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FCA proposal seeks to boost shareholder involvement in investments

The U.K. Financial Conduct Authority is seeking input from money managers and insurance companies on how to improve shareholder engagement, the financial services regulator said in a consultation Wednesday.

Ahead of the implementation of European Shareholder Rights Directive II in June, the regulator is proposing money managers and certain life insurers be required to disclose how they monitor investee companies, engage with them and hold them accountable. (The directive aims to improve corporate governance by strengthening the position of shareholders and ensure decisions are made for the long-term stability of a company.)

The FCA said money managers and insurers will have to disclose to asset owners certain information about how their investment strategies align with medium and long-term performance of asset owners' assets.

The FCA's proposal Wednesday states that the shares of investee companies traded on a regulated market with a primary or secondary listing in the European Economic Area will fall under the scope of the directive. This includes many overseas companies with secondary listings in the EEA, the FCA said.

"It is important to us that the territorial scope set out in the final rules is practicable and that it aligns with how money managers manage their portfolios. At the same time, final rules will need to ensure that money managers meet the expectations of asset owners, and that asset owners' expectations, in turn, meet those of beneficiaries," the FCA said in the consultation document.

"We believe it is important that the same transparency standards apply to domestic and international issuers. At the same time, it is important that issuers can reasonably meet the obligations without incurring undue costs," the FCA said.

The EU law will continue to apply in the U.K. until Dec. 31, 2020, requiring the U.K.-based companies to implement SRD II by June 10, 2019. However, the FCA said if the U.K. departs from the EU without a deal outlining terms of a withdrawal period, "We will not proceed with these proposals."

Christopher Woolard, executive director of strategy and competition at the FCA said in a news release: "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."

The consultation closes March 27.