The Shareholder Directive - SRD II
Since 2009, the European Union has made great strides to address areas of weakness in the asset protection framework through most, if not, all areas of the financial markets. This has been a systematic process that has focussed, in large part in addressing the behaviour of large institutions and the market infrastructures.
However, an important piece is now coming to the fore and that is assuring the rights of all shareholders of equities listed in the EU and to a certain degree those of an issuer. In order to achieve this, the original Shareholder Rights Directive (SRD) that first codified corporate governance rules for EU companies and entitlement to shareholder rights across borders, was revised.
The SRD II (Directive (EU) 2017/828 of the European Parliament and of the Council of 17 May 2017 amending Directive 2007/36/EC) takes this further. SRD II was published in the Official Journal of the EU on 20 May 2017 and its article 2 foresees that Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive by 10 June 2019.
Transposition of the directive has already commenced across member states. National governments are allowed a degree of latitude in some of the areas of the directive and all market participants should monitor these variations. Clearstream has been working closely with authorities in both Luxembourg and Germany to inform and shape the final national legislation.
In that sequence, the Luxembourg Grand Ducal projet de loi that transposes the SRD II has the purpose of establishing requirements in relation to the exercise of certain shareholder rights attached to voting shares in relation to general meetings of companies which have their registered office in Luxembourg, and the shares of which are admitted to trading on a regulated market situated or operating within a Member State. It also establishes specific requirements to encourage shareholder engagement, in particular in the long term.
The final text of the law transposing the SRD II into Luxembourg law has been adopted by the Luxembourg Parliament on 10 July 2019.
The new law will enter into force on 1 August 2019.
The regime set out by the new law will be complemented by the provisions of Commission Implementing Regulation (EU) 2018/1212, which will become applicable as from 3 September 2020.
The German Bundestag had a first reading of the regulatory draft proposal for the German transposition law on 9 May 2019.
The transposition process in German law is still ongoing and now expected to be completed by September 2019.
The directive will ultimately impact existing responsibilities, procedures and the systems that support them in delivering all corporate actions and proxy voting by all intermediaries in a custody chain. This will cover all aspects of SRD II such as the identification of shareholders, transmission of information, facilitation of exercise of shareholders rights, general meeting notifications and instructions, the transparency of institutional investors, asset managers and proxy advisors, remuneration of directors and related party transaction. Final intermediaries in a custody chain will in particular have to review their interaction with the ultimate shareholder in order to identify where improvements need to be made.
Clearstream contribution to improve operational efficiency
Clearstream is actively participating in working groups at both the national and pan-European levels to ensure that forthcoming changes contribute to improved operational efficiency. At Clearstream, we will communicate further details as and when standards are agreed upon.
Furthermore, Clearstream is engaging with established industry experts to explore whether new approaches based on new technologies might prove a viable and secure option supporting the transposition.