Shareholder Rights Directive 2 (SRD II)

To improve communication between companies and their shareholders, the Directive entitles companies to request relevant information on the identity of their shareholders from intermediaries. In this context, intermediaries are obliged to send information for shareholder identification to the companies in electronic form.

SRD II aims to ensure a simplified information flow between companies and their shareholders, especially in cross-border situations. In light of this, intermediaries are to make available relevant information on company events and for the exercising of shareholder rights for the company and its shareholders. The forwarding of information includes both information that a company must provide to its shareholders (for example, the convening of the General Meeting) and information received from the shareholder concerning the exercising of their shareholder rights. The information is to be forwarded in electronic form, either directly to the company or shareholders, or to the next intermediary in the chain. 

The Shareholder Rights Directive II also provides for new transparency and disclosure obligations for institutional investors, asset managers, and proxy advisers. Institutional investors and asset managers will be required to disclose a range of specific information, including details of their investment behavior, business model, and how conflicts of interest are handled.

Institutional investors and asset managers should therefore address their investment strategy and the integration of shareholder involvement and describe the basis for decisions. This is done following the “comply or explain” approach; institutional investors and asset managers who decide against drafting and publishing a shareholder involvement policy will have to explain the reasons for this and make this publicly available.

In view of their importance, proxy advisers will also be subject to transparency requirements. Proxy advisers who are subject to a code of conduct will effectively report on their application of that code. They must disclose and make publicly available important information in connection with the preparation of their research, advisory consultations, and voting recommendations. 

A further objective of the Directive is to enhance the right of shareholders to be involved in decisions on the remuneration policy for the Management Board and Supervisory Board. The remuneration policy may take the form of a framework, within which the remuneration of company directors must remain. This must be made publicly accessible after the General Meeting at least for the term of its validity.

Decisions on transactions conducted with related parties (known as related-party transactions) are also affected by the new requirements. Material transactions with related parties will be subject to the approval of the Supervisory Board and must be disclosed publicly by companies.

SRD II is a European Union directive on shareholder rights, which is intended to strengthen the corporate governance of listed companies based in the EU/EEA. Alongside more effective integration of shareholders in the company, facilitating the exercising of shareholder rights and improving access to company information in cross-border situations take center stage.

SRD II contains provisions for financial intermediaries entrusted with the custody/administration of securities or the management of securities accounts on behalf of the relevant shareholders (or other intermediaries). Of decisive importance in this are the issuer’s domicile and registration in the EU/EEA and that its equities are traded on a market regulated in the EU/EEA area.

SRD II obliges intermediaries (such as Bank Vontobel AG) to ensure the transmission of information along the chain of custodians in order to facilitate the exercising of shareholder rights between the company and the shareholder.

The regulations concerning the identification of shareholders and the facilitation of the exercising of shareholders’ rights, as well as the Implementing Regulation (EU 2018/1212), come into force on September 3, 2020.

The Directive mentions fines and penalties for issuers and intermediaries that do not comply with the regulations. It is up to each EU member state to design sanctions for violations of national implementation regulations.

SRD II applies primarily to voting equities issued by companies domiciled in an EU/EEA member state and which are admitted to trading on a regulated market within the EEA. This also includes securities with multiple listings.

The Directive therefore has a global impact on both intermediaries and shareholders holding the relevant EU equities.

The national law applicable to intermediaries is determined by the member state in which the respective company is domiciled. Due to the different implementation of the Directive in the member states, it is possible that the rules will diverge from one other.

• Companies with their registered office in the EU/EEA and whose equities are admitted to a regulated market situated or operating in an EU member state;
• intermediaries, including intermediaries domiciled outside the EU/EEA, that are an investment firm, a credit institution, or a Central Securities Depository (CSD), which provide services involving equity custody and/or management or security account maintenance for shareholders of securities covered by the scope;
• institutional investors and asset managers who invest in relevant equities. 

Companies must be domiciled in the EU/EEA and their equities must be listed on the stock exchange of an EU member state. This includes the following countries.

*Until December 31, 2020

As an intermediary, Vontobel will receive shareholder identification requests from an issuer or a third party appointed by the issuer via the intermediary chain.

Vontobel is required to send the necessary information on shareholder identity directly to the issuer or to the third party designated by the issuer (for instance, its principal bank). All information must be submitted within the time limits and in the formats specified in the Implementing Regulation.

At the request and demand of the company, Vontobel must provide the following information (if available):

• name(s) and address of the shareholder;
• unique identifier (such as passport number for natural persons or the registration number / Legal Entity Identifier (LEI) for legal entities);
• the number of equities held at the requested disclosure date (record date);
• if requested: the categories or classes of equities held and/or the date from which the equities have been held. 

The individual EU member states may stipulate that companies domiciled in that country may require shareholder identification information only in respect of shareholders holding more than a certain percentage of equities or voting rights. This threshold may not exceed 0.5 percent.

Realization of the threshold has not yet been completed in all cases by the member states; for this reason, it is not known at this stage which member states will introduce a threshold based on SRD II.

As an intermediary, Vontobel is obliged to transmit the relevant data if a company requests identification of its shareholders. As a result, clients cannot choose not to disclose the required information to a requesting company.

Information transmission within the scope of SRD II must be carried out in compliance with the relevant data protection regulations and retention periods. It should be noted that, in the course of providing the services, a disclosure obligation to other involved parties or domestic/foreign authorities may be required under foreign law.

Clients have the option to invest in other assets that do not fall under the scope of SRD II.

In principle, yes. SRD II stipulates that expenses can be charged by all involved parties.

On behalf of the client, Vontobel will ensure that clients for whom Vontobel holds or administers equities have access to information about companies’ forthcoming general meetings.

Similarly, shareholders will be able to exercise their shareholder rights (for example, the right to be involved, to participate in the General Meeting, and so on) and should have access to the procedures for shareholder measures.

The client is free to waive the exercising of their rights.

Vontobel is not liable for the completeness, correctness, or the timely provision or forwarding of the information that Vontobel receives from the company, involved parties, or other third parties or transmits to them about the instruments, facilities, or platforms that it makes available.

There will be no change to other corporate actions or, as the case may be, corporate events. This includes dividends, interest payments, redemptions, mergers, splits, spin-offs, capital increases, security equivalences, and so on.

Intermediaries (in the chain of custodians) may charge for the transmission and provision of such information. Hence there is a possibility that costs may be passed on to the client.