U.K. pension funds and other institutional investors should sound the alarm about excessive risk-taking at the companies in which they put their money, Britain's accounting regulator said in new guidelines published Friday.
The measures are part of a voluntary “stewardship code” being implemented by the Financial Reporting Council in response to a report on governance in financial firms last year. Some financial services lawyers already have criticized the likely effectiveness of the code because it isn't mandatory.
The rules are intended to complement changes to the FRC's corporate governance code published in May, which sought to make FTSE 350 index companies more accountable to shareholders. The changes were the first since bad bets in the U.K. financial industry led to bailouts of Royal Bank of Scotland Group, Lloyds Banking Group and Northern Rock during the financial crisis.
The code is “an opportunity to build a critical mass of U.K. and overseas investors committed to the high quality dialogue with companies” needed to underpin good governance, the FRC said in a statement.
The Financial Services Authority is separately considering proposals to require authorized asset managers to report on whether they're complying with the code.
The code is almost identical to guidelines already in use by Britain's Institutional Shareholders Committee, and the FRC put off until next year tackling “significant” issues, such as whether investors should disclose their policies on stock lending.
The rules call on institutional investors to create a policy on managing conflicts of interest, establish guidelines for escalating situations to protect shareholder value, prepare to act collectively with other investors and have a clear policy on voting and disclosure of voting activity.