Uncertainty emerges over cross-border AGM voting costs under updated Shareholder Rights Directive

New directive could mean less standardised shareholder cross-border voting practices.

Those within the investment chain that are affected by the new transparency requirements of the EU Shareholder Rights Directive II should be engaging more proactively with national regulators, according to US securities servicing firm Broadridge.

As the directive is being implemented, more needs to be done to achieve greater harmonization and reduce adoption costs, the ‘proxy plumbing’ firm says in a new report.

The SRD II, whose aim is the “encouragement of long-term shareholder engagement”, should be transposed into member states’ laws by June 2019.

When it comes to the requirements around shareholder identification, transmission of information and voting, the deadline is September 2020.

Broadridge says that if the “gamut of firms” impacted by the EU law “are to make a difference in implementing requirements, they will need to engage the EC [European Commission] and their national regulators effectively and promptly”.

The report warned that the leeway left for national regulators to interpret and transpose the directive, may lead to less standardised shareholder cross-border voting practices.

One example is the wording regarding the submission of information “without delay”.

This could be interpreted as a “near real-time” requirement — but the report says it’s “almost impossible” currently given that multiple intermediaries may be required to transmit information along the chain.

Quoting a global custodian surveyed for its research, Broadridge stated that national divergence would lead to tailored compliance efforts – meaning more complexity and increased costs.

The report concluded by listing the areas in which all firms “will likely require process and technology investment”.

At Germany’s main shareholder association DSW, Christiane Hölz, Managing Director for the region North Rhine-Westphalia, told RI that intermediaries don’t seem to have a clear business case to adapt to the SRD II.

The intermediaries’ willingness is quite low and – so far – they have invested “almost zero”, according to Hölz.

However, she said, the topic is not new.Hölz said there are already a set of Market Standards on General Meetings, adopted in 2010 by market participants. Since then, however, the standards have been “subject to implementation”.

Hölz questioned why facilitating this new flow of information only seems to be a problem when it comes to AGM voting and not paying dividends.

“I never understood why it is possible to identify shareholders for dividend distribution purposes, and then it’s possible to forward the information through the whole chain, so every shareholder regardless of where they live, gets a dividend from a company.”

DSW (Deutsche Schutzvereinigung für Wertpapierbesitz) which represents 30,000 private investors, monitored closely and tried to influence the lawmaking process of the SRD II, advocating that cross-border voting should not involve additional costs for shareholders. However, it is not clear who will bear the cost within the investment chain.

Hölz said: “We didn’t succeed. I expect the end investor will finally be charged with the costs, at least indirectly, which will be most unfortunate. Retail investors, at least, should be exempted from paying for executing their voting rights cross-border — like for voting in their own country.”

As for the harmonisation challenge, Andrew Gebelin, Senior Director of Research, EMEA and Latin America at Glass Lewis, told RI that although “perfect legislative harmony” across member states is the ideal scenario, EU directives don’t often achieve such an ambitious goal.

Gebelin said: “Indeed, the SRD, as written, would leave room for national regulatory authorities to create unique rules. However, we doubt very much that there is a possibility of processes becoming more divergent, as they already diverge at many levels.”

Gebelin added that once technical implementation guidelines are finalised, the market would have a “much better idea of the level of cross-border efficiencies in the new processes and requirements”.

The EC’s Expert Group on technical aspects of corporate governance processes, whose creation over the summer was first reported by RI, will continue its work at least until April 2018 when it is expected to issue recommendations.