The Financial Conduct Authority (FCA) has written to asset managers warning that applications for new ESG products are often poorly drafted, fall below its expectations and can mislead investors.
In a letter to authorised fund managers (AFMs) published on Monday, the regulator said it expected to see “material improvements” in future applications for ESG products, as well as clear and accurate ongoing disclosures to consumers where funds make ESG-related claims.
It also said it wants to see funds deliver on their stated objectives and/or strategy.
Writing in the letter, FCA head of asset management supervision Nick Miller said the regulator had seen a high volume of applications for authorisation of funds with an ESG focus and a number of existing funds amending objectives, reflecting a quickly evolving market.
“We have seen numerous applications for authorisation of investment funds with an ESG or sustainability focus,” he said. “A number of these have been poorly drafted and have fallen below our expectations. They often contain claims that do not bear scrutiny.”
He added: “We are concerned by the number of poor-quality fund applications we have seen and the impact this may have on consumers. This must improve.”
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Principles for asset managers to adhere to
The regulator has developed a set of guiding principles to help firms apply its existing rules when submitting applications to launch new products.
It said the principles are there to ensure any ESG-related claims are clear and not misleading, both at the time of application and on an ongoing basis, so that consumers can make informed choices.
The principles are targeted at funds that make specific ESG-related claims, not those that integrate ESG considerations into mainstream investment processes.
“We will continue to scrutinise and challenge firms on their fund strategies and disclosures and to ensure that documentation submitted to us for authorisation meets our regulatory requirements,” the FCA said.
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