On 1 December 2025, the Financial Conduct Authority (FCA) published Consultation Paper 25/34 (CP25/34) on its proposed approach to Environmental, Social, Governance (ESG) ratings regulation.

Overview

Following publication of draft legislation by HM Treasury to bring ESG ratings within the FCA’s regulatory perimeter, the FCA have set out in CP25/34 its approach to developing the ESG ratings regime.

The FCA explained that as this will be a newly regulated sector it proposes to apply many existing baseline rules to rating providers that apply to most other FCA-regulated firms and introduce tailored rules where existing requirements are either not appropriate or not proportionate to address the risks of harm.

Summary of the regime

The FCA are proposing to apply the following baseline standards to ratings providers:

  • Threshold Conditions (COND): The FCA explained that rating providers should familiarise themselves with the Threshold Conditions (TCs) and the guidance in COND to fully understand how the TCs apply to them.
  • Principles for Businesses (PRIN): In broad terms, the Principles for Businesses will apply to rating providers, except for Principle 12 (Consumer Duty).
  • Systems and Controls (SYSC): The FCA proposes to apply SYSC rules to rating providers that focus on robust governance arrangements, staff competence and suitability for their roles, adequate compliance arrangements and controls for countering financial crime, managing risks, outsourcing and record keeping. The FCA do propose to make some modifications to the requirements in SYSC including that it is not proposing to apply SYSC 10 on conflicts of interest to ratings providers, but to have bespoke rules, and to apply certain outsourcing requirements as rules rather than guidance.
  • Senior Managers and Certification Regime (SM&CR):  The FCA is proposing to apply the existing SM&CR framework to rating providers and classifying them as ‘Core Firms’ and that branches of overseas rating providers will be subject to the third country branch application of the regime. The FCA also explains that it is consulting on applying this regime in its current form but that the applicable requirements will be updated to reflect any revised SM&CR requirements currently being considered.
  • General Provisions (GEN): The FCA is proposing to apply GEN, which includes rules covering the administrative duties of firms, to ratings providers.

The FCA also set out that it does not propose to introduce bespoke prudential requirements to ratings providers, but to rely on the relevant TCs and Principle 4 (Financial Prudence).

The FCA are also proposing to apply tailored rules to rating providers, in relation to the following areas:

  • Transparency: The FCA set out that it plans to introduce clear minimum disclosure requirements for product lines and individual ratings, with some of the rules requiring that disclosures 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. The FCA also set out general expectations on how disclosures must be made.
  • Governance and Systems and Controls: The FCA is proposing rules aimed at ensuring that firms have robust processes and effective systems across the ESG ratings process, to support high-quality ESG ratings, and highlights that these tailored rules build on the baseline standards set out above. The rules relate, in particular, to quality control and methodology, data quality and accuracy, record keeping and personal transactions.
  • Conflicts of interest: The FCA is proposing a bespoke regime for rating providers in relation to conflicts of interest, in particular setting out expectations for rating providers to have policies and procedures in place to identify, prevent, manage and, where appropriate, disclose conflicts of interest.
  • Stakeholder engagement, complaints and dispute resolution: The FCA is consulting on introducing a set of tailored rules requiring rating providers to have appropriate engagement with stakeholders and an effective and transparent complaints-management approach, and also that firms will need to publish their approach to engagement and their complaints-handling procedure. The FCA do not propose extending the Financial Ombudsman Service’s compulsory and voluntary jurisdiction for complaints relating to ESG ratings nor provide Financial Services Compensation Scheme coverage.

The FCA are also consulting on new perimeter guidance (PERG in the FCA Handbook) to help firms understand the scope of the activity, which will cover what qualifies as an ESG rating and what constitutes the regulated activity of providing an ESG rating.

Next steps

The FCA has asked for feedback to CP25/34 by 31 March 2026 and aims to finalise and publish its final rules in a Policy Statement by Q4 2026.

The authorisation gateway will open in June 2027 and firms in scope of the regulation must be authorised to carry out ESG rating activity after 29 June 2028.