UK: FCA consults on proposals to make ESG ratings transparent, reliable and comparable

Following legislation laid in October 2025, the Financial Conduct Authority is now consulting on its proposed rules for regulating ESG ratings, which will come into effect from June 2028. 

In consultation paper (CP25/24), published on 1 December 2025, the FCA propose to apply its existing ‘baseline’ rules to ratings providers, alongside tailored requirements to address specific risks in the market. 

The consultation closes on 31 March 2026, with the final rules expected in Q4 2026.

Background

There have been ongoing concerns about the quality, transparency, independence and consistency of ratings in the market. Recent FCA research, published alongside the consultation paper, found that around half of those (55%) who use ESG ratings are concerned about how they are developed, citing weaknesses in ESG rating providers’ systems and controls, such as use of outdated or inaccurate data and estimates. The proposals seek to address these concerns with the aim of making ESG ratings “more transparent, reliable and understandable”, which in turn will build market trust and confidence in the market.

The proposals follow the decision by the government to bring ESG ratings within the FCA’s remit, as set out in legislation published in October 2025 (read our earlier blog post). The proposals reflect the voluntary ICMA Code of Conduct for ESG ratings and recommendations made by IOSCO in November 2021.

The FCA acknowledges that the scope of the regime will be complex and may involve distinguishing between regulated and unregulated products but will monitor whether further guidance for firms on using ESG ratings will be useful.

A four-pillar framework

The proposed rules focus on four areas:

• Increased transparency: The FCA proposes introducing minimum disclosure requirements for product lines and individual ratings. Some disclosures must be made public, while others must be made to ESG rating users and rated entities with the option for ESG rating providers to make those public. All disclosures must be:

  • Easily accessible, prominent and free to obtain for the relevant stakeholders.

  • In a written format that is clear and easy to understand.

  • Accurate, fair and not misleading

  • Shared as required and updated as soon as practicable.

  • Free to obtain, so providers cannot charge an additional cost for stakeholder to get this information.

Where information qualifies as /trade secrets, providers must set out what they cannot disclose and why.

• Improved governance, systems and controls: The FCA proposes requirements for robust systems and controls to ensure the integrity of the ratings process, including:

  • defined, thorough, systematically applied methodologies with periodic review and advance notice of ‘material changes’;

  • quality control over the rating process, including checks on data timeliness and accuracy, adherence to methodology, and review of stakeholder feedback;

  • record keeping which is sufficient to reproduce ratings, including data used, governance and decision-making in the process, methodology changes and conflict management steps; and

  • personal transactions policies which restrict staff trades that could contravene UK MAR, misuse confidential information or undermine rating independence and monitoring and records in line with modified COBS 11.7 principles.

• Identification and management of conflicts of interest: The FCA sets out clear expectations for identifying, preventing managing and disclosing conflicts of interest at the organisational and personnel level, to maintain the ratings’ independence and integrity. The FCA notes that conflict could arise from charging models, consulting or advisory relationships or remuneration structures. If firms are not “reasonably confident” that mitigation measures will prevent damage to a rating’s independence, they must make public disclosures outlining the nature of the conflict. 

• Setting clear expectations for stakeholder engagement and complaints handling: The FCA sets out requirements to provide rated entities with the opportunity to correct factual errors, before and after issuing the ESG rating, to allow rated entities to request the data that is being used to produce a rating and have in place a procedure for receiving and processing stakeholder feedback. Providers should also have a fair and transparent complaints-handling policy and procedure.  However, the FCA does not intend to extend the Financial Ombudsman Service or Financial Services Compensation Scheme to cover ESG ratings. 

Baseline rules

The FCA also proposes to apply many of its existing ‘baseline’ rules to rating providers, which are the general rules that apply across all FCA regulated firms and which are designed to be proportionate to business size and risk. These include:

• General rules: The FCA will apply the Threshold Conditions (COND), the Principles for Business (PRIN), Systems and Controls (SYSC), and General Provisions (GEN). However, as there are bespoke rules on conflicts of interest in ESG 6, SYSC 10 will not apply to rating providers.

• Senior Managers and Certification Regime (SMCR): Rating providers will be classified as ‘Core firms’, with third-country branches following the branch application. The FCA explains that it is consulting on applying the existing SMCR to ESG rating providers as it is but that the applicable requirements will be updated to reflect any revised SMCR requirements currently being considered.

• Communications with clients: Principle 7 (clear, fair and not misleading) will apply even to professional clients.

• Anti-greenwashing rule: As this applies to all authorised firms, it will also apply to ratings providers.

• Consumer Duty: The FCA does not propose applying the Consumer Duty to ESG ratings activity as there is limited direct use of ESG ratings by retail consumers. This is in line with the FCA’s commitment to the government not to apply the Duty to wholesale activity between businesses. However, ratings providers should recognise that the Duty might apply to other companies in the chain of businesses distributing the ratings and those companies should consider the Duty when they conduct their business.

• Financial crime and market abuse: UK MAR and the Financial Crime Guide will apply to ESG rating providers. However, they will not be required to have a Money Laundering Reporting Officer (SM17) due to the limited risk of harm.

• Prudential: The FCA does not propose any bespoke prudential regime however, firms must maintain adequate financial resources and wind-down plans.

Timing

The consultation paper closes for comments on 31 March 2026, with the final rules expected in Q4 2026. If approved, ESG ratings providers will be invited to seek FCA authorisation from June 2027, a year before the new regime comes into effect on 29 June 2028 (two years after the EU ESG Ratings Regulation).

The FCA’s press release is available here.