ISLA highlights concerns with the Shareholder Rights Directive including public disclosures

ISLA draws members’ attention to developments for the Shareholder Rights Directive (SRD) which reflects that, despite the progress we have seen, there are still perception issues around sec lending in areas where it is not the primary focus.

After political negotiations on the SRD had stalled for more than a year, a political agreement was struck just before the end of the year. The final stretch of negotiations had included provisions for asset managers to report to the institutional investor on an annual basis (not public) on its policy on securities lending (Art. 3h/Recital 13a). In a recital the text further clarifies that securities lending can cause controversy in the area of shareholder engagement, stressing the importance for asset managers to report on their policy on securities lending and how it is applied to fulfil their respective engagement activities. To address these concerns and the question regarding public disclosure, a new Article 3j foresees a review which will be undertaken in three years’ time to assess international developments and whether or not there should be public disclosure under Article 3h. Moreover, the final agreement introduces measures which designates Central Securities Depositories (CSDs) as intermediaries responsible for collecting information on shareholders’ identities (Art. 3a).

Click here to read the final deal that is still subject to legal-linguistic revisions and a final vote in the European Parliament, before entering into force, likely within this quarter.

Below we have highlighted the final wording of the trilogue deal most relevant for ISLA members. ISLA will continue to monitor progress and seek to comment where/when appropriate.

Investment Strategy (Art. 3g) – The European Parliament call to publicly disclose the investment strategy was agreed, requiring disclosure of how the main elements of the investment strategy are consistent with profile and duration of their liabilities and how they contribute to the long- term performance of their assets.

Transparency of Asset Managers (Art. 3h) – the final text does not require public disclosure, but contains a review clause to assess in three years’ time whether such disclosure is required. Asset managers are to report annually to the institutional investor disclose information outlining the policy on securities lending, the medium to long-term performance of assets and the material medium-to long-term risks associated with investments, among others.

Facilitation of the exercise of shareholder rights (Art. 3c) – intermediary is to facilitate the exercise of shareholder rights. Public disclosure of the general meeting’s minutes was removed from the text and replaced that shareholders upon request can obtain confirmation that their votes have been counted and recorded.

Shareholder identification (Art. 3a) – Member States can chose their own percentage threshold for requesting identification of shareholders but have to keep it within the range of 0.0% and 0.5% of shares or voting rights. Furthermore a previously included provision for ESMA to be informed by Member States on whether or not they make use of the previously mentioned option is kept ensuring an overview of the different thresholds chosen by Member States.

Transparency of Proxy Advisors (Article 3i) – The changes to the Commission’s proposal include that proxy advisors refer to a code of conduct which they apply, however allowing them to explain when and why they depart from such application. Moreover, these rules are also to apply to third country proxy advisors, which are active in the EU.

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