The Financial Conduct Authority (FCA) has launched a consultation on targeted changes to the UK Listing Rules for closed-ended investment funds, aimed at strengthening the management of conflicts of interest.

The regulator said the proposals focus on ensuring strong shareholder rights and effective conflict management across a range of potential future scenarios, as part of its ongoing review of the UK Listing Rules.

Closed-ended investment funds, commonly referred to in the UK as investment trusts, operate as both listed companies and investment vehicles.

Under this structure, shareholders appoint a board, which in turn appoints and oversees the investment manager responsible for delivering returns.

The FCA stated that shareholder rights are central to this model, enabling investors to hold boards to account and influence key decisions.

Its consultation paper noted that there were 264 unique closed-ended investment fund listings within the scope of the proposals as of May 2026, managed by 145 investment management firms and holding total assets under management of £217bn.

The FCA confirmed it had been stress-testing how its rules would work in various hypothetical scenarios to ensure they remain robust as markets evolve.

As a result, it has identified a “small number” of targeted and proportionate adjustments to ensure the rules apply consistently in relevant scenarios.

The proposals include bringing proposed investment managers within the scope of relevant related-party provisions, to ensure the same protections that apply to arrangements with an existing investment manager also apply when a new manager is appointed.

The FCA claimed this would help ensure consistent protections for changes to investment manager fees and strategies.

Meanwhile, the regulator is also proposing to recognise the association between a director and a substantial shareholder who proposed them for a board appointment, to strengthen the integrity of boards acting independently of any investment manager.

In addition, the FCA is proposing to recognise the conflict that can arise where a substantial shareholder is also an investment manager and votes on material changes to investment policies.

Under the suggested change, the substantial shareholder would be prevented from voting on such changes to ensure the rights of minority shareholders are appropriately protected.

The FCA argued the changes are important given the central role of the investment management contract in shaping outcomes for shareholders.

However, it stressed that the proposals are not intended to interfere unnecessarily with shareholder activism or with shareholders' ability to hold boards to account.

FCA director of infrastructure and exchanges, supervision, policy and competition division, Jon Relleen, said: “Strong shareholder rights and minimal conflicts of interest are crucial to well-functioning markets, including for investment trusts.

“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.”

Association of Investment Companies chief executive, Richard Stone, commented: “These proposals would strengthen investor protection, particularly when a substantial shareholder like Saba Capital seeks to replace the board and become the manager.

"They address a gap in the rules where a shareholder who wants to manage the company can seize control of the board to promote its own interests at the expense of other shareholders.

“We’d like to extend our thanks to the FCA for listening to our concerns and proposing meaningful reform. We welcome this short consultation period of only seven weeks which should help to get these rules in place swiftly.

"We will work with the FCA and industry to analyse the potential impact of these reforms and get them implemented as quickly as possible. In the meantime, we would expect market participants to respect the spirit of these proposals.

“As the FCA has highlighted, the other important piece of the puzzle is voting reform to make sure all shareholders can exercise their rights. We have been pressing the government to implement the recommendations of the Digitisation Taskforce and it’s encouraging to hear that work is beginning on this.”

The consultation closes on 14 August 2026, with the FCA aiming to finalise the rules and publish a policy statement before the end of the year.

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