Compliance check: Adapting to the FCA’s anti-greenwashing rule

The UK Financial Conduct Authority (FCA) has recently unveiled new guidelines to aid compliance with its forthcoming anti-greenwashing regulation, a development that every financial firm should be aware of. As the rule gears up to take effect on May 31 2024, professionals in the financial sector need to understand the implications and prepare accordingly.

This blog explores what the FCA’s new rule entails, how it affects the marketing of sustainable products and services, and how firms can ensure compliance using tools like Stand on The Right’s flexible financial compliance software.

Protecting consumers with clear sustainability claims

At the heart of the FCA’s new regulation is the goal to protect consumers by ensuring that sustainability claims about financial products and services are transparent and reliable. According to the FCA’s recent press release, the rule aims to safeguard consumers from misleading claims in the rapidly growing area of sustainable finance. This initiative is part of a broader regulation package adopted last year, which also includes an investment labels regime scheduled for roll-out in 2024.

Key aspects of the anti-greenwashing rule

The anti-greenwashing rule targets firms that make sustainability-related claims in their marketing materials. The FCA will scrutinise how terms such as “ESG,” “green,” and “sustainable” are used to ensure that such claims are fair, clear, and not misleading. Specifically, the rule applies to any firm that:

  • Communicates with clients in the UK regarding a product or service;
  • Communicates a financial promotion, or;
  • Approves a financial promotion for communication within the UK.

This broad scope ensures that all relevant financial promotions are covered under the new guidelines, thereby enhancing consumer protection.

What the FCA expects from firms

The FCA’s guidelines are clear about the expectations from financial firms when making sustainability claims. Claims must:

  • Contain clear, understandable, and accurate information that can be substantiated;
  • Be complete, meaning they should not hide or omit important information;
  • Be regularly updated to ensure ongoing accuracy for the lifecycle of the product or service;
  • Ensure that any comparisons made to other products are meaningful and relevant.

These stipulations aim to elevate the standard of financial promotions by enforcing integrity and transparency in sustainability claims.

Best practices and examples of misleading claims

The guidance also outlines examples of problematic claims and best practices to help firms align their marketing strategies with regulatory expectations. Problematic claims identified include promotions of investments as “fossil fuel free” despite contradictory details in the terms and conditions, claims of comprehensive sustainability reviews when only some aspects are examined, or marketing “green savings accounts” that misleadingly imply all other accounts are similar.

Starting July 31, the FCA will introduce investment labels to assist consumers in navigating the landscape of investment products and distinguishing between different sustainability objectives. These labels will include categories like sustainability impact, sustainability focus, sustainability improvers, and sustainability mixed goals, providing clear insights into the sustainability attributes of various investment offerings.

Leveraging compliance software for FCA readiness

As the deadline approaches, firms must ensure their compliance structures are robust enough to meet the FCA’s stringent requirements. Utilising sophisticated compliance software like Stand on The Right can significantly streamline this process. Our platform is designed to adapt to regulatory changes, providing firms with the tools they need to manage and monitor their financial promotions effectively, ensuring they stay on the right side of the new regulations.

For firms looking to simplify their compliance journey, Stand on The Right offers a flexible, reliable solution tailored to these evolving needs.

Get in touch to book your demo today!

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