Insurance Daily News

FCA mandates authorisation for ESG rating providers

The Financial Conduct Authority (FCA) has completed its policy statement PS26/22, introducing the first UK regulatory framework for environmental, social and governance (ESG) ratings that feed into insurers’ underwriting and investment decisions. From 29 June 2028, firms that provide ESG ratings in the UK must hold FCA authorisation and the relevant permission, unless an exemption applies. Applications can be submitted from 24 June 2027, with the FCA urging providers to apply early in the staggered windows.

The new regime imposes requirements across four pillars: transparency in rating methodology and communication, governance standards, robust systems and controls, and management of conflicts of interest. A novel engagement obligation also compels rating providers to interact with both the entities they rate and the users of those ratings. The FCA emphasised that the rules do not dictate a specific sustainability view or methodology, but are proportionate to a firm’s size and activities and align with international standards such as IOSCO recommendations.

The final rules follow a consultation (CP25/34) that ran from 1 December 2025 to 31 March 2026 and build on government legislation that brought ESG ratings under FCA oversight in October 2025. In the government’s consultation, 95 % of respondents supported the regulatory move. Laura Dawes, director of authorisations and sustainable finance at the FCA, said the rules will improve transparency, raise standards, and support competition, innovation and growth in the ESG ratings market.

For insurers, the enhanced transparency is expected to deliver more defensible data for underwriting, investment strategy and risk reporting, addressing concerns over opaque or inconsistent methodologies. Brokers serving corporate clients will find the rated-entity engagement requirement particularly relevant, as it provides a regulated channel for clients to challenge inaccurate or outdated ratings, potentially influencing risk profiles ahead of policy renewals.

Why it matters

Regulated ESG ratings will give insurers and brokers more reliable data and a formal avenue to dispute ratings, impacting underwriting and risk management.

FAQ

When must ESG rating providers obtain FCA authorisation?
From 29 June 2028, unless an exemption applies.

When can firms start applying for authorisation?
Applications are accepted from 24 June 2027.

What new obligation does the FCA introduce for rating providers?
An engagement obligation requiring interaction with both rated entities and users of the ratings.

What proportion of respondents supported the regulatory move in the government consultation?
95 % of respondents supported the move.

Source: Insurance Business UK. See the original source for full details.