The UK financial regulator has proposed new rules to reduce environmental laundering in ESG investing in a change that will affect how fintech companies label their products.

The Financial Conduct Authority (FCA) has said there will be restrictions on how words such as ‘ESG’, ‘green’ and ‘sustainable’ can be used in investment products.

The proposals are designed to give consumers confidence that ESG investments are free from false marketing and are part of a wider FCA efforts establish confidence in ESG investments.

“Greenwashing misleads consumers and undermines confidence in all ESG products. Consumers need to be confident that products claim to be sustainable, said Sasha Sadan, director of environment and social governance at the FCA.

The plans include three categories for sustainable investment products, one of which will classify products as improving their sustainability on an ongoing basis.

The FCA has proposed an anti-greenfishing rule that applies to all regulated firms.

Sadan added: “Our proposed rules will help consumers and firms build confidence in the sector. It supports investment in solutions to some of the world’s biggest ESG challenges. This puts the UK at the forefront of sustainable investment internationally.”

The FCA’s potential regulation will require companies to disclose information to consumers to help them understand how sustainable an investment is, as well as detailed messages for investors who want more information.

Investor platforms and other product distributors had to ensure that product labels and consumer information were clear and accessible.

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FCA proposes greenwashing rules to build trust in ESG investments