On 30 January 2019, the FCA published Discussion Paper 19/1 (DP19/1) on building a regulatory framework for effective stewardship. DP19/1 calls for input on how to encourage the institutional investment community to engage more actively in stewardship of the assets in which they invest.
Key points of discussion within DP19/1 include:
- the attributes of effective stewardship. Effective stewardship by asset owners and asset managers may include the following attributes: a clear understanding of the role of stewardship; being active in the integration of stewardship and investment decisions; developing an institutional culture that supports investment strategies and stewardship activities consistent with client interests; and reporting disclosures across the institutional investment community;
- current challenges to effective stewardship. Challenges to effective stewardship include: the cost of investing in people and processes attributed to effective stewardship; and some benefits of exercising stewardship accrue not only to firms that exercise stewardship, but also to other investors – as such, a fear of others ‘free-riding’ exists. The FCA hopes that the revised Shareholder Rights Directive will address these concerns; and
- balancing regulation and effective stewardship The Financial Reporting Council is proposing higher standards for effective stewardship through revisions to the Stewardship Code. The FCA is seeking views on how far the Stewardship Code will deliver an effective regulatory framework for stewardship.
The deadline for comments on DP19/1 is 30 April 2019.