The Financial Conduct Authority (FCA) has offered firms temporary flexibility to comply with ‘naming and marketing’ rules under its Sustainability Disclosure Requirements (SDR) regime until 2 April 2025.

Since July 2024, managers of UK-based investment funds have been able to use investment labels on their products, and the FCA stated that firms should now be taking steps to ensure compliance with ‘naming and marketing’ and disclosure rules, which come into force from 2 December 2024.

While the regulator was “encouraged” to see good process with compliance, and a strong pipeline of fund applications from firms wishing to use the labels, it had become apparent that it has taken longer than expected for some firms to make the required changes.

In particular, those looking to use an investment label or to change the names of their products need more time to meet the higher standards and prepare the disclosures needed for the FCA’s approval.

“Given the importance of getting SDR right for investors, we are seeking to take a pragmatic and outcomes-based approach to provide further support to those firms which may need additional time to operationalise any changes required,” the FCA stated.

It is therefore offering limited temporary flexibility for firms to comply with ESG 4.3.2R to ESG 4.3.8R of the ESG sourcebook, or ‘naming and marketing’ rules, in relation to a sustainability product that is a UK authorised investment fund in “exceptional circumstances”.

These circumstances are when a firm has submitted a completed application for approval of amended disclosures in line with ESG 5.3.2R for that fund by 1 October 2024, and where the firm is currently using one or more of the terms ‘sustainable’, ‘sustainability’ or ‘impact’, or a variation of these terms, in the name of that fund and is intending either to use a label, or to change the name of that fund.

Firms must continue to comply with all other relevant rules, including the anti-greenwashing rules, the FCA noted, and these temporary measures do not apply to funds using other sustainability-related terms in their names that were not specified in the temporary flexibilities.

“The new naming rules are broadly consistent with our pre-SDR guiding principles, which firms should be complying with already,” the FCA continued.

“The guiding principles state that a fund that uses sustainability-related terms in its name could be misleading unless the fund pursues ESG/sustainability characteristics, themes or outcomes in a way that is substantive and material to the fund’s objectives, investment policy and strategy.”

The new naming rules for funds that are marketed or sold based on sustainability-related terms but do not have a label require funds to have sustainability characteristics and ensure that funds’ names accurately reflect those characteristics.

Commenting on the announcement, Investment Association chief executive, Chris Cummings, said: "We are pleased that the FCA has listened to industry and granted investment management firms additional time to comply with the SDR investment labelling rules.

"Our industry has been working hard and at pace to implement the SDR requirements, which will raise standards and improve confidence for investors in the market for sustainable investments. Today's announcement will provide firms seeking to apply labels to funds with the much-needed additional time to work together with the regulator to comply with the new regulation.

"We will continue to work constructively with the FCA and support our members to meet these deadlines, noting the more limited extension for firms complying with the 'naming and marketing' rules."

MainStreet Partners research associate, Bhavik Parekh, added: "By allowing this ‘temporary flexibility’, the FCA has given a little breathing room for funds to apply a label if they have ‘sustainability’ or ‘impact’ related terms in the name.

"This will allow further time for asset managers to complete the authorisation process (which is taking some longer than anticipated) and gives more time to prepare all the necessary documentation.

"However, it should be noted that for the vast majority of funds that are in scope of the naming and marketing rules, i.e. more general ESG funds, these will still have to comply by the 2 December."

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