aller au menu aller au contenu

SRD II: European industry ready to varying degrees

© artjazz

The Second Directive on Shareholders' Rights (SRD II) came into force on 3rd September despite the call from many European players to postpone it due to the complexity of implementation and the impact of the COVID-19 pandemic on implementation. However, CACEIS and the entire financial community are making every effort to comply with the new requirements for transparency and communication with shareholders.

The Shareholders' Rights Directive (SRD II) was adopted by the European Council in April 2017. It aims to encourage long-term investment by shareholders, enhance transparency between investors and issuers and facilitate the exercise of shareholders' rights.

Its scope of application is broad and concerns issuers, institutional investors, asset managers and proxy voting agencies from the European Economic Area - European Union (EU), Iceland, Liechtenstein and Norway. It is also addressed to financial intermediaries, whether in the EU or not, who provide services to shareholders of companies having their registered office in the European Union and whose shares are admitted to trading on a regulated market established or operating in a Member State.

The directive encourages direct communication from issuers to shareholders by improving the transmission of information through the chain of financial intermediaries, for example, upon publication of any corporate action. Similarly, it requires account keepers to communicate data relating to the identity of shareholders to issuers who make such a request. The latter, for their part, are required to individually convene all their shareholders to general meetings, favouring electronic means of communication, and to confirm the proper receipt of their voting instructions.

The directive is accompanied by an Implementing Regulation (EU) 2018/1212 that came into force on 3rd September 2020, despite several requests for postponement from European stakeholders. Indeed, last April, a dozen professional associations of European securities asked the European Commission to delay the entry into force of the directive by twelve months, due to delays triggered by the Covid-19 crisis.

However, the request was rejected in June by the European Commission, the latter emphasizing that one of the main objectives of the directive is to improve the flow of communication between companies and shareholders and that in this particular period linked to the pandemic, it becomes even more important for shareholders to be able to communicate effectively by electronic means and to participate in remote voting at general meetings.

Daniel PascaudOn 1st September these professional associations* launched a final attempt, recalling their long-standing commitment to implement this major directive in the securities professions, but also pointing out the persistent ambiguities in the texts and therefore calling for a period of tolerance in the application of sanctions in the event of non-compliance.

"SRD II's challenges have a structuring impact on the services offered by the securities industry, particularly in three main areas: shareholders' meetings, corporate actions and shareholder identification. Indeed, custodians must adapt their securities chains to comply with new obligations both in terms of announcing corporate actions (digitisation of the announcement, processing without delay) and informing shareholders, particularly with regard to the recording of their votes by the centralisation agent," explains Daniel Pascaud, Global Head of Operations, Banking & Custody Solutions at CACEIS.

Lionel Barthélémy"Issuer services providers, for their part, need to offer corporate clients solutions to enable them to convene all their shareholders individually, and not just those with registered shares," adds Lionel Barthélémy, Deputy Chief Executive Officer of CACEIS Corporate Trust.

At CACEIS, the teams in charge of custody - for investor services – and in CACEIS Corporate Trust - for issuer services - are totally committed to implement the SRD II regulation.

"We are actively participating in the work of the market place, which brings together custodians, issuers and their agents, central depositories and proxy voting agencies in order to implement European standards that comply with SRD II requirements," says Sandrine Cordelier, Head of the Custody Division at CACEIS.

Sandrine CordelierCACEIS' privileged solutions rely heavily on the proxy voting services provided by ISS and Broadridge, long-standing service providers to CACEIS and its clients for convening shareholders' meetings, collecting voting instructions and identifying shareholders. With respect to the notification of corporate actions and shareholder identification, market discussions are tending towards the development of the functional capabilities of central depositories (including Euroclear) and the SWIFT ISO 20022 message has been identified as meeting the requirements of the Regulation for communication between financial intermediaries.

"The complexity of the systems currently being developed is all the greater as they are adapted to the characteristics of the markets where CACEIS is a local depository. The directive has not yet been transposed in all EU/EEA countries, and not always in the same way", adds Daniel Pascaud.

In France, for example, a first part of the directive has been transposed into national law by the law of 22 May 2019 on the growth and transformation of companies, known as the PACTE law, and by the implementing decree n°2019-1285. The remaining provisions will be the subject of additional texts. Moreover, only shares fall within the scope of the directive, and this on condition that they have voting rights and are traded on a regulated market established or operating in a Member State. The French market considers that funds are also covered by the directive if the underlying securities of these funds are shares (and not units) listed on a regulated market.

However, Member States have the possibility to exclude funds from the scope of application. It is therefore necessary to ensure their exclusion or not when the Directive and its implementing acts are transposed locally. Likewise, when transposing the directive into national law, Member States have the possibility to extend the scope to other values. "Consequently, a heterogeneous European perimeter is likely to emerge from the transposition of SRD II, meaning that performing certain processes in cross-border contexts will become more complex," concludes Daniel Pascaud.

Given the scope of the work required to achieve a homogeneous transposition of the Directive in the Member States, harmonisation of processes and processing times between the different intermediaries in the chain and a single framework for communications between players, the implementation of the Regulation will, in fact, be carried out with a gradual and staggered ramp-up until spring 2021. CACEIS will, of course, keep its clients informed as these developments take place.


* European Banking Federation (EBF)
Association for Financial Markets in Europe (AFME)
International Securities Lending Association (ISLA)
Association of Global Custodians (AGC)
European Central Securities Depositaries Association (ECSDA)
Securities Market Practice Group (SMPG)
European Savings and Retail Banking Group (ESBG)
Associazione Intermediari Mercati Finanziari (ASSOSIM)
Association française des Professionnels des Titres (AFTI)
European Association of Co-operative Banks (EACB)