Guy Rainbird, Public Affairs Director
The AIC Code of Corporate Governance helps members apply ‘comply or explain’ governance best practice in a way that works sensibly for the sector. It can achieve this as it is endorsed by the Financial Reporting Council (FRC) as a way to meet the requirements of the UK Corporate Governance Code (UK Code).
The updated UK Code, published in July 2018, limited Chair tenure to nine years. We preferred a flexible approach, without a fixed tenure limit. This would allow companies to manage succession planning whilst recognising shareholder demands for regular refreshment and diversity. Members favouring nine-year tenure could apply this limit if they wished. Others could adapt their approach to fit their own circumstances.
After negotiations with the FRC, the updated AIC Code was published in February 2019 with FRC endorsement. It followed our preferred approach. It also included other departures from the UK Code, notably allowing the Chair of the board to serve on the audit committee.
The corporate governance and auditing landscape will see further evolution over the next year or so. The FRC will be replaced by a new statutory regulator. Proposals are being developed requiring ‘joint audits’ for listed companies. In our view this obligation should not be applied to members. This exemption has been provisionally accepted by policymakers but will have to be confirmed in legislation before we can be confident of this outcome. Other measures, such as additional obligations on audit tendering and reappointment, are also under discussion.
As these debates evolve, we will represent the concerns of members and seek a proportionate regulatory outcome. As important will be our continued engagement with governance agencies as we impress upon them the value of recognising the unique considerations applying to investment companies.
Our campaign on the dangers of Key Information Documents (KIDs), most notably realised in our report ‘Burn before reading’, has made policymakers think again. Frustratingly, actual rule changes have been slower to materialise. Competing industry interests and policy objectives from the range of stakeholders involved have resulted in gridlock.
There is some progress, for example a rethink of the cost calculations which lead to ‘negative’ (!) transaction costs. Nonetheless, we remain committed to achieving more significant changes to these disclosures as soon as possible.
The debate over how to best give investors access to illiquid assets has shot up the policy agenda in recent months.
The AIC has traditionally highlighted the benefits of Venture Capital Trusts in the provision of finance to smaller businesses and has made the broader case that the investment company structure should be preferred for assets such as property, infrastructure, unquoted shares and debt.
Despite the force of our position, there has been an unfortunate tendency for some audiences to discount our concerns, particularly our critique of using open-ended funds to access illiquid assets. This position has been profoundly shaken by the unfortunate suspension of Woodford Equity Income Fund. This episode has exemplified our fears that promising frequent redemption, when assets cannot be sold to the same timetable, stores up problems for investors and the financial system. Our representations are now gaining more traction.
We have encouraged greater consideration of investment companies in regulatory and other reviews, including the Financial Conduct Authority’s consideration of illiquid assets in open-ended funds and the British Business Bank’s investigation into suitable options for pension funds seeking access to illiquid assets. This debate will be a continuing priority given undiminished commercial and political appetite to see greater investment in so-called alternative assets.
We intend to be at the forefront of this conversation. We will seize policy and media opportunities to protect and enhance the commercial position of members as market and regulatory practice adapts to deliver more investment in alternative assets.
Guy Rainbird Public Affairs Director T: 020 7282 5553 E: Guy.Rainbird@theaic.co.uk
