UK’s FCA forms group to develop ESG code of conduct

As financial services firms integrate ESG into their activities and expand their ESG-focussed products, they are increasingly reliant on third party ESG data and ratings services, the Authority stated.

“In our Feedback Statement on ESG integration in UK capital markets (FS22/4), we expressed our support for introducing regulatory oversight of certain ESG data and ratings providers. This would support greater transparency and trust in the market for ESG data and ratings services,” the FCA said.

If the treasury extends the FCA’s regulatory perimeter, the Authority said it would commit to taking the “necessary steps to develop and consult on a proportionate and effective regulatory regime”, focusing on outcomes in areas highlighted in the International Organization of Securities Commissions’ (IOSCO) recommendations.

These include transparency, good governance, management of conflicts of interest, and systems and controls.

“While the government considers this, and to maintain momentum, we have worked to convene, support and encourage industry participants to develop and follow a voluntary code of conduct,” the FCA added.

The Authority has welcomed the appointment of the International Capital Market Association (ICMA) and the International Regulatory Strategy Group (IRSG) as the secretariat leading this work. This secretariat offers an in-depth understanding of both the UK and global financial markets and will ensure an unbiased and balanced representation of all key stakeholder groups, the FCA noted.

Industry-led solutions will help support the aims of the FCA’s ESG strategy, by helping to promote more rapid development of best practice. The code will seek to be internationally consistent, by taking into account not only IOSCO’s recommendations but also developments in jurisdictions such as Japan and the EU. This will help encourage the development of consistent global standards, the organisation stated.

“We will continue to work with our regulatory partners internationally, including through IOSCO in relation to their recently released call to action, to encourage a coordinated approach to the development of the code,” the FCA said, adding that a code could also continue to apply for ESG data and ratings providers that fall outside the scope of potential future regulation.

The secretariat will convene an independent group to develop the code. Consistent with their respective objectives, the FCA, the Bank of England and other relevant financial regulators and government departments will sit as active observers to this group.

The group will be co-chaired by M&G, Moody’s, London Stock Exchange Group (LSEG) and Slaughter and May, and will be composed of stakeholders including investors, ESG data and ratings providers, and rated entities. The group will aim to meet for the first time later this year.

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