Investor organisations have hit out at lobbying from custodians, securities lenders and other financial services groups to delay the implementation of the second Shareholder Rights Directive (SRD II).

In a letter to the European Commission, EU consumer group Better Finance called for the directive to be implemented as planned as any delay would “deteriorate the current situation for individual shareholders”.

Pushing back implementation until next year risked taking away voters’ rights for at least one AGM season, Better Finance argued, at a time when the EU was pushing for improved corporate governance and higher sustainability standards.

Trade associations including the European Banking Federation, the International Securities Lending Association and the Association of Global Custodians wrote to the Commission last month lobbying for a 12-month delay to SRD II, citing operational difficulties as a result of the COVID-19 pandemic.

The group of 11 trade bodies claimed that challenges had arisen that could “affect implementation efforts and possibly threaten the complete and successful adoption of SRD II”.

The pandemic and associated enforced changes to working conditions had resulted in daily activities being “significantly impacted”, the groups argued, which would make it “difficult, or nearly impossible, to meet the implementation deadline of 3 September 2020”.

The letter came despite the backbone of the SRD II having been implemented last year. Since June 2019, the directive has required companies to take measures to ease the ability of shareholders to vote at AGMs and influence director remuneration policies.

The last part of implementation, scheduled for September this year but announced in 2017, involves measures to improve transparency around shareholder identities and the communication of this information. The new rules place a reporting burden on intermediaries such as custodians and depositaries, as well as proxy advisers including Minerva Analytics.

Minerva CEO Sarah Wilson said her firm and other proxy advisory companies were already prepared for full implementation of SRD II, and had been working hard for some time to ensure compliance despite the difference in resources between some providers and the major banks and custodians.

While Minerva was not a member of Better Finance, Wilson supported its call for SRD II implementation as planned and said she found it “extremely disappointing” that intermediaries had lobbied for the delay.

The intermediaries’ letter said that IT and technology teams were working at “full capacity” to ensure that day-to-day operations – “run-the-institution activities” – could continue. Compliance with new regulations – dubbed “change-the-institution activities” in the letter – had fallen down the priority list, the trade bodies stated.

However, Better Finance argued that intermediaries had “not been proactive in facilitating voting and communication”.

“At this stage, intermediaries should already have been prepared and ready to adapt to the new requirements, e.g. by establishing task forces sufficiently early to prepare coherent implementation documentation,” the consumer body wrote.

“And although the standardized format ISO 20022 that is supposed to form the basis for transmitting general meeting information between issuer and shareholder has been worked on for many years already, it seems that, less than five months before the deadline, the intermediaries are still at a very early stage of preparation.

“Therefore, it is clear that the pandemic is being used as an excuse to further delay the implementation of the SRD II.”

Better Finance also pointed out that institutional investors in most EU countries were already obliged to follow SRD II’s transparency and reporting requirements. Delays to the second part of implementation risked a further increase to the “misalignment” between different players in the investment chain.

The trade bodies also argued that not delaying the final regulations would make it “very unlikely that all the operational procedures in support of the new general meetings season, expected around September, could be carried out in full compliance with SRD II”.

While many shareholder meetings have been delayed, a significant proportion have gone ahead as ‘virtual’ meetings via webcast or other online technology.

While this has posed challenges to transparency and accountability, companies have been able to meet their regulatory responsibilities despite the disruption caused by the pandemic.

Last Updated: 5 May 2020
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