The Proxy Advisors (Shareholders’ Rights) Regulations 2019

Made: 13th May 2019

Laid before Parliament: 14th May 2019

Coming into force: 10th June 2019

The Treasury are a government department designated for the purposes of section 2(2) of the European Communities Act 1972 in relation to financial services.

The Treasury make the following Regulations in exercise of the powers conferred by section 2(2) of the European Communities Act 1972.

PART 1 — General

Citation and commencement

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These Regulations may be cited as the Proxy Advisors (Shareholders' Rights) Regulations 2019, and come into force on 10th June 2019.

Interpretation

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• (1) In these Regulations—

• “the Act” means the Financial Services and Markets Act 2000 ;

• “the FCA” means the Financial Conduct Authority;

• “proxy advisor” means a person who—is a proxy advisor within the meaning given by point (g) of Article 2 of the Shareholder Rights Directive ;provides proxy advisor services to a shareholder with respect to the shares of any company where—the company's registered office is situated in the United Kingdom ... or in Gibraltar; and the shares are admitted to trading on a UK regulated market or a Gibraltar regulated market; and either—has its registered office (or if it does not have a registered office, its head office) in the United Kingdom; orhas its registered office or head office in any country or territory other than the United Kingdom ... or Gibraltar, and provides proxy advisor services through an establishment located in the United Kingdom; and

• “proxy advisor services” means services provided by a person acting in the capacity of a proxy advisor within the meaning given by point (g) of Article 2 of the Shareholder Rights Directive.

• (2) In paragraph (1)—

• (a) “Shareholder Rights Directive” means Directive 2007/36/EC of the European Parliament and of the Council of 11 July 2007 on the exercise of certain rights of shareholders in listed companies as in force immediately before IP completion day; and

• (b) in the definition of “proxy advisor”, in paragraph (b)—

• (i) “regulated market” means a multilateral system operated or managed by a market operator, which brings together or facilitates the bringing together of multiple third-party buying and selling interests in financial instruments, in the system and in accordance with its non-discretionary rules, in a way that results in a contract, in respect of the financial instruments admitted to trading under its rules or systems;

• (ii) “UK regulated market” means a regulated market which is a recognised investment exchange under section 285 of the Act, but not an overseas investment exchange within the meaning of section 313(1) of the Act;

• (iii) “Gibraltar regulated market” means a regulated market which is authorised and functions regularly and in accordance with Part 3 of the Financial Services (Markets in Financial Instruments) Act 2018 of Gibraltar , as amended from time to time;

• (iv) “shareholder” has the meaning given by Article 2.1(e) of the transparency obligations directive, within the meaning given in section 103(1) of the Act , as in force immediately before IP completion day.

PART 2 — Transparency requirements in relation to proxy advisors

Code of conduct of proxy advisors

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• (1) Where a proxy advisor (“P”) provides proxy advisor services in accordance with or by reference to a code of conduct, P must disclose to the public—

• (a) a reference to the code of conduct, by means of which any person may readily view it;

• (b) a report on the manner in which P has applied the code of conduct; and

• (c) where P's practice is to depart from any of the recommendations contained in the code of conduct, a statement which specifies the recommendations concerned, explains the reason for departing from them, and indicates any measures adopted instead of them.

• (2) Where P, in the provision of proxy advisor services, does not provide those services in accordance with or by reference to a code of conduct, P must provide a clear and reasoned explanation of P's reasons for not doing so.

• (3) All information which P is required to disclose under paragraphs (1) and (2) must be—

• (a) made available free of charge;

• (b) published on P's website; and

• (c) published for the first time no later than 21st June 2019.

• (4) All information published by P in accordance with paragraph (3) must be updated—

• (a) for the first time, no later than the end of P's first financial year starting after 10th June 2019; and

• (b) subsequently, at intervals of no more than twelve months beginning with the date on which it was last updated.

Information giving assurance about the accuracy and reliability of advice

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• (1) With the object of giving the clients of a proxy advisor (“P”) assurance about the accuracy and reliability of P's proxy advisor services, P must disclose to the public the following information relating to P's preparation of research, advice and voting recommendations—

• (a) the essential features of the methodologies and models applied for the provision of those services;

• (b) the main sources of information used for the provision of those services;

• (c) the procedures put in place to ensure that P's research, advice and voting recommendations are of an adequate quality and are prepared by staff who are suitably qualified to prepare them;

• (d) whether P takes account of national market, legal, regulatory and company-specific conditions, and if P does so, how P takes account of those matters;

• (e) the essential features of the voting policies applied for each market;

• (f) whether P has a dialogue with the company which is the object of P's research, advice or voting recommendations, or with persons who have a stake in that company, and if P does so, the extent and nature of the dialogue; and

• (g) P's policy regarding the prevention and management of potential conflicts of interest.

