The Proxy Advisors (Shareholders’ Rights) Regulations 2019 was published on legislation.gov.uk.
This instrument transposes Article 3j of the revised EU Shareholder Rights Directive (SRD II) into UK law. Article 3j of SRD II places requirements on proxy advisors, which primarily offer voting services and/or advice to shareholders in publicly listed companies, to make certain disclosures about the way in which they conduct their business.
One of the aims of SRD II is to improve the stewardship of EEA based corporations. Proxy advisors primarily offer voting services/advice to shareholders in publicly listed companies, and therefore can have a considerable impact on how their clients exercise their voting rights. Article 3j of SRD II, which this instrument transposes into UK law, responds to concerns that there is a 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 fulfil their stewardship role effectively.
Article 3j requires proxy advisors to make certain disclosures about how they conduct their business. Proxy advisors will be required to:
• disclose reference to a code of conduct which they apply, and report on the application of the code. If proxy advisors apply a code of conduct but depart from its recommendations, they must declare the parts of the code from which they depart, why they depart from it and indicate any alternative measures adopted.
Where proxy advisors do not apply a code of conduct at all, they must explain why this is the case.
• disclose information on their research capabilities and how they produce their advice and voting recommendations (e.g., models, methodologies, information sources and resources)
• identify and disclose any actual or potential conflicts of interests or business relationships that may influence the preparation of their research.
The instrument will come into force on 10th June 2019.
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Please Note: This publication is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to. Readers should take legal advice before applying the information contained in this publication to specific issues or transactions.