Treasury Sub-Committee questions regulators on sustainable investments, financial advice, and Solvency II
30 January 2023
The Treasury Sub-Committee on Financial Services Regulations today publishes correspondence on proposed changes to sustainable investments, broadening access to financial advice, and changes to bank reporting requirements.
- First Letter to the FCA
- First Response from FCA
- Second Letter to the FCA
- Second Response from the FCA
- Letter to the PRA
- Response from the PRA
The Sub-Committee takes the lead on examining regulatory proposals for financial services. It scrutinises proposals which are open for consultation from the Financial Conduct Authority (FCA), the Bank of England, the Prudential Regulation Authority (PRA), and the Payment Systems Regulator (PSR).
Last month, the Sub-Committee wrote to the FCA on plans to tighten regulations around sustainability labelling - which would determine the criteria an investment fund needs to meet before it can describe itself as ‘sustainable’, ‘ESG’, ‘green’ and other similar labels.
ESG (short for Environmental, Social and Governance) is a set of standards measuring a business’s impact on society, the environment, and how transparent and accountable it is.
In the response, the FCA assumes that one third of funds currently claiming to offer sustainable products would not qualify, and another third would not apply to be regulated. The regulator argues the proposals will increase consumer trust in ESG investments.
The Sub-Committee is interested in the FCA’s proposals in this area, particularly whether the reforms could drive funds away from ESG investing, and will be conducting further work in this space soon.
Commenting on the correspondence, Harriett Baldwin MP, Chair of the Financial Services Regulations Sub-Committee, said:
“The Financial Conduct Authority states that one third of investment funds wouldn’t qualify, one third wouldn’t apply for regulation under their new sustainability labelling proposals, and another third will qualify and apply. It isn’t clear what methodology the regulator has used to come to these suspiciously round figures, and if they have fully considered the consequences of their proposals for sustainable investing. That’s why we’ll be conducting further work in this area soon.”
Broadening access to financial advice for mainstream investments
Separately, the Sub-Committee wrote to the FCA on its proposals to broaden access to financial advice by allowing firms to provide a ‘core’ advice service which would be cheaper and simpler than that currently available.
In response, the FCA states there is “strong appetite” from consumers for their proposals, but it refuses to say how much cheaper this service is likely to be, for fear of being seen to set a “regulator-approved price”.
In a letter to the PRA, the Sub-Committee questioned new proposals arising from the review of Solvency II, which would change the reporting requirements required from financial services firms.
In response, the PRA sets out how it carries out cost benefit analyses when introducing new reporting requirements for firms, and gives examples where reporting requirements were no longer needed and have ended. However, the PRA does not give an overall figure of how much their reporting requirements are costing firms in total.