In July 2010 the Financial Reporting Council (FRC) published the first UK Stewardship Code (the Code) for UK institutional investors. This publication follows a consultation by the FRC in January 2010, and the HM Treasury Walker Review in December 2009.

The Code is based on the Institutional Shareholders Committee (ISC) Code, with minor amendments incorporating the guidance to institutional shareholders that was in Section E of the Combined Code. It is intended to be a good practice guide for institutional investors dealing with investee companies.

The main points to note from the Code are:

  • Scope of application of the Code – the Code is aimed initially at firms that manage assets on behalf of institutional shareholders (such as investment trusts, pension funds and insurance companies), but the FRC have encouraged all institutional investors and other service providers to report if and how they have complied with the Code.
  • Comply or explain – the Code is applied on a 'comply or explain' basis, whereby institutional investors are encouraged to put a statement on their website outlining how the principles of the Code have been complied with, together with disclosure of specific information under principles 1, 5, 6 and 7 of the Code, or an explanation as to why they have not been complied with. Statements should be on institutional investors' websites by the end of September 2010, and the FRC will keep a list on its own website of compliance statements from October 2010.
  • Monitoring of the Code – the FRC will monitor and review annually the take-up and application of the Code. This is due to begin in the second half of 2011.

Following the publication of the Code, the FSA published a consultation on 6 July 2010, which includes a proposed amendment to the Conduct of Business Sourcebook (COBS). This will require UK authorised firms that manage investments on behalf of professional clients to disclose on their website their compliance with the Code, or to provide an explanation as to why they have not complied. The FSA consultation closed on 6 September 2010.

View the UK Stewardship Code (12 page pdf)

View the FSA consultation (192 page pdf)