FRC postpones deadline for UK Stewardship Code disclosure in bid to improve “long tail” of laggards

The Financial Reporting Council (FRC), the UK’s independent UK regulator, has postponed the deadline for asset managers and pension funds to provide information on stewardship in a bid to boost what it says is a “long tail” of laggards currently failing to meet standards. The new requirements are aimed at assessing and rating fund managers on their level of engagement with the UK’s Stewardship Code.
David Styles, head of FRC’s corporate governance, says the regulator is also planning to introduce a new tier, in between the top tier for signatories meeting all requirements and the bottom tier for those failing to do so: “There is a wide range of quality of information and so we are looking at whether two tiers are sufficient or whether we need a third tier in order to distinguish between the signatories,” he said.
The new deadline is September 23 and the FRC hopes to publish its assessment by late October-early November. The original deadline was July 22.
One industry source who declined to be named said that only around a third of signatories were currently meeting requirements, with a large proportion failing to meet disclosure standards.
Declining to provide any detail on the proportion of signatories currently meeting standards or those failing to do so, Styles said: “We have set the bar very high and although there is no perfect statement, you have to have a high quality of disclosure to make tier 1.”
The FRC is calling on its 300 signatories which includes fund managers and pension funds to provide “distinctive” statements for each of the seven principles of the Stewardship Code to boost the quality of reporting and bring more transparency to the market. This information will form the basis for dividing fund managers into the three tiers.“The Stewardship Code has been around for six years and while there is some excellent reporting, we have very long tail of reporting that is not up to standard,” said Styles.
“Our aim is two fold – we want to improve quality of reporting and we want to get much better information into the market so that asset owners can understand when they employ asset managers what their approach to stewardship is,” he added.
The Stewardship Code was first published by the FRC in 2010 to improve the quality of engagement between asset managers and companies. The principles of the Code include publicly disclosing their policy on how signatories will discharge their stewardship responsibilities and having a robust policy on managing conflicts of interest in relation to stewardship which should be publicly disclosed.
“Each individual signatory has to write a signatory statement which is distinctive as to how they go about stewardship on the basis of the seven principles under the Code,” Styles said.
“Some people write about this very well and some people don’t – the whole idea is to improve the quality of reporting.”
Some of the other guidelines include monitoring investee companies, establishing clear guidelines on when and how signatories will escalate their stewardship activities, and acting acting collectively with other investors where appropriate.
Separately, FRC Chairman Sir Win Bischoff said in a recent speech that over the next three years the regulator would hit “pause” on new regulatory requirements, instead focus on encouraging improvement among its stakeholders.