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Climate change: are you ready for the inevitable regulation?

October 05, 2021

Richard Cooper looks at what we might expect in terms of oncoming climate change-related regulation and considers how advisers should prepare for it.

As we continue to move out of lockdown and into the autumn, let’s consider some of the ongoing and new challenges that advisers face. 

Challenges – and changes in regulation – do not just present risks but can be opportunities to improve and develop how we deal with clients and the propositions we provide.  So it’s a good idea to consider what a new set of challenges may mean to you or your clients – especially as some may have a heavy regulatory impact. 

In the 2021 Adviser attitude report from Aegon, 59% of advisers said they believe regulatory change has altered investment advice.  

PROD and MiFID II have already impacted on, and changed, advisers’ investment propositions.  We’re starting to see big strides in the ‘environment, social and governance’ (ESG) market in anticipation of the regulatory changes that may result from climate change. 

Consumer sentiment cannot be ignored – particularly when coupled with the increasing number of headlines on climate change and the issues society will face as a result.

The Financial Conduct Authority (FCA) is waiting for the UK Government to define their expectations and introduce associated the regulatory changes, needed to achieve their climate goals and emissions targets. 

The FCA and the UK Government are both committed to introducing regulation into the UK.  However, this may happen over a short time-frame and the resulting impact and changes are likely to be significant. 

The EU are further ahead in their journey and are already in Part II of their Sustainable Finance Disclosure Regulations (SFDR).

The UK Government has agreed to match the ambitions of the EU Sustainable Finance Action Plan, of which the SFDR forms a part.  It has also said requirements will be tailored to the UK market, but not too far removed from the EU SFDR.

The implementation of new ESG-focused regulations – such as SFDR – will help join the dots between sustainability and suitability.  This will bring investment propositions more into line with the government’s climate action plan when it is finalised. 

In anticipation of what is likely to come our way, advice firms and their advisers should not ignore this.  In fact, it’s worth reviewing what has already been proposed in the (EU) SFDR. 

Central investment propositions will continue to be developed in advance of any regulatory changes.  They will include more ESG funds and this could see an increase in outsourced models and the use of multi-asset funds. 

Advice firms and advisers who develop their central investment propositions and ESG offerings ahead of any regulatory or legislative changes, will be well placed to capture an increasing share of the market.

Richard Cooper is Business Development Manager in Professional Education at the London Institute of Banking and FInance

Tags: Richard Cooper
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