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| less than a minute read

Does it do what it says on the tin?

This latest, quite forceful, intervention by the SEC looks set to raise the bar significantly on the clarity and fidelity of definition and description of investment funds. At first glance, this sounds very helpful to investors, especially less sophisticated ones, and is aligned with recent efforts by the UK FCA and ASA to challenge greenwashing by financial institutions. 

However, there is a risk that this goes further and has the effect of dumbing down or polarising the range of products on offer, in a way that reduces investor choice and prevents investment firms from offering hybrid products that do not fit neatly into categories, but might meet the requirements of a specific set of investors. This might be an example of a market where a regulatory sandbox, or close and collaborative cooperation between regulator and industry rather than aggressive rule setting, would deliver better outcomes to the market.

The Securities and Exchange Commission is trying to crack down on misleading marketing by requiring funds to prove that 80 per cent of their holdings match their names. The proposal under chair Gary Gensler would apply to everything from “core” and “growth” funds to those that purport to invest in “sin stocks” or claim to rely on “ESG” — environmental, social and governance investing factors. This “names rule” has been around for 20 years, but applied mostly to concrete terms such as “bond” or “equity” and explicitly excluded thematic investment strategies.


emea, external content, regulation, fs, risk, risk ic, united kingdom, english uk, americas, united states