The suggested reforms come in the wake of Saba Capital’s successful ousting of the board of Edinburgh Worldwide Investment Trust in April, replacing it with its own nominees.

While not mentioning Saba by name, the FCA said the proposals would help manage conflicts of interest involving activist investors, whose activity in investment trusts has been on the rise.

The revised rules would aim to: 
 
• Ensure the same protections that apply to arrangements with an existing investment manager also apply when a new manager is being appointed. This is to ensure consistent protections for all changes to investment manager fees and strategies.

• Recognise the association between a director and a substantial shareholder that proposed them for a board appointment, to strengthen the integrity of boards acting independently of any investment manager.

• Recognise the conflict arising where a substantial shareholder is also an investment manager and votes on material changes to investment policies, to ensure that the rights of minority shareholders are appropriately protected. 

“Strong shareholder rights and minimal conflicts of interest are crucial to well-functioning markets, including for investment ⁠trusts,” said Jon Relleen, director of infrastructure and exchanges at the FCA.

“These proposals are targeted, forward-looking changes to how conflicts of interest are managed, reflecting the central role of the investment management relationship for these companies. 

“We intend to be very careful to not interfere with voting or shareholder engagement, and we want views on whether these changes strike the right balance.” 

The Association of Investment Companies, representing investment trusts, welcomed the FCA’s proposals.

“These proposals would ⁠strengthen investor protection, particularly when a substantial shareholder like Saba Capital seeks to replace the board and become the manager,” said Richard Stone, AIC chief executive.