The Financial Reporting Council (FRC) revealed significant updates to the UK Stewardship Code application process, targeting five priority areas designed to drive better outcomes.
The UK Stewardship Code is a high standards of ‘apply and explain’ principles for assets owners, managers and service providers to follow.
Signatories, which includes Abrdn, Aon and Mercer, are required to report annually to the FRC on their policies, processes, activities and outcomes for a 12-month reporting period.
Now, following engagement with over 1,500 stakeholders in early 2024, the FRC’s has revised its Code by now focusing on five key themes.
The regulator is also making five immediate changes to significantly reduce “the reporting burden on existing signatories”.
This includes eliminating the annual disclosure of all ‘context’ reporting expectations, except for new reports or material changes. The requirement for annual disclosure against some principles’ ‘activity’ and ‘outcome’ expectations will also be reduced.
While signatories will now be explicitly allowed to reuse and cross-reference content from previous reports. And finally, clear expectations will be set for what constitutes an ‘outcome’ for stewardship purposes, and flexibility in reporting collaborative engagements and necessary escalations will be emphasised.
These reporting changes to the Code will apply for the next application window (31 October 2024) and the regulator will be writing to signatories individually to inform them of how these changes impact them.
Commenting on the update, Richard Moriarty, Financial Reporting Council’s CEO said: “The UK Stewardship Code is an important driver of the UK investment stewardship eco-system, safeguarding the interests of all savers and pension holders by promoting the transparency and accountability of investors stewardship activities and decisions, as well as being adopted by global investors.”
“However, it is right that we continue to challenge ourselves to ensure that the Code is operating in a way that is proportionate and minimises reporting burdens on signatories and supports the growth and effectiveness of the UK capital markets,” he added.
This comes after it was announced last week that the Bill to reform the FRC into the creation of the Audit Reform and Corporate Governance (ARGA) was unshelved by the new government.
The long-awaited plan to reform the FRC into a new regulator, the ARGA was shelved last November by the previous government in order to focus on “growth and the UK’s competitiveness”. However, last Wednesday, the King announced the Bill “will be brought forward to strengthen audit and corporate governance, alongside pension investment.”
The five new themes are:
Purpose: Clarifying effective stewardship and how reporting can achieve this.
Principles: Defining necessary reporting for the renewed Code’s purpose.
Proxy Advisors: Promoting transparency in their activities.
Process: Reducing the reporting burden for Code signatories and ensuring useful, accessible information for investors.
Positioning: Collaborating with other regulators to ensure clear, consistent implementation of the revised Code.