On 31 May 2019, the FCA published Policy Statement 9/13: Proposals to promote shareholder engagement: Feedback to CP19/7 and final rules (PS19/13). PS19/13 follows Consultation Paper 19/7: Consultation to improve shareholder engagement (CP19/7) (our blog is here). In CP19/7 the FCA set out proposals to implement the requirements of the revised Shareholder Rights Directive (SRD II).
The final rules and guidance in PS19/13 will apply to regulated life insurers, asset managers and companies with shares admitted to trading on a regulated market, all of whom will be directly affected by the changes.
Key points to note from PS19/13 are:
- from 10 June 2019, the FCA will require asset managers and asset owners to make disclosures about their engagement policies and investment strategies:
- life insurers and asset managers must publish their engagement policy and annual information on how it has been implemented, or explain publicly why they are not doing so;
- life insurers must disclose, on an annual basis, their arrangements with asset managers, how the main elements of their equity investment strategy are consistent with the profile and duration of their liabilities, and how these elements contribute to the medium to long term performance of their assets; and
- asset managers must provide information to asset owners, including on how their investment strategies contribute to the medium to long term performance of the assets.
- new requirements are introduced on issuers to make disclosures and establish arrangements for the approval of related party transactions (RPTs). In the UK, extensive RPT requirements already apply for issuers with a premium listing;
- where SRD II permits Member States to make certain choices in implementation, the FCA have sought to take a proportionate approach, maintaining a distinction between the protections afforded to investors under the existing premium listing rules (LRs) and the new SRD II rules; and
- the materiality threshold for RPTs covered by the SRD II regime will be 5% (calculated with reference to any one of the profits, assets, market capitalisation or gross capital tests), rather than 25% as originally proposed.
The new rules come into force on 10 June 2019 – which is the deadline for Member States to implement the SRD II. This means that asset managers and life insurers will have to publish their engagement policy, or explain why they have not done so, by 10 June 2019.
The FCA recognises that the rules come into effect quickly after publication. So, for an initial period, a firm can comply with the relevant rule by explaining what it is doing to develop an engagement policy. Regarding RPTs, issuers who are within scope of the new regime for related party transactions, and rest of world issuers to whom the extension applies via the LRs, will be required to comply with the new requirements from the start of their first financial year after the new rules come into force.