UK fund sustainability rules head for EU clash, asset managers say

FCA signage seen at their head offices in London
Signage is seen for the FCA (Financial Conduct Authority), the UK's financial regulatory body, at their head offices in London, Britain March 10, 2022. REUTERS/Toby Melville

LONDON, Jan 26 (Reuters) - Britain's plans to regulate the way asset managers label sustainable investment funds would exclude many existing funds and clash with European Union requirements, the Investment Association (IA) said on Thursday.

The Financial Conduct Authority (FCA) has just closed a publicconsultation on its first set of sustainability disclosure requirements (SDR), aimed at clamping down on greenwashing, or exaggerated climate friendly claims.

The plans mirror rules already in place in the EU, known as SFDR, which have prompted asset managers to downgrade the sustainability ranking of many funds to avoid potential enforcement action from regulators.

Without changes, the FCA proposals would not serve consumers effectively or facilitate the transition to a more sustainable future, Chris Cummings, chief executive of lobby group IA said.

"The proposals contain aspects which are overly prescriptive and would exclude many existing funds, which are being sold legitimately to satisfied customers on the basis of a strategy related to responsible or sustainable investment," he said.

A pragmatic solution is needed to "set the bar right" for a sustainability labelling system, he added.

Asset managers in Britain, which oversee 10 trillion pounds ($12.40 trillion), manage many funds listed in EU centres such as Luxembourg and Dublin.

"There is a risk that products will be labelled as sustainable in one jurisdiction but not in another," said Abi Reilly, funds practice lead at consultants Bovill.

Cummings said there is currently "limited interoperability" between the FCA proposals and the EU rules already in place.

The IA said this "will present a challenge to global investment managers that run strategies across different jurisdictions".

The FCA has said it plans to publish final rules by the end of the first half of 2023.

($1 = 0.8064 pounds)

Reporting by Huw Jones; Editing by Alexander Smith

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