EG 19.37A Proxy Advisors (Shareholders’ Rights) Regulations 2019

1The Proxy Advisors (Shareholders’ Rights) Regulations in part implement the revised Shareholders Rights Directive (SRD). The FCA has investigative and sanctioning powers in relation to breaches of the Proxy Advisors (Shareholders’ Rights) Regulations.

1The Proxy Advisors (Shareholders’ Rights) Regulations establish a new regulatory framework for proxy advisors. This framework imposes requirements on proxy advisors that are subject to the Proxy Advisors (Shareholders’ Rights) Regulations, including, amongst other things, to provide a range of information to proxy advisors’ clients and the public with the aim of providing greater transparency. The Regulations will ensure that where proxy advisor services are provided in accordance with or by reference to a Code of Conduct it is made public together with a report on the way it has been applied. They will also ensure that information is made public by which the quality and reliability of the proxy advisor’s services and recommendations can be assessed and the proxy advisor will ensure that conflicts of interests and the management thereof are identified and disclosed appropriately. This framework will help to increase transparency in proxy advisor services and reduce the harm from investors relying on their services including their voting recommendations, without having the necessary information to assess the approach taken.

1The FCA’s approach to enforcement under the Proxy Advisors (Shareholders’ Rights) Regulations will mirror its general approach to enforcing the Act, as set out in EG 2. The FCA will seek to exercise its enforcement powers in a manner that is transparent, proportionate, responsive to the issue and consistent with its publicly stated policies. It will also seek to ensure fair treatment when exercising its enforcement powers. Finally, it will aim to change the behaviour of the person who is the subject of its action, to deter future non-compliance by others, to eliminate any financial gain or benefit from non-compliance, and where appropriate, to remedy the harm caused by the non-compliance.

1The regulatory powers which the Proxy Advisors (Shareholders’ Rights) Regulations provide to the FCA include:

• the power to require information and appoint investigators;

• powers of entry and inspection;

• power of public censure;

• the power to impose financial penalties;

• the power to apply for an injunction or restitution order;

• the power to require restitution;

• the power to remove a proxy advisor from the public list; and

• the power to prosecute relevant offences.

1The Proxy Advisors (Shareholders’ Rights) Regulations, for the most part, mirror the FCA’s investigative, sanctioning and regulatory powers under the Act. The FCA has decided to adopt procedures and policies in relation to the use of those powers akin to those it has under the Act. Key features of the FCA’s approach are described below.

1The Proxy Advisors (Shareholders’ Rights) Regulations apply much of Part 11 of the Act. The effect of this is to apply the same procedures under the Act for appointing investigators and requiring information when investigating breaches of the Proxy Advisors (Shareholders’ Rights) Regulations.

1The FCA will notify the subject of the investigation that it has appointed investigators to carry out an investigation unless notification is likely to prejudice the investigation or otherwise result in it being frustrated. The FCA expects to carry out a scoping visit early on in the enforcement process in most cases. The FCA’s policy when investigating under the Proxy Advisors (Shareholders’ Rights) Regulations is to use powers to compel information in the same way as it would in the course of an investigation under the Act.

1The RDC is the FCA’s decision maker for most of the decisions under the Proxy Advisors (Shareholders’ Rights) Regulations as set out in DEPP 2 Annex 1G. This includes the decision to publish a censure and the decision to impose a financial penalty. For the purposes of the Proxy Advisors (Shareholders’ Rights) Regulations, the FCA will follow the procedure for issuing a warning notice and decision notice as set out in DEPP 2.

1For decisions made by executive procedures i.e. settlement decisions under Regulation 11 and 12 or proposals or decisions under Regulation 32, the procedures to be followed will be those described in DEPP 4.

1The Proxy Advisors (Shareholders’ Rights) Regulations do not require the FCA to have published procedures for commencing criminal prosecutions. However, in these situations the FCA expects that we will normally follow our decision-making procedures for the equivalent decisions under the Act, as set out in EG 12.

1The Proxy Advisors (Shareholders’ Rights) Regulations do not require the FCA to have published procedures to apply to the court for an injunction or restitution order. However, the FCA will normally follow its decision-making procedures for the equivalent decisions under the Act, as set out in EG 10 and EG 11.

1The Proxy Advisors (Shareholders’ Rights) Regulations require the FCA to give third party rights as set out in section 393 of the Act and to give access to certain material as set out in section 394 of the Act.

1Certain FCA decisions (for example the imposition of a financial penalty) may be referred to the Tribunal by an aggrieved party.

1The Proxy Advisors (Shareholders’ Rights) Regulations do not require the FCA to issue a statement of policy with respect to the imposition and amount of penalties under the Proxy Advisors (Shareholders’ Rights) Regulations. However, the FCA has decided to issue a statement of policy for the imposition of a financial penalty under the Regulations. The FCA’s policy includes having regard to the relevant factors in DEPP 6.2 and DEPP 6.4 in addition to those set out in the Proxy Advisors (Shareholders’ Rights) Regulations, where appropriate. The FCA’s policy in relation to determining the level of a financial penalty includes having regard, where relevant, to DEPP 6.5 to DEPP 6.5D in addition to the factors set out in the Proxy Advisors (Shareholders’ Rights) Regulations, where appropriate.

1As with cases under the Act, the FCA may settle or mediate appropriate cases involving breaches of the Proxy Advisors (Shareholders’ Rights) Regulations to assist it to exercise its functions under the Regulations in the most efficient and economical way. See DEPP 5, DEPP 6.7 and EG 5 for further information on the settlement process and the settlement discount scheme.

1The Proxy Advisors (Shareholders’ Rights) Regulations apply section 169 of the Act which requires the FCA to publish a statement of policy on the conduct of certain interviews in response to requests from overseas regulators. For the purposes of the Proxy Advisors (Shareholders’ Rights) Regulations the FCA will follow the procedures described in DEPP 7.