EUROPE - The European Securities and Markets Authority (ESMA) has launched a discussion paper on the proxy advisory system in Europe, warning that a number of issues may have an impact on the proper functioning of the voting process.

The paper focuses mainly on factors influencing the accuracy, independence and reliability of proxy advice.

It also highlights the need to improve transparency on the management of conflicts of interest, dialogue with issuers, voting policies and guidelines, voting recommendations and procedures for elaborating a voting recommendation report.

ESMA said it saw the paper as an "opportunity" to gain evidence on the extent to which market failures related to the activities of proxy advisors might exist, the extent to which "EU-level intervention might be appropriate" and what the authority's role might involve.

The paper was launched following fact-finding work conducted by ESMA in 2011, in which the authority recognised that the proxy advisory system was expected to grow in prominence, with pension funds and asset managers increasingly seeking to adopt such services.

Market participants are invited to respond to the paper before 25 June.

Following the discussion paper and on the basis of the input received, ESMA will publish a feedback statement in the fourth quarter of this year.