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Regulator increases assessment of investor engagement

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ASSESSMENT of investors’ engagement with company boards is being stepped up by the UK’s accounting watchdog, to ensure public companies are well run.

Under the Financial Reporting Council’s (FRC) updated Stewardship Code – which aims to promote closer relationships between asset managers and boards – assets managers who are signatories will be categorised based on how well they interact with the companies they invest in and how they report it.

The watchdog has placed more than a third – representing nearly 90% of assets under management – of the 300 signatories to the code in its tier 1 category, which indicates transparent and constructive engagement. Tier 1 signatories include Aviva Investors, BlackRock and Hermes Fund Managers.

The FRC said that over 200 signatories have approached the regulators to discuss improving their reporting against the code, which was launched in 2010. In contrast, asset managers who have not achieved at least tier 2 status after six months of signing up to the code will be removed from the list of signatories.

Tier 2 status denotes a lack of transparency or explanation, while Tier 3 indicates a need for significant reporting improvements, greater transparency and more explanation where they depart from the code’s requirements. Tier 2 signatories include Nestlé Capital Management Ltd and Nomura Asset Management UK Ltd, while asset managers Apax Partners and Veritas Asset Management (UK) Limited sit in tier 3 status.

There are seven principles in the code, which include monitoring their investee company, have a clear policy on voting and disclosure of voting activity and be willing to act collectively with other investors where appropriate.

Stephen Haddrill (pictured), CEO, FRC said: “Constructive engagement between investors and companies is vital for the long-term success of our economy. Investors play a crucial role in encouraging companies to think more about their long-term strategy. Reporting against the Stewardship Code is not a box-ticking exercise and signatories were encouraged to provide a clear description of their approach to stewardship, with explanations for non-compliance where appropriate.

“We will be looking for continuous improvement from code signatories, but we are pleased with the response to this exercise and many signatories have reaffirmed their commitment to quality, transparent reporting and to stewardship.”

Since December 2010 the Financial Conduct Authority’s code of business rules requires all UK-authorised asset managers are to produce a statement of commitment to the Stewardship Code, or explain why they do not.

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