Final SRD II measures - what do they mean for intermediaries?

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. See SRD II: overview for more information.

What is coming into effect in September 2020?

New measures must be implemented by Member States by 3 September 2020 that:

• 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%); and

• require intermediaries to:

  • transmit information without delay between companies and shareholders;

  • facilitate the exercise of shareholder rights; and

  • publicly disclose any charges for providing these services.

Which companies does this apply to?

Companies which have their registered office in a Member State and whose shares are admitted to trading on a regulated market situated or operating within a Member State.

In the UK, these measures apply to companies whose shares carry voting rights and are admitted to trading on a regulated market within the EEA - defined as a "traded company" in the Companies Act 2006.

Who is an intermediary?

An intermediary is a person which provides services of safekeeping of shares, administration of shares or maintenance of securities accounts on behalf of shareholders or other persons, such as an investment firm, a credit institution and a central securities depository.

The measures coming into effect in September 2020 only apply to intermediaries in so far as they provide services to shareholders or other intermediaries with respect to shares of companies which have their registered office in a Member State and the shares of which are admitted to trading on a regulated market situated or operating within a Member State.

Third country intermediaries with no registered or head office in the EU which provide these services must also comply with these rules. (Chapter 1a, Article 3e).

How are the intermediaries' obligations being implemented in the UK?

None of the intermediaries' obligations (see below) are being implemented in the UK as the UK government has stated that:

"An intermediary is not engaged in the UK's legal framework as a conduit between the company and its shareholders for the purposes of identifying the shareholder."

"The company has a direct link to its shareholder (the member on the register) and that shareholder already has rights to participate and vote. Therefore, the role of the intermediary to facilitate the exercise of the shareholder rights is not engaged."

As a result, it looks like the forms which are set out in the Implementing Regulation do not need to be sent by a UK company to intermediaries or by the intermediaries themselves. The Implementing Regulation states that "The information referred to in Articles 3 to 8 of this Regulation shall be transmitted by the intermediaries in accordance with the standardised formats set out in the Annex, and shall include the minimum types of information and be in compliance with the requirements set out in the Annex. "

"The information to be provided by the issuers to the intermediaries and to be transmitted along the chain of intermediaries to the shareholders shall be in a format which allows for processing in compliance with paragraph 3."

Where it is a UK company in question, as the intermediaries are not involved in the process, our view is that it means that the forms in the Regulation don't apply in the UK.

UK intermediaries will, however, still have to comply with these obligations in other jurisdictions and in relation to applicable non-UK companies, depending on how the measures have been implemented.

New SRD II measures

How can companies identify their shareholders?

A company (or a third party nominated by a company) can ask an intermediary to provide the company, without delay, with information regarding shareholder identity. (Chapter 1a, Article 3a)

Shareholder identity is defined as any information to establish a shareholder's identity. As a minimum, companies must be provided with:

• the name and contact details of the shareholder;

• where the shareholder is a legal person, its registration number or, if none, a unique identifier, such as the Legal Entity Identifier (LEI code);

• the number of shares held by the shareholder; and

• if requested by the company, the categories or classes of shares held and the date of their acquisition.

A shareholder is defined as the natural or legal person recognised as a shareholder under the applicable law of the Member State.

Form of request and response: An implementing regulation (EU 2018/1212) (Implementing Regulation) sets out the minimum requirements and standardised formats that must be used by a company to ask for information to identify its shareholders and for the response (Tables 1 and 2).

Chain of intermediaries: Where there is more than one intermediary in a chain, the request must be transmitted between the intermediaries without delay and the intermediary who holds the requested information must give it directly to the company (or the third party) without delay.

Member States can allow a company to ask the central securities depository (CSD) or another intermediary or service provider to collect the information regarding shareholder identity and to provide it to the company.

Member States can also provide that, if requested by the company (or of a third party nominated by it), the intermediary must provide details of the next intermediary in the chain to the company.

Shareholder personal data: As shareholders' personal data will be shared, Member States must ensure that shareholders can rectify any incomplete or inaccurate information about their shareholder identity.

And, intermediaries and companies may not keep the information for more than 12 months after they have become aware that the person concerned has ceased to be a shareholder. Unless the company or intermediary needs to keep this information for other purposes, such as ensuring adequate records for the purposes of keeping track of succession in title of the shares of a company, maintaining necessary records in respect of general meetings, including in relation to the validity of its resolutions, the company fulfilling its obligations in respect of the payment of dividends or interest relating to shares or any other sums to be paid to former shareholders.

What are the intermediaries' new obligations?

Transmission of information

Intermediaries must transmit the following information, without delay, from the company to any shareholder (or a third person nominated by the shareholder) if the company does not send it direct to the shareholder (or third party):

• information which the company must provide to the shareholder to enable the shareholder to exercise rights attaching to its shares and which is directed to all shareholders holding shares of that class; or

• if that information is available on the company's website, a notice indicating where that information can be found on the website.

(Chapter 1a, Article 3b)

The company must provide the intermediary with the relevant information or notice to enable the intermediary to do this.

The intermediary must, without delay, transmit to the company information it receives from shareholders relating to the exercise of the rights attaching to their shares.

Where there is more than one intermediary in a chain, the information must be transmitted between the intermediaries without delay unless the information can be transmitted directly by an intermediary to the company.

Facilitating the exercise of shareholders' rights

Intermediaries must facilitate the exercise of shareholders' rights, including the right to participate and vote in general meetings, by at least either the intermediary:

• making the necessary arrangements for the shareholder (or a third party nominated by the shareholder) to be able to exercise the rights themselves; or

• exercising the rights attached to the shares on the explicit authorisation and instruction of the shareholder and for the shareholder's benefit.

(Chapter 1a, Article 3c)

The Implementing Regulation sets out the minimum requirements for the notice convening general meetings (Table 3), the confirmation that a shareholder is entitled to vote (Table 4), notice that a person can participate in a meeting (Table 5) and the notification to be used for corporate events other than general meetings (Table 8).

When votes are cast electronically, an electronic confirmation of receipt of votes must be sent to the person that casts the vote. The Implementing Regulation sets out the minimum requirements for the voting receipt (Table 6).

After a general meeting, the shareholder (or nominated third party) must be able to obtain confirmation that their votes have been validly recorded and counted by the company, unless the information is already available. Member States may set a deadline for requesting this confirmation which cannot be longer than three months from the date of the vote. The Implementing Regulation sets out the minimum requirements for the confirmation of the recording and counting of votes (Table 7).

Where the intermediary receives these confirmations, it must send them to the shareholder (or third party) without delay. Where there is more than one intermediary in the chain, the confirmation must be transmitted between them without delay unless it can be transmitted direct to the shareholder (or third party).

See Final SRD II measures - what do UK companies need to do? for more information on how:

• UK companies must comply with the requirement to provide an electronic confirmation of receipt of votes; and

• after a general meeting, a shareholder can obtain confirmation that their votes have been validly recorded and counted by the UK company.

Transparency on costs

Any charges levied by intermediaries for the services described above must be non-discriminatory and proportionate to the actual costs incurred. Any differences in charges between the domestic and cross-border exercise of rights are only allowed if they can be justified and must reflect the variation in actual costs incurred for delivering the services.(Chapter 1a, Article 3d)

Member States can provide that intermediaries are not allowed to charge for these services.