Fund managers in UK face new guidelines seeking transparency

Bloomberg

An endangered UK regulator is demanding that asset managers change the way they interact with investors under new rules that require funds to provide more information on their business culture.
A key difference in the updated stewardship code from the Financial Reporting Council is that asset managers will have to report what they’ve actually done, rather than just their policies on stewardship. The effectiveness of the current rules is unknown, nine years after the industry first signed up. “It’s definitely more grit in the system,” David Styles, director of corporate governance at the FRC, said in an interview. “It should make more transparent exactly what’s being done.”
According to the audit watchdog, stewardship activities include monitoring assets and service providers, engaging issuers and holding them to account on material issues and publicly reporting on the outcomes of these activities. The revision of the guidelines comes after a review released last year called for the FRC to be replaced. Other changes to the code include a requirement that signatories consider environmental and social material risks as well as an expansion of reporting beyond equities.
The FRC is trying to prove its value after an independent review released by the British government in December criticised the regulator’s guidelines and suggested it be replaced. The review noted that the FRC’s stewardship code on engagement between investors and companies should focus on outcomes.
The FRC will accept submissions on the update until March 29 before a final version is released in the following months.
While Styles said the new policies will provide additional bite, it will be hard to measure its overall impact. The FRC hasn’t studied the code’s effectiveness since its 2010 debut and has no plans to do so in the immediate future. However, there is anecdotal evidence that the guidelines help asset managers stand out, he said.
In addition, the audit watchdog also doesn’t yet know how it will evaluate the quality of the new outcome-focused reporting. It could be a crucial shortfall if there isn’t a system to properly criticize businesses that fall short of the new guidelines, according to Fergus Moffatt, head of UK policy at ShareAction, a charity
focussed on responsible investing that consulted with the FRC on the update. “The stewardship code is almost going to be used as a marketing ploy to say ‘Look how good we are,”‘ Moffatt said.