UK Stewardship Code - less tiers

Overview of FRC announcement removing Tier 3 category of signatories to the UK Stewardship Code.

The tier of investors whose statements of compliance (or explanations of non-compliance) with the Stewardship Code was regarded as poor has been withdrawn by the Financial Reporting Council (FRC).

Our view

Some might say that the process of effectively "naming and shaming" by the FRC is not usual for the FRC, not even very "British" and certainly not cricket. In fact the FRC has been strenuous to give the Tier 3 firms the opportunity to step up or off the tiers. The Stewardship Code isn’t suited for all types of investor, and so some thinning out is not so surprising. But, behind this is an under-current about whether investors are engaging in a sufficiently constructive, long term and engaged manner on a voluntary basis by complying or explaining in relation to the Stewardship Code rather than by virtue of compliance with regulation. All this will need to be viewed in the context of the Government’s proposed corporate governance reforms, expected later this year.

And, the title of this article. Well, it’s a pun, based on a report that a long while ago looked at two tier boards called "Boards without tiers". But, you knew that.


The UK Stewardship Code provides guidance on best practise for institutional investors when engaging with investee companies. In 2016, the FRC categorised signatories to the Stewardship Code into the following tiers based on the quality of their Code statements:

  • Tier 1 - signatories provide a good quality and transparent description of their approach to stewardship and explanations of an alternative approach where necessary.
  • Tier 2 - signatories meet many of the reporting expectations but report less transparently on their approach to stewardship or do not provide explanations where they depart from provisions of the Code.
  • Tier 3 - significant reporting improvements need to be made to ensure the approach is more transparent. Signatories have not engaged with the process of improving their statements and their statements continue to be generic and provide no, or poor, explanations where they depart from provisions of the Code.

Tier 3 asset managers were given a period of time to improve their reporting or be removed from the list of Code signatories.

FRC announcement

On 03 August 2017, the FRC announced that it had engaged with Tier 3 signatories and about 20 had improved their statements to Tier 1 or Tier 2 standard, whilst the other half had chosen to remove themselves from the list of signatories. The Tier 3 category has now been removed.

The announcement also states that the FRC will be looking for continuous improvement from Code signatories and that its consultation on the UK Corporate Governance Code (which is expected later this year) “will include broad initial questions about its approach to the review of the Stewardship Code. It will consider how to raise reporting standards and whether the tiers are set at the appropriate level. A detailed consultation on specific changes to the Stewardship Code will follow in 2018.”

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