The Shareholder Rights Directive II due to go live on the 3rd of September 2020

SRD II won’t be postponed! The verdict came from the European Commission earlier this month! 

Despite the joint letter sent by several post-trade groups and the call to postpone the deadline of SRD II and the Implementing Regulation, the European Commission decided earlier this month to go ahead with the implementation of the directive as originally planned this year on the 3rd of September 2020. 

“We ask you to consider, as a matter of urgency, a delay in the implementation date of the Shareholder Rights Directive II and the Implementing Regulations by twelve months, to 3 September 2021”; this was the call addressed on the 9th of April to the European Commission  by many post-trade groups, such as The European Banking Federation (EBF), the Association for Financial Markets in Europe (AFME), the International Securities Lending Association (ISLA), the Association of Global Custodians (AGC), the European Central Securities Depositories Association(ECSDA), the Securities Market Practice Group (SMPG), the Association française des Professionnels des Titres (AFTI) etc ..  

In their joint letter, the post-trade groups tried to emphasize the impact of the coronavirus crisis on the industry and how the Banks’ “Business As Usual” has been disrupted and became Unusual by the Pandemic. The letter explains how Banks had to put in place emergency procedures and to reprioritize their internal projects and staff. It’s without a doubt that the pandemic had put more strain on the Bank information systems and on their capacity to maintain their positions in the market.  

Besides the impact of the Pandemic the groups highlighted also how the implementation was already challenged prior to the crisis, particularly due to the necessity to perform complex end-to-end testing based on the ISO 20022. 

Although in the letter the groups said that “At this stage, the Associations believe it will be difficult, or nearly impossible, to meet the implementation deadline of 3rd September 2020”, the European Commission decided to go ahead with the implementation as it is very important and should go ahead as planned due to the benefits that this directive will bring to the shareholders’ rights. 

SRD II is indeed a great opportunity to upgrade shareholders rights. Basically, the new rules aim to  

•  avoid short term shareholder engagement 

• improve transparency in the voting process, especially when third parties (e.g. proxies) are involved 

• ensure the   shareholders’ rights   exercise  

• facilitate cross-border voting 

• give the right to shareholders to vote on remuneration: “say on pay”  

• improve the transparency regarding the investment strategies and engagement policies adopted by the institutional investors and asset managers. 

At the Banks/Custodians level, implementing the new rules will have technological and functional impacts, as any transmission between the different parties will need to be made in electronic and machine-readable ISO formats, especially the ISO20022. Custodians’ systems should be ready to process the ISO20022 messages relating to: 

• the shareholder Identity Disclosure:  seev.045, seev.046, seev.047, seev.048 and seev.049.  

• general meeting and proxy voting: seev.001, seev.002, seev.003, seev.004, seev.005, seev.006, seev.007 and seev.008. 

It's not going to be easy for some Banks/Custodians to be ready on time unless they will find partners with solutions ready to be implemented in a timely manner. 

Finally it's worth noting that in a similar context, the European Central Securities Depositories Association (ECSDA) in a letter sent to the EC with the following subject "COVID-19 impact on the implementation timeline of the Settlement Penalties regime under CSD regulation", asked to delay the implementation of Settlement Discipline Regime (SDR), and Settlement penalties in particular, possibly by one year beyond the date of 1 February 2021. To be continued ...