The Financial Conduct Authority has published a consultation paper on proposed changes to its UK listing rules for closed-ended investment funds.
The review, announced in March as part of the regulator’s ongoing work on the UK listing rules, will consider how its rules support strong shareholder rights and effective management of conflicts of interest in a range of potential future scenarios.
As part of good regulatory practice, the FCA has been stress-testing how the rules would operate in different hypothetical situations to ensure they remain robust over time and as markets evolve.
As a result of this work, the regulator said it had identified a small number of “targeted and proportionate” adjustments to ensure its rules continue to apply consistently in all relevant scenarios.
These will ensure the same protections that apply to arrangements with an existing investment manager also apply when a new manager is being appointed to ensure consistent protections for all changes to investment manager fees and strategies.
The adjustments will also recognise the association between a director and a substantial shareholder that proposed them for a board appointment to strengthen the integrity of boards acting independently of any investment manager.
Additionally, the FCA said the changes will recognise the conflict arising where a substantial shareholder is also an investment manager and votes on material changes to investment policies to ensure that the rights of minority shareholders are appropriately protected.
Jon Relleen, director of infrastructure and exchanges – supervision, policy and 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.
“We intend to be very careful to not interfere with voting or shareholder engagement, and we want views on whether these changes strike the right balance.”
The consultation closes on the 14th August, with the FCA aiming to finalise rules before the end of the year.
Richard Stone, chief executive of the Association of Investment Companies, welcomed the proposals.
“These proposals would strengthen investor protection. They address a gap in the rules where a shareholder who wants to manage the company can seize control of the board to promote its own interests at the expense of other shareholders.
“We’d like to extend our thanks to the FCA for listening to our concerns and proposing meaningful reform. We welcome this short consultation period of only seven weeks which should help to get these rules in place swiftly.
“We will work with the FCA and industry to analyse the potential impact of these reforms and get them implemented as quickly as possible. In the meantime, we would expect market participants to respect the spirit of these proposals.”
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