News November 2016 Tiering of signatories to the Stewardship Code

Tiering of signatories to the Stewardship Code

14 November 2016

PN 66/16


FRC holds fund managers to account under Stewardship Code

The Financial Reporting Council has categorised signatories to the Stewardship Code into tiers based on the quality of their Code statements. The assessment published today demonstrates much improved reporting against the Code and greater transparency in the UK market. There are nearly 300 signatories to the Code. More than 120 are in Tier 1, an increase from approximately 40 at the beginning of the exercise. This represents nearly 90 per cent of assets under management of members of the Investment Association.

The FRC is pleased with the positive and constructive response from signatories. The assessments focused on the quality of descriptions of signatories’ approach to stewardship and their explanations in accordance with the ‘comply or explain’ basis of the Code. Over 200 signatories approached the FRC to discuss improving their reporting against the Code.

Asset managers who have not achieved at least Tier 2 status after six months will be removed from the list of signatories as their reporting does not demonstrate commitment to the objectives of the Code. The FRC welcomes contact from signatories, particularly those in Tier 3, to discuss improvements to reporting.

Signatories to the Code have been tiered according to the quality of the reporting in their statements based on the seven principles of the Code and the supporting guidance. Asset managers have been categorised in three tiers and other signatories in two tiers.  

Tier 1
Signatories provide a good quality and transparent description of their approach to stewardship and explanations of an alternative approach where necessary.

Tier 2
Signatories meet many of the reporting expectations but report less transparently on their approach to stewardship or do not provide explanations where they depart from provisions of the Code.

Tier 3
Significant reporting improvements need to be made to ensure the approach is more transparent. Signatories have not engaged with the process of improving their statements and their statements continue to be generic and provide no, or poor, explanations where they depart from provisions of the Code.

Stephen Haddrill, CEO, FRC said:

“Constructive engagement between investors and companies is vital for the long-term success of our economy. Investors play a crucial role in encouraging companies to think more about their long-term strategy. Reporting against the Stewardship Code is not a box-ticking exercise and signatories were encouraged to provide a clear description of their approach to stewardship, with explanations for non-compliance where appropriate. We will be looking for continuous improvement from Code signatories, but we are pleased with the response to this exercise and many signatories have reaffirmed their commitment to quality, transparent reporting and to stewardship”.

Clients will now be better placed to use the more transparent reporting to discuss with asset managers their different approaches to stewardship and ensure that these best meet their needs. The FRC will continue periodically to assess the overall quality of reporting, consider possible revisions to the Stewardship Code in the future and look at how it can better support international investors to meet the requirements of international Stewardship Codes.

Please see the list of tiers

Notes to editors:

1.    The tiering exercise was undertaken to improve the quality of reporting against the Code, encourage greater transparency in the market and maintain the credibility of the Code. Tiering distinguishes between signatories who report well and display their commitment to stewardship, and those where reporting improvements are necessary and Code signatories were encouraged to improve their statements and thereby reaffirm their commitment to stewardship.
2.    The UK Stewardship Code is complementary to the UK Corporate Governance Code for listed companies and, like that Code, it should be applied on a 'comply or explain' basis.
3.   The FRC is responsible for promoting high quality corporate governance and reporting to foster investment.  We are the UK competent authority for audit and set the UK Corporate Governance and Stewardship Codes as well as UK standards for accounting, auditing and actuarial work.  We represent UK interests in international standard-setting.  We also monitor and take action to promote the quality of corporate reporting and auditing.  We operate independent enforcement arrangements for accountants and actuaries; and oversee the regulatory activities of the accountancy and actuarial professional bodies.