• (2) This regulation does not have effect in relation to any information of a kind specified in paragraph (1) if, or so far as, that information is disclosed to the public in compliance with regulation 3.

• (3) All information which P is required to disclose under paragraph (1) must be—

• (a) disclosed by publication on P's website;

• (b) published for the first time no later than the end of P's first financial year starting after 10th June 2019; and

• (c) made available free of charge for a period of at least three years beginning with the date on which it is published for the first time.

• (4) All information published by P in accordance with paragraph (3) must be updated—

• (a) for the first time no later than the end of the period of twelve months beginning with the date on which it was first published; and

• (b) subsequently, at intervals of no more than twelve months beginning with the date on which it was last updated.

Conflicts of interest

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• (1) A proxy advisor (“P”) must take all appropriate steps to ensure—

• (a) that P identifies any actual or potential conflict of interest or any business relationship that may influence P in the preparation of research, advice or voting recommendations; and

• (b) that such a conflict of interest or business relationship is identified without delay after the time at which it arises.

• (2) Where P has identified an actual or potential conflict of interest or a business relationship of the kind specified in paragraph (1), P must, without delay—

• (a) disclose that fact to P's clients together with particulars of the conflict of interest or business relationship concerned; and

• (b) give P's clients a statement of the action P has undertaken to eliminate, mitigate or manage the conflict of interest or business relationship concerned.

Obligation to collect and update information

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A proxy advisor must collect and keep up to date all information required to enable it to comply with its obligations relating to the disclosure of information under this Part.

PART 3 — Functions of the FCA in relation to proxy advisors

Interpretation of Part

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• (1) In this Part, except in regulations 9 and 10, “relevant requirement” means—

• (a) a requirement imposed by Part 2 of these Regulations;

• (b) a requirement imposed by regulation 9; or

• (c) a requirement to give notice under or in accordance with regulation 31 or 32.

• (2) In regulations 9 and 10 “relevant requirement” means—

• (a) a requirement imposed by Part 2 of these Regulations; or

• (b) a requirement to give notice under or in accordance with regulation 31 or 32.

• (3) In this Part, in relation to a requirement to give notice under or in accordance with regulation 32, a reference to a proxy advisor is a reference to a person who is required to comply with that requirement.

Functions of the FCA

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The FCA, in discharging the functions conferred on it by this Part or by any provision of the Act applied by Part 4 of these Regulations (as so applied), must have regard to the need to use its resources in the most efficient and economic way.

Notice of inability or failure to comply with a relevant requirement

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• (1) If, at any time, a proxy advisor considers that it is unable to comply with a relevant requirement, it must as soon as reasonably practicable notify the FCA of that fact and of the reasons why it is unable to comply.

• (2) A proxy advisor must immediately notify the FCA of any contravention of a relevant requirement of which the proxy advisor becomes aware.

Complaints

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The FCA must maintain arrangements designed to enable any person to submit to it a complaint that a proxy advisor has contravened a relevant requirement.

Public censure

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Where the FCA considers that a proxy advisor has contravened a relevant requirement, the FCA may publish a statement to that effect.

Financial penalties

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• (1) Where the FCA considers that a proxy advisor has contravened a relevant requirement, the FCA may impose a penalty of such amount as it considers appropriate on the proxy advisor.

• (2) A penalty imposed under this regulation is payable to the FCA and may be recovered as a debt owed to the FCA.

Warning notice

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• (1) Where the FCA proposes to—

• (a) publish a statement in respect of a proxy advisor under regulation 11, or

• (b) impose a penalty on a proxy advisor under regulation 12,

it must give the proxy advisor a warning notice.

• (2) A warning notice about a proposal to publish a statement must set out the terms of the statement.

• (3) A warning notice about a proposal to impose a penalty must state the amount of the penalty.

Decision notice

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• (1) Where, having considered any representations made in response to the warning notice, the FCA decides to—

• (a) publish a statement under regulation 11 (whether or not in the terms proposed), or

• (b) impose a penalty under regulation 12 (whether or not of the amount proposed),

it must without delay give the proxy advisor concerned a decision notice.

• (2) In the case of a statement, the decision notice must set out the terms of the statement.

• (3) In the case of a penalty, the decision notice must state the amount of the penalty.

• (4) Where the FCA decides to—

• (a) publish a statement in respect of a proxy advisor under regulation 11, or

• (b) impose a penalty on a proxy advisor under regulation 12,

the proxy advisor may refer the matter to the Tribunal.

