An international ‘techsprint’ to tackle so-called ‘greenwashing’ has been launched by financial services regulators led by the UK’s Financial Conduct Authority (FCA).
Thirteen authorities including the National Bank of Ukraine and Reserve Bank of India have confirmed their participation in the ‘Greenwashing TechSprint’, which is being run by the Global Financial Innovation Network (GFIN) – a grouping, chaired by the FCA, that has grown to more than 80 regulators and supervisory authorities.
The techsprint aims to develop a ‘tool or solution’ that can help regulators and the market effectively tackle the risks of greenwashing – when organisations make false or misleading statements about their environmental credentials – in financial services.
It is launched as the number of investment products marketed as ‘green’ or making broader sustainability claims is growing, the FCA states in its techsprint announcement this week. ‘Exaggerated, misleading or unsubstantiated claims about environmental, social and governance (ESG) credentials damage confidence in these products and the FCA wants to ensure that consumers and firms can trust that products have the sustainability characteristics they claim to have,’ the authority adds.
Participating regulators in the techsprint, which will run for three months, also include India’s International Financial Services Centres Authority (IFSCA), the Dubai Financial Services Authority and World Bank (Global Government Fintech lists all 13 at the end of this article).
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New UK rules for ‘sustainable’ investment products
‘As the demand for ESG-related products and services continues to grow, so does the risk of financial services firms potentially overstating their sustainability credentials to attract and retain customers and investors,’ notes an FCA webpage about the techsprint. ‘This “greenwashing” is a form of mis-selling, which may be deliberate or inadvertent. In protecting against greenwashing, we want to ensure consumers have access to “green” or sustainable financial products and services that meet their needs.’
Aspiring participants are provided with two ‘problem statements’, which are: ‘how can technology, including artificial intelligence (AI) and machine learning, enable regulators/supervisors to verify that ESG/sustainability-related product claims to retail consumers are accurate and complete’; and ‘how can technology help to monitor, collate and identify examples of greenwashing from financial services firms’ websites, social media platforms and other documentation or data which can also be shared across jurisdictions’.
The announcement of the techsprint comes almost six months after the FCA proposed a package of new measures including investment product sustainability labels and restrictions on how terms such as ‘ESG’, ‘green’ and ‘sustainable’ can be used. A consultation, steered by a 179-page ‘Sustainability Disclosure Requirements and investment labels’ document, closed in January. The consultation received about 240 written responses. The FCA plans to publish ‘policy statement’ between July and September.
The techsprint will be run ‘virtually’ using the FCA’s digital sandbox (test space). This sandbox is newer than the FCA’s more established regulatory sandbox, having been set up to help earlier-stage innovative projects. The digital sandbox has hosted two initiatives to date (the second was focused on solving regulatory challenges related to ESG data and disclosure).
Team members working on the greenwashing techsprint – which starts on 5 June 2023 (after an application period from 17 April to 21 May) and will conclude with a ‘showcase day’ in mid-September 2023 – include Matt Lowe, manager of the authority’s digital and data services team; and Geraldine Kraev, who is innovation manager for strategy and engagement.
GFIN’s cross-border testing progress
The techsprint marks a return to frontline visibility for GFIN, whose progress in terms of running multi-regulator sandbox-style (experimental) exercises such as this has to date been relatively modest.
GFIN consulted on the idea of a global sandbox five years ago (after a proposal by the FCA) and two years later ran what it referred to as a ‘cross-border testing’ trial. A subsequent ‘lessons learned’ document stated that the phrase ‘cross-border testing’ (CBT) was now preferred to ‘global sandbox’.
In October 2020 GFIN opened applications for its first official CBT cohort for projects looking to ‘test innovative financial products, services, business models or regulatory technology across more than one country or jurisdiction’. Twenty-three regulators participated, with Bank of Lithuania and Ontario Securities Commission as ‘lead regulators’ (38 applications were received from interested firms, with two – Bedrock AI of Canada and Business Reporting-Advisory Group of Poland – taking forward their propositions to live tests).
The June-September 2022 period saw the FCA ‘scoping CBT 2.0’, with ‘September 2022 – present’ assigned as ‘CBT 2.0 Design to Launch Phase’, according to GFIN’s annual work-plan for 2022-2023. The greenwashing techsprint is ‘CBT 2.0’.
GFIN Greenwashing TechSprint: participating regulators/organisations
- Central Bank of Bahrain
- Central Bank of Georgia
- Dubai Financial Services Authority
- Financial Conduct Authority – UK
- Financial Services Commission – Mauritius
- International Financial Services Centres Authority (IFSCA) – India
- Malta Financial Services Authority
- National Bank of Ukraine
- Reserve Bank of India
- SEC Philippines
- SFC Colombia
- Taiwan Financial Supervisory Commission
- World Bank Group
UK financial regulator establishes innovation advisory group – our article (8 February 2023) on the membership of a new FCA innovation advisory group
GLOBAL GOVERNMENT FINTECH LAB 2023: REGISTER NOW
Ravi Bhalla, head of the FCA’s innovation department and chair of GFIN, is among the speakers at the Global Government Fintech Lab 2023, being held in Dublin on Thursday 18 May 2023. The Lab, our one-day event for senior public servants interested in exploring and implementing fintech solutions, is being organised in partnership with Ireland’s Department of Finance. The event, which is free to attend for all public servants, will feature keynote speeches, panels and breakout sessions focused on fintech-related opportunities and challenges for those working in central government, agencies and other public authorities.