FCA announce limited temporary flexibility on the ‘Naming and Marketing’ rules

In September, the FCA announced an extension to the implementation timeline for the new naming and marketing rules under its Sustainability Disclosure Requirements and Investment Labels regime (SDR). The FCA observed it is taking some firms longer than anticipated to implement the new SDR rules, so in a show of support, it delayed the timeline for the ‘Naming and Marketing rules’ to Q2 2025.

Qualifying firms can rely on the regulator’s limited ‘temporary flexibility’, to delay compliance until 17:00 on 2 April 2025. 

What is the SDR?

The SDR is  a set of rules and guidelines that were published in November 2023 in the FCA’s  Policy Statement PS23/16 with the aim of:

• Protecting and helping consumers to navigate sustainable investment products in the market;
• Improving trust and transparency in the market; and
• Supporting the UK’s position as a world leader for asset management and sustainable finance.

The regime introduced the following key components:

• The anti-greenwashing rule for all FCA-authorised firms effective as of 31st May 2024;
  • The anti‑greenwashing rule, which can be found in the ESG Sourcebook (ESG 4.3.1R), makes it necessary for all FCA authorised firms to confirm that sustainability related claims must be clear, fair, and not misleading.
• Four distinct investment labels for UK sustainable funds available for use from 31^st July 2024; Sustainability Focus, Sustainability Improvers, Sustainability Impact and Sustainability Mixed-Goals.
• Entity level disclosure for firms with above £50 billion in AUM come into force from 2^nd December 2025 and those with above £5 billion in AUM from 2^nd December 2026.
• Consumer and product level disclosure requirements under the ‘Naming and Marketing’ rules came into force on 2nd December 2024 for firms that did not qualify for the temporary extension. Those that do qualify for the extension have until 2^nd April 2025.

Who is in scope of SDR?

Currently only UK firms and products are in scope of the regime. The key components apply as follows:

• The anti-greenwashing rules apply to all FCA-authorised firms in relation to communications to persons in the UK as pertains to the sustainability-related claims and characteristics of their products and services.
• The investment labels and disclosures rules apply to UK AIFMs and UK UCIT managers (the FCA is consulting on an extension to portfolio management firms, with an outcome expected in Q2 2025).
• The naming and marketing rules apply to UK AIFs and UCITs made available to retail investors.
• The regulator also introduced rules for FCA authorised distributors firms that ‘distribute’ and/or advise on investment products to retail investors in the UK. Distributors must:
  • Communicate, label and provide access to consumer facing disclosures to retail investors (on relevant digital media for the product, or using the channel they would ordinarily use to communicate information);
  • Keep labels and consumer facing disclosures up to date with any changes that the firm makes to a label or the disclosures;
  • Include a notice on overseas products to clarify they are not subject to the UK sustainable investment labelling and disclosure requirements; and
  • The notice must be (i) in a prominent place on a relevant digital medium, along with a link to the FCA webpage setting out more information for consumers, or (ii) communicated via the channel the distributor would ordinarily use.

The naming and marketing rules and the extension

The naming and marketing rules consist of the anti-greenwashing rule as mentioned above, as well as sustainability related terms only to be used in product names and marketing:

• Where the labels ‘Sustainability Focus’, ‘Sustainability Improvers’, or ‘Sustainability Mixed Goals’ the word ‘impact’ are not used; or
• They do not use a label but comply with the product name and marketing as set out below.

Product Name

• The product must have sustainability characteristics and the products name must accurately reflect those characteristics, but the terms ‘sustainable’, ‘sustainability’, ‘impact’ and any variation of those terms must not be used.
• Firms must produce the same types of disclosures as required for a labelled product.
• Firms must also produce and publish a statement to clarify that the product does not have a label and the reasons why.
• For a feeder fund, the product must only include in its name, terms which are consistent with those used by the relevant master fund and the asset manager must provide clients with easy access to the disclosures referred to above and produce the relevant statement.

Marketing

• Firms must produce the same disclosures and statement as those required when sustainability-related terms are used in the name of a product.
• For a feeder fund, firms must meet the same conditions as when sustainability-related terms are used in the name of the product.

Which firms qualify for the extension?

The extension is available to managers of UK authorised sustainable investment funds that:

• have submitted a completed application for approval of amended disclosures in line with ESG 5.3.2R for the fund by 17:00 on 1 October 2024;
• have a fund using either ‘sustainable’, ‘sustainability’, or ‘impact’ (or variation of those terms) in its name; and
• the Fund is intending either to use a label, or to change the Fund name.

It is important to note that firms must continue to comply with all other relevant SDR rules and where firms are able to comply earlier, they should do so.

How can Cosegic help?

If you are an FCA-authorised fund manager or distributor with sustainable UK products and uncertain about your next steps, we can help you:

1. Conduct a gap analysis against SDR rules:
   1. Assess compliance with the anti-greenwashing rules
   2. Review existing products and services for label eligibility
   3. Update existing policies and procedures
2. Assist with the label application process
3. Training: governance and team specific training on SDR requirements and the firm’s obligations.