FCA Pushes Back Deadline for SDR Naming and Marketing Rules

On 9 September 2024, the FCA published a statement on its naming and marketing rules under the Sustainability Disclosure Requirements (SDR) regime, allowing asset managers more time to get ready for the new requirements.

The SDR is being implemented on a staggered basis; the new investment labels have been available for use by UK asset managers since 31 July 2024, but the naming and marketing rules (set out in ESG 4.3.2R to 4.3.8R in the FCA Handbook) are not due to apply until 2 December 2024. (See this Latham Client Alert for more detail.) The latter will apply to UK-domiciled products made available to retail investors in the UK that do not use one of the four sustainability investment labels but use sustainability-related terms. Broadly, these rules require the following:

• The product has sustainability characteristics, and the product’s name accurately reflects those characteristics (the sustainability characteristics of a product should be material to that product, meaning, for example, that at least 70% of its assets have sustainability characteristics).
• The terms “sustainable”, “sustainability”, “impact”, and any variation of those terms must not be used.
• Asset managers within scope of the rules must produce the same types of disclosures as required for a labelled product (consumer-facing, pre-contractual, and ongoing product-level disclosures).
• Asset managers must also produce and prominently publish a statement to clarify that the product does not have a label and the reasons why.

However, the FCA has become aware that some asset managers — particularly those that need to apply to use an investment label or need to change a fund’s name — require more time to make the necessary changes to comply with the new rules. Therefore, the FCA is allowing temporary forbearance, which will give asset managers until 5 p.m. on 2 April 2025 to comply with the new rules.

Asset managers should note that the FCA’s temporary measures, although helpful for those grappling with the approaching deadline, are limited in scope. The FCA has made clear they will apply only in “exceptional circumstances”, and when the asset manager:

• has submitted a completed application for approval of amended disclosures in line with ESG 5.3.2R for the relevant fund by 5 p.m. on 1 October 2024; and
• is currently using one or more of the terms “sustainable”, “sustainability”, or “impact” (or a variation of those terms) in the name of that fund and plans either to use a label, or to change the name of that fund. The measures will not apply to funds using other sustainability-related terms in their names (such as green, climate, or ESG).

Asset managers should also be aware that this flexibility comes with certain caveats:

• They should already be complying with the FCA’s guiding principles, which set out the regulator’s expectations regarding disclosures by funds that make ESG-related claims (see this Latham blog post). The new rules are based upon these guiding principles and so certain regulatory expectations are already in play.
• Asset managers able to comply with the rules in line with the original deadline are expected to do so.
• Asset managers that are unable to meet the 2 December deadline are still expected to comply with the new rules as soon as they can. Therefore, they should view the 2 April deadline as an absolute longstop date for compliance.

The FCA notes that asset managers facing difficulties in complying with any of the SDR requirements should speak to their FCA supervisor or supervisory contact. Firms should bear in mind that, while the FCA is helpfully offering some pragmatic flexibility, the SDR is a flagship regime for the FCA and it will want to see them complying as soon as possible. The temporary measures are not a panacea and have quite targeted application so any asset managers seeking to make use of them should ensure they meet the criteria and aim to comply as soon as possible.

The FCA has also consulted on extending the SDR to UK portfolio managers, and the final rules are expected in the coming months. The FCA proposed that the naming and marketing rules would also apply to portfolio managers from 2 December 2024, so these temporary measures might suggest that the FCA could rethink the timing for the extended regime, too.