• (5) After a statement under regulation 11 is published, the FCA must send a copy of it to—

• (a) the proxy advisor concerned; and

• (b) any person to whom a copy of the decision notice was given under section 393(4) of the Act (third party rights) as applied by section 392 of the Act (application of section 393).

• (6) In paragraph (5)(b) the reference to section 392 is a reference to that section as read with the modification made by regulation 26(6).

Matters to which FCA must have regard in relation to imposition of penalties

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In determining whether to impose a penalty under regulation 12 and the amount of a penalty under that regulation, the FCA must have regard to—

• (a) the gravity and duration of the contravention, including how serious it is in relation to the nature of the requirement contravened;

• (b) the extent to which the contravention was deliberate or reckless;

• (c) the financial strength of the proxy advisor;

• (d) the amount of profit gained or of loss avoided as a result of the contravention, so far as this can be determined;

• (e) the amount of loss sustained as a result of the contravention by any other person, so far as this can be determined;

• (f) the level of co-operation with the FCA given by the proxy advisor (without prejudice to the need to ensure that the proxy advisor accounts for or makes good any profit gained or loss avoided as a result of the contravention);

• (g) any previous contravention by the proxy advisor for which a penalty was, or could have been, imposed under regulation 12; and

• (h) any measures taken by the proxy advisor to prevent a repetition of the contravention.

Statement of policy on imposition of penalties

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• (1) The FCA may prepare and issue a statement of policy with respect to the imposition and amount of penalties under regulation 12.

• (2) A statement of policy must require the FCA, in determining whether to impose a penalty under regulation 12 and the amount of a penalty under that regulation, to have regard to the matters referred to in regulation 15.

• (3) The FCA may, at any time, alter or replace a statement of policy issued under this regulation.

• (4) Where a statement of policy is altered or replaced, the FCA must issue the altered statement or the statement by which it is replaced.

• (5) The FCA must, without delay, give the Treasury a copy of each statement of policy issued under this regulation and publish that statement, as the statement currently in force, in a manner which appears to the FCA to be best calculated to bring it to the attention of the public.

• (6) The FCA may charge a reasonable fee for providing a person with a copy of any statement of policy issued under this regulation.

• (7) If the FCA issues a statement of policy under this regulation, paragraph (8) applies in relation to the FCA's exercise, or decision whether to exercise, its power to impose a penalty for the contravention of a relevant requirement, and its determination of the amount of a penalty to be imposed for the contravention.

• (8) The FCA must have regard to the statement of policy which was in force at the time of the contravention.

Statement of policy on imposition of penalties: procedure

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• (1) The FCA must, before issuing a statement under regulation 16 (including an altered statement or a statement by which the statement currently in force is to be replaced), publish a draft of the statement in a manner which appears to the FCA to be best calculated to bring it to the attention of the public.

• (2) The draft statement must be published with a notice that representations about the draft may be made to the FCA within a specified time.

• (3) The FCA must, in preparing the statement for issue, have regard to any representations made about the draft published under paragraph (2).

• (4) On issuing the statement, the FCA must publish an account, in general terms, of any representations made about the draft statement and the FCA's response to those representations.

• (5) Where the statement issued differs from the draft statement in any respect which, in the opinion of the FCA, is significant, the FCA must also publish details of the difference.

• (6) The FCA may charge a reasonable fee for providing a person with a copy of the draft statement published under paragraph (1).

Misleading the FCA

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• (1) A person must not provide information to another person—

• (a) knowing or being reckless as to whether the information is false or misleading in a material particular; and

• (b) knowing that the information is to be provided to, or used for the purpose of providing information to, the FCA in connection with the discharge of any of its functions under these Regulations or under the Act as applied by these Regulations.

• (2) A person who contravenes paragraph (1) is guilty of an offence.

• (3) A person who is guilty of an offence under this regulation is liable—

• (a) on summary conviction—

• (i) in England and Wales, to a fine;

• (ii) in Scotland or Northern Ireland, to a fine not exceeding the statutory maximum; or

• (b) on conviction on indictment, to a fine.

Restriction on penalties

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• (1) A proxy advisor who is convicted of an offence under section 398(1) of the Act as applied by these Regulations is not subsequently liable to a penalty under regulation 12 in respect of any act or omission that constituted, in whole or in part, the offence.

• (2) A proxy advisor on whom a penalty has been imposed under regulation 12 is not subsequently liable for an offence under section 398(1) of the Act as applied by these Regulations in respect of the contravention for which the penalty was imposed.

PART 4 — Application of provisions of the Act for the purposes of Part 3

General provision

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For the purposes of this Part—

• (a) in a provision of the Act applied by this Part, a reference to a section or other provision of the Act which is also applied by this Part is a reference to that section or other provision as so applied; and