The EU Revised Shareholder Rights Directive (SRD II) is currently required to be implemented by 10 June 2019. It seeks to encourage long-term shareholder involvement through increased transparency and engagement between asset managers and asset owners. The FCA has issued a consultation paper (CP19/7) which sets out its proposed new rules to implement SRD II. The FCA, however, has indicated that in the event of a no-deal Brexit it would not proceed to implement these new rules although in that event it is likely to put forward new proposals. Our piece draws attention to the fact that under the FCA's proposed rules, FCA-authorised asset managers must comply with a number of requirements including:
● A requirement for asset managers to develop and publicly disclose a monitoring and engagement policy. They must also publicly disclose on an annual basis how the policy has been implemented.
● A requirement for certain asset managers (including those acting for pension schemes) to disclose information on their investment strategies.
● A requirement for asset managers to disclose annually how they have exercised their voting rights in investee companies (other than for "insignificant" votes).
Firms may instead choose to disclose publicly a clear and reasoned explanation of why they will not comply. The statement is likely to need to be fuller than the current non-compliance statements often seen under the Financial Reporting Council's Stewardship Code (Code). The FCA intends to apply the rules to FCA-authorised asset managers as well as full-scope AIFMs and UCITS management companies in respect of all shares admitted to trading on an EEA regulated market or a comparable non-EEA market. The wording in italics goes beyond the requirements in SRD II. Similar proposals are made for life insurers.
Requirements in respect of other types of instruments such as debt instruments would generally be covered by the Code which is also consulting on updates. FCA-authorised asset managers are not strictly required under the FCA rules to comply with the Code although they are generally required to disclose whether or not they do so. The FCA has also issued jointly with the Financial Reporting Council a Discussion Paper which sets out their views on what constitutes effective stewardship. According to the Discussion Paper, the types of behaviour associated with effective stewardship include: having a clear purpose; the active monitoring of assets (including constructive oversight, engagement with issuers and challenge) and having a supportive culture and appropriate institutional structures. There is also an emphasis on public reporting and disclosure of any stewardship activities undertaken. The FCA invites comments on its Consultation Paper by 27 March 2019 and on its Discussion Paper by 30 April 2019.
Tim Lewis is Partner, Head of Financial Services and Markets at Traver Smith.
Jane Tuckley is Partner, Financial Services and Markets at Travers Smith.
Phil Bartram is Partner, Financial Services and Markets at Travers Smith.
Stephanie Biggs is Partner, Financial Services and Markets at Travers Smith.