In an effort to soothe concerns about the role played by proxy advisory firms, Canadian securities regulators published new guidance today that sets best practices for the firms that provide voting recommendations to institutional investors on a range of issues that appear on corporate proxies.

The Canadian Securities Administrators (CSA) have been toying with the idea of introducing some regulation for proxy advisory firms for several years now, amid concerns from issuers that they wield too much power in the market and have too little accountability for their recommendations. Today, the CSA adopted a new national policy that provides guidance for proxy advisory firms, but doesn’t impose any requirements on them.

The policy provides best practices for dealing with conflicts of interest; the transparency and accuracy of vote recommendations; the development of proxy voting guidelines; and firms’ communications with clients, issuers, and the public.

The CSA says the policy is intended to promote transparency in the processes that lead to vote recommendations and in the development of proxy voting guidelines as well as help foster understanding about the activities of proxy advisory firms.

The guidance is not meant to be prescriptive, the CSA notes, but aims to set out issues for proxy advisory firms to consider in developing their own policies and practices. The regulators do note they expect proxy advisory firms to publicly disclose their practices “to promote transparency and understanding among market participants.”

In the guidance, the CSA acknowledges that many of the practices it recommends have already been adopted by firms. “We support initiatives taken by proxy advisory firms aimed at improving their practices, including initiatives that facilitate dialogue or contact with issuers to reduce the risk of factual errors or inaccuracies in vote recommendations,” it says.

It added that it intends to continue monitoring this area to assess whether its approach addresses the market’s concerns about the proxy advisory industry.

“The policy recommends best practices that are intended to address the concerns of market participants while recognizing that proxy advisory firms play an important role in the voting process,” said Louis Morisset, CSA chair and president and CEO of the Autorité des marchés financiers (AMF). “We have taken into consideration the points of view of all stakeholders, including institutional investors and issuers, and we are confident that we have reached a good solution.”