Podcast: The Devil is in the policy detail – the role of ‘conduct’ regulation

Last year, The Financial Inclusion Centre published a major report called Time for Action – Greening the Financial System.[1] We are following up that report with a project called The Devil is in the policy detailwill financial regulation align financial market behaviours with climate goals?

As part of The Devil is in the policy detail project we are producing a series of podcasts on key regulatory issues. The first podcast provided a high level view of the approach being followed by the government and main financial regulators.

This second podcast looks at the role of the Financial Conduct Authority (FCA), though we also touch on The Pensions Regulator (TPR). We also cover what is happening at EU level. The UK may have left the EU. But, green finance regulation developed by the European Commission and European regulatory authorities will continue to have a significant impact on the future of UK regulation and behaviours of UK financial institutions.

The FCA is the lead UK ‘conduct’ regulator. That is, it regulates behaviours of financial institutions, and sets standards of market conduct. To promote climate positive behaviours, the FCA has developed a comprehensive strategy on climate change A strategy for positive change: our ESG priorities | FCA.

The FCA focuses on how financial institutions disclose compliance with climate goals. It wants consumers to have the appropriate information to make informed choices about green financial products and to mitigate the risk of ‘greenwashing’. It works with the other regulators that have a role to play in changing institutional behaviours.

The Department for Work and Pensions (DWP) and the TPR have introduced new statutory guidance for pension schemes on governance and reporting of climate-related risks and opportunities Climate change governance guidance | The Pensions Regulator.

The FCA is also working with the Financial Reporting Council (FRC) on creating a new regulatory framework for investor stewardship. The FRC itself is undertaking a range of initiatives to improve the way companies report on climate impact  FRC work on ESG and Climate related reporting. The work of the FRC will be covered in a later podcast by Professor Jarvis.

Recently, the FCA issued an important Discussion Paper DP21/4: Sustainability Disclosure Requirements and investment labels | FCA setting out initial proposals on how investment firms should classify assets and disclose compliance with climate goals. It also contained ideas for an investment label to help retail investors make informed choices.

FIC’s submission to DP21/4 can be found here:  Consultation responses | The Financial Inclusion Centre. It must be said that we are very disappointed in the FCA’s initial proposals on classifying assets and disclosure. We think that the proposals, as they stand, could lead to consumers being misled as to the green credentials of assets held within financial products and enable greenwashing.

To understand why, and to hear our views on the rest of the FCA’s strategy listen below.

We hope the podcast is informative and interesting. If you have any questions or would like further information on the project, please contact Mick McAteer on mick.mcateer@inclusioncentre.org.uk or mickmcateer92@gmail.com

[1] Time for Action – Greening the Financial System | The Financial Inclusion Centre