UK Stewardship Code

The UK Stewardship Code (“the Code”), developed from the Walker Review on Corporate Governance in the UK, is intended to enhance the quality of engagement between institutional investors (and their investment managers) and UK listed companies. The Financial Reporting Council (“FRC”) is responsible for the Code, which is substantially based on the Institutional Shareholders Committee (“ISC”) Code, and was formally adopted by the FRC on 2 July 2010, and revised in September 2012. COBS 2.2.3R of the FSA Handbook requires a firm managing investments (other than venture capital firms) on behalf of professional clients (which are not individuals) to disclose the nature of its commitment to the FRC’s Stewardship Code; or where it does not commit to the Code, its alternative investment strategy.

The FRC expects asset managers to apply the Code on a “comply or explain” basis recognizing that not all parts of the Code will be relevant to all firms, and for smaller firms in particular the requirements may be disproportionate. The Code is comprised of seven principles together with more detailed guidance, which require institutional investors to:

• publicly disclose their policy on how they will discharge their stewardship responsibilities
• have a robust policy on managing conflicts of interest in relation to stewardship, and this policy should be publicly disclosed
• monitor their investee companies
• establish clear guidelines on when and how they will escalate their stewardship activities
• be willing to act collectively with other investors where appropriate
• have a clear policy on voting and disclosure of voting activity
• report periodically on their stewardship and voting activities

Next Steps

• You must first assess whether the rule applies to your business. You must comply with the rule if you manage assets under a discretionary agreement for a third party professional who is not an individual and your FCA scope of Permissions does NOT have a requirement to only conduct venture capital business
• While the Code is directed in the first instance to institutional investors with equity holdings in UK listed companies, firms are free to apply a stewardship approach to other asset classes

How We Can Help

For those firms caught by the rule, Kroll has prepared a template designed to help you demonstrate your commitment to the Code, which we can tailor to your specific requirements.