The Financial Conduct Authority (FCA) has abandoned plans to extend its Sustainability Disclosure Requirements (SDR) regime to the portfolio management industry despite “broad support” for the move.
In February 2025, the FCA announced it would no longer publish a policy statement in Q2 2025 that would put MPS under the scope of SDR, saying it was aware that it was taking longer than expected for some asset managers to comply with SDR and the labelling regime, and of the potential impact this might have on portfolio managers.
However, after spending more time considering feedback and taking into account “wider regulatory work affecting portfolio managers”, the FCA has said now is not the right time to finalise rules on extending SDR to portfolio management.
“We intend to prioritise the forthcoming multi-firm review into model portfolio services (as announced in the Asset Management & Alternatives portfolio letter),” the FCA stated.
“The review will focus more broadly on how firms are applying the Consumer Duty to provide confidence that investors are receiving good outcomes from model portfolio services.
“We remind firms of their obligation to comply with the anti-greenwashing rule, which came into effect on 31 May 2024.”
Key feedback
The FCA highlighted key feedback it received from its consultation on the subject.
Initially, the regime was expected to come into force for portfolio managers by 2 December 2024, but respondents called for more time to make the necessary changes, for the regime for UK funds to bed in and for greater clarity on the extension of SDR to funds in the Overseas Funds Regime.
A tiered approach to disclosure, including consumer-facing, product-level and entity-level reports, was broadly supported, with some respondents calling for clarity on practical considerations and how they interact with other sustainability reporting requirements.
Likewise, a proposal that portfolio management offerings to retail investors are subject to the naming and marketing rules, for example, was received positively, but there were calls for clarity on how they apply to different types of portfolios and client relationships.
This was in line with feedback received on scope, with respondents questioning how it would be applied to bespoke portfolios, and how the rules should apply to agent-as-client models where the adviser acts as a professional client of the portfolio manager.
The FCA also initially proposed that a portfolio could use a label where portfolio managers determine that it meets certain qualifying criteria. Respondents questioned how this would work in practice, given the different roles and responsibilities that a portfolio manager has, the resources available, and the types of products and services offered compared to asset managers.
Industry reaction
The investment industry has expressed disappointment but not surprise as the SDR announcement on MPS.
Neill Blanks, managing director at MainStreet Partners, commented: “The latest FCA SDR update would suggest that they are not ruling out scrapping it for MPS providers in the future, but for now they have other priorities.
“From our perspective this is very disappointing, but it’s not the first time that we have seen the can being kicked down the road as it were. We have been in conversations with MPS providers over the last six months who are keen to be at the forefront of Sustainability investing within the space and were looking forward to having more clarity from the FCA in terms of the specific requirements in order to qualify to use a similar SDR type label for MPS.
“We look forward to continuing the dialogue as there is obviously client demand and would expect the subject to come back on the FCA’s agenda in due course.”
