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Revision of the Shareholders’ Rights Directive (SRD) - regulation memo
Revision of the Shareholders’ Rights Directive (SRD) - regulation memo
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Revision of the Shareholders’ Rights Directive (SRD) - regulation memo

11/04/2018

The Shareholders’ Rights Directive (SRD) entered into force in 2007. The original directive and its revision (SRD II) form part of the European Commission’s (EC) Corporate Governance Action Plan 2012. The Directive 2017/282 on Long Term Shareholder Engagement, the new denomination of the Shareholders’ Rights Directive, was published on 17 May 2017

About the Shareholders’ Rights Directive (SRD)

The Shareholders’ Rights Directive should be read in combination with the market standards for General Meetings.

SRD II is the result of the legislative reaction to the financial crisis. Its aim is to stimulate shareholders’ long-term engagement, increase transparency in the voting process both in relation to proxy voting and shareholder identification; and improve issuer-investor dialogue.

  • Shareholder identification: issuers have the right to obtain shareholder identification with the objective of engaging directly with the investor
  • Say on pay: remuneration policy and voting on remuneration must take place during the General Meeting of shareholders
  • Some transactions, including intragroup transactions – between a company and its affiliates or between two affiliates of the same holding company- must be approved at the General Meeting
  • Investment strategy: institutional investors, such as asset managers, pension funds or insurance companies, must establish an investment strategy and publish associated reports in a timely fashion
  • Transparency of proxy advisors: proxy advisors should establish accurate and reliable voting recommendations. Proxy advisors will have to publish a report on their compliance with the code of conduct of proxy advisors

Scope

SRD II focuses on investors and shareholders. In a nutshell, their identities will be disclosed when they hold more than a threshold share of issued capital. By default, this threshold is set at 0.5% of an issuers’ capital but Member states may opt out of this threshold. Investors and shareholders will have increased rights in General Meetings, as well as access to investment strategy information (when they are institutional investors) and have far better visibility into proxy advisors and how they establish voting instructions.

Through these provisions, other constituencies will be impacted:

  • Issuers of listed companies will be able to obtain shareholder identification
  • Shareholders will have greater powers at General Meetings
  • Custodians and other intermediaries will have to cooperate in the identification process
  • Proxy advisors will be subject to increased transparency obligations

Industry implications

Increased transparency at all levels (identification, voting decisions, investment policy) could lead to more dialogue between issuers and their shareholders.

Combined with other initiatives targeting long-term engagement (e.g. European Long-Term Investment Fund Regulation) and diversification of funding sources for issuers (Capital Markets Union), the revision of the Shareholders’ Rights Directive could lead to longer-term engagement and investment in issuing companies.

BNP Paribas Securities Services’ view

We warmly welcome this initiative.

Whilst increased transparency is beneficial to the overall objectives of the European Commission, we think that a balance should be reached regarding the efficiency of General Meetings. Thus, “say on pay” provisions should be realistic and the increased approval powers of related transactions should not be an unnecessary burden on the conclusion of such transactions.

In relation to shareholder identification, we think that a regime without exceptions and subject to effective sanctions against failure of identification is the only efficient approach. Procedures could otherwise become an excessive burden for intermediaries. From an issuers’ perspective, it could lead to a paradox where shareholder rights are increased but opacity in the shareholder base is introduced.

Key dates

April 2014 - Publication by the EC of its proposal for the revision of SRD

April 2017 - Adoption by the EU Council of the Directive on Shareholder’s rights in EU companies

May 2017 - Publication in the Official Journal of the Directive with regard to the encouragement of long-term shareholder engagement

Q2 2018 - Level 2 legislation expected

June 2019 - Member States must inform ESMA on whether they opted out of the 0,5% threshold

2019 - Expected entry into force of SRD

Download the regulatory memo:

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