It has felt like an advent calendar of regulatory announcements in the last couple of weeks – covering everything from money market funds, the offshore funds regime and guiding principles around anti-greenwashing to the UK’s SDR policy statement.
The latest SDR announcement
Pretty much everyone in the industry would agree that the UK needs a framework for helping customers (and advisers) navigate the sustainable funds landscape. The FCA had the unenviable task of picking through 240 formal (in some cases very detailed) responses to their consultation and taking many other side-bar conversations with industry stakeholders on board. Inevitably, to get to the long-awaited policy statement, there have been compromises along the way. The industry now has the job of working out what this all means in practice.
The FCA themselves seem to appreciate that there will be multiple stages to the process of adoption – for now it is just investment funds that are in scope. Watch this space on the implications for other long-term savings products. Further consultation on what it means for portfolios will come in 2024. And the regulator is setting up an independent working group for the advice industry to look at building on existing capabilities in sustainable finance.
Keeping Customer Understanding in mind when it comes to sustainability
So, where does the customer sit in all of this? As ever, the devil will be in the detail. There needs to be consistent application of the labels, clearly articulated and with clear evidence that firms are delivering against non-financial objectives. The timelines are pretty tight for knocking fund documentation into shape in time for the new labelling regime which comes into force in July next year – given that the FCA wants fund objectives to reflect non-financial aims that might until now have sat quite happily in the detail of the investment policy. The jury still seems to be out on the governance implications of this.
Anti-greenwashing rules will come in ahead of this in May, while naming and marketing rules come into force on 2 December. Given the high bar on product governance and consumer understanding under Consumer Duty, it will be critical for firms to get their communications right on any changes they want to make – or in the way they talk about new funds coming to market.
Understanding your customer
Based in our Responsible Investment findings and subsequent segmentation, we know that customers have varying attitudes when it comes to sustainable investments. As firms look to communicate with their customers about the labels that pertain to their funds, it is imperative that they know how their customers feel about sustainability. Personalised communications, product testing and communication testing will make a big difference as we as an industry try to bring customers along as we navigate these new rules.
Chat to us if you need support as you grapple with SDR and its implications for your business.