17 June 2024
PIMFA calls for 12-month delay to implementation of Sustainability Disclosure Requirement rules for Portfolio Management
PIMFA, the trade association for wealth management, investment services and the financial advice and planning industry, has called on the Financial Conduct Authority (FCA) to delay the deadline for the implementation of Sustainability Disclosure Requirements (SDR) for portfolio management by 12 months, in order to allow firms sufficient time to implement the final rules.
While PIMFA is supportive of the intended purpose and spirit of the proposals put forward by the FCA, they fail to sufficiently take account of the unique requirements of the market for portfolio management and of retail investors.
In its response to the Regulator’s consultation, PIMFA has highlighted its significant concerns around the timing of the implementation. PIMFA has significant concerns regarding some of the proposals put forward by the Regulator and given those concerns, considers it may be unrealistic to believe the final SDR rules for portfolio management will be agreed by October. Even if they are, the final implementation deadline of 2 December does not provide adequate time for firms.
This would create a significant challenge for firms, placing considerable regulatory burden on them to complete structural work to meet the requirements for extending SDR to portfolio management in only six weeks.
PIMFA believes it is important to allow the SDR fund regime to embed properly, as the pace of implementation of the first tranche of SDR rules will influence portfolio management firms.
Firms in our sector will find it challenging to continue to work with some smaller fund houses and have them represented in their portfolios because these have not met the SDR labelling standards yet and will not adopt the labels for another year or two. This would unintentionally reduce choice of investments for portfolios and may affect end client outcomes.
Additionally, PIMFA is calling on the FCA to reconsider including bespoke portfolios in the SDR regime. Bespoke portfolios are not products, they are services, and more clarity is needed on how firms would be expected to apply a product label to a service-based investment approach.
PIMFA would also like to see the Regulator provide more clarity around the inclusion of overseas funds which are currently out of scope of the SDR and the role of portfolio manager when including them in portfolios. The current proposals make it difficult for investors to understand why SDR applies to some funds but not others making it difficult for them to make informed decisions.
Further, PIMFA would like to see the 70% threshold for labels lowered to avoid any unintended consequences for portfolio managers and avoid potential confusion that a lower risk portfolio cannot be sustainable. Portfolio managers may have a sustainable label for their higher risk portfolios (which will be heavily weighted towards equities) but not for their lower risk portfolios. This could be the case even though the underlying assets were the same, just in different weightings. This would imply that sustainable labels are only for higher risk (and higher return) portfolios.
Maja Erceg, Senior Policy Adviser EU and Government Affairs, PIMFA at PIMFA commented: “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.”
<ENDS>
NOTES TO EDITORS
About PIMFA – the Personal Investment Management & Financial Advice Association
• Read PIMFA’s agenda: ‘Creating a UK Culture of Thriving Financial Health’ here.
• PIMFA is the trade association for firms that provide wealth management, investment services and the investment and financial advice to everyone from individuals and families to charities, pension funds, trusts and companies.
• The sector currently looks after £1.65 trillion in private savings and investments and employs over 63,000 people.
• PIMFA represents both full and associate member firms. Full members provide a range of financial solutions including financial advice, portfolio management, as well as investment and execution services. They assist everyone from individuals and families to charities and pension funds, all the way to trusts and companies. Associate members provide professional services to the PIMFA community.
• PIMFA leads the debate on policy and regulatory recommendations to ensure that the UK remains a global centre of excellence in the wealth management, investment advice and financial planning arena. Our mission is to create an optimal operating environment so that its member firms can focus on delivering the best service to clients, providing responsible stewardship for their long-term savings and investments.
• PIMFA was created in 2017 as the outcome of a merger between the Association of Professional Financial Advisers (APFA) and the Wealth Management Association (WMA) with a history as a trade association since 1991.
Further information can be found at pimfa.co.uk
• Visit PIMFA’s public affairs web area here.