Allegations of greenwashing have been rising in the banking sector, prompting the FCA to propose a new "anti-greenwashing” rule to address greenwashing concerns. Under the proposed rule, any communication about financial services or products that claims sustainability characteristics, must be “clear, fair and not misleading” and consistent with the sustainability profile of the product or service.
Banks already face a complex legal and regulatory framework when it comes to providing financial services and products, whether they have sustainability-related features or not. The proposed new ‘general anti-greenwashing rule’ comes on top of these existing rules, as part of its package of measures to deliver a new sustainability disclosure regime (SDR) in the UK.
What do risk and compliance teams need to know?
If implemented as per the FCA's consultation, the proposed rule will apply to all FCA-regulated firms, which will include all UK banks, and is expected to be in play by the end of the year.
This would be a major new development to the legal and regulatory requirements which UK banks must comply with and will have far-reaching implications across their business, from ‘unregulated’ corporate and wholesale lending through to ‘retail market business’ in all its forms. It also means that, in the wake of numerous ASA decisions in respect of UK banks in relation to ‘greenwashing’, this topic will once again need to be a major focus of banks’ risk and compliance teams.
It is important for compliance teams to be aware that the rules would apply to all customer communications – not just those in relation to marketing new financial products, with an overarching objective being to protect consumers, in line with the FCA’s new Consumer Duty.
What will banks need to do?
Banks will be required to scrutinise the integrity of the existing sustainability statements and claims of all their financial services and products. This, in itself, will be a big undertaking that may require third party reviews and assistance. To assist in this task, we have developed an intuitive tool to accelerate firms’ risk assessments and exposure to this potential new rule and greenwashing risks in general. Get in touch for more information.
In addition, banks may need to develop internal taxonomies alongside firmwide training for staff on how to accurately discuss, describe and promote these products using correct terminology across all their communication channels.
Banks will need to start addressing the challenges now as the FCA have stated there will not be an implementation period, although timing is still uncertain. Those who aren’t prepared can expect fines, public censure and reputational damage.
Are you ready?