In response to concerns raised by some activist shareholders, the Financial Services Authority (FSA) has confirmed that ad hoc discussions amongst investors are unlikely to:

  • cause a breach the market abuse regime;
  • trigger disclosure obligations under the Disclosure & Transparency Rules (DTRs); or
  • cause a change in control of a business regulated by the FSA.  

The FSA has reiterated its strong support for the principle that shareholders should strengthen their engagement with the boards of investee companies, aimed at promoting good corporate governance.  


Encouraging institutional investors to take a more proactive approach to their relationships with their investee companies has been the subject to increasing discussion and focus by regulatory groups. Most recently, the Walker Review contained recommendations which would introduce a code of practice for institutional investors to report against.

However, activist investors in particular have been concerned about the potential regulatory issues which would arise if they act collectively. Whilst the City Code on Takeovers and Mergers contains fairly detailed guidance on how closely investors can act together before they are regarded as "acting in concert" for Takeover Code purposes, concerns have remained over the application of the market abuse regime, DTRs and "change in control" rules under the Financial Services & Markets Act 2000 (FSMA).

On 19 August 2009, the FSA published a letter it has sent to the Institutional Shareholders' Committee (ISC) in which it:

  • clarifies how the FSA rules apply to activist shareholders; and
  • gives support to the recommendations set out in the Walker Review.  

The ISC members include The Association of British Insurers (ABI), the Association of Investment Companies (AIC), the Investment Management Association (IMA) and the National Association of Pension Funds (NAPF).  


The FSA's letter addresses the three key areas of concern outlined above as follows:

  1. The market abuse rules do not prevent investors from engaging collectively with the management of an investee company. The FSA has confirmed its position contained in Market Watch 20 (May 2007) that trading on the knowledge of an investor's own intentions or strategy does constitute market abuse. However, the position remains that if an investor has knowledge of its and others intentions which are not known to the market but are relatively certain of implementation, that knowledge may be unpublished price sensitive information;
  2. The DTRs require the aggregation of holdings (and therefore further disclosure) only where there is an agreement obliging two or more persons to act in a certain way. The FSA does not believe that ad hoc discussions and understandings between investors on particular corporate issues or events are likely to trigger any such aggregation; and
  3. There are two limbs to the "change in control" test under FSMA. The first limb is worded in similar terms to the DTR aggregation of holdings language and the FSA has adopted the same approach as it has under the DTRs. The second limb of the test is where people are "acting in concert", which is not defined in FSMA. However, the FSA has stated that it will not interpret ad hoc discussions and understandings aimed at promoting generally accepted principles of good corporate governance as "acting in concert" for the purposes of the 'change in control' test.