FCA finalises rules to regulate ESG rating providers; authorisation mandatory by June 29, 2028

The Financial Conduct Authority has published final rules that will bring ESG rating providers into UK regulation for the first time, setting out a clear timetable for firms that operate in the market. In a policy statement published Monday, the FCA said firms that may be in scope will be able to apply for authorization from June 24, 2027, and that authorization will become mandatory from June 29, 2028.

The move matters because ESG ratings — assessments of how companies, assets or financial products perform on environmental, social and governance factors — are widely used in financial markets. Asset managers, lenders, benchmark administrators and other market participants use them to inform capital allocation and risk management. The FCA said the new regime is intended to improve the transparency, reliability and comparability of ESG ratings for investors and other capital-markets users.

The rules, published in Policy Statement PS26/22, “ESG ratings: final regime,” focus on five main areas: transparency, governance, systems and controls, management of conflicts of interest, and engagement with users of ESG ratings and rated entities. The watchdog said the framework is designed to be proportionate to firms’ size and activities, and regulates how ratings are produced, governed and communicated rather than prescribing a particular sustainability view or methodology.

“Trusted information is essential for well-functioning markets. These rules will help improve transparency and raise standards across the ESG ratings market while supporting competition, innovation and growth. Firms should check now whether they are in scope and start preparing for authorisation. We’ll continue to provide practical support to help them prepare,” Laura Dawes, the FCA’s director of authorizations and sustainable finance, said in the regulator’s press release.

In plain terms, the regime covers firms or organizations providing ESG ratings used in the UK market where those ratings are likely to influence an investment decision, subject to exclusions. The statutory instrument that gave the FCA its remit says: “Unless paragraph (2) applies, providing an ESG rating is a specified kind of activity, where that rating is likely to influence a decision to make an investment specified in Part 3.” Exemptions and carve-outs exist, including for some private or intra-group activity and certain narrow cases, but the FCA has made clear that firms should assess carefully whether they fall within scope.

Once the regime takes effect on June 29, 2028, firms providing in-scope ESG ratings in the UK will need FCA authorization and the relevant permission unless an exemption applies. The regulator said any firm carrying on that activity without authorization after that date would be in breach of the Financial Services and Markets Act and may commit a criminal offence.

The rules follow legislation made last year and a consultation launched by the regulator in late 2025. The legal basis is the Financial Services and Markets Act 2000 (Regulated Activities) (ESG Ratings) Order 2025, made on Dec. 15, 2025, which brought ESG ratings within the FCA’s remit. The FCA then opened consultation CP25/34 on Dec. 1, 2025, and closed it on March 31, 2026. It said it received 90 responses before finalizing the regime.

The FCA said its approach was informed by international standards, including recommendations from the International Organization of Securities Commissions, or IOSCO, a global body for securities regulators. Its cost-benefit analysis estimated a 10-year present-value net benefit of 569.82 million pounds, underscoring the regulator’s view that clearer standards should improve market functioning.

For firms affected, the immediate message is to start preparing. The FCA said it will stagger application windows and is encouraging firms to apply early once the process opens in June 2027. It also plans practical support, including webinars and access to its Pre-Application Support Service, due to run from February 2027. For now, firms that provide ESG ratings in the UK market need to determine whether they are in scope, understand the new requirements and prepare for authorization before compliance becomes mandatory in 2028.