Compliance Alert

The FCA recently issued an Authorized Fund Manager (AFM) letter  which details the actions they think AFM firms should take to improve the quality and clarity of Environmental, Social and Governance (ESG)/sustainable investment fund applications, and indeed what they expect to see from existing funds, by providing guiding principles help funds comply with existing requirements.

ESG and sustainable investment funds are currently the fastest growing segment of the European funds market, reflecting increasing investor appetite for these investments. The growth of ESG themes in investment funds have the potential of being a powerful resource in addressing sustainable investment goals, such as addressing climate change. Furthermore, a well-functioning ESG and sustainable investment market is crucial for the proper allocation of capital in order to achieve a net zero economy. 

However, the FCA has seen a high volume of poor-quality applications for authorisation of funds with an ESG focus, which may negatively impact consumers. In addition, they have stated that often ESG and sustainability funds do not contain sufficient, clear information explaining their chosen ESG strategy and how this relates to the assets selected for the fund.

The FCA, as well as consumers, expect funds to contain this level of information at the outset, and continue through the lifecycle of the product. With this in mind, it’s key that firms understand their compliance obligations. 

Download our latest guidance sheet, which outlines:

• What the FCA is looking for
• What do the FCA’s Guiding Principles require
• Considerations for firms applying these principles
• Looking at the Future – what’s next?