Institutional investors, including CalPERS and CalSTRS, are voicing their opposition to a new U.K. Financial Conduct Authority (FCA) proposal that would eliminate investor approval on company financial moves such as mergers and acquisitions and related-party transactions. The proposal has raised concerns among watchdog groups and investors alike, who argue that it limits transparency and shareholder rights and could ultimately negatively impact investment performance.

Both giant funds have a long association with standing for both active & responsible investing, not least by sharing insights and connecting with peers at RAO events for Europe, theAmericas. & APAC….

Chris Ailman current but soon to depart CIO CalSTRS in 2021 alongside insights from Travis Antoniono for multiple regions and the always excels Anne Simpson of CaPERS, now Head of Sustainability at Franklin Templeton with the crucial opportunity of joining all the links in the chain of command. a speaker at many RAO events across all regions.

CalPERS, the largest public pension fund in the U.S., and CalSTRS, the second-largest, filed a joint response to the proposal, stating that they believe the changes are "unjustified and detrimental" to investors. They argue that the proposal could lead to a lack of accountability and transparency and could ultimately harm investors by allowing companies to make financial moves without sufficient shareholder input.

There has also been concern that the FCA's proposal could lead to a lack of confidence in U.K. markets, driving companies to look elsewhere for better access to capital and liquidity. In recent years, several U.K. companies have decamped to New York exchanges, where they believe they have better access to both.

The FCA has defended its proposal, arguing that it will streamline the approval process for certain financial moves and that investors will still have sufficient protections. However, watchdog groups and allocators remain wary and insist that investor approval is a necessary safeguard against potential conflicts of interest and self-dealing among company executives.

The FCA is currently accepting comments on the proposal until the end of the month, after which it will make a final decision on whether to implement the changes. In the meantime, investors and watchdogs will continue to voice their opposition and concerns over the potential impact on investment performance and shareholder rights.

Ashurst provides an excellent insight into the background and thinking behind the FCA’s consideration which can be read in full here.

The FCA has published a discussion paper containing important proposals in respect of the advice regulatory framework. If introduced, the regime could provide greater clarity and reassurance to firms offering support to consumers who are wary of coming too close to the personal recommendation boundary. This is important in light of increased regulatory requirements brought about by the Consumer Duty (please see our briefing here)

Ashurst’s paper succinctly outlines the background behind the FCA’s agenda as well as clarity over both what Proposals 1 & 2 mean in focussing on the imperative to offer further support & greater clarity on boundaries.

Key points

• We are still in the early stages, and the FCA expects for the regime to be updated and refined in light of feedback from stakeholders. The closing date for comments is 28 February 2024.

• The paper sets out a three-pronged advice regime with varying requirements to complement existing support firms give to consumers so that they have greater levels of support when making financial decisions:  clarification on the advice boundary; targeted support; and simplified advice.

• Further clarifying the advice boundary involves giving FCA-authorised firms greater certainty (either via further guidance or simplifying existing guidance) to provide more support to consumers without providing a personal recommendation under existing rules.