ESMA recommends EU Code of Conduct for proxy advising

There is no current market failure related to proxy advisors interaction with investors and issuers in the European Union which would require regulatory intervention, accoding to the latest report published by The European Securities and Markets Authority (ESMA).

However, ESMA has identified a number of concerns regarding the independence of proxy advisors, and the accuracy and reliability of the advice provided which would benefit from improved clarity and understanding amongst stakeholders.

ESMA is recommending that the proxy advising industry should develop an EU Code of Conduct (Code) that focuses on identifying, disclosing and managing conflicts of interest and fostering transparency to ensure the accuracy and reliability of the advice.

The institution has had initial discussions with several participants from the industry who are supportive of beginning work on a Code, these include Glass Lewis, Institutional Shareholder Service (ISS), IVOX, Manifest, Nordic Investor Services, PIRC and Proxinvest. The work is expected to begin in the next few weeks.

“In its efforts to intensify its work on corporate governance issues, ESMA has undertaken an extensive analysis of the proxy advisor industry in the EU, with input from users, providers and issuers, and has found no evidence of a market failure requiring regulatory intervention,” said Steven Maijoor, ESMA Chair.

He added: “However, there are a number of concerns regarding conflicts of interest management and the transparency of analysis and advice, which we believe would benefit from improved clarity on the part of the industry.

The establishment of an EU Code of Conduct will assist in improving understanding amongst issuers and investors of the proxy advisors’ role, allowing them to better focus on fostering effective and robust corporate governance, thereby contributing to investor protection and efficient markets.

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