Moody’s and M&G chair FCA’s ESG data code of conduct group

UK’s financial watchdog announces formation of independent working group overseen by ICMA and IRSG.

The UK’s Financial Conduct Authority (FCA) has announced the formation of an independent working group to develop a code of conduct for ESG data and rating providers. 

ESG data firms will be included in the group, along with investors and companies. It will be co-chaired by credit rating and ESG data firm Moody’s, investor M&G, the London Stock Exchange Group and law firm Slaughter and May. The first meeting is slated for later this year.  

Acting as secretariat for the new group, the International Capital Market Association (ICMA) and the International Regulatory Strategy Group (IRSG) will convene members to work on the new code. 

ICMA represents finance firms active in international capital markets and IRSG is a joint venture between TheCityUK and the City of London Corporation, focused on developing a “globally coherent regulatory framework”.

It is expected that the new code of conduct working group will include around 16-18 members, excluding chairs and vice chairs. 

The FCA and the Bank of England, along with other financial regulators and government departments, will participate as “active observers” to the group’s efforts. 

In June, the FCA stated that there is a “clear rationale” for the regulation of ESG data and rating providers and announced plans to engage with the UK Treasury on introducing legislation to this effect.

That followed an indication by the UK government last year in its Greening Finance roadmap that it was mulling whether providers should be regulated by the FCA.   

The financial watchdog stated in its announcement today that, while the government is considering regulation, “we have worked to convene, support and encourage industry participants to develop and follow a voluntary code of conduct”. The FCA said this would help to “maintain momentum” on the issue.  

Regulation of ESG data firms is increasingly attracting the attention of financial regulators globally.  

In July, Japan’s Financial Services Agency put out the world’s first code of conduct for ESG data firms for consultation.   

European securities regulator ESMA last year requested additional powers to regulate ESG data and ratings, and in February launched a review of the EU ESG ratings sector. 

Meanwhile, IOSCO, whose members regulate more than 95 percent of the world’s financial markets, recommended last November that ESG data and ratings providers be placed under the remit of securities regulators.

In April, the European Commission launched a consultation requesting feedback on proposed measures aimed at addressing dysfunction in the ESG ratings market. Responsible Investor reported on pushback from the market in August.  

The FCA said its 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”.