SRI related regulation, legislation & consultations

The following information points to some key relevant areas for the UK retail financial services community with an interest in sustainable, responsible and ethical investment.  (This is not intended to represent a comprehensive guide to legislative requirements or best practice.)

 

Ongoing UK consultation re fund objectives – FCA https://www.fca.org.uk/publication/consultation/cp18-09.pdf

Pensions: Pensions and Social Investment final report (government response June 2018)

 

Environmental Audit Committee Report for the House of Commons May 2018

 

 April 2018 FCA Fund Management Consultation Paper CP 18/9 includes the flowing points of interest for SRI investors:

What we want to change

1.17 To deliver improved fund disclosures we propose to:

• publish guidance reminding AFMs how they should express fund objectives and investment policies to make them more useful to investors. Firms should, when describing the objectives of their funds:

– explain clearly what they are looking to achieve and how

– explain the constraints that the fund’s portfolio construction may be under

– explain any non-financial objectives they have, for example the environmental or social objectives of an investment, and how they will measure and report progress against these objectives

Outcome we are seeking

1.21 Our proposals aim to make it easier for investors to choose the right fund for them. This should help them better achieve their investment aims. Additionally, our performance fees proposal promotes fairness in how such fees operate.

Source: https://www.fca.org.uk/publication/consultation/cp18-09.pdf

You can respond to this consultation by 5 July 2018 by emailing the FCA at: cp18-09@fca.org.uk

FCA Business Plan 2018-9

 

FCA discussion document: Transforming the Culture of Financial Services  March 2018 (TBC – there appears to be no mention of considering where funds invest or reflecting clients values.)

FCA Fact Find Guidance includes reference to the need to understand client’s ethical and political views – as examples of when a single core fact find may not be sufficient.

Interim government response to Law Commission Pensions and Social Investment report. December 2018

Law Commission report on Pensions and social investment – report finds ‘no legal barriers to social investment’ . June 2017

FCA June 2017 FAMR/ Asset Management Market Study Final Reporthere   (For references to ESG/Stewardship see p19, p20, p79)

EU PRIIPS  consultation – respond by March 2017 via this link (EOS recommendations not proceeding.)

Law Commission consultation on social investment and DC pension schemes Nov 2016 (See blog for responses).  LC to report May 2017

FCA Fact-finding requirements COB 5.2 – Know Your CustomerNote additional MIFID II requirements. 

 

 

 

The Pensions Regulator –  Guide to Investment Governance for pension trustees July 2016

FCA consultation paper on Social Impact Investment  2015/6

 


Statement of Investment Principles:

Since July 2000 pension scheme trustees have been required to include the following within their Statement of Investment Principles

  • the extent, if at all, you take account of social, environmental or ethical considerations when taking investment decisions; and
  • using the rights (including voting rights) attached to investments if you have them.

 

The information below is now a few years old and for reference only.

We are advised that the situation remains effectively unchanged however advisers may like to see  COBS 6.2A 1-22 or elsewhere for more up to date regulatory information.*

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FG12/15 – For Reference only.  This has been superceded (4/18).

Below are some brief bullet points indicating the main SRI related advice issues that became clear to sriServices following an analysis of the FSA paper FG12/15, which is now available via the link above.

Please see the ‘Advising on SRI’ page for  additional information and links.  The text below is lifted from a longer  analysis of FG12/15: FSA Finalised Guidance paper June 2012, “Retail Distribution Review: Independent and restricted advice” – which is available via commentary style our pdf.

Key SRI related points:

• Investment needs and objectives must be assessed on an individual basis so it will be rare that independent advisers will be able to rule out entire product areas – even if they specialise. (2.7)

• Advice must be fair, comprehensive, unbiased and unrestricted. (2.14)

• Advice on retail investment products must relate to clients’ needs (2.15) – not adviser processes or tools.

• Panels need to be sufficiently wide to enable advice to be comprehensive and fair (5.4).

• Advisers who use panels should be able to go ‘off panel’ for areas such as ethical/SRI investment to find funds that meet clients’ needs. (5.5 specifically references ethical/SRI)

• Platforms and model portfolios are viewed similarly to panels. If an adviser’s regular platform or portfolio solution does not meet the needs of an individual client – the adviser must look for alternative solutions that meet the needs of that specific client (to meet the ‘…comprehensive and fair analysis of relevant product markets’ rules – 5.6, 5.7, 5.12).

• If an adviser can identify a common market across all their clients (and market themselves as specialising in that area) they may be able to exclude certain retail investment products from the advice process (2.8)

• Common relevant markets are likely to be few in number but as well as ethical/SRI clients (explained in 2.6) this could include ‘Islamic Finance and charities and trusts (and annuities)’ (2.13 refers specifically to these latter three areas)

• Independent advisers can restrict themselves to only offering ethical / SRI products to clients who identify themselves as only being interested in that market. (2.6, 2.12 both specifically mention ethical/SRI) .

(The text above is lifted from a longer document which is available via our ‘Literature’ Page.)

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* The updated FCA text is less clear with regard to ethical investment & SRI however the principles of  ‘treating customers fairly’, ‘know your customer’ and being ‘true, fair and unbiased’ remain.

 

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July 2000 Amendment to the 1995 Pensions Act 

(Bringing ethical, social and environmental considerations as well as responsible share ownership to pension schemes, through additional SIP disclosure requirements)

  • Source: http://www.legislation.gov.uk/uksi/1999/1849/made

Source text:

(4) In Part III—

(a)in the heading to that Part delete “EXEMPTIONS FROM AND MODIFICATION OF REQUIREMENT TO OBTAIN”;

(b)after regulation 11 insert—

Additional content of statement of investment principles

11A.  The matters prescribed for the purposes of section 35(3)(f) of the 1995 Act (other matters on which trustees must state their policy in their statement of investment principles) are—

(a)the extent (if at all) to which social, environmental or ethical considerations are taken into account in the selection, retention and realisation of investments; and

(b)their policy (if any) in relation to the exercise of the rights (including voting rights) attaching to investments..

This information is for use by UK professional financial advisers only. SRI Services is not authorised to give investment advice, if you are an individual investor you can find an IFA on www.unbiased.co.uk. The information on this site does not in any way constitute advice or recommendation. The information and tools are intended to compliment, not replace existing adviser information sources. Investment decisions should not be based on the information contained on this site alone. Please confirm fund information with fund managers. We cannot be held in responsible for advice given as a result of using this site and are not responsible for the content of sites linked to this service, we do however of course take every effort to ensure the content of this site is as accurate as possible at time of publication.