The FSA has recently published a letter to the chairman of the Institutional Shareholders' Committee responding to concerns raised that active shareholder engagement might not be consistent with existing rules on market abuse, the disclosure of substantial shareholdings and changes in control in authorised financial institutions.

The clarification follows the recent Walker report on corporate governance in UK banks and other financial entities which, published in July 2009, set out recommendations to strengthen shareholder engagement with the boards of investee companies, with the aim of promoting good corporate governance.

The letter confirms that the FSA does not believe that there is any "fundamental inconsistency" between the existing regulatory requirements and the recommendations of the Walker report. Additionally, it does not consider that ad hoc discussions or understandings between institutional shareholders, designed to raise legitimate concerns on particular corporate issues, would constitute market abuse or trigger the disclosure of substantial shareholdings and changes in control.

To read the FSA letter, click here.