UPDATE 1-UK watchdog to soften sustainability disclosures for asset managers

LONDON, March 29 (Reuters) - Britain's financial watchdog said on Wednesday the introduction of new sustainability disclosure requirements (SDR) for asset managers to prevent greenwashing will be pushed back and softened to avoid excluding many funds.

The new requirements aim to stop asset managers over-inflating the sustainability credentials of investment funds they sell - so-called greenwashing.

The Financial Conduct Authority (FCA) issued a public consultation in October last year on classifying and labelling sustainable investment products, indicating it would issue final rules by the end of the second quarter of 2023.

The consultation received 240 responses which showed "broad support" for the proposed regime, the FCA said in a statement on Wednesday.

"To take account of the significant response, we intend to publish the Policy Statement in Q3 this year, and the proposed effective dates will be adjusted accordingly," the FCA said, adding it wanted to take into account any "practical challenges" in implementing the new rules.

The watchdog will also widen the scope products that are labelled as sustainable so fewer funds would be excluded.

"This includes, but is not limited to, considering our approach to the marketing restrictions, refining some of the specific criteria for the labels and clarifying how different products, asset classes and strategies can qualify for a label, including multi-asset and blended strategies," the FCA said.

The FCA said the new rules would clarify that it will not need independent verification of product categorisation to qualify for a sustainability label.

There will also be a place for all "in scope" products within the overall package of measures, it said.

"This includes products that may not qualify for a label, but nevertheless have some sustainability-related characteristics," the FCA said.

The Investment Association, which represent asset managers, has called for a more inclusive, less prohibitive naming and marketing rules to avoid funds falling out of scope of any label under the new rules, which would limit consumer choice.

The FCA added it will also seek "international coherence". Similar rules are being rolled out in the European Union and proposed in the United States. (Reporting by Huw Jones. Editing by Louise Heavens and Jane Merriman)