Dear AFM chair | Release Date: 19th July 2021

To read a longer summary of this Dear AFM chair letter, click here.

To access the original FCA document, click here.

Short Summary

The FCA’s “Dear AFM Chair” letter highlights concerns about the standards of Authorised Fund Managers (AFMs) focusing on ESG and sustainable investment funds. With the rapid growth of ESG investments, the letter emphasises the importance of clear, substantiated claims about investment strategies and goals to ensure consumer protection and market integrity.

The letter points out several issues with recent fund applications, noting that many do not meet the FCA’s expectations. These applications often contain unsubstantiated claims and lack detailed information necessary for consumer understanding and regulatory compliance.

The FCA’s expectations include:

Detailed and clear descriptions of investment strategies and their alignment with stated ESG goals.

Accurate and reasonable marketing claims that reflect the true nature of the fund’s focus and operations.

Rigorous oversight and internal governance by AFMs to ensure all claims and fund activities comply with regulatory standards.

Additionally, the FCA has outlined a set of guiding principles in an annex to the letter. These principles are intended to aid AFMs in aligning their fund offerings with regulatory expectations, focusing on design, delivery, and disclosure related to ESG and sustainable investment claims.

Key take-aways for affected readers:

AFMs must ensure that all ESG-related claims are clear, substantiated, and accurately reflect their operations and strategies. Compliance with the FCA’s detailed guiding principles is crucial. AFMs should also prepare for regular updates and disclosures to maintain transparency and compliance. These steps are critical not only for regulatory compliance but also for building consumer trust and contributing effectively to the broader goals of sustainable and responsible investment.