Summary
This Order creates a new regulated activity under the Financial Services and Markets Act 2000 for 'providing an ESG rating' where the rating is likely to influence investment decisions. It establishes a licensing regime requiring FCA permission, with numerous narrow exclusions for intra-group use, private contracts, journalists/academics/charities, public bodies, accreditation purposes, regulatory compliance, and certain overseas providers. The regulation will become fully effective on 29 June 2028, with transition provisions for existing arrangements and applications.
Reason
This regulation imposes unnecessary compliance costs on ESG rating providers, creating barriers to entry and potentially driving activity offshore, which undermines the City of London's competitiveness post-Brexit. The activity being regulated—providing opinions or scores on ESG factors—doesn't warrant special licensing beyond existing frameworks for fraud, misrepresentation, and competition law. The narrow exclusions highlight the overbreadth of the core definition and the regulation's inherent complexity, which increases uncertainty and burden without addressing a genuine market failure that market forces and private litigation cannot handle more efficiently.