The trade association for wealth management, investment services, and financial advice, PIMFA, has urged the Financial Conduct Authority (FCA) to postpone the introduction of Sustainability Disclosure Requirements (SDR) for portfolio management by a year.
PIMFA supports the overarching goals of the FCA’s proposals but raises concerns that they do not fully consider the specific needs of the portfolio management market or retail investors. As per the association’s feedback during the regulatory consultation, the proposed timeline for implementing the SDR rules seems overly ambitious, especially with a final decision expected by October and a compliance deadline set for early December.
Given the tight six-week window post-approval, firms face a substantial regulatory challenge in conducting the necessary structural adjustments to comply with the expanded scope of the SDR to include portfolio management. This could place an undue burden on the firms within this sector.
Moreover, PIMFA has advocated for a slower roll-out of the initial SDR rules to ensure they are well-integrated. This cautious approach is deemed crucial as some smaller fund houses have yet to meet the current SDR labelling standards and may not do so for another couple of years, potentially limiting investment options for portfolio managers and impacting investor outcomes.
The association also recommends that the FCA reevaluate the inclusion of bespoke portfolios, which are tailored services rather than products, in the SDR framework. There is a call for clearer guidelines on how investment services should apply product labels to these unique portfolio strategies.
PIMFA’s concerns extend to the integration of overseas funds in the SDR framework and the role of portfolio managers in this context. The current proposals may confuse investors about the applicability of SDR to various funds, hindering their ability to make informed investment decisions.
Furthermore, the association suggests lowering the 70% threshold for SDR labels to prevent misunderstandings among portfolio managers regarding the sustainability of lower-risk portfolios, which might carry the same assets as higher-risk ones but with different asset allocations.
Maja Erceg, Senior Policy Adviser EU and Government Affairs at PIMFA, emphasized the impracticality of the current timeline. “We are broadly supportive of the work the FCA is doing around SDR but the timing to agree the rules for portfolio management firms let alone implement them is not merely challenging, it is close to impossible.
“We have specific concerns around both the timeframe as well as labelling, which could cause confusion for retail investors, making it difficult for investors to understand why SDR applies to some funds but not others, such as overseas funds. This will make it challenging for consumers to make informed decisions about their investments.
“It is vital that these rules are agreed and implemented correctly. In order for these proposals to successfully meet the policy objectives, we strongly believe that it would be better to delay the implementation period by 12 months in order to give firms the time to comply with these rules.”
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