Member firms of the Personal Investment Management & Financial Advice Association (Pimfa) have requested a one-year delay to the implementation of the Financial Conduct Authority’s (FCA) Sustainability Disclosure Requirements (SDR) for portfolio management in a statement responding to the publication of the final rules.
While members “are supportive of the intended purpose and spirit of the proposals” in the consultation paper, Pimfa said it has concerns about some of the details and practicalities of the proposals, which do not take into account the specificities of the portfolio management market and the requirements of retail investors.
A 12-month delay, members argued, is necessary because the timing of the proposals is too challenging for the sector. The implementation timeline as currently proposed “puts a heavy regulatory burden on firms to complete structural work to meet the requirements for extending SDR to portfolio management”, the statement reads.
Additionally, Pimfa members asserted that, as the available investment universe of officially labelled products from which to construct portfolios is highly unlikely to be sufficient by December 2024, the FCA should first allow for the implementation of SDR rules for funds before extending the regime to portfolio management.
Other recommendations
The FCA is also urged to reconsider including bespoke portfolios in the SDR regime, as according to Pimfa’s statement, they “are not products, they are services”. More clarity, they argued, is needed on how firms would be expected to apply a product label to a service-based investment approach.
Clarity is also needed around the inclusion of overseas funds, according to Pimfa members, as they are currently out of scope of the SDR regime. The current proposal “makes it difficult for investors to make informed decisions and understand why SDR applies to some funds and excludes others”, according to Pimfa members.
The 70% sustainable investment threshold for labels also came under scrutiny, with Pimfa members suggesting it be lowered, or for it to apply solely to the equity component of a portfolio to “avoid any unintended consequence of portfolio managers building less diversified portfolios to meet the proposed threshold”, while also avoiding potential confusion that a lower-risk portfolio cannot be sustainable.
Finally, Pimfa members suggested the inclusion of a carve-out in the final rules that address retail client requirements for non-labelled responsible investments which seem to lack a ‘home’ under the current proposals. Members called for specific guidance on disclosures required for portfolios that incorporate ESG issues and promote responsibility in investing but do not have a sustainable objective.
