A coalition of 10 fund managers, representing $380 billion in assets, have written to the U.K. Financial Conduct Authority (FCA), arguing that its recent consultation on U.K. listing rules risk “undoing stewardship progress.”
On May 3, the U.K. regulator published draft legislation CP23/10 Primary Markets Effectiveness Review, seeking feedback on proposed changes to U.K. listing rules.
The proposed changes would include the removal of compulsory shareholder votes and shareholder circulars for significant and related-party transactions, the shift to a “comply or explain” approach in regard to shareholder agreements with controlling shareholders, and a “more permissive approach” to dual-class share structures (DCSS).
According to the investor group, which features Railpen, NEST, and Brunel Pensions Partnership, the proposed rule may “dilute investor protections and exacerbate current issues.”
In its letter, the coalition argued that the removal of compulsory shareholder votes on both significant and related-party transactions, as well as permitting DCSS, means investors will “find it more challenging to act as effective stewards of their assets.”
“[These policy changes] would also diminish the U.K.’s reputation and attractiveness as the world’s ‘quality’ market, and its role as a beacon for high corporate governance standards and robust investor protections,” investors said.
Many shareholders have been vocal about their concerns with DCSS, which are particularly prevalent in U.S. markets. In June 2022, Railpen and the Council of Institutional Investors (CII) launched the Investor Coalition for Equal Votes (ICEV), aimed at pushing back against unequal voting rights at portfolio companies.
“We’re supportive of a public debate on the U.K. capital markets and are keen to ensure our market thrives whilst maintaining the robust quality the U.K. is known for,” Michael Marshall, head of investment risk and sustainable ownership at Railpen, said in a press release. “The FCA’s current proposals risk watering down that quality and reducing the pool of institutional and retail investors willing to invest in U.K.-listed companies.”