Sebi extends timeline for implementation of procedural guidelines for proxy advisors to January 1

Markets regulator Sebi on Thursday extended the timeline for implementation of procedural guidelines for proxy advisors to January 1. The guidelines issued by the regulator on August 3, were supposed to come into force from September 1.

Proxy advisors advise shareholders on corporate governance issues and assist them with voting recommendations.
The Securities and Exchange Board of India (Sebi) said the timeline was extended “after taking into consideration requests received from registered proxy advisors, and the prevailing business and market conditions due to COVID-19 pandemic”

Following the extension, the provisions of said Sebi circular shall be applicable with effect from January 1, 2021, Sebi said in a circular. Through its circular issued in August, Sebi said proxy advisors shall formulate the voting recommendation policies and disclose the updated voting recommendation policies to its clients. They were also asked to ensure that the policies are reviewed at least once annually. It, further, said the recommendation policies should also disclose the circumstances when not to provide a voting recommendation.

As per the guidelines, proxy advisors will have to disclose the methodologies and the processes followed in the development of their research and corresponding recommendations to its clients. It will alert clients within 24 hours of receipt of information about any factual errors or material revisions to the report and will have a stated process to communicate with their clients and the company.

Also, they will have to share their report with their clients and the company at the same time. Among others, Sebi said timeline to receive comments from the company may be defined by proxy advisors and all comments or clarifications received from the company, within timeline, will be included as an addendum to the report.

Proxy advisors will also have to clearly disclose in their recommendations the legal requirement vis-a-vis higher standard they are suggesting if any, and the rationale behind the recommendation of higher standard. In addition, they will have to disclose conflict of interest on every specific document where they are giving their advice.

Further, the disclosures should especially address possible areas of potential conflict and the safeguards that have been put in place to mitigate possible conflicts of interest. Proxy advisors will establish clear procedures to disclose, manage and/or mitigate any potential conflicts of interest resulting from other business activities, including consulting services, if any, undertaken by them and disclose the same to clients, the regulator had said.

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