Shareholder Rights Directive II: Overview

The Shareholder Rights Directive II (SRD II) amends the Shareholder Rights Directive to strengthen shareholder engagement and increase transparency.

SRD II came into force on 09 June 2017 and most of its provisions had to be implemented into national law by 10 June 2019. The SRD II provisions on identification of shareholders and communication with shareholders through intermediaries by 3 September 2020.

Key changes

The key changes include:

• Directors’ remuneration: to require listed companies to publish a remuneration policy and to give shareholders a vote on the remuneration policy. But, Member States can decide whether this should be a binding vote or an advisory one only. Directors’ remuneration will have to be in accordance with an approved policy (or one that has been put to a vote). There continues to be a non- binding vote on the remuneration report.

• Identification of shareholders: new requirements allow companies to request information from intermediaries so that they can identify their shareholders but Member States can exclude very small shareholders (those holding less than 0.5%).

• Related party transactions: material related party transactions will have to be publicly announced when concluded. What is material will be decided by the Member States in accordance with certain specified criteria. Member States can require that the announcement is accompanied by a ‘fair and reasonable’ report.

• Intermediaries’ obligations: intermediaries must offer companies the right to have their shareholders identified; transmit information without delay between companies and shareholders; facilitate the exercise of shareholder rights and publicly disclose any charges for providing these services.

• Transparency of institutional investors and asset managers: institutional investors and asset managers must develop a policy on shareholder engagement, make the policy available on their website and annually disclose how they have implemented the policy and disclose how they have cast votes at general meetings.

  Institutional investors must disclose certain aspects of their equity investment strategy and the main elements of any arrangement with an asset manager which invests on its behalf.

  The asset manager has to disclose to any institutional investor (with which it has any arrangement to invest on its behalf) how the asset manager’s investment strategy and its implementation complies with that arrangement and contributes to the medium to long-term performance of the assets of the institutional investor or of the fund, unless that information is already publicly available.

• Proxy advisors: proxy advisors will have to disclose any code of conduct they comply with and explain any derogations from that code or explain why they do not comply with any code. They will also have to publish annually on their website certain information relating to the preparation of their research, advice and voting recommendations and will have to identify and disclose to their clients any actual or potential conflicts of interest that may influence the preparation of those recommendations and the actions they have taken to eliminate, mitigate or manage those conflicts.

For a more detailed summary of SRD II see here.

See UK implementation of EU Shareholder Rights Directive - effective from 03 August 2009 for a summary of the Shareholder Rights Directive.

See the following for UK implementation of the measures that came into force in June 2019:

• SRD2 - are you ready? for the new obligations on, among others,
  MiFID firms, AIFMs, UCITS ManCos and self-managed UCITS.

• SRD II: UK implementation: new related party transaction regime for
  an overview of the new related party transaction regime.

• SRD II: UK implementation of remuneration changes for the
  directors’ remuneration changes.

EU Implementing Regulation

Following a consultation, on 4 September 2018 the European Commission published an implementing regulation (EU 2018/1212) which sets out the minimum requirements and standardised formats that will have to be used when an issuer asks for information to identify its shareholders and for sending information between an issuer and its shareholders through intermediaries, with a view to harmonising practices across Member States.

The Implementing Regulation includes specific formats for:

• requests for a shareholder’s identity and the response
• notice of general meetings and notifications of other corporate events
• confirmation of an entitlement to exercise shareholder rights at a meeting
• notice of participation at a general meeting
• confirmation of receipt of votes, and
• confirmation of recording and counting of votes.

The Implementing Regulation will apply from 3 September 2020.