FRC consults on tougher stewardship code

The Financial Reporting Council (FRC) is consulting on an updated and tougher stewardship code which the regulator says sets substantially higher expectations for investor stewardship policy and practice

The code will focus on how effective stewardship delivers sustainable value for beneficiaries, the economy and society.

It will require investors to report how their purpose, values and culture enable them to meet their obligations to clients and beneficiaries. The FRC says this aligns the code with the UK corporate governance code and encourages embedding behaviour conducive to effective stewardship in the investor community.

Under the proposals, the revised code now refers to environmental, social and governance (ESG) factors. Signatories are expected to take material ESG issues into account when fulfilling their stewardship responsibilities.

It also expects investors to exercise stewardship across a wider range of assets where they have influence and rights, in the UK and globally.

The proposed 2019 code sets out more rigorous requirements for reporting, focusing on how stewardship activities deliver outcomes against objectives. Reporting will be subject to increased oversight by the FRC to ensure the code is effective in raising the quality of stewardship across the investor community.

Sir Win Bischoff, FRC chair, said: ‘The new stewardship code will play a key role in complementing the stronger corporate governance provisions that took effect at the start of this year.

‘The FRC conducted extensive outreach in early 2018 to inform this review of the stewardship code. It recognises the significant changes in the investment industry and stewardship landscape since the 2012 revision.

‘It sets both higher expectations for stewardship practice and introduces more rigorous public reporting with a focus on outcomes and effectiveness We believe the changes proposed put it at the forefront of stewardship internationally.’

The deadline for comments on the code is 29 March. Responses should be sent to

The FRC has also worked with the Financial Conduct Authority (FCA) on a  joint discussion paper which aims to advance the debate about what effective stewardship should look like, what the minimum expectations should be for financial services firms who invest for clients and beneficiaries, the standards the UK should aspire to and how these might best be achieved.

In addition, the FCA has published a consultation paper on regulatory measures to implement the provisions of the amended shareholder rights directive (SRD II) for FCA-regulated life insurers and asset managers, as well as for issuers of shares in respect of related party transactions.

The directive comes into effect in June 2019 and, assuming a transition period for EU withdrawal is agreed, will need to be transposed in the UK. SRD II aims to promote effective stewardship and long-term investment decision-making.

Christopher Woolard, executive director of strategy and competition at the FCA, said: 'Good stewardship is about effective investment for the longer term. As a result, we want to see those managing investments to take a close interest in how the businesses they invest in are operating, so they can hold them to account when things aren’t right.'

Responding to the moves by the FRC and FCA, Matthew Fell, CBI chief UK policy director, said: ‘Improving the effectiveness of stewardship will help maintain global confidence in the UK’s capital markets and drive our country’s competitiveness. All stakeholders can benefit from strengthening the way investors hold companies to account.’

The consultation on SRD II closes on 27 March.  Consultation on the joint FRC/FCA discussion paper closes on 30 April.

FRC consultation on a revised UK stewardship code is here.

CP19/7: Consultation on proposals to improve shareholder engagement

DP19/1: Building a regulatory framework for effective stewardship

Report by Pat Sweet

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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