The move follows a 2023 government consultation that highlighted widespread support for regulation, with 95% of respondents—87% of them ratings providers—agreeing on the need for oversight. Key priorities include improving transparency in rating methodologies and addressing conflicts of interest.
The draft law will require ESG ratings providers serving UK markets to obtain FCA authorization and comply with standards covering supervisory effectiveness, business models, and transparency. Exemptions will apply to firms like credit ratings agencies already regulated by the FCA if ESG ratings are part of their broader activities.
The government anticipates a four-year timeline for implementation, with the FCA developing detailed regulations after the law’s introduction.
Economic Secretary to the Treasury Tulip Siddiq noted the importance of the move, citing the global ESG market’s projected growth to over $40 trillion by 2030.
The legislation aligns the UK with global efforts to oversee ESG ratings, following similar steps in the EU and recommendations by the International Organization of Securities Commissions (IOSCO).
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