Introduction
On 14 November 2024, HM Treasury published its response document and draft Statutory Instrument (Draft SI) confirming that providers of Environmental, Social and Governance (ESG) ratings will be brought within the scope of the UK regulatory perimeter.
ESG ratings providers will be required to be authorised by the UK Financial Conduct Authority (FCA) and comply with the regulatory regime, which will be prescribed and developed by the FCA in due course.
The yet to be published FCA rules are expected to cover matters such as transparency, good governance, conflict of interests and systems and controls (eg, covering policies, procedures and controls, issues of integrity, independence, engagement with rated entities and reporting of misconduct). The rules are expected to be influenced by and take account of the International Organisation of Securities Commissions (IOSCO) 2021 recommendations. The rules that will ultimately apply to ESG ratings providers will be familiar to those who operate in the benchmark administration space.
The scope of the activity is broad both from a product and jurisdictional perspective and although similar to the proposed EU ESG Ratings Regulation, there are important differences.
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