FCA Delays SDR Expansion To Portfolio Managers

Financial Conduct Authority (FCA) has delayed implementing its plans to bring the Sustainability Disclosure Requirements (SDR) and sustainable investment labelling regime to portfolio managers. This follows widespread industry backing for expanding the scope of these sustainability-related regulations, highlighting the FCA's cautious approach to rollout in light of operational and compliance issues.

The expansion of the SDR regime, initially launched in April 2024, was set to cover wealth management activities and retail model portfolios and subject them to the same standards of sustainability transparency that were imposed on asset managers in November 2023. The initial SDR rules had required anti-greenwashing safeguards and established a labelling framework for sustainable investment funds, in order to promote higher consumer confidence and enhance the quality of ESG-labelled products within the marketplace.

Nonetheless, after a lengthy consultation process, the FCA revealed in February 2025 that it would postpone publication of its final Policy Statement on the planned expansion. In a recent statement, the regulator formally announced its intention to suspend the implementation, stating that there was a need for extra time to deal with issues of compliance and sectoral preparedness.

In total, there is wide support for bringing SDR into portfolio management with the majority of respondents viewing this as a critical step to advancing consumer outcomes," the FCA said. "But we'd like to spend time considering carefully the challenges and making sure portfolio managers are set up to do the regime before we introduce requirements.

Industry participant feedback indicated some operational challenges which would make adoption of the SDR rules under portfolio management applications difficult in the short term. The respondents highlighted concerns regarding simplicity in the implementation of the requirements for sustainability disclosures across different categories of portfolios and client arrangements, and the need for clarity around how the labeling and naming standards would interact with current disclosure regimes. Several maintained that in the absence of specific direction and sufficient time to prepare, the sector would be vulnerable to misunderstanding and likely non-compliance.

The FCA's action demonstrates a larger plan to support regulatory consistency and not overload financial institutions with repetitive or confusing obligations. Though the regulator continues to support transparency and accountability within sustainable finance, it is clearly putting a priority on implementation quality and practicality above quick roll-out.

Under the FCA, the delay will also enable a fuller review of how the SDR rules interact with other regulation regimes, both at home and abroad. This will involve considering how the changes proposed are compatible with new global ESG standards and disclosure regimes, so that the UK's stance is competitive but consistent on a global basis.

The delay has been met with both understanding and expectation by market stakeholders. There are many who appreciate the regulator's openness to hearing stakeholder input and emphasizing successful implementation. Others, however, look for more specific action plans and direction, particularly since firms have already started making preparations for change on the basis of the April 2024 proposal.

This delay does not constitute a backtracking from the FCA's sustainability agenda. Instead, it reflects a slower and more consultative process for reducing disruption while improving the credibility of ESG-connected investment practices. By slowing down the growth, the FCA reflects its sensitivity to the realities of the industry and its commitment to refraining from regulatory missteps that will jeopardize the objectives of the SDR.

As the UK continues to frame itself as a global leader in sustainable finance, consistency and clarity in regulatory requirements are still vital. Portfolio managers and wealth management companies now look to the FCA's revised guidance and timeline for extending the SDR, hoping that subsequent versions of the regime will more accurately mirror the realities of implementation and provide clearer guidance on how to operationalize principles of sustainable investment.

In the meantime, the industry will keep operating within the current framework implemented in November 2023, with asset managers spearheading the shift towards transparent and responsible ESG practices. The eventual extension of portfolio managers under the SDR is still expected, but only when the FCA is satisfied that the industry is well prepared to handle the needs of the changing regulatory environment.