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ESMA publishes Final Report on Proxy Advisory Industry

02/26/2013
Commentaries

The European Securities and Markets Authority (ESMA) has published its Final Report Abre ventana nuevaresulting from the Discussion Paper which it published in March 2012 on the possible alternatives for regulating the proxy advisory industry and the feedback received in that connection. Proxy advisors are firms that provide advisory services to investors, mainly institutional investors, in relation to the exercise of their voting rights as shareholders of listed companies.

In the Final Report, the ESMA concludes that it has not been provided with clear evidence of market failure in relation to how proxy advisors interact with investors and issuers, and that, therefore, the introduction of binding measures would not be justified. However, the ESMA does consider that there are several areas, mainly relating to transparency and disclosure, where greater understanding and assurance among the various stakeholders in terms of what they can expect from proxy advisors could be achieved.

As a result, the ESMA considers that the most appropriate approach to be taken at this point in time is to encourage the proxy advisory industry to develop its own Code of Conduct. To achieve this, the ESMA has drafted a set of principles that offer guidance to those who will be developing the Code. These principles focus, on the one hand, on identifying, disclosing and managing conflicts of interest, and, on the other, fostering transparency in the provision of their services. Lastly, the ESMA has indicated that it will review the development around the Code of Conduct in two years’ time and could reconsider its position if no substantial progress has been made.

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