FCA Proposes UK Listing Rule Changes to Boost Investment Trust Protection
Overview of Proposed FCA Listing Rule Changes
Background: Activist Investor Campaigns and Sector Impact
LONDON, June 26 (Reuters) - Britain on Friday set out proposed changes to listing rules for investment trusts aimed at strengthening shareholder protections, following a series of campaigns by U.S. activist investor Saba Capital targeting the sector.
The Financial Conduct Authority said the proposed reforms would help manage conflicts of interest involving activist investors, whose activity in investment trusts has increased over the past two years.
Recent Developments: Saba Capital's Influence
Saba succeeded in ousting the board of Edinburgh Worldwide Investment Trust in April, replacing it with its own nominees.
The FCA did not specifically mention Saba in its statement on Friday. Saba was not immediately available for comment.
Regulatory Scrutiny and Stakeholder Criticism
Earlier this year, Edinburgh Worldwide’s then chairman, Jonathan Simpson-Dent, criticised the existing regulatory framework, saying it warranted closer scrutiny because a 30% stake could be enough to remove a board.
Saba has previously argued its actions are needed to address underperformance by British investment trusts.
Details of the FCA’s Proposed Reforms
The FCA in March referred to the debate around its role in relation to investment trusts, without explicitly naming Saba, and said it would bring forward a planned review of the listing rules.
The FCA said its proposals, which are open for feedback until August 16, would address conflicts where directors are nominated by a substantial shareholder, and also would ensure minority shareholders are protected where large shareholders who are also managers vote on material changes to investment policies.
Industry Response and Future Outlook
"Strong shareholder rights and minimal conflicts of interest are crucial to well-functioning markets, including for investment trusts," said Jon Relleen, director of infrastructure and exchanges at the FCA.
The Association of Investment Companies, representing investment trusts, welcomed the FCA's proposals.
“These proposals would strengthen investor protection, particularly when a substantial shareholder like Saba Capital seeks to replace the board and become the manager," said Richard Stone, AIC chief executive.
(Reporting by Phoebe Seers, Editing by Iain Withers and Louise Heavens)
