UK financial watchdog probes stewardship mandates as institutions pay lip service

The Financial Reporting Council, the UK corporate governance regulator, plans to assess which asset owner mandates explicitly refer to stewardship amid fears that some institutions have signed up to the four-year-old Stewardship Code “in name only”.

The Stewardship Code was launched in 2010 as the first attempt to codify dialogue between asset managers and companies. Reviewed in 2012, the code now has almost 300 signatories and has served as a model for similar codes around the world, most recently in Japan.

Now the FRC wants to boost its implementation – not just its adoption.

So it will look at the percentage of mandates awarded by asset owners to asset managers that explicitly refer to stewardship. It will also examine the percentage of the code’s signatories with independent opinions on their engagement who make those opinions available to clients. The findings will be published in a report later this year.

The body says the development of a “stewardship culture” requires behavioural change. “Some institutions appear to have signed up to the Code in name only,” it says in its new plan and budget document.
The FRC reckons better implementation could come from: a) Generating demand from asset owners forstewardship work by fund managers; and b) Improving asset owners’ ability to differentiate between managers and hold them to account.

“Anecdotal evidence from companies suggests that engagement has not strengthened in all cases,” the FRC says.

“Anecdotal evidence suggests engagement has not strengthened”

The FRC will look to influence the development of the European Union’s new Shareholder Rights Directive and work with other regulators “and the market” to press fund managers and asset owners to provide better accounts of their engagement with companies and how they are meeting client and beneficiary expectations.

The key outcomes being sought are an improvement in the quantity and quality of engagement between companies and their investors, and greater accountability of asset managers to their clients.

The FRC’s overall assessment will be set out in a report in December; it will draw on stewardship surveys by trade bodies the Investment Management Association and the National Association of Pension Funds.