FCA proposes ban on shareholders voting to self-appoint managers

The Financial Conduct Authority has launched a consultation proposing changes to listing rules for closed-ended investment companies. The draft rules would require a substantial shareholder and its associates to abstain from votes on any resolution that would appoint them or their affiliates as the investment manager of the trust. The proposals follow activist campaigns by US hedge fund Saba Capital that led to board takeovers at two London-listed trusts, Edinburgh Worldwide Investment Trust and Impax Environmental Markets.

The consultation, published on Friday, targets cases where a large shareholder stands to gain from becoming the manager of a fund. The regulator described the objective as “to strengthen conflict management while maintaining an appropriate balance between investor protection and shareholder democracy.” The regulator added the changes are intended to close a governance gap without preventing shareholders from challenging underperforming boards.

The Association of Investment Companies welcomed the consultation, adding the rules would “provide additional safeguards for investors where shareholders seek both board control and management of a trust’s assets.” Advisers said the draft focuses on clear conflict scenarios while keeping shareholder engagement and the ability to hold boards to account.

Some legal experts warned activist investors might use alternative structures to pursue similar outcomes, including separate investment vehicles, affiliate management arrangements or negotiated contractual changes. Market participants expect the new directors at the two trusts to review management arrangements, with Saba or affiliated firms among potential candidates for mandates.

Responses to the consultation are open until 14 August. The FCA expects to publish final rules before the end of the year and said the proposals aim to keep the UK listing regime aligned with evolving activist strategies in the investment trust sector.