There is nothing under FSA rules that prevents investors from collective engagement.
The Financial Services Authority (FSA) has set out how its rules apply to activist shareholders who wish to work together to promote effective corporate governance in companies in which they have invested. The FSA said in a letter sent to trade associations that its requirements do not prevent legitimate activity of this nature.
The FSA strongly supports Sir David Walker's proposals to strengthen shareholder engagement with the boards of investee companies aimed at promoting good corporate governance. The letter makes clear that its rules do not stand in the way of Sir David's proposals.
Alexander Justham, FSA Director of Markets, said: "There is nothing under FSA rules that prevents investors discussing matters when it is for a legitimate purpose. Our letter provides clarity to investors that they are free to engage with the boards of companies as Sir David Walker envisaged."
The FSA has set out its approach on the three key areas of its rules:
- The market abuse rules do not prevent investors from engaging collectively with the management of an investee company. However, trading on the basis of knowing another investor’s intentions or working jointly to avoid disclosure of shareholdings could constitute market abuse;
- FSA rules on disclosure of major shareholdings require that investors who have agreed to pursue the same long-term voting strategy should aggregate their shareholdings when considering whether their shareholdings reach the threshold for disclosure (3% of a company’s shares). However, this disclosure would be unlikely to be triggered by ad hoc discussions between investors on particular corporate issues; and
- Under the EU Acquisitions Directive that was implemented earlier this year, where investors are “acting in concert” they require FSA approval if they reach a controlling shareholding (10% or more of a company’s shares) in a regulated firm. “Acting in concert” is not defined in the Directive but the FSA does not view the requirement as preventing ad hoc discussions or understandings between investors that are intended solely to promote generally accepted principles of good corporate governance in firms in which they have invested.
© FSA - Financial Services Authority
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