The UK Treasury has published a new set of regulations known as "The Proxy Advisors (Shareholders' Rights) Regulations 2019," which will "introduce a new transparency framework for proxy advisors" in the UK starting June 10. Under the new framework, the Financial Conduct Authority (the UK financial services and markets conduct regulator) will enforce new requirements placed on proxy advisors, including the obligation to:
- Identify and disclose actual or potential conflicts of interest or business
- Disclose certain information on research capabilities, advice and voting recommendation methods, and main sources of information
- Disclose their code of conduct or provide a rationale for not having a code of conduct
Proxy advisors who fail to comply and who are reported to the Financial Conduct Authority could face "public censure and/or financial penalties." The regulations appear to align with similar rules established in the EU and may or may not survive the UK's departure from the EU, but indicate serious concerns regarding the influence and importance of proxy advisory firms. The explanatory memo accompanying the new regulations states that the rules are intended to respond to the "lack of transparency in the way in which proxy advisors carry out their work, which could lead to institutional investors purchasing poor quality, inaccurate or unreliable advice, undermining their ability to fulfill their stewardship role effectively."