Date: 18th December 2023

BETTER FINANCE's full Response to the Targeted Consultation on SRDs - Shareholder Rights Directives (SRD1 and SRD2) for the European Commission by the CSES — [15 December 2023].

BETTER FINANCE advocates for the enforcement of investors' and shareholders' rights, underscoring the pivotal role of engagement as a cornerstone within robust green transition plans and corporate accountability (Shareholder Impact). Actively contributing to shaping a regulatory framework, BETTER FINANCE prioritises transparency, engagement, and efficiency within the EU's Capital Markets Union. Notably, Annual General Meetings (AGMs) stand as a key component in corporate actions and post-trade services processes. However, shareholder engagement faces hindrances due to the intricate chain of intermediaries, particularly in a cross-border context.

Therefore, BETTER FINANCE actively contributes to the evaluation of the Shareholder Rights Directives (SRDs) through targeted answers in response to the European Commission's survey. The survey, conducted as part of a comprehensive study by consulting (CSES, EY, Oxford Research, and Tetra Tech) seeks insights on specific aspects of SRDs implementation.

The questionnaire addresses various key provisions, including:

  1. Views on the SRDs
  2. General meetings and other corporate events (Articles 4-14)
  3. Identification of shareholders (Article 3a)
  4. Transmission of information (Article 3b) and interaction in the investment chain
  5. Facilitation of the exercise of voting rights (Article 3c)
  6. Non-discrimination, proportionality, and transparency of costs (Article 3d)
  7. Third-country intermediaries (Article 3e)
  8. Transparency of proxy advisors (Article 3j)
  9. Enforcement and sanctions

BETTER FINANCE's responses aim to optimise shareholder rights in these key areas, and provides empirical evidences on the practical implications SRD2 provisions.

Insights on BETTER FINANCE's Answers:

Direct Challenges to Address:

  • AGM Formats and Corporate Actions: BETTER FINANCE highlights challenges related to the absence of clear rules on AGM formats across Member States, potential discrimination in AGM procedures, and difficulties in enforcing proportionality and transparency of costs.
  • Non-Uniform Implementation of SRD 2 and delay in Implementing Regulation: BETTER FINANCE underscores challenges arising from non-uniform SRD2 implementation across Member States due to unclear provisions in national company law, notably for Chapter Ia (main scope of the targeted consultation). The SRD2 IR delayed proper communication across the chain of intermediaries (ISO 20022 standards).
  • Shareholder Definition and Intermediary Chain: Challenges stem from the lack of a precise definition for 'shareholder,' issues with beneficial ownership identification, and the failure to standardise documentation requirements for entitlement.
  • Communication and documentation: SRD2's failure to ensure frequent and standardised communication between companies and shareholders is highlighted. Documentation requirements for entitlement and harmonisation of record dates and deadlines are also noted.
  • Issuer Reliance on Intermediaries: BETTER FINANCE points out the lack of competition in AGMs voting services platforms due to companies relying on major banks and depositories for shareholder identification.
  • Digitisation for Efficient Shareholder Identification: BETTER FINANCE advocates for digitisation to streamline shareholder identification with issuers, ensuring a seamless and efficient process for both companies and shareholders. The push for digitisation aims to eliminate barriers and enhance transparency, ultimately facilitating direct communication between companies and shareholders.
  • Impact of Securities Lending Practices: BETTER FINANCE provides views onto transparency issues of securities lending practices and consequences on shareholder engagement and rights (notably via neo-brokers’ business models). This practice should not constitute a default option and share recall should remain available for shareholders to avoid adverse impacts on voting rights.

Further alignments are needed:

  • Collective Redress Mechanism: BETTER FINANCE advocates for the inclusion of shareholder protection within the collective redress scheme, covering both direct and indirect investors. Alignment with the Dutch system is recommended across all Member States for a revised scope.
  • Corporate Sustainability / Fundholders' preferences & SFDR alignments: BETTER FINANCE highlights SRD II's deficiency in defining stewardship and connecting it with sustainability. The need for robust stewardship standards, alignment with MiFID2 provisions, and explicit reference to SRD to address fundholders' engagement and representation are emphasised (aligning with the SFDR framework).
  • Multiple Vote Share Structure Directive (MVS): BETTER FINANCE raises concerns about MVS introducing inconsistencies with SRD2, leading to discriminatory treatment among shareholders, particularly in relation to voting rights.