BETTER FINANCE continues to provide input to shareholders' rights consultations. We had previously highlighted the need for enforcing shareholders' rights, intermediary's chain transparency, streamlining of engagement process (such as voting at AGMs), our new insights continue to focus on these aspects, and particularly the impact of costs related to exercising shareholder rights.
Key Insights from the Follow-up Consultation:
Non-Discrimination, Proportionality, and Transparency of Costs: SRD2 aimed to ensure these principles, especially for transmitting information and attending general meetings. However, cross-border scenarios often incur higher costs due to multiple intermediaries, with additional fees passed on by the client’s bank or broker, often with little transparency.
Fee Structures: Fees can be quoted, indicative, or part of a flat fee grid, leading to uncertainty. BETTER FINANCE & DSW’s study (2022) found 64% of retail shareholders were charged fees for necessary documents for cross-border AGM voting.
Barriers and Challenges: The involvement of multiple intermediaries and lack of support from some banks/brokers means 48% of shareholders wishing to engage and vote couldn’t do so. Fees for AGM information packages and additional costs for each engagement request make total costs opaque and often unjustifiable. In 2022, only 48% managed to vote at AGMs, with 63% finding the process difficult.
SRD2’s Impact on Fee Transparency
Transparency Issues: SRD2 did not significantly improve pre-meeting cost transparency. Direct fees are often published, but third-party fees remain non-transparent, particularly cross-border. High fees are often linked to custodian banks and share segregation from omnibus accounts.
Proportionality and Non-Discrimination: Service packages for AGM information, mandated for further engagement, impose unjustified costs. High fees, particularly cross-border, are not proportionate or non-discriminatory, discouraging active shareholder engagement.
Remaining Barriers
Barriers to Cross-Border Exercise of Shareholder Rights: Antiquated processes and lack of standardised definitions and forms across the EU, high costs, lack of transparency, and inconsistent compliance and enforcement remain significant barriers. Information accessibility is low, with shareholders rarely receiving AGMs information automatically. Over 80% of EU shareholders may be affected by these barriers, with the situation not significantly improving since SRD implementation.
Forward Changes Needed:
- Harmonise the definition of 'shareholder' across the EU to ensure proper identification and rights.
- Consistently set record dates and harmonise administrative practices and documentation requirements.
- Implement cost regulation to eliminate voting fees for EU shareholders or equalise cross-border voting fees with local voting.
- Mandate further digitalisation to streamline processes and enhance competition in post-trade voting.
- Develop a framework for indirect shareholder representation and preferences consideration, ensuring effective consultation by asset managers and minority investors' interests