The Financial Reporting Council’s (FRC) rejection of 64 applications to its UK Stewardship Code, despite many being former signatories, has left some companies frustrated.
Major names including Schroders and JP Morgan were missing from the FRC’s 125-strong successful list.
The FRC received 189 applications in total, the majority of which came from asset managers. Among those were Abrdn, Baillie Gifford, Fidelity International, Invesco Asset Management and M&G Investments.
“The fact that many firms that were formerly Stewardship Code signatories have had the FRC reject their submissions is enormously frustrating,” says Neil Robson, financial services partner at law firm Katten Muchin Rosenman LLP.
“Many of these firms, Katten clients included, sent draft submissions to the FRC in February 2021, then received detailed feedback from the FRC which they acted on, revising their submissions in line with the FRC’s guidance and commentary. To be rejected now because the firms in question didn’t include enough description of actions taken and outcomes achieved, despite describing processes and procedures, is disappointing.”
Why FRC rejected companies
The FRC said the applications were rejected because the companies in question relied “too heavily on policy statements” and hadn’t addressed all the principles or provided enough evidence to support their approach.
“Many clients have asked if the 125 firms that did pass muster and become signatories had extra levels of insight into the FRC analysis process, though it is hard to say – certainly the 64 firms that didn’t get through this time round include big names and well-established asset managers, so the lack of transparency has led to scratched heads and annoyance this week,” explains Robson.
In 2020, the FRC announced it was reviewing the decade-old Stewardship Code to prevent signatories simply providing “boiler plate” statements about their investment decision-making, which it said failed to demonstrate to investors that they were getting value for money.
It’s more important is what fund groups actually do
But for Fairview Investing founder and investment consultant Ben Yearsley, whether companies make it onto these lists won’t matter to most investors.
“Many of these initiatives are often quite superficial and it’s more important what fund groups actually do rather than what they are signed up to,” he says.
According to the FRC, those firms that had their Stewardship Code signatory applications rejected can reapply in future windows, which are the 31 October 2021 and 30 April 2022.
An FRC statement added: “Unsuccessful applicants are encouraged to consider the individual feedback provided along with the upcoming annual review of reporting to be published in November.”
Getting ready for the next round of submissions
Robson, however, says that earlier guidance from the FRC about what was required to meet the new principles would have been beneficial.
“Thankfully those 64 firms that didn’t get through this time round can now look at the Stewardship Code disclosures of the 125 firms that did get through and learn from them, ready for the next round of submissions to the FRC at the end of October. For many firms that were previously signatories to the Stewardship Code, not being a signatory now under the new principles is, put simply, not an option,” he says.
“We are already working with clients to recast their submissions, add detailed evidence as to how the firms comply with the 12 principles of the Stewardship Code, with granular examples and reporting, and descriptive evidence of compliance, so as to ensure that the firms can be signatories once again before the year-end.”
