The FCA’s implementation of the revised Shareholder Rights Directive (SRD II) came into force today, 10 June 2019.
This was consulted on by the FCA in CP19/07 back in January with final rules being published in PS19/13 on 31 May. The main rules that will impact U.K. investment managers are as follows:
- To develop and disclose an “engagement policy” in line with COBS 2.2B.6 that sets out how the firm integrates shareholder engagement in its investment strategy;
- To publicly disclose on an annual basis how the engagement policy has been implemented, including a general description of voting behaviour and how votes have been cast (COBS 2.2B.7); and
- To make additional transparency disclosures on an annual basis to certain institutional investors as per COBS 2.2B.9. Note that the term “institutional investors” has been narrowly defined here to cover only life assurance companies and occupational pension schemes.
The first two requirements above apply on a “comply or explain” basis, with the third requirement being a binding requirement, albeit only when the types of investors mentioned are engaged. In all three cases, these rules apply to U.K. MiFID Investment Managers, Full Scope AIFMs and UCITS Management Companies, but do not apply to Sub-Threshold AIFMs unless they also fall into one of the other categories.
Due to the short time period between the publication of the rules and them coming into force, the FCA has stated that firms may comply for an “initial period” by publishing on its website that it is in the process of developing an engagement policy, or that it is considering whether to have one.
The new rules coming into force today can be found here: https://www.handbook.fca.org.uk/handbook/COBS/2/2B.html
In parallel to this, the FRC is also revising its Stewardship Code, which will necessarily mean that U.K. investment management firms also have to update their Stewardship Code disclosure under COBS 2.2.3. The proposed new code can be found here in Annex A, and it is understood this will be published in final form on 16 July 2019.