considering the buy-side holistically (i.e., both fund management and portfolio management activity) it is clear that the FCA intends SDR to be a UK-centric framework. Aside from anti-greenwashing which applies to all FCA regulated firms, the regime – broadly – would apply where either the client or the fund is in the UK, and there is a welcome carve-out for firms managing a fund under a delegated arrangement. In some circumstances this makes it less likely for a firm to be impacted by both the UK sustainability regime and similar regimes in other jurisdictions, such as the EU’s Sustainability Finance Disclosure Regulation (“SFDR”). The lighter touch requirements for non-retail fund managers and smaller fund managers indicate that the FCA is amenable to a proportionate approach and having regard to the focus on consumer protection.

The FCA requests feedback on its proposals by 14 June 2024.

Guidance on the Anti-Greenwashing Rule

On the same day as CP24/8 was published, the FCA also released the final version of its anti-greenwashing guidance.

The anti-greenwashing rule, which takes effect on 31 May 2024, applies to all FCA regulated firms. Firms are required to ensure that any reference to the sustainability characteristics (i.e., environmental or social characteristics) of a product or services is:

a) consistent with the sustainability characteristics of the product or service; and

b) fair, clear and not misleading.

This applies to communications to UK clients about a product or service, when communicating a financial promotion to a person in the UK and approving a financial promotion for communication (by an unregulated firm) in the UK.

At a high-level, the finalised guidance follows the previously published draft guidance. There is a focus on four ‘principles’ that must adhered to when making sustainability references:

  • Correct and capable of being substantiated;
  • Clear and presented in a way that can be understood;
  • Complete – they should not omit or hide important information and should consider the full life cycle of the product or service; and
  • Fair and meaningful, in relation to any comparisons to other products or services.

The guidance provides additional detail on each of these and sets out some practical examples.

About the Author

Matt Raver has been a Managing Director of RQC Group since 2013 where he supervises the teams dealing with technical regulation, regulatory change, regulatory submissions and technology. With over 22 years’ experience in regulatory compliance and over 400 FCA Applications under his belt, Matt is an invaluable member of our team as the “consultants’ consultant” and advises the group on technical regulatory matters and change.


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