Sebi Formulates New Regulations for Proxy Advisory Firms

When it comes to a proxy advisor, they are not usually regulated in many countries, however India is one such country, where they are registered and regulated. The activities pertaining to proxy advisors are regulated by Securities Exchange Board of India (Sebi), under Sebi (Research Analyst) Regulations, 2014. 

The regulatory body appointed a working group on July 29, 2019, proposed a regulatory framework, coming up with a few suggestions and recommendations to improvise various aspects of proxy advisors. Sebi also seeks public comments on the same by August 18, before any regulatory review is undertaken.   

What are proxy advisory firms? 

Proxy advisors or proxy advisory firms provide advice to institutional investors or shareholders of a company, with regards to exercise of their rights in the company, which includes recommendations on public offer or voting on agenda items. Till now the impact of proxy advisors on corporate governance and compliance have been positive as they aid investors to vote intelligently, especially when there is a time crunch to read and analyse a lot of data. They also play an instrumental role in supporting global investors by preparing research reports and helping them to take informed analysis and recommendations while voting their rights as well. 

Sebi’s formulation for proxy advisory firms

Today, such firms are popularly known as information gatherers that provide complete access to all relevant company meeting materials, every information, keeping clients with up to date corporate governance developments. However, on similar groups, the working group noted that proxy advisors should have a publicly available conflict of interest policy as well as a clear approach to manage concerns relating to their independence, other risks that may affect reports provided to clients. 

“Communicating their policies and procedures would enable the clients to have enough information to evaluate sufficiency of the controls. Any material conflicts should be clearly stated on individual research reports too. Similarly, any press statement by the proxy advisor on such companies should also have a disclaimer. Proxy advisors should disclose their policy on engagement with companies,” noted a report published by the Working Commiitee appointed by Sebi. The report also mentions that there should be a clear separation between the proxy voting advice given to shareholders and the advice to the (listed) companies regarding advisory services and governance engagement services.