News and Views
The Shareholder Rights Directive II: A Brief Overview
The EU's Shareholder Rights Directive II (SRD II) amends the first Shareholder Rights Directive with the aim of strengthening shareholder engagement and increasing transparency.
Posted on 6 Oct 2020
SRD II adds to the original Shareholder Rights Directive in the following ways:
- It aims to tackle a perceived lack of shareholder engagement in the market by requiring asset managers and institutional investors to put in place a shareholder engagement policy;
- Implements a new set of rules for proxy advisors;
- It includes new rules which allow companies to ask for information about the identity of their shareholders from intermediaries;
- It requires listed companies to publish a remuneration policy and to give shareholders a vote on the remuneration policy. The EU Member States have the discretion to decide whether this should be down to a binding vote or only advisory one. The UK has chosen to keep this as a binding vote, as is already the case.
Most of these provisions were implemented into UK national law on 10 June 2019. The provisions concerning communication with shareholders took effect on 10 September 2020.
In the UK, these measures apply to companies whose shares carry voting rights and are admitted to trading on a regulated market within the EEA - defined as a "traded company" in the Companies Act 2006.
They also apply to asset managers, who need to develop effective engagement strategies in order to outline their approach to Shareholders rights and where necessary, have these disclosed on their website. This may take the form of a Shareholder Rights policy, the contents of which will vary widely depending on your firm’s activities and the products that it is involved in.
Briefly, an asset manager has to disclose to any institutional investor how the asset manager’s investment strategy and its implementation complies with that arrangement and contributes to the medium to long-term performance of the assets of the institutional investor or of the fund, unless that information is already publicly available.
Firm’s will also benefit from having a well drafted and bespoke Environmental, Social, and Corporate Governance Policy (ESG Policy). Focusing on these core three areas, they measure the sustainability and societal impact of an investment in a company or business with the aim of providing a clearer outlook on the future financial performance of companies.
It is likely that the UK government will decide to keep SRD II, or otherwise will introduce equivalent provisions regarding shares in UK companies into UK law following the end of the Temporary Transition Period with the EU on 1st January 2021.
SRD II and Laven
At Laven, our consultants are on hand to help identify the actions your firm needs to take to ensure you are compliant with new regulations and aware of all the risks outlined in this report. Whether this is through assisting with new policies and procedures that need to be put in place or providing online/in-person training for staff to make them fully aware of the regulatory burden.
Laven has also built Laven Tech, a unique Regulatory Technology (RegTech) solution that leverages advanced technology combined with our vast subject matter expertise. Our RegTech solution is designed to assist fund managers, service providers and investors to meet today’s growing demands.