Public assessment of the Stewardship Code

In July 2016. the Financial Reporting Council (“FRC”) will publish the findings of its assessment of signatories’ compliance with reporting in regards to the 7 principles of the Stewardship Code (“Code”). According to the FRC’s website, over 200 Asset Managers have already complied with the first two principles by publishing statements of commitment to the Code. In addition to compliance with the Stewardship Code, COBS 2.2.3 disclosure of commitment to the FRC’s Stewardship Code states that any firm (apart from Venture Capital firms) who are managing investments for a professional client that is not a natural person must disclose their commitment on their website or another accessible form.The particular areas of focus for the public assessment will be:

  • conflicts of interest disclosures;
  • evidence of engagement and the approach taken to integrate the Code.

The overall aim of the public assessment is to improve reporting in relation to the principles of the Code. Additionally, this will be beneficial for investors to see what steps their fund managers are taking to comply with the Code which could, as a result, affect the way investors choose their fund managers.

As a result of the assessment, firms will fall into either of 2 brackets: Tier 1 (meeting the reporting expectations and evidencing such implementation) or Tier 2 (not meeting these expectations). These results will be made publically available which may go some way in incentivising fund managers to ensure compliance and support of the Code guidelines.

The FRC is not taking a strict approach and will be allowing some time between the assessment of information and the publication of it, which will allow the FRC to provide initial feedback to firms giving them the opportunity to make improvements where necessary.

Companies should keep track of the development of the public assessment and take note of the Code’s core principles when carrying out their activities because ultimately the Code seeks to improve engagement between companies and investors and to ensure this commitment, the assessment will be carried out on a comply or explain basis.

Please see below a reminder of the core principles of the Stewardship Code targeted at Institutional Investors:

  1. Publicly disclose their policy on how they will discharge their stewardship responsibilities.
  2. Have a robust policy on managing conflicts of interest in relation to stewardship which should be publicly disclosed.
  3. Monitor their investee companies.
  4. Establish clear guidelines on when and how they will escalate their stewardship activities.
  5. Be willing to act collectively with other investors where appropriate.
  6. Have a clear policy on voting and disclosure of voting activity.
  7. Report periodically on their stewardship and voting activities.

Should you require any further advice or information on the above, Cleveland & Co, your external in-house counsel, are here to help.

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