On 14 May 2019, the Proxy Advisors (Shareholders' Rights) Regulations 2019 were published. The Regulations implement, in part, the Shareholder Rights Directive II (SRD II, which amends the original Shareholder Rights Directive (2007/36/EC) (SRD)) with a view to encouraging long-term shareholder engagement.
Under the Regulations proxy advisors are required to make certain disclosures concerning the conduct of their business, including the obligation to:
- disclose the code of conduct which they apply, report on its application, explain any departures from the code's recommendations and indicate any alternative measures adopted and, if no code of conduct is applied, they must explain why this is the case;
- disclose certain information on their research capabilities and how they produce their advice and voting recommendations, including the essential features of the models and methodologies applied, as well as their main sources of information; and
- identify and disclose any actual or potential conflicts of interests or business.
These requirements apply to proxy advisors providing services in relation to any company whose registered office is in the U.K., Gibraltar or an EEA state and whose shares are traded on a regulated market in any of those territories, where either the proxy advisor's registered office is in the U.K. or, if its registered office or head office is not in the U.K., Gibraltar or an EEA state, it provides proxy advisor services through an establishment located in the U.K.
The Regulations give the FCA responsibility for enforcing these requirements and the power to sanction breaches through public censure and/or financial penalties.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.