Canadian regulators are proposing new guidance for proxy advisory firms that aims to ensure that they have practices in place to address conflicts of interest, provide transparency, and ensure the accuracy of their voting recommendations.

The Canadian Securities Administrators (CSA) Thursday published National Policy 25-201 Guidance for Proxy Advisory Firms.

The guidance follows a consultation paper issued by the CSA back in 2012, which looked at potential regulatory concerns with the increasingly influential firms that, among other things, provide institutional investors with voting recommendations on a variety of shareholder issues.

The CSA says that its proposed policy is intended to “address concerns raised in the consultation process by certain market participants related to conflicts of interest, transparency and accuracy.”

In particular, it notes that there is general agreement among market participants that there’s the potential for conflicts of interest that could compromise the independence of proxy advisory firms. Issuers, trade groups, and law firms, also raised concerns about the manner in which vote recommendations and proxy voting guidelines are developed.

The CSA notes that the extent of the actual influence of proxy advisory firms is subject to debate. Nevertheless, it concluded that some regulatory response to the concerns raised is needed.

To that end, the regulators are proposing a policy-based approach, which provides guidance on recommended practices for proxy advisory firms “to promote transparency in the services they provide to clients and to foster an understanding among market participants about proxy advisory activities.”

While the proposed policy would apply to all proxy firms, the CSA says that the guidance is not intended to be prescriptive. “Instead, we encourage proxy advisory firms to consider this guidance in developing and implementing their own practices,” it says in its notice. “We also remind proxy advisory firms that this guidance is not intended to be exhaustive and that it does not detract proxy advisory firms from their responsibility to comply with applicable securities law.”

The CSA also says that the proposed policy will provide institutional investors, and other clients of proxy firms, with a framework for evaluating the services provided to them by these firms. In provides guidance on dealing with conflicts of interest; the transparency and accuracy of vote recommendations; the development of proxy voting guidelines; communications with clients, market participants, the media and the public; and, their approach to corporate governance.

“The CSA recognize that proxy advisory firms play an important role in advancing good corporate governance by facilitating institutional investors’ ability to exercise their voting rights at shareholder meetings,” said Bill Rice, chair of the CSA and chair and CEO of the Alberta Securities Commission (ASC). “At the same time, we believe that providing proxy advisory firms with recommended practices and disclosure is appropriate to heighten transparency and maintain a high degree of confidence in the quality of the voting process.”

The regulators note that proxy advisory firms have demonstrated a willingness to respond to the concerns raised in the proposed policy, and that they have changed some of their practices in response. “We intend to continue monitoring market developments in the proxy advisory industry to evaluate if the proposed policy addresses the Canadian marketplace’s concerns,” it says.

The proposed guidance is out for comment until June 23.