The Financial Conduct Authority has proposed changes to the UK Listing Rules to strengthen conflict-of-interest protections for investment trusts, including tighter oversight of investment manager appointments.
The consultation follows a review announced in March and forms part of the regulator’s wider work to ensure the listing regime remains fit for purpose as markets evolve.
The FCA said it had tested how the current rules would operate in a range of hypothetical future scenarios and identified areas where additional protections were needed.
Under the proposals, the regulator would extend existing related-party rules to cover the appointment of new investment managers, ensuring the same shareholder protections apply when agreeing management fees and investment mandates as they do for incumbent managers.
The alternative plays in investment trusts
The FCA is also proposing to strengthen board independence by recognising links between directors and substantial shareholders who nominated them for appointment.
In addition, substantial shareholders that also act as investment managers could be prevented from voting on material changes to an investment trust’s investment policy where conflicts of interest may arise.
FCA director of infrastructure and exchanges supervision, policy and competition Jon Relleen said: “Strong shareholder rights and minimal conflicts of interest are crucial to well-functioning markets, including for investment trusts.”
He added: “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 regulator said the proposals are intended to preserve legitimate shareholder activism while ensuring minority investors remain protected where conflicts arise.
It noted that activist shareholders play an important role in holding boards to account and improving company performance, and said it had sought to avoid diluting those rights through the proposed reforms.
Alongside the consultation, the FCA has published examples of good practice to help retail investors exercise their voting rights as part of its broader work to promote shareholder engagement.
The consultation closes on 14 August, with the FCA aiming to publish final rules before the end of the year.
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