FCA consults on new UK regulatory regime for ESG ratings providers

What does this mean?

The FCA’s consultation outlines a proposed regulatory framework for ESG ratings providers (‘providers’).  

What is an ESG rating

Under the draft legislation, an ESG rating is an assessment of one or more ESG factors that is expressed as an opinion, a score, or a combination of both. It is produced using an established methodology and a defined ranking system of rating categories. This is regardless of whether it is characterised as an ESG rating.

Importantly, an ESG rating is in scope where it is likely to influence a decision to make a specified investment, regardless of whether the rating is solicited or unsolicited.

Scope of FCA rules 

The FCA proposes that authorisation will be required where a firm provides an ESG rating, as defined above, and meets either of the following conditions:

• the activity is undertaken from within the UK, regardless of whether the ESG rating is supplied to users in the UK or overseas; or

• the ESG rating is provided to users in the UK, irrespective of where the provider itself is located.

This means that overseas ESG ratings providers serving UK users will fall within scope of the new regime and will need a UK presence and FCA authorisation to continue operating. The FCA will assess these firms under its Approach to International Firms, meaning providers must decide whether to establish a third-country branch or a UK-incorporated subsidiary.

Some ESG rating activities would fall outside the scope of regulation. For example, the regime will not apply to ratings already captured under existing regulated activities, such as ESG ratings produced by investment firms as part of their investment research or those developed by benchmark administrators to be used only in their index methodologies.

Proposed approach

The FCA proposes to use the following approach to regulating providers, building on IOSCO recommendations:

1. Applying ‘baseline’ FCA rules e.g. the FCA Handbook’s Threshold Conditions (COND), Principles for Business (PRIN), Systems and Controls (SYSC), Senior Managers and Certification Regime (SM&CR), and General Provisions (GEN). The FCA does not intend to apply the Consumer Duty to ESG rating activities, given the limited direct use of these ratings by retail consumers. It also does not propose introducing bespoke prudential requirements, as existing baseline requirements (i.e., Threshold Condition 2D, COND 2.4 and Principle 4) are considered sufficient.
2. Introducting tailored rules covering transparency, systems and controls, governance, conflicts of interest, as well as complaints handling and stakeholder engagement. 

Transparency

The FCA proposes a detailed set of transparency rules to address concerns about around opaque methodologies, insufficient information on underlying data, and difficulties comparing ESG ratings across providers. These requirements would apply to both ESG ratings and ESG rating product-lines (i.e., types of ESG ratings produced using the same methodology). 

Users of ESG ratings will gain clearer, more detailed insight into how ratings and rating product lines are produced. This greater transparency is intended to help existing users better understand the ratings they rely on, and to enable prospective users to compare ESG rating product lines across providers so they can identify those that best meet their needs.

Under the proposals, providers would need to publicly disclose a minimum suite of information about each ESG rating product line. In addition, they would need to give ESG rating users (‘users’) and other notifiable persons more granular disclosures at both product-line and individual rating level. These disclosures would be additional to other proposed public disclosure requirements on conflicts of interest and complaints management policy. 

There are nine aspects that providers would need to disclose, including:

• the rating’s objectives (and dimensions covered by the assessment)

• the methodology used and underlying assumptions (including information on data)

• the ESG factors assessed (including any coverage of factors such as biodiversity or transition risk)

• the meaning of its rating scale and rating categories

• a summary of the approach to engagement with notifiable persons. 

Providers would also be required to notify users and notifiable persons of any material change to a methodology, sufficiently in advance to allow stakeholders time to consider the implications before changes take effect.

Governance, systems and controls

The proposals would require ESG rating providers to implement and maintain appropriate systems, controls, and governance arrangements to ensure the independence and reliability of both their ESG ratings and the underlying data used in the ratings process. This would include:

• systems and controls relating to the ESG ratings process

• policies, procedures and systems relating to the ESG rating methodology

• periodic quality control of the ESG ratings process

• obligations regarding outsourcing 

• record-keeping requirements.

Conflicts of interest  

The FCA proposes a set of targeted rules aimed at protecting the independence and integrity of ESG ratings. Providers would need to:

• identify, prevent and manage material conflicts of interest

• disclose information about conflicts of interest that cannot be fully mitigated; and

• implement, maintain and publish an effective ‘conflicts of interest’ policy.

Providers would also need to apply appropriate controls on personal dealings for staff involved in producing ratings.

Stakeholder engagement and complaints handling 

The FCA proposes that providers notify rated entities in advance of a first-time rating and allow entities to correct factual errors both before and after publication. Providers would also need to maintain structured procedures for receiving and assessing feedback, operate fair complaints-handling processes, and publish information about these processes on their website.

What do firms need to do?

These rules are not expected to be finalised before the end of 2026, and the regime will not take effect until mid-2028. 

ESG ratings providers must engage early with the consultation to understand how the FCA’s proposals may affect their UK operations and service offerings. They will need to prepare for the authorisation process where this is not already in place (including considering what presence they have/need in the UK), seeking external advice as needed. Providers should also undertake a focused gap assessment against the proposed requirements to identify and prioritise areas for uplift, particularly those that could influence authorisation readiness or their ability to meet new transparency and disclosure expectations.

At this stage, financial institutions that use ESG ratings do not need to make operational changes. However, early horizon-scanning may be helpful, including:

• Following the FCA consultation, particularly on elements that may influence the usability, comparability and disclosure of ratings. 

• Understanding how the proposed UK regime compares to the EU framework, as the EU’s ESG Ratings Regulation is already in force, with regulatory technical standards under development. The UK regime will come into effect later and may diverge in scope or implementation.  

• Taking note of where ESG ratings are used within existing financial products and services and how these uses may be impacted. While impacts are likely to materialise after the regime takes effect, firms may wish to begin taking stock of their potential exposure.

Next steps

The consultation closes on 31 March 2026, with final rules expected Q4 2026. There would be a 6-month ‘pre-gateway’ support period from end-2026 through June 2027.

Providers offering ESG ratings to UK clients would require FCA authorisation from June 2028, with a tailored authorisations gateway opening in June 2027 for a 12-month application window.