The Financial Reporting Council (FRC) has been accused of “capitulation to the interests of fund managers” in its proposed update to the UK Stewardship Code.
The Association of Member Nominated Trustees (AMNT) has hit out at the FRC for what it deemed the “emasculation” of a key principle of the existing code, which has been in place since 2020.
The consultation on updates to the UK Stewardship Code closed this week, and the AMNT expressed “extreme concern” about some of the proposed changes.
The FRC has “streamlined” the code’s principles, including Principle 6, which governs how signatories should take into account the interests of clients and beneficiaries.
In particular, it states that asset managers must set out “how assets have been managed in alignment with clients’ stewardship and investment policies”.
‘Completely unacceptable’ changes
The code also states that manages should explain “how they have taken account of the views of clients and what actions they have taken as a result”.
Both of these lines have been deleted from the new code and replaced with multiple references to “clients and/or beneficiaries” – a change the AMNT said was “completely unacceptable”.
Janice Turner, co-chair of the AMNT, said: “We consider the current proposals to be a capitulation to the interests of fund managers at the expense of betraying those of pension scheme trustees, using the figleaf of streamlining.
“In our view the new wording reduces pension trustees to the role of passive recipients of material from fund managers and undermines rather than enhances the role expected of them by the Pensions Regulator of being active stewards of their assets, required to hold the fund managers to account for the stewardship activities carried out on their behalf.”
‘A major dilution’ of client communication rules
In its response to the consultation, the AMNT argued that the changes to Principle 6 meant that asset managers signed up to the UK Stewardship Code “would have no reason to consider aligning with [client interests] should they not wish to”.
The trustee group also said that a new requirement to explain client communications was “a major dilution” of how asset managers take client views into account.
“Trustees of pension schemes have a fiduciary duty to their beneficiaries to manage financial risk which therefore includes potential systemic issues arising from for example climate change,” the AMNT stated.
“It is therefore essential that asset managers act in alignment with the asset owner’s stewardship policies, report clearly on their activities and can be held to account by the asset owners.”
Turner said the AMNT would “strongly oppose” implementation of the code “until appropriate amendments to the proposals are made”.
The code is currently scheduled to come into force in 2026.
