Are You Ready For The New Shareholder Rights Directive II Requirements?

Philipp Rosenauer Partner Legal, PwC Switzerland 19 Sep 2018

The Shareholder Rights Directive II (SRD II) strengths the shareholder rights and sets out new requirements for intermediaries, institutional investors, asset manager, and proxy advisors, as well as redefines the remuneration policy for directors.

SRD II obligations, such as information duties, will also apply to third country firms, which provide any of the following service: safekeeping of EU shares, administration of EU shares or maintenance of securities accounts on behalf of shareholders in the EU. SRD II also applies to proxy advisors, which carry out their activities through an establishment in the EU.

SRD II will be transposed as follows:

  • 10 June 2019 – basic deadline for the transposition of SRD II into national law
  • 24 month after the adoption of implementation acts by the Commission for the Articles 3a, 3b and 3c

Current regulatory framework

In 2007, the Shareholder Rights Directive (SRD I) was adopted. The main function of the first Directive was to grant minimum rights for shareholders in listed companies across the European Union (EU).

SRD I included a number of specific requirements, including timely access for shareholders to all information relevant to general assemblies, as well as to facilitate the cross-border exercise of voting rights by correspondence and by proxy. Furthermore, SRD I abolished share blocking and related practices, since these constitute a major obstacle to shareholder voting. This was particularly beneficial for institutional investors. The Directive also introduced the right to ask questions at the general assembly.

With the amendments within the Shareholder Rights Directive II ( SRD II) the EU sets out to further strengthen the position of shareholders within the company and to ensure that decisions are made with regard to the long-term stability of a company. It amends SRD I with the objective of improving corporate governance in companies whose securities are traded on EU regulated markets.

SRD II, as an amending Directive, will require transposition into each Member State’s national law. EU Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with SRD II by 10 June 2019.

Key changes of SRD II for intermediaries and proxy advisors

SRD II will ensure the efficient functioning of the EU capital markets for shares with common formats of data and message structures in transmissions between intermediaries, issuers and shareholders. In order to facilitate and make the exercise of shareholders rights more efficient (particular cross-borders) any communication should be transmitted using machine-readable and standardises formats.

Intermediaries should make accessible to shareholders, who are not intermediaries, information and the means to react in reasonable time using widely available modalities, which enable straight-through processing by intermediaries.

Proxy Advisors

  • Proxy advisors will be required to (publicly) disclose a code of conduct, which they apply, and report on the application of that code of conduct.
  • Proxy advisors will be required to make annual public disclosures in relation to the preparation of their research, advice and voting recommendations.
  • SRD II will also apply to third-country proxy advisors, which carry out their activities through an establishment in the EU, regardless of the form of that establishment.

Intermediaries

  • Intermediaries will be required to facilitate a company’s right to identify its shareholders and to also facilitate the exercise of shareholder rights without “undue delay”, meaning:
    • provide voting forms to shareholders and/or registering votes with issuers, or
    • putting a shareholder in touch with an issuer.

SRD II will apply also to third-country firms holding shares of EU companies for shareholders.

Impact on Switzerland

Swiss entities are not directly subject to SRD II. However if they provides services of safekeeping of shares, administration of shares or maintenance of securities accounts on behalf of shareholders or other persons are in scope of SRD II and if the Swiss Entity would have been established in the EU, would be qualified either as:

  • an investment firm in term of MiFID II; or
  • a credit institution in term of CRR, or
  • as a central securities depository in term of CSDR;

SRD II applies. If so, Swiss Entities must comply with the following SRD II obligations:

  • Facilitation of the exercise of shareholder rights; and
  • Non-discrimination, proportionality and transparency of costs; and
  • Transmission of information; and
  • Identification of shareholders.

Proxy advisors, which carry out their activities regarding shares of EU companies through an establishment in the EU, regardless of the form of that establishment, are also in scope of SRD II.

How PwC can help

  • Assist you in determining, whether you qualify as an intermediary in term of SRD II, through a scoping mandate (high-level impact assessment and gap assessment).
  • We assist you to re-align your internal policies (e.g. remuneration policy, engagement policy), documents (e.g. investment strategy, key information about mandates, key information about investment approach and execution of mandates, remuneration report, public announcement related to party transactions) and procedures (e.g. shareholder identification, annual implementation of the policies, communication between intermediaries, issuers and shareholders) with SRD II.
  • Identification and disclosure any actual or potential conflicts of interests or business relationships that may influence the preparation of their research, advice or voting recommendations and the actions they have undertaken to eliminate, mitigate or manage the actual or potential conflicts of interests.
  • Let us assist you in implementing the provisions of SRD II and with ongoing support.

 

Contact us

Philipp Rosenauer

Philipp Rosenauer

Partner Legal, PwC Switzerland

Tel: +41 58 792 18 56

Dr. Antonios  Koumbarakis

Dr. Antonios Koumbarakis

Partner, Sustainability & Strategic Regulatory, PwC Switzerland

Tel: +41 58 792 45 23