UK considers single powerful corporate governance watchdog

Stewardship and governance alongside company oversight

The UK government is considering creating a single “powerful” new corporate governance regulator which would supervise corporate governance, company disclosure and institutional shareholders’ stewardship of companies.

The idea is to merge the UK Listing Authority (UKLA), the arm of the Financial Services Authority which deals with stock exchange listings, with the Financial Reporting Council, the body which oversees the Corporate Governance Code and the Stewardship Code.

“This would have the benefit of bringing the UKLA’s regulation of primary market activity alongside FRC functions relating to company reporting, audit and corporate governance,” the government’s new consultation document states.

The reorganisation is part of a sweeping revamp in the wake of the financial crisis.

A separate Green Paper from the UK Department for Business has also warned that the government could act to curb banking sector dividends and bonuses if banks don’t up their lending to small- and medium-sized businesses.The Treasury governance consultation closes on October 18. The news comes as asset management firms in the UK have hit back in the debate over ‘ownerless corporations’, saying engagement and governance are not usually part of client mandates.

Former Treasury Minister Lord Myners coined the term in a speech to the Investment Management Association in 2009. Now the IMA, the UK’s fund management trade body, has released its annual survey of 75 member firms.

“Asset managers are agents acting on behalf of their clients,” the IMA states. Managers’ behaviour is determined by their mandates, which don’t usually engagement and governance issues.

The IMA said there is a concern amongst investment managers that there should not be unrealistic expectations about what they can achieve through engagement – although managers do generally recognise that the engagement process needs to change and improve.

Most managers stressed it was very difficult for asset managers on the outside to be expected to pick up on risks that may not be fully apparent even to the board.