The FCA is consulting on plans to change UK Listing Rules to ensure that closed‑ended investment funds, such as investment trusts and investment companies, manage conflicts of interest better.
The FCA says a review launched in March found that there can be conflicts of interest, particularly in areas where a substantial shareholder is also an investment manager and votes on material changes to investment policies.
The FCA says that closed‑ended investment funds have a distinct structure in the market as they operate as both listed companies and investment vehicles and this provides some challenges in governance.
Shareholder rights are central to this model, enabling investors to hold boards to account and to influence key decisions, the FCA says.
The FCA has identified a "small number of targeted and proportionate adjustments" to ensure its rules continue to apply consistently.
The revised rules would aim to:
• Ensure the same protections that apply to arrangements with an existing investment manager also apply when a new manager is being appointed. This is to ensure consistent protections for all changes to investment manager fees and strategies
• 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
• 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.
The FCA believes these changes are important given the key role of the investment management contract in shaping outcomes for shareholders.
The review, announced in March, is part of the FCA’s ongoing work on the UK Listing Rules and considers how its rules support strong shareholder rights and effective management of conflicts of interest in a range of scenarios.
Jon Relleen, director of infrastructure & exchanges - supervision, policy & 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 FCA is seeking views by 14 August on the proposed changes and aims to finalise rules before the end of the year.
Alongside this consultation, the FCA is also publishing examples of good practice to support retail investors in exercising their voting rights, as part of its broader work to promote effective shareholder engagement.
• CP26/21: Proposed changes to the UK Listing Rules for closed-ended investment funds
• Good practice publication: Engaging and enabling retail shareholders to vote: good practice