UK Introduces Law Requiring ESG Ratings Providers to Seek FCA Authorization

The UK government introduced legislation in Parliament to bring ESG ratings providers under Financial Conduct Authority supervision, requiring providers operating in the UK — both domestic and foreign — to obtain FCA authorization. The FCA plans to introduce proposed regulatory rules by end of 2025, with the new regime expected to take effect in June 2028.

The legislation follows the International Organization of Securities Commissions' 2021 call for regulators to improve transparency and apply oversight to the ESG ratings and data sector. Key FCA regulatory proposals will focus on four areas: transparency, governance, systems and controls, and conflicts of interest. The regulation will apply to UK-based providers and to foreign providers offering ESG ratings to UK investors or companies, covering a market that plays a significant role in investment decision-making and capital allocation for securities globally including Indian equities and bonds listed or traded in London.

ESG ratings have faced growing criticism for inconsistency across providers, limited methodological transparency, and potential conflicts of interest — including situations where the same organization both rates a company and provides advisory services to improve its score. The FCA regime will directly address these concerns by establishing mandatory disclosure of methodologies and governance requirements. A comparable regulatory regime was adopted in the EU under its ESRS and Capital Markets Union agenda, and Japan and India's SEBI have also taken steps toward ESG ratings regulation, establishing a global trend toward official oversight of the sector.

The legislation has been broadly welcomed by the ESG ratings industry, which has argued that regulatory oversight will improve market confidence and level the playing field among providers. The three-year period between the law's introduction and the June 2028 implementation date provides time for the FCA to finalize rules, for providers to build compliance infrastructure, and for the market to adapt. For Indian companies seeking ratings from UK-regulated providers to access UK institutional capital, the new regime may ultimately result in more transparent and comparable ratings, benefiting credible sustainability performers.

Key figure — ESG ratings regulation takes effect in June 2028