UK FCA consults on ESG ratings regime

The UK Financial Conduct Authority (FCA) has published consultation paper CP25/34, setting out its proposed regulatory regime for environmental, social and governance (ESG) rating providers. This follows the government's draft legislation to bring this activity within the FCA's perimeter.

The proposed regime combines: (i) existing baseline standards set out in specific sections of the FCA's Handbook, including Threshold Conditions (COND), Principles for Businesses (PRIN), Systems and Controls (SYSC), the Senior Managers and Certification Regime (SM&CR) and General Provisions (GEN); and (ii) tailored requirements, informed by the International Organization of Securities Commissions, to address risks specific to ESG ratings. These tailored rules, set out in Chapters 3 to 6 of the consultation paper, focus on transparency, systems and controls, governance, conflicts of interest and stakeholder engagement.

While rating providers will be regulated, the FCA expects users to continue conducting due diligence to assess ratings' relevance and suitability, noting that the scope of regulation may require distinguishing between regulated and unregulated products. The FCA will monitor whether further guidance for firms on using ESG ratings will be useful.

The deadline for responses is 31 March 2026, with final rules expected in Q4 2026. The authorisation gateway is expected to open in June 2027, and the regime is scheduled to go live on 29 June 2028. In parallel, the FCA published a research note titled "Understanding the UK ESG Ratings Market: Findings from Our Surveys".

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