Managers voluntarily achieve conformity with the Standards on a comply-or-explain basis. This involves producing a disclosure statement which details the manager’s compliance with the Standards, including the disclosure of any Standards with which the manager does not comply and the reasons why. The disclosure statement is made available to existing and prospective investors upon request.
What are the Benefits of the Comply-or-Explain Approach?
- It takes into account the dynamic nature and diversity of the industry without requiring constant changes to the Standards.
- It provides flexibility to “explain” in the event any action required by the Standards is not consistent with the local laws/regulation.
- A “comply only” approach would have made the Standards far more prescriptive and lengthy in order to cater for all potential signatories.
- The comply-or-explain approach rests on disclosure and needs only minimum prescription. The “explain” option enables the Standards to cover a majority of circumstances for a majority of firms, while recognising idiosyncrasies.