A good start, but listing rule reform needs to go one step further
A substantial shareholder wanting to be appointed manager should need to convince other shareholders, says AIC.
The Association of Investment Companies (AIC) has submitted its response to the FCA consultation on reform of the Listing Rules (CP26/21).
The AIC proposes that when a substantial shareholder seeks to take control of the management contract of an investment trust, this should be subject to the approval of all other shareholders. The AIC also urges the FCA not to build in a four-week delay before the implementation of new rules to protect shareholders.
Richard Stone, Chief Executive of the Association of Investment Companies (AIC), said: “We support reform of the Listing Rules to manage conflicts of interest and the FCA has come up with some good proposals. However, we believe that the regulator needs to go further to close gaps in the rules exposed by Saba Capital.
“This is not about weakening traditional activism. It’s about dealing with situations where one substantial shareholder stands to gain at the expense of others – for example, by taking over the management contract of an investment trust. It’s not just a Saba issue – any prospective manager could exploit the same loophole.
“We are proposing targeted reform of the rules so that when a substantial shareholder seeks to become the manager of an investment trust, a majority of all other shareholders need to approve that change of manager. This doesn’t stop a shareholder taking over as manager, but it does make sure that this can’t happen against the wishes of other shareholders.
“Another crucial point in our submission is the need for speed. The FCA has proposed a four-week delay before any changes to the Listing Rules come into effect. We think the negative consequences of this measure far outweigh any positive ones, and shareholder protections should be implemented as soon as the FCA has made its final decision.
“The management contract of an investment trust is a substantial prize. As recent events have shown, existing rules do not provide enough protection for ordinary shareholders against one substantial shareholder who is motivated to take over that contract. Our targeted proposals would ensure shareholders are better protected without getting in the way of traditional activism that benefits all shareholders equally.”
