FCA reforms omit cost to investors

The Financial Conduct Authority (FCA) has been urged to research the potential cost implications for investors of its proposed sustainability regulation reforms.  

The Treasury Committee’s Financial Service Regulation Sub-Committee’s examination of the FCA’s fund labelling proposals revealed the regulator has failed to analyse the possible costs to consumers. 

The FCA has proposed the introduction of labels to reduce exaggerated or misleading sustainability-related claims of investment products. 

The rules would exclude approximately 70% of all retail investments and result in substantially higher costs for the industry and consumers.  

However, the FCA has failed to calculate the potential costs to consumers of switching out of funds that will be excluded under the FCA’s criteria.  

During the session, employees from the FCA were asked if the regulator had conducted research into the cost for investors who will change funds. 

Mark Manning, technical specialist for sustainable finance and stewardship at the FCA, said: “We have not got a figure for that and it’s quite a theoretical exercise at this stage.” 

However, Manning admitted the cost for investors “is not going to be zero.”   

Harriett Baldwin, chair of the Treasury's sub-committee on financial services regulation, said: “There will be some consumers who will be affected, will incur a cost that they were not anticipating, and you have not done any work on what that cost might be. 

“So, there’s going to be a cost, but you haven’t worked out, or estimated, or even tried to estimate what the cost might be.” 

In the evidence session, James Alexander, chief executive at UK Sustainable Investment and Finance Association (Uksif) remained in support of the proposals as they are a “very positive direction of travel.” 

He added: “We know that we need to build trust of investors and consumers in the space. That’s what these rules propose to do, to create that market confidence, to create integrity in the market and to build trust of savers.” 

This continues the group’s approval for the proposals as it praised the FCA for setting a “higher bar” than the EU in January.