Shareholder Rights Directive (SRD)
Affected banks: all EU banks (Swiss banks assumed out of scope)
Mandatory effective date:
to be defined (legal adoption by EU member states by mid-2019)
Solution status: considered
Solution implementation date:
The SRD I came into force in 2007 [2007/36/EC] and has been replaced by the new SRD II [2017/828], which was published on 17.05.2017. EU member states have two years to implement the SRD II in their national legislations.
The SRD only addresses the exercise of certain shareholder rights (SRD II Article 1) for voting shares of companies which meet the following requirements:
- their registered office is located in a member state, and (not or)
- the shares of which are admitted for trading on a regulated market situated in or operating within a member state.
- SRD I – Chapter Ia – Articles 3a to 3d: identification of shareholders – transmission of information for shareholders and facilitation of the exercise of shareholders' rights.
- SRD I – Chapter Ib – Articles 3g to 3i: transparency and shareholder engagement of institutional investors and asset managers in their investments.
- SRD I – Chapter Ib – Article 3j: improve the reliability, transparency and quality of proxy advisors' recommendations.
- SRD I – Chapter Ib – Articles 9a and 9b: influence of the annual general meeting on the remuneration policy for managing directors (aka “Say on pay”).
- SRD I – Chapter Ib – Article 9c: improvement of transparency and influence of shareholders in relation to related party transactions.
SRD validity in third countries
- SRD I – Chapter Ia – Article 3e: chapter Ia (mainly referring to the identification of shareholders) also applies to intermediaries which have neither their registered office nor their head office in the European Union when they provide services referred to the companies in scope.
- SRD II – Article 12: if third-country intermediaries were not subject to this directive and did not have the same obligations relating to the transmission of information as European Union intermediaries, the flow of information would risk being interrupted. Third-country intermediaries which provide services with respect to shares of companies in scope should therefore be subject to the SRD’s duties.
- SRD II – Article 13: SRD is without prejudice to national law regulating:
- the holding and ownership of securities and
- arrangements maintaining the integrity of securities
and does not affect the beneficial owners or other persons who are not shareholders under applicable national law.
- SRD II – Article 54: the provisions of any sector-specific (European Union) legislative act should prevail over this directive.
Avaloq Sourcing view
Based on the publication date, the SRD is expected to come into force by June 2019, when it should be implemented by EU member states in their local law.
Some requirements have already been implemented specifically in Switzerland with the enactment of the “Minder Initiative” (OaeC), which aims to:
solve the problem of an insufficient link between pay and performance of directors;
introduce an obligation concerning transparency and shareholder engagement, but limited to certain pension funds.
In relation to the facilitation of transmission of information (including voting) across the financial intermediary chain, in particular through shareholder identification, we do not expect any imminent potential implication for Swiss financial intermediaries.
1. The directive does not dictate the means for achieving its result. As a consequence, EU member states have time to define their implementing measures until mid-2019. No technical specification (such as RTS/ITS) is available yet concerning the identification of shareholders, and it is so far still unknown how the communication flow between financial intermediaries and EU member state/issuer will work.
2. Although the SRD expressly states its applicability in third countries, it cannot prejudice and prevail over the local or sector-specific regulations. This means the SRD does not affect Swiss financial intermediaries until a Swiss equivalent regulation will be implemented by the Confederation. Moreover, in absence of a comparable Swiss regulation, an exemption from the provision of the Swiss Banking Act Article 47 cannot be permitted. A Swiss intermediary (even if it establishes a branch in the European Union) shall not be subject to the obligations contained in SRD I Chapter Ia, in case this would lead to a violation of Swiss banking secrecy.
3. We would also argue that if the SRD became applicable to Swiss financial intermediaries, implying the provisioning of shareholder information to EU issuer, the same right should be granted to Swiss issuers in the relation to EU financial intermediaries.
In any case, it is so far unlikely that the current Swiss system for registered shares would comply with the SRD. Owners of registered shares of Swiss listed companies are under no obligation to notify the share register and disclose their identity to the issuer. Although dividends and other financial rights are granted for these shares, they cannot be voted at shareholder meetings until the shareholders register themselves directly in the issuer share register. Even if the shareholder’s bank knows the identity of its client, it is not allowed to disclose such information to the issuer without the consent of the shareholder.
4. An amendment to Swiss corporate law aimed to improve the situation concerning registered shares by introducing a so-called nominee model in which the custodian bank would be registered as holder of a record instead of the real shareholder (Dispoaktien). While this model has certain benefits, it does not require the disclosure of the identity of the shareholder. Here, Swiss corporate law deviates significantly from EU legislation.
The SRD is on our radar, especially for expected implications for our EU clients, but it has not been yet committed by ASSL due to the time frame and especially due to the missing technical and operative specification. Moreover, the regulation has so far not been considered applicable for Swiss banks. We continue to monitor the evolution of this regulation to be able to address potential implications for the client community.
| Q2 2019 ||EU member states legal adoption by mid-2019 and RTS/ITS publication |