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Status: You are viewing the version of the handbook as on 2019-12-18.

SYSC 3.4 SRD requirements

Application

SYSC 3.4.1R

1This section applies to:

  1. (a)

    a UK insurer; and

  2. (b)

    a UK pure reinsurer,

doing long-term insurance business.

SYSC 3.4.2R

The rules in this section apply to the extent that a firm is investing (or has invested), directly or through an SRD asset manager, in shares traded on a regulated market.

SYSC 3.4.3G

The defined term regulated market has an extended meaning for the purposes of this section. The definition includes certain markets situated outside the EEA.

Engagement policy and disclosure of information

SYSC 3.4.4R

A firm must either:

  1. (1)
    1. (a)

      develop and publicly disclose an engagement policy that meets the requirements of SYSC 3.4.5R (an “engagement policy”); and

    2. (b)

      publicly disclose on an annual basis how its engagement policy has been implemented, in a way that meets the requirements of SYSC 3.4.6R; or

  2. (2)

    publicly disclose a clear and reasoned explanation of why it has chosen not to comply with any of the requirements imposed by (1).

[Note: article 3g(1) and (1)(a) of SRD]

SYSC 3.4.5R

The engagement policy must describe how the firm:

  1. (1)

    integrates shareholder engagement in its investment strategy;

  2. (2)

    monitors investee companies on relevant matters, including:

    1. (a)

      strategy;

    2. (b)

      financial and non-financial performance and risk;

    3. (c)

      capital structure; and

    4. (d)

      social and environmental impact and corporate governance;

  3. (3)

    conducts dialogues with investee companies;

  4. (4)

    exercises voting rights and other rights attached to shares;

  5. (5)

    cooperates with other shareholders;

  6. (6)

    communicates with relevant stakeholders of the investee companies; and

  7. (7)

    manages actual and potential conflicts of interests in relation to the firm’s engagement.

[Note: article 3g(1)(a) of SRD]

SYSC 3.4.6R
  1. (1)

    The annual disclosure must include a general description of voting behaviour, an explanation of the most significant votes and the use of the services of proxy advisors.

  2. (2)
    1. (a)

      Subject to (b), a firm must publicly disclose how it has cast votes in the general meetings of companies in which it holds shares.

    2. (b)

      A firm is not required to disclose votes that are insignificant due to the subject matter of the vote or the size of the holding in the company.

[Note: article 3g(1)(b) of SRD]

SYSC 3.4.7R
  1. (1)

    The applicable disclosures or information referred to in SYSC 3.4.4R to SYSC 3.4.6R must be made available free of charge on the firm’s website.

  2. (2)

    Where an SRD asset manager implements the engagement policy, including voting, on behalf of a firm, the firm must make a reference as to where such voting information has been published by the SRD asset manager.

[Note: article 3g(2) of SRD]

Investment strategy and arrangements with SRD asset managers

SYSC 3.4.8R

A firm must disclose publicly how the main elements of its equity investment strategy are consistent with the profile and duration of its liabilities, in particular long-term liabilities, and how they contribute to the medium- to long-term performance of its assets.

[Note: article 3h(1) of SRD]

SYSC 3.4.9R
  1. (1)

    Where an SRD asset manager invests on behalf of a firm, whether on a discretionary client-by-client basis or through a collective investment undertaking, the firm must publicly disclose the following information regarding its arrangement with the SRD asset manager:

    1. (a)

      how the arrangement with the SRD asset manager incentivises the SRD asset manager to align its investment strategy and decisions with the profile and duration of the liabilities of the firm, in particular long-term liabilities;

    2. (b)

      how that arrangement incentivises the SRD asset manager to make investment decisions based on assessments of medium- to long-term financial and non-financial performance of the investee company, and to engage with investee companies in order to improve their performance in the medium- to long-term;

    3. (c)

      how the method and time horizon of the evaluation of the SRD asset manager’s performance and the remuneration for asset management services are in line with the profile and duration of the liabilities of the firm, in particular its long-term liabilities, taking into account its absolute long-term performance;

    4. (d)

      how the firm monitors portfolio turnover costs incurred by the SRD asset manager and how it defines and monitors a targeted portfolio turnover or turnover range; and

    5. (e)

      the duration of the arrangement with the SRD asset manager.

  2. (2)

    Where the arrangement with the SRD asset manager does not contain one or more such elements, the firm must give a clear and reasoned explanation why this is the case.

[Note: article 3h(2) of SRD]

SYSC 3.4.10R

The information referred to in SYSC 3.4.8R and SYSC 3.4.9R must:

  1. (1)

    be made available, free of charge, on the firm’s website; and

  2. (2)

    be updated annually, unless there is no material change.

[Note: article 3h(3), first paragraph of SRD]