FCA to Oversee ESG Ratings Providers as UK Moves to Boost Market Trust

Key Takeaways

• UK extends FCA oversight: Government legislation brings ESG ratings providers under the FCA’s regulatory remit.
• Transparency and comparability: The regime aims to ensure ESG ratings are transparent, reliable, and comparable as their market influence grows.
• Consultation before year-end: With the legislation now laid before Parliament, the FCA will consult on proposed rules before the end of 2025.
• IOSCO-aligned focus areas: Proposed rules will center on transparency, governance, systems and controls, and conflicts of interest.
• Scope guidance for firms: The FCA will publish guidance to help providers assess whether their activities fall under regulation and require authorization.

Deep Dive

The Financial Conduct Authority (FCA) says the UK has reached a pivotal moment in its sustainable finance agenda as the government introduces legislation that would hand the regulator oversight of ESG ratings providers for the first time.

With ESG scores now baked into investment screens, lending criteria, and corporate strategy, demand for clarity around how ratings are produced has never been higher. Investors and companies alike have long argued that inconsistent methodologies and limited visibility into scoring decisions can undermine confidence in the market.

The FCA said the legislation, which has been broadly supported by the industry, will give it the tools needed to ensure ESG ratings are transparent, reliable, and genuinely comparable. It called the step “an important milestone” in efforts to bolster trust in a market whose influence continues to expand.

The regulator has been developing its framework in lockstep with the government’s legislative timeline. Now that the bill has been laid before Parliament, the FCA plans to consult on its proposed rules before the end of 2025. Its approach, shaped by recommendations from the International Organization of Securities Commissions (IOSCO), will focus on four key areas:
• transparency in methodologies and data sources
• governance structures around ratings production
• strong systems and controls
• safeguards against conflicts of interest

Guidance will also be issued to help firms determine whether their activities fall within scope and require FCA authorization.

For the UK, the move is as much about global positioning as it is about investor protection. Giving ESG ratings providers a regulatory home is intended to solidify the country’s status as a trusted and competitive center for sustainable finance and ensure innovation does not come at the expense of clarity.

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