The Financial Conduct Authority (FCA)’s proposed changes to listing rules have been welcomed warmly by swathes of the asset management industry.
The review of listing rules has been ongoing since March, with the regulator releasing a “small number of targeted and proportional adjustments” to ensure the rules remain robust and can handle upcoming stresses.
The new rules aim to make sure the same protections that apply to existing managers also apply when new managers are appointed. The changes also recognise the “association between a director and a substantial shareholder that proposed them for appointment”.
Finally, they aim to address the conflict of interest when a major shareholder is also an investment manager.
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Jon Relleen, director of infrastructure & exchanges – supervision, policy & competition division at the FCA, said: “Strong shareholder rights and minimal conflicts of interest are crucial to well-functioning markets, including for investment trusts.
“These proposals are targeted, forward-looking changes to how conflicts of interest are managed, reflecting the central role of the investment management relationship for these companies.”
A spokesperson from the regulator clarified that final rules will not be enacted until they have carefully considered the feedback, with stakeholders having until 14 August to give feedback on the proposal.
“Nothing in these proposals is intended to prevent shareholders from holding boards to account.
“That is a feature of the market, not a bug,” a spokesperson clarified.
Industry responses so far have been broadly positive. Christian Pittard, head of investment trusts at Aberdeen Investments, praised the FCA’s recognition that independent bonds, accountability and one share, one vote systems are the point of the model.
“But that doesn’t mean the job is done,” he added. “There is always room to sharpen the rules where they fall short.”
Pittard said he “welcomed” the FCA’s decision to take an instrumental approach to reform to ensure the regulator strikes the right balance between strengthening protections, while preserving shareholders’ ability to drive change.
The Association of Investment Companies (AIC) similarly welcomed the news, which it has pushed for during recent conflicts between investment trusts and US hedge fund Saba Capital.
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Richard Stone, chief executive of the AIC, said: “We’d like to extend our thanks to the FCA for listening to our concerns and proposing meaningful reform.
“These proposals would strengthen investor protection, particularly when a substantial shareholder like Saba Capital seeks to replace the board and become the manager.”
The new changes address a significant gap in the rules that allows certain shareholders to promote their own interests at the expense of others.
However, he also agreed there was still work to be done. “As the FCA has highlighted, the other important piece of the puzzle is voting reform to make sure all shareholders can exercise their rights,” Stone added.
As a result, he said it was encouraging to hear that work has begun to implement the recent recommendations of the Digitisation taskforce.
The regulator is also considering a wider question about which investment entities can list in the UK, and if the current requirement for investment trusts to manage money in a way that spreads investment risk is proportionate.
