Regulations for UK ESG raters have been a long time in the making. For the past several years, the Financial Conduct Authority (FCA) has sought to expand its jurisdiction into ESG ratings markets. Now, after many consultations, the FCA has published final ESG ratings rules. A press release from the FCA describes its role in regulating the market, stating:
“The new framework brings ESG rating providers into FCA regulation for the first time, covering a market that plays an important role in investment decisions. The rules are designed to improve the transparency, reliability and comparability of ESG ratings, helping build confidence in the information investors rely on.
The regime applies to firms or organisations providing ESG ratings and assessments to ensure reliability across the market. The FCA has published guidance to help firms understand whether they may be in scope.”
Now that final rules are in place, firms will have until June 24, 2027, to register with the FCA. After that, regulations will enter into force one year later on June 29, 2028. The new rules are largely based on recommendations set by the IOSCO. Additionally, baseline regulations that apply to all FCA-covered entities will now apply to ESG rating firms under FCA authority. Notably, the final ESG ratings rules require firms to publicly disclose their rating methodologies. This is something long demanded by the public and long pushed back on by ratings firms. The rules do not appear prescriptive as some feared. Instead, they promote governance and transparency among raters.
Our members can learn more about ESG ratings here.
