The industry is “ready to varying degrees” for the second Shareholder Rights Directive (SRD II), which went live 3 September, according to Demi Derem, general manager, investor communication solutions international of Broadridge.
While some intermediaries, such as global custodians, are fully aware of their new obligations under SRD II, for many other firms in the banking, brokerage and wealth industries, the provision of services such as proxy voting and shareholder disclosure are new and present challenges.
SRD II represents a significant opportunity for firms to improve not just transparency and engagement but also to address operational inefficiencies and achieve greater levels of automation through standardisation.
Noting the impact that COVID-19 had on all aspects of life, Derem suggested the industry could see regulators take a pragmatic approach to compliance.
He said: “This means that for new entrants, in particular, the most important thing will be to show engagement in the process and to have a plan in place to be compliant either by the 3 September deadline or shortly after.”
In April, eleven trade associations called on the European Commission for a 12-month delay to the directive.
The associations outlined that prior concerns around their members’ ability to meet the September deadline have been compounded by the widespread disruption caused by the COVID-19 pandemic.
Consequently, they argued it will be “difficult, or nearly impossible, to meet the implementation deadline of 3 September”.
Among the bodies to sign the letter are the International Securities Lending Association (ISLA), the Association for Financial Markets in Europe (AFME), and the Securities Market Practice Group (SMPG).
However, in June the letter was rejected by the European Commission.
The commission stressed that one of the main objectives of the directive is to improve the communication flow between companies and shareholders and that in this lockdown-period it is becoming even more important for shareholders to be able to efficiently communicate electronically and participate in voting remotely at general meetings.
On 1 September, associations launched a last-minute attempt to gain clarity on lingering ambiguities and save their members from non-compliance penalties.
Eleven trade bodies including ISLA, the European Banking Federation, and AFME, sent a joint letter to the European Commission and the European Securities and Markets Authority on 1 September outlining three “major areas of concern”, two “misunderstandings” and a plea for clemency.
Derem said he expects to see “mixed results” from the industry for the first few months after the September deadline.
A Broadridge survey earlier this year showed that a significant number of firms had struggled to understand their new obligations and introduce the changes that SRD II demands of them.
“It is likely that it will take some time for the industry to evaluate which parts of the regulation and implementing law require further alignment and definition. Consequently, we also expect to see a number of firms modify their day one compliance strategies post go-live”, Derem commented.
Read the full interview with Derem in the latest issue of Asset Servicing Times.
