The Financial Reporting Council (FRC) has made ‘significant’ revisions to the UK Stewardship Code application process and committed to reviewing five priority areas going forward.

The code, which was last revised in 2019, is designed to support UK capital markets, reduce reporting burdens and drive better stewardship outcomes.

Following engagement with stakeholders across the FRC ecosystem in early 2024, the FRC confirmed that it will now focus on five themes in the new phase of the code’s revision: purpose, principles, proxy advisors, process and positioning.

In particular, as part of its focus on purpose, the FRC said it will consider all stakeholder views and set out its expectations of what defines effective stewardship, what this looks like in practice, and how reporting against the code can help to deliver this.

Additionally, the FRC is considering what reporting would be necessary to deliver on a renewed purpose of the code, as well as how the code might support greater transparency of proxy adviser's activities.

The FRC is also looking to take forward proposals to reduce the reporting burden currently associated with being a code signatory, ensuring information included in reports is useful and accessible to all underlying investors and stakeholders.

Furthermore, the council has been working with other regulators such as the Department of Work and Pensions, The Pensions Regulator and the Financial Conduct Authority to support clarity in understanding the revised code and its successful implementation.

In addition to this ongoing work, the FRC has made five immediate changes to reduce the reporting burden on existing signatories.

These changes include removing the requirement to annually disclose all ‘context’ reporting expectations, except for new reports or material changes, and the requirement to annually disclose against ‘activity’ and ‘outcome’ reporting expectations for some principles.

These changes will also explicitly allow the use of content from previous reporting and cross-referencing of such reports and set clear expectations of what is considered an ‘outcome’ for stewardship purposes.

Furthermore, the changes will emphasise the ability to exercise reporting against Principles 10, collaborative engagement, and 11 escalations ‘where necessary’.

The FRC said that these changes would provide clarity on areas signatories outlined as challenging to address, reduce the volume of reporting and provide flexibility for signatories in defining how they undertake stewardship.

It also said that it is confident that these changes, which will apply for the next application window (31 October 2024), will "significantly" reduce application and reporting burdens for signatories going forward.

The FRC will launch a formal public consultation on the code later this year, although, given the significance of these changes, the FRC will also be hosting further engagement with its stakeholders throughout August and September on the five areas of focus.

Commenting on the update, FRC CEO, Richard Moriarity said: “The UK Stewardship Code is an important driver of the UK investment stewardship eco-system, safeguarding the interests of all savers and pension holders by promoting the transparency and accountability of investors stewardship activities and decisions, as well as being adopted by global investors.

“However, it is right that we continue to challenge ourselves to ensure that the code is operating in a way that is proportionate and minimises reporting burdens on signatories and supports the growth and effectiveness of the UK capital markets.

Moriarity added that the next stages of the review announced follow “extensive” engagement with FRC’s stakeholders and were designed to “encourage the alignment of the code with the UK’s well-deserved reputation as an attractive investment destination for global capital”.

“It is our ambition that pension holders and savers better understand contributing to their pensions and savings to how stewardship activity and decisions are undertaken to their benefit, by the asset managers and owners investing on their behalf,” he concluded.

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