We expect that the ultimate shareholder will be the person or entity entitled to exercise the particular shareholder right.
How does SRD II address data privacy aspects?
SRD II establishes the threshold of shareholder identification as 0.5% to facilitate more transparency on shareholdings. This is viewed as a minimum threshold requirement: member states in the EU were given the opportunity to opt-out of this threshold requirement and apply their own standards. To do this, they needed to inform European regulators by June 2019 if they intended to apply a different threshold.
SRD II will align with existing data privacy regulation such as GDPR in ensuring that individuals are only identified for verified requests and the data maintained on them will be retained only within relevant data retention timeframes.
What are the impacts of engagement policy on asset managers?
Regulated asset managers will need to develop and publicly disclose their shareholder engagement and proxy voting policies when it comes to shares traded on a regulated market. The policy would cover how the asset manager communicates with investee companies, as well as how it monitors investee companies’ strategies, performance, capital structure, social and environmental impact, and corporate governance.
Asset managers have the option not to disclose, but then would need to explain the rationale for not doing so.
What are the required components of an asset manager engagement policy?
A shareholder engagement policy should describe how an asset manager:
- Integrates shareholder engagement in its investment strategy
- monitors companies in which they invest, which should include:
- issuer management and market strategy
- financial and non-financial performance and risk
- capital structure
- social and environmental impact
- corporate governance
- conducts dialogue with investee companies
- exercises voting rights and other rights attached to shares
- cooperates with other shareholders
- communicates with relevant stakeholders of the investee companies
- manages actual and potential conflicts of interest in relation to the firm’s engagement
This all works toward the SRD II goal of encouraging active shareholder engagement in corporate governance, but it represents a significant new imposition on asset managers. We should emphasize that the directive imposes these requirements unless the asset manager indicates in a clear and reasoned way why one or more of these aspects is not part of their asset management regime. To the extent that asset manager’s policy does not fully conform to one or more of these requirements, the reasoning for non-compliance must be disclosed and, in some cases, reported annually to certain institutional investors. Annual public disclosures will be required including a general description of the asset manager’s voting behavior, an explanation of the most significant votes, and reporting on the use of the services of proxy advisers.
What impact will this have on the use of global proxy notification services?
The industry anticipates that in order to meet the regulatory requirements, in particular to handle requests “without delay,” notifications of global proxy voting events will need to be generally provided on the same business day. In order to support this, use of a global proxy notification service that provides a shared and standardized framework for proxy processing will be virtually necessary.
What will this mean for the costs associated with being compliant?
With the need to build solutions and services for transmitting information regarding shareholders, general meetings and other SRD II requirements, intermediaries may charge fees associated with this service. This will be determined depending on national transposition.