Insights and Analysis

FCA announces new ESG data and ratings Code of Conduct working group

24 November 2022

The UK’s financial services regulator, the Financial Conduct Authority (FCA) has announced the formation of a new working group that will work to develop a voluntary Code of Conduct for ESG data and rating providers.

The FCA has announced the formation of a new working group to develop a voluntary Code of Conduct for ESG data and rating providers.

Key aims of the FCA working group and the voluntary Code of Conduct

A key aim of the working group will be to identify and establish industry-led solutions relating to financial services firms' use of third-party ESG data and rating services. A further aim of the working group will be to support the FCA's ESG Strategy by promoting the more rapid development of best practices on transparency, governance, systems and controls, and management of conflicts of interest. The new Code of Conduct will seek to be internationally consistent by taking account of IOSCO's recommendations, its recently released Call to Action published on 7 November 2022, and considering developments in other jurisdictions.

Who will be involved in developing the Code of Conduct?

The International Capital Market Association (ICMA) and the International Regulatory Strategy Group (IRSG) have been appointed as the secretariat leading this work and will convene an independent group of stakeholders (including investors, ESG data and ratings providers, and rated entities) to develop the Code of Conduct. The group will be co-chaired by M&G, Moody’s, London Stock Exchange Group (LSEG), and Slaughter and May. The FCA, Bank of England (BoE), and other relevant financial regulators and government departments will be active observers of this group.

What is the background to the FCA establishing the Code of Conduct?

The FCA announced in its June 2022 feedback statement on ESG integration in UK capital markets (FS22/4) that it would work to establish a voluntary Code as an interim measure ahead of any HM Treasury decision to bring ESG data and rating providers within the scope of FCA authorisation. The Code might continue to apply for ESG data and ratings providers that fall outside the scope of potential future regulation.

What are the next steps?

The working group will meet for the first time before the end of 2022, with a view to consulting on a draft Code of Conduct within six months of that meeting. The FCA has stated that they will aim to publish the final Code of Conduct within “about four months of the start of the consultation”. We will be monitoring for any further information on the outcomes of the meeting due to take place before the end of the year and will report on any developments in relation to the Code of Conduct in due course.

Authored by Melanie Johnson.