While PIMFA is supportive of the intended purpose and spirit of the proposals put forward by the FCA, they fail to sufficiently take account of the unique requirements of the market for portfolio management and of retail investors.
In its response to the Regulator’s consultation, PIMFA has highlighted its significant concerns around the timing of the implementation. PIMFA has significant concerns regarding some of the proposals put forward by the Regulator and given those concerns, considers it may be unrealistic to believe the final SDR rules for portfolio management will be agreed by October. Even if they are, the final implementation deadline of 2 December does not provide adequate time for firms.
This would create a significant challenge for firms, placing considerable regulatory burden on them to complete structural work to meet the requirements for extending SDR to portfolio management in only six weeks.
PIMFA believes it is important to allow the SDR fund regime to embed properly, as the pace of implementation of the first tranche of SDR rules will influence portfolio management firms.
Firms in our sector will find it challenging to continue to work with some smaller fund houses and have them represented in their portfolios because these have not met the SDR labelling standards yet and will not adopt the labels for another year or two. This would unintentionally reduce choice of investments for portfolios and may affect end client outcomes.
Additionally, PIMFA is calling on the FCA to reconsider including bespoke portfolios in the SDR regime. Bespoke portfolios are not products, they are services, and more clarity is needed on how firms would be expected to apply a product label to a service-based investment approach.
PIMFA would also like to see the Regulator provide more clarity around the inclusion of overseas funds which are currently out of scope of the SDR and the role of portfolio manager when including them in portfolios. The current proposals make it difficult for investors to understand why SDR applies to some funds but not others making it difficult for them to make informed decisions.
Further, PIMFA would like to see the 70% threshold for labels lowered to avoid any unintended consequences for portfolio managers and avoid potential confusion that a lower risk portfolio cannot be sustainable. Portfolio managers may have a sustainable label for their higher risk portfolios (which will be heavily weighted towards equities) but not for their lower risk portfolios. This could be the case even though the underlying assets were the same, just in different weightings. This would imply that sustainable labels are only for higher risk (and higher return) portfolios.
Maja Erceg, Senior Policy Adviser EU and Government Affairs, PIMFA at PIMFA commented: “We are broadly supportive of the work the FCA is doing around SDR but the timing to agree the rules for portfolio management firms let alone implement them is not merely challenging, it is close to impossible.
“We have specific concerns around both the timeframe as well as labelling, which could cause confusion for retail investors, making it difficult for investors to understand why SDR applies to some funds but not others, such as overseas funds. This will make it challenging for consumers to make informed decisions about their investments.
“It is vital that these rules are agreed and implemented correctly. In order for these proposals to successfully meet the policy objectives, we strongly believe that it would be better to delay the implementation period by 12 months in order to give firms the time to comply with these rules.”
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