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THE DIRECTIVE recites that, shareholders in listed companies had supported companies’ excessive risk taking. Monitoring of investee companies and engagement by institutional investors and asset managers with listed companies was often inadequate. There is, the directive recites, too much focus on the short term. Moreover, the exercise of shareholders’ rights had become increasingly difficult, due to the holding of shares through a chain of intermediaries (some of which had neither their registered office nor their head office in the Union).
This analysis covers The European Union (Shareholders Rights) Regulations 2020 (SRD2 Regulations) and the Commission Implementing Regulation (EU) 2018/1212 (The SRD Implementing Regulation).
The SRD2 Regulations grant rights and impose obligations on traded PLCs, but also impose obligations on Intermediaries, relevant Institutional Investors, relevant Asset Managers, and relevant Proxy Advisors.
In advising on transactions within the ambit of the SRD2 Regulations, it is important to note that parts of the Euronext Dublin Listing Rules will apply also.
Parts of the SRD2 Regulations had effect from the 30th of March 2020, but all provisions including the Commission Implementing Regulation 2018/1212 (the SRD Implementing Regulation) to Directive 2007/36/EC (SRD1) and Directive EU 2017/828 (SRD2), have had effect since the 3rd of September 2020.
The SRD Implementing Regulation lays down minimum requirements on the issues of shareholder identification, the transmission of information and the facilitation of the exercise of shareholders rights. The aim is to prevent Member States, implementing diverging implementing formats at national level. It is important to note the time deadlines which this implementing regulation imposes on traded PLCs and intermediaries are more definitive