SRDII not yet problem-free, say AFME panellists
03 October 2022 London
Image: Peera
Technology is an enabler, not a solution in itself, say panellists at AFME’s Operations, Post-Trade, Technology & Innovation Conference (OPTIC).
The panel, entitled ‘Using Technology to Connect Issuers and Investors’, discussed the second Shareholder Rights Directive (SRDII) and the progress it has made since its implementation in 2017.
A key issue that emerged over the course of the panel was intermediaries’ lack of compliance. Pierre Marsal, committee member of EuropeanIssuers, noted that there is a block in communication between the issuer and investors in the holding chain, especially in instances where the record date is close to the meeting date.
He claimed that this situation is unrelated to the lack of harmonisation of the notion of shareholder, as some intermediaries claim, as the directive is based on the end-investor concept which should be enforced regardless of the way shares are being held.
Mariangela Fumagalli, head of global asset servicing product and custody regulatory solutions at BNP Paribas, took the opposite view. Considering the lack of consistency in the definition of ‘shareholder’ across borders, she stated that cross-border voting and a shared general meeting process will be impossible before a single definition is achieved.
Christine Hölz, managing director of DSW, acknowledged that SRDII was a “step forward,” but agreed with her fellow panellists that there were still “gaps and hurdles” to be overcome. Outlining some of the issues around SRDII, she emphasised the failures of intermediaries in cross-border voting.
She stated that there are inconsistent technical processes across countries, and insufficient cross-border intermediary chains. As a result, intermediaries are often unaware of the role they must fulfil for SRDII, leaving shareholders unable to vote.
Additionally, shareholder identification and proof of entitlement causes several problems between countries, says Fumagalli. Proof of entitlement must be written and notarised in the language of the issuer, adding another layer of complexity to an already intricate process.
Technology solutions, while often being seen as a fix-all, are “an enabler for change, rather than the change itself,” said Fumagalli. They are “the means,” not “the beginning or the end,” she continued, a sentiment that Marsal shared.
Hölz argued that embracing new technology is the way forward and suggested that increased competition in the market would push “outdated” systems out, improving shareholder rights while maintaining investor protection standards. Marsal concurred that increased competition would be beneficial to the market.
Hölz indicated that an infrastructure is evolving to support efficient shareholder communication for institutional investors, but this is typically still lacking for smaller private investors. The disparity needs to be addressed to extend the potential benefits of SRDII out to the community of private and retail investors.
Fumagalli asserted that the industry needs a “willingness to change” for SRDII to be more successful, resolving current barriers to regulatory compliance before the directive’s goals can be realised. Clear rules on issuer communications for corporate events — and further steps to encourage standardisation of data — are essential, she said.
However, Fumagalli recognised that despite its issues SRDII has led to more STP communications, increased voting, including cross-border vote processing, and shareholder engagement. Although the regulation is not yet perfect, steps are being made in the right direction and progress can be seen.
Discussing the possibility of SRDIII, the panellists were not optimistic. Hölz was “doubtful” that it would be effective in the short term, and does not believe that it will be ready in time for its predicted 2024 release. Marsal added that although the directive has been instrumental in developing issuer and investor dialogue, there are still significant shortcomings that need to be addressed.
The panel concluded that problems around the Shareholder Rights Directive (SRD) won’t be resolved anytime soon. “I look forward to our debates next year — I’m sure the problems will not have been solved by then,” finished moderator James Cunningham.
The panel, entitled ‘Using Technology to Connect Issuers and Investors’, discussed the second Shareholder Rights Directive (SRDII) and the progress it has made since its implementation in 2017.
A key issue that emerged over the course of the panel was intermediaries’ lack of compliance. Pierre Marsal, committee member of EuropeanIssuers, noted that there is a block in communication between the issuer and investors in the holding chain, especially in instances where the record date is close to the meeting date.
He claimed that this situation is unrelated to the lack of harmonisation of the notion of shareholder, as some intermediaries claim, as the directive is based on the end-investor concept which should be enforced regardless of the way shares are being held.
Mariangela Fumagalli, head of global asset servicing product and custody regulatory solutions at BNP Paribas, took the opposite view. Considering the lack of consistency in the definition of ‘shareholder’ across borders, she stated that cross-border voting and a shared general meeting process will be impossible before a single definition is achieved.
Christine Hölz, managing director of DSW, acknowledged that SRDII was a “step forward,” but agreed with her fellow panellists that there were still “gaps and hurdles” to be overcome. Outlining some of the issues around SRDII, she emphasised the failures of intermediaries in cross-border voting.
She stated that there are inconsistent technical processes across countries, and insufficient cross-border intermediary chains. As a result, intermediaries are often unaware of the role they must fulfil for SRDII, leaving shareholders unable to vote.
Additionally, shareholder identification and proof of entitlement causes several problems between countries, says Fumagalli. Proof of entitlement must be written and notarised in the language of the issuer, adding another layer of complexity to an already intricate process.
Technology solutions, while often being seen as a fix-all, are “an enabler for change, rather than the change itself,” said Fumagalli. They are “the means,” not “the beginning or the end,” she continued, a sentiment that Marsal shared.
Hölz argued that embracing new technology is the way forward and suggested that increased competition in the market would push “outdated” systems out, improving shareholder rights while maintaining investor protection standards. Marsal concurred that increased competition would be beneficial to the market.
Hölz indicated that an infrastructure is evolving to support efficient shareholder communication for institutional investors, but this is typically still lacking for smaller private investors. The disparity needs to be addressed to extend the potential benefits of SRDII out to the community of private and retail investors.
Fumagalli asserted that the industry needs a “willingness to change” for SRDII to be more successful, resolving current barriers to regulatory compliance before the directive’s goals can be realised. Clear rules on issuer communications for corporate events — and further steps to encourage standardisation of data — are essential, she said.
However, Fumagalli recognised that despite its issues SRDII has led to more STP communications, increased voting, including cross-border vote processing, and shareholder engagement. Although the regulation is not yet perfect, steps are being made in the right direction and progress can be seen.
Discussing the possibility of SRDIII, the panellists were not optimistic. Hölz was “doubtful” that it would be effective in the short term, and does not believe that it will be ready in time for its predicted 2024 release. Marsal added that although the directive has been instrumental in developing issuer and investor dialogue, there are still significant shortcomings that need to be addressed.
The panel concluded that problems around the Shareholder Rights Directive (SRD) won’t be resolved anytime soon. “I look forward to our debates next year — I’m sure the problems will not have been solved by then,” finished moderator James Cunningham.
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