The FCA has published Consultation Paper CP26/21, setting out proposed amendments to the UK Listing Rules (UKLR) applicable to closed-ended investment funds. Whilst the proposed changes are relatively targeted, they provide a useful indication of the FCA’s continuing focus on governance, conflicts of interest and shareholder protections within the UK’s listed funds sector. The consultation follows the introduction of the UK’s new Listing Rules framework and reflects the FCA’s intention to ensure that the regulatory regime continues to operate effectively in light of evolving market practices. Rather than introducing a new governance framework, the FCA has identified specific areas where existing rules may not adequately address potential conflicts, particularly where investment managers and significant shareholders have overlapping commercial interests.
Regulatory context
Closed-ended investment funds operate under a distinct governance model. Unlike operating companies, they typically have no executive management and instead appoint an external investment manager responsible for managing the fund’s assets in accordance with its investment objective and policy. This structure can give rise to complex governance considerations, particularly where decisions relate directly to the appointment, remuneration or replacement of the investment manager. Recent developments within the investment trust sector have highlighted circumstances in which existing shareholder protections may not operate as intended, including situations involving shareholder activism, proposed changes to investment management arrangements and the influence of significant shareholders with commercial interests in the outcome of shareholder votes. Against this backdrop, the FCA is proposing a series of targeted amendments intended to strengthen confidence in governance arrangements whilst maintaining the flexibility introduced under the wider Listing Rules reforms.
Key proposals
- Enhanced protections where conflicts of interest arise
A central feature of the consultation is the proposal to strengthen safeguards where a substantial shareholder is, or seeks to become, the investment manager (or an associate of the investment manager). In these circumstances, the FCA proposes that conflicted shareholders should be prevented from voting on certain shareholder resolutions concerning investment management arrangements. The objective is to ensure that decisions affecting the appointment or replacement of an investment manager are determined by independent shareholders whose interests are aligned with the wider investor base.
- Changes to investment management arrangements
The FCA also proposes amendments designed to ensure that shareholders receive appropriate oversight where material changes are made to investment management agreements or remuneration arrangements. These proposals seek to provide greater consistency in the treatment of decisions that may have a significant impact on shareholders, regardless of the legal structure through which those changes are implemented.
- Related party considerations
The consultation further proposes extending elements of the existing related party framework to proposed investment managers in certain circumstances. This is intended to provide an additional layer of independent oversight where transactions involve parties with existing or prospective commercial relationships with the fund.
- A continuing focus on governance
Although CP26/21 is limited in scope, it reflects a broader regulatory theme that has become increasingly evident across recent FCA policy initiatives. Over the past two years, the FCA has sought to modernise the UK’s capital markets framework whilst maintaining appropriate standards of investor protection. The regulator has consistently emphasised that greater flexibility within the Listing Rules must be accompanied by effective governance, robust management of conflicts of interest and transparent decision-making. The consultation reinforces these principles. Rather than imposing extensive new requirements, the FCA is refining the existing framework to address circumstances where governance arrangements may be tested by competing commercial interests. In doing so, it continues to place significant reliance on boards to demonstrate independence, exercise objective judgement and ensure that shareholder interests remain appropriately protected.
Practical considerations and next steps
The consultation closes on 14 August 2026, with the FCA intending to publish its final rules later this year. Whilst the proposals are targeted, they reinforce the FCA’s broader expectation that firms maintain governance arrangements capable of effectively managing conflicts of interest and supporting transparent, independent decision-making. Boards of closed-ended investment funds should therefore use the consultation as an opportunity to review their governance frameworks, including oversight of investment managers, conflicts management procedures, shareholder approval processes, board independence and internal governance documentation. Even where existing arrangements are considered robust, an early assessment will help identify any enhancements that may be required ahead of the implementation of the final rules.
How Complyport can help?
- Governance and conflicts of interest reviews: Assessing board governance arrangements, conflicts management frameworks and decision-making processes against the FCA’s evolving expectations and industry good practice.
- Regulatory gap analysis: Reviewing existing governance policies, constitutional documents and shareholder approval processes to identify any changes that may be required in anticipation of the FCA’s final rules.
- Board and Senior Management support: Delivering tailored training and regulatory briefings on the UK Listing Rules, directors’ responsibilities, governance best practice and the effective management of conflicts of interest.
- Implementation support: Advising firms on the practical implementation of regulatory changes, including policy updates, governance documentation, board procedures and ongoing compliance monitoring.
Contact Us
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