SRD II - The Shareholder Rights Directive II

Capital Markets Union 

SRD II is a part of the Capital Markets Union (CMU), an initiative championed by the EC to regulate the financing of European infrastructure and further develop the capital markets across the 27 EU member states. SRD II strengthens the CMU’s mandate by fostering an increase in shareholder activity and clear and transparent communication between companies and their respective shareholders in regulated markets across the EU. SRD II is applicable to the EEA countries, meaning it applies to the 27 EU countries and Iceland, Liechtenstein, and Norway. Under SRD II, increased transparency refers to the identification of shareholding entities. This in turn leads to higher quality dialogue between shareholders and issuers. While SRD II promotes responsible behaviour by companies due to greater shareholder involvement, putting it into practise will have its pitfalls specifically when considering the implication on client data privacy. 

Another consideration is the manner in which local regulators interpret SRD II. Tailoring the regulation on a national level would prove complex and costly, specifically for firms operating across markets. Given the intricacies of the catalogue of regulations involved with adhering to SRD II, meeting deadlines imposed ought to be a priority to entities. This is especially true for the aforementioned September 2020 deadline for the implementation of shareholder identification, transmission of information and voting. By keeping up with deadlines, entities will avoid becoming overwhelmed by this multi-tiered regulation. 

Highlights of the new amendment

1. Know your shareholder 

SRD II dictates shareholder information be stored for at least 12 months after a shareholder ceases to be one. Fields required include the shareholder’s full name, address, email address, legal entity identifier (LEI), volume of shares, ownership start date and share category. 

The purpose of this activity is to foster engagement between companies and their investors and to ensure all parties are communicating transparently. 

2. Transparency for proxy advisors 

SRD II subjects proxy advisors to new transparency obligations. In addition to disclosing details about their procedures, methodology and sources of information, they also must annually report on their policies to prevent conflicts of interest and how they approach market discrepancies in regulation.

3. Transparency and reporting on the buy-side 

SRD II indicates asset managers must report annually on their shareholder engagement and investment strategy, making these details available on their websites. Voting behaviour must also be disclosed in addition to their use of proxy advisor services.

Executive remuneration and related party transaction information must also be made available.

4. Public record of meeting announcements and voting 

Intermediaries will be required to share general meeting agendas and voting information with shareholders in a standardised format under SRD II. Clarity must be provided from the EC on the format and how these counterparties are to divvy up the cost of this reporting, but ultimately it will lead to greater transparency across capital markets.

5. Pricing and cost transparency 

Under SRD II, “non-discriminatory and proportionate fees” are essential and no fees for disclosures are allowed. Intermediaries must therefore accept all compliance costs as opposed to passing them along to the client. 

SRD II and beyond 

SRD II strengthens the rights of shareholders and reduces risk-taking across capital markets. It also helps companies identify shareholders. Ultimately its objective is to improve corporate governance in companies with securities traded across regulated markets in the EU. To support the industry, the ISO 20022 Securities Standards Evaluation Group is endorsing the use of the new standard for shareholder identification and the maintenance of proxy voting.

Comply with the Shareholder Rights Directive II (SRD II)

The SRD II aims to improve the dialogue and long-term shareholder engagement with issuers to stimulate good corporate governance.

New many-to-many Interact service: FINplus InterAct Service

In order to support information transmission, Swift and the Securities Market Practice Group (SMPG) have worked together to provide the industry with various ISO 20022 messaging solutions covering all minimum requirements around IR. The messages are available here and on the Swift MyStandards platform.

They include the following:

• Updates to eight existing messages relating to General Meetings (formally known as Proxy Voting)
• Creation of five new messages relating to Shareholder Identification Disclosure
• Additional securities messages including ISO 20022 Corporate Actions messages. More information is available in the Swift Knowledge Centre.

Disclaimer

The information provided on this page does not, and is not intended to, constitute legal or regulatory advice, and is provided for general information purposes only. Information on this website may not constitute the most up-to-date information. Swift does not guarantee the accuracy or correctness of the information on this page. The information on this page should not be relied on or treated as a substitute for specific advice relevant to particular circumstances and is not intended to be relied upon by you in making (or refraining from making) any specific decisions.