The FCA is set to require intermediaries to take into account sustainability issues when advising clients, in line with rules introduced on the continent earlier this year.
In a discussion paper published today (November 3), to coincide with COP26 Finance Day, the FCA invited views on potential criteria to classify and label investment products, and said it was minded to introduce specific rules for advisers.
Europe's Sustainable Finance Disclosure Regulation, which came into force at the start of 2021, already makes sustainability-related demands of advisers. However, its rules were not onshored prior to the UK's exit from the EU.
The FCA is now introducing its own Sustainability Disclosure Requirements for firms involved in investment management and decision-making processes.
The regulator said: "Building on existing rules, a key aim will be to confirm that [advisers] should take sustainability matters into account in their investment advice and understand investors’ preferences on sustainability to ensure their advice is suitable.
“We will develop proposals on this in due course, working with government.”
"We welcome any views on this approach and any particular considerations that we would need to take account of in our proposals.
Plans to classify sustainable investments into distinct groups may also be aligned with existing SFDR categories, the regulator said in its discussion paper.
The changes will focus specifically on sustainable investment labels, consumer-facing disclosures for investment products, client- and consumer-facing entity- and product-level disclosures by asset managers and FCA-regulated asset owners.
The labels and criteria are intended to help consumers navigate their sustainability characteristics and the input received will guide the FCA’s policy design in this area, ahead of consultation on new proposals in spring next year.
The FCA said these proposals aim to build trust in the market, enhance transparency in the interest of consumers and meet certain information needs of institutional investors.
This paper comes as last month, chancellor Rishi Sunak yesterday published a roadmap for the UK’s SDR to help investors understand whether the firms’ practices align with their own sustainability preferences.
Alongside the discussion paper, the FCA also published its ESG strategy and priorities.
The regulator said its aim is to support the financial sector in driving positive change, including the transition to net zero.
Ahead of COP26, there has been a strong focus on climate change and the role of finance in supporting the transition to a net zero economy, it explained.
Companies and consumers are increasingly looking beyond climate change as they consider wider environmental issues, such as nature and biodiversity, as well as social and governance issues, such as diversity and inclusion, the living wage, fair taxation and supply chains.
“But there is a risk of harm if the financial sector responds to rising consumer demand and awareness of ESG issues without a supportive regulatory foundation and adequate guard-rails,” the FCA said.
“So, ESG matters are high on the regulatory agenda. If the financial sector is going to help support the transition to a more sustainable future, market participants and financial services firms need high quality information, a well-functioning ecosystem and clear standards.”