FCA confirms final rules for regulating ESG ratings providers

The new framework (146 pages / 1.44MB PDF) will apply to firms or organisations providing ESG ratings in the UK, marking the long-awaited move to give the financial watchdog oversight of how ESG ratings are awarded in the UK.

Although the rules don’t take effect until 29 June 2028, the gateway for applications opens from 24 June 2027. The FCA is encouraging firms to apply as early as possible. The regulator is requiring large firms – those who anticipate annual revenue of more than £500,000 in their first 12 months following submission of the application – to apply within the first month following the opening of the gateway, leaving these firms just shy of eight months to prepare.

The rules were first published in October last year following a government consultation and are intended to improve transparency in the sector by giving the FCA oversight of how ESG ratings are awarded to firms operating in the UK market.

The FCA said the finalised rules were “designed to be proportionate to firms' size and activities” and were “informed by international and existing standards”, following feedback from the consultation (63-page / 567KB PDF) with industry.

The new framework will take effect from 29 June 2028, but providers will be required to apply for FCA authorisation and obtain relevant permissions from 24 June 2027 to continue carrying out ESG ratings and assessments, unless an exemption applies.

Elizabeth Budd, a specialist in financial services regulation at Pinsent Masons, said this latest expansion of the regulatory perimeter would bring a number of firms under the FCA’s scope for the first time. “Many of the current ESG ratings providers will be new to FCA regulation and it is therefore not surprising that much of the feedback to the consultation was in ensuring proportionality,” she said. “It is also worth emphasising that it is the producer of the ESG rating that is going to be regulated and not the distributor of an ESG rating.”

From a commercial perspective, Budd added that the new rules do not prescribe a specific methodology for in-scope firms to follow, but encourage firms “to rely on disclosure regarding any methodology used.”

The finalised rules also contain guidance to help ESG ratings providers to prepare ahead of the new framework taking effect. The FCA said that firms should not delay in checking whether they are in scope of the new rules. In anticipation of a high volume of applications, the FCA said it was staggering application periods and encouraging firms to apply “as early as possible”. It has also said firms can engage as early as February 2027 via a pre-application support service (PASS).

Budd urged ratings providers to start work swiftly to familiarise themselves with the FCA's requirements and build their application pack. “It can take months to build an application pack for a new applicant as the FCA takes its gatekeeper role around authorisation very seriously,” she added.

Hayden Morgan, an expert on sustainable finance and the use of ESG ratings at Pinsent Masons, said for in-scope firms that have previously been operating outside the FCA's regulatory perimeter the new regime will be likely to entail “significant changes” for their management and staff as well as their overall businesses operations.

He added: “Such firms will need to devote management time to the assessment of how the new requirements apply to them and their business, conduct gap analysis and take the steps needed to train their staff, as well and to put in place the necessary systems, processes and controls in time for go live date.”