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MPs press regulator on fund management voting policies

MPs press regulator on fund management voting policies

The Treasury committee is calling on the Financial Conduct Authority to reveal its response to a complaint about the failure of asset managers to allow pension scheme trustees to choose which companies they invest in.

The Association of Member-Nominated Trustees (AMNT) had complained to the FCA in May about fund managers failing to allow pension scheme trustees to operate a stewardship policy for the environmental, social and governance (ESG) aspects of the companies in which they invest via fund managers.

The industry body had designed a voting initiative to allow smaller pension schemes and those investing in pooled funds to take account of ESG issues when voting on investments.

The AMNT said the issue amounted to a “market failure” and requested the FCA carried out an investigation into it.

Catherine McKinnell, former interim chair of the Treasury committee, has now written to Andrew Bailey, chief executive officer of the FCA asking it to explain what action it has taken since the AMNT’s complaint.

In the letter dated October 15, the committee asked the FCA to outline its initial findings on the back of the complaint and whether it intended to investigate the fund management industry over the issues raised.

The Treasury committee also asked whether the FCA had discussed the issue with any other regulatory bodies that are interested in effective stewardship, such as The Pensions Regulator and the Financial Reporting Council.

The MPs asked if the FCA thought it possible for pension schemes “to develop robust ESG policies and take savers' views into account, if fund managers choose not to act on the stewardship policies of their clients?"

Janice Turner, founding co-chair of the AMNT, said: "Asset owners need the FCA to ensure that asset owners' voting policies are acted on by the fund managers. We are delighted that the Treasury committee wants to see what progress the FCA has made on this issue. 

“The days of asset owners being forced to delegate their stewardship policies to their fund managers should be coming to an end." 

Leanne Clements, campaign manager for the AMNT's red line voting, said: “One cannot underestimate the importance of asset owners being able to set their own stewardship policies on issues of concern to them should they wish to do so, and have those policies implemented by their fund managers.”

The FRC's new stewardship code, which is effective from January 2020, also covers voting policies on investments.

Signatories of the new code must explain "how assets have been managed in alignment with clients' stewardship and investment policies" and if they have not done so they will need to explain why.

They must also state their policy on allowing clients to direct voting in pooled accounts.

Ms Clements said: "We congratulate the FRC for their external engagement on the Stewardship Code over the past months, and willingness to listen to the asset owner voice.

"However, the launch of the new code is just the beginning – we call upon the fund management industry to demonstrate leadership not only by signing up to the code but by publicly stating that they will ensure that they manage assets in alignment with their clients’ stewardship policies.