The FSA has published a letter to the chairman of the Institutional Shareholders' Committee which clarifies its position on shareholder engagement and the regulatory regime.

The clarification from the FSA follows the publication of Sir David Walker's consultation paper on corporate governance in UK banks and other financial entities published in July 2009, which included recommendations for more active shareholder engagement with the boards of investee companies, with the aim of promoting good corporate governance. Concerns had been raised over the extent to which more active shareholder engagement would be consistent with existing rules on market abuse, the disclosure of substantial shareholdings and changes in control of authorised financial institutions.

The FSA confirms in its letter that 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. The FSA sets out its thinking in more detail in the annex to its letter.

View the FSA's letter to the Institutional Shareholders' Committee (3 page pdf).