The Code was introduced in 2010 following the recommendations of The Walker Review and sets out a number of areas of good practice to which investors should aspire and operates on a comply or explain basis. The FRC said that over the past five years the quality and quantity of stewardship has improved but not consistently and transparently. It will now start to assess the disclosure provided by fund managers and will either rate them tier one or tier two.
More evidence of stewardship
Tier one fund managers will be those that the FRC believes are meeting reporting expectations in relation to stewardship activities. Additionally, asset managers will be asked to provide evidence of the implementation of their approach to stewardship. The FRC will look particularly at conflicts of interest disclosures, evidence of engagement and approach to resourcing and integration of stewardship.
Tier two fund managers will be those that are not meeting the FRC’s expectations in relation to reporting on the Code. Prior to making its decision public the FRC will give fund managers time to make improvements.
Sir Winfried Bischoff, Chairman of the FRC, said, “The Stewardship Code has helped to raise the profile of stewardship, normalised discussions about stewardship in the investment chain and led to improvements in the quality and quantity of engagement between investors and companies. We wish to maintain momentum by ensuring that signing up to the Stewardship Code is a true marker of commitment.”
The Code aims to improve the engagement between investors and companies to help improve long-term risk-adjusted returns to shareholders. Since December 2010 all UK-authorised asset managers are required under the Financial Conduct Authority’s Conduct of Business Rules to produce a statement of commitment to the Stewardship Code or explain why it is not appropriate to their business model.