On 26 June 2019, the FCA published Consultation Paper 19/21: Proxy Advisors (Shareholders’ Rights) Regulation Implementation (DEPP and EG) (CP19/21).
The Proxy Advisor (Shareholders’ Rights) Regulations 2019 implement that part of the revised Shareholders Rights Directive (SRD II) which relates to proxy advisers. Under the Regulations, proxy advisers must:
- disclose whether and how they apply a code of conduct;
- disclose information on their research capabilities and how they produce their advice and voting recommendations;
- identify and disclose any actual or potential conflicts of interests or business relationships that may influence the preparation of their research.
The FCA is designated as the competent authority over proxy advisers.
The FCA proposes decision making procedures to:
- remove an advisor from the public list of proxy advisers if they stop providing services but have not given the FCA notice to be removed from the list; and
- investigate and discipline proxy advisors that must meet the Regulations but are not authorised by the FCA or PRA under the Financial Services and Markets Act 2000 (FSMA).
In CP19/21 the FCA proposes amendments to Annexes 1 and 2 of chapter 2 of the Decision Procedure and Penalties manual (DEPP) to set out the decision-making procedure for:
- removing a proxy advisor from the public list of proxy advisors. The FCA will use executive procedures to take the decision to remove a proxy advisor from this list;
- determining when to publish a statement about a proxy adviser contravening a relevant requirement. The FCA will take the decision to impose a public censure under the Regulatory Decisions Committee (RDC) procedure in contested cases. In settled cases, the settlement decision makers will take the decision;
- determining when to impose a financial penalty on a proxy advisor. In contested cases, the FCA will take the decision to impose a financial penalty under the RDC procedure; and
- determining when to impose a restitution requirement. The FCA will use the RDC procedure when taking the decision to require a person to pay restitution.
The FCA also proposes to add a new section to Chapter 19 of Enforcement Guide (EG) to deal with how it will exercise its powers against proxy advisors who are alleged to have contravened the Regulations. The FCA’s approach under the Regulations will broadly mirror its approach to conducting investigations, sanctioning and the use of regulatory powers under FSMA.
The deadline for comments on CP19/21 is 26 July 2019.