The financial watchdog has responded to concerns over the influence of dominant shareholders by proposing changes to listing rules for investment trusts.
The suggested reforms will strengthen shareholder protection and come in the wake of Saba Capital’s successful ousting of the board of Edinburgh Worldwide Investment Trust in April, replacing it with its own nominees.
Jonathan Simpson-Dent, the ousted chair, pledged to campaign for changes in the rules.
While not mentioning Saba by name, the Financial Conduct Authority said the proposals would help manage conflicts of interest involving activist investors, whose activity in investment trusts has been on the rise.
“Strong shareholder rights and minimal conflicts of interest are crucial to well-functioning markets, including for investment ?trusts,” said Jon Relleen, director of infrastructure and exchanges at the FCA.
“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.
The Association of Investment Companies, representing investment trusts, welcomed the FCA’s proposals.
“These proposals would ?strengthen investor protection, particularly when a substantial shareholder like Saba Capital seeks to replace the board and become the manager,” said Richard Stone, AIC chief executive.
“They address a gap in the rules where a shareholder who wants to manage the company can seize control of the board to promote its own interests at the expense of other shareholders.
“We’d like to extend our thanks to the FCA for listening to our concerns and proposing meaningful reform. We welcome this short consultation period of only seven weeks which should help to get these rules in place swiftly.
“We will work with the FCA and industry to analyse the potential impact of these reforms and get them implemented as quickly as possible. In the meantime, we would expect market participants to respect the spirit of these proposals.
“As the FCA has highlighted, the other important piece of the puzzle is voting reform to make sure all shareholders can exercise their rights. We have been pressing the government to implement the recommendations of the Digitisation Taskforce and it’s encouraging to hear that work is beginning on this.”
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