Managing investments and the Stewardship Code

There is a proposal to amend COBS 2.2 (‘Information disclosure before providing services’) for a firm, when it is managing investments for a professional client (that is not a natural person), to disclose its commitment to the ‘Stewardship Code’ (venture capital firms will be excluded from the proposed requirement).

The proposal stems from the Walker Review on Corporate Governance. Although the Stewardship Code aims to enhance the quality of engagement between institutional investors and companies, the Code is addressed in the first instance to firms who manage assets on behalf of institutional investors.

Note that the proposals will apply to all asset managers, although it is accepted that not all firms will engage the Code e.g. because the business model is one of active trading or smaller institutions may feel it disproportionate (there is a “comply or explain” approach).

The Financial Reporting Council (FRC) has taken responsibility for the Stewardship Code – which is basically the code issued by the Institutional Shareholder Committee last November with a few minor amendments. It may be recalled that the FRC also has ownership of the UK Corporate Governance Code (see Regulatory Roundup #15); the FRC see the latter and the Stewardship Code as being complementary.

The Code itself consists of 7 Principles e.g. having a clear policy on voting and not automatically supporting the board (Principle 6) and a robust policy on managing conflicts of interest (Principle 2).

The FRC is encouraging all institutional investors to publish by the end of September 2010 a statement on their website to the extent they have complied with the Code and to notify the FRC when they have done so.

The links will take you to the Code and Code implementation document. Chapter 5 of the QCP concerns the Stewardship Code and Appendix 5 covers the (fairly modest) rule changes.

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