The UK is considering a new system for shareholder ID that would provide a quicker and cheaper way for companies to gain information on their end investors.
The plan is included in an interim report by the Digitization Taskforce, which is investigating how to modernize the UK’s shareholding system.
The report puts forward a number of ‘potential recommendations’ for market participants to consider and respond to. They include bringing forward legislation to make all shareholdings digital and mandating a ‘common communication protocol’ to support interaction between issuers and investors.
Once those two elements are in place, it should be ‘eminently possible for issuers to seek information on their ultimate beneficial holders (UBOs) in a timely and cost-efficient way,’ the report says.
‘We believe intermediaries should have this obligation placed on them as a condition of participation in the clearing and settlement system, and to put in place common technology that enables them to respond to UBO requests from issuers within a very short timeframe,’ it adds.
In the UK, issuers can use a process called a Section 793 notice to force the disclosure of information from anyone it believes to be ‘interested’ in their shares – a process the report calls ‘costly and slow’.
The report asks for opinions on the new system and whether there should be baseline expectations around the speed of disclosure and frequency of use. It also requests feedback on whether intermediaries should be able to provide aggregate information about investors under a certain ownership threshold.
The taskforce is also investigating how to ensure that shareholders can exercise their rights. In the UK, most retail investors hold shares via a broker and historically have not had an easy way to receive information from companies or vote at AGMs.
The situation has changed notably over the last two years, however, with major retail brokers setting up new services to provide alerts about company meetings and facilitate online voting.
The interim report says market forces appear to be providing a solution and intermediaries should not be mandated to facilitate access to shareholder rights, as long as they are clear about what services they provide.
‘Intermediaries offering shareholder services should be fully transparent about whether and the extent to which clients can access their rights as shareholders, as well as any charges imposed for that service,’ proposes the report.
‘Where intermediaries offer access to shareholder rights, the baseline service should facilitate the ability to vote, with confirmation that the vote has been recorded, and provide an efficient and reliable two-way communication and messaging channel, through intermediaries, between the issuer and the UBOs.’
Sir Douglas Flint, chair of the taskforce, has requested feedback on the report’s findings by September 25. The final recommendations are expected early next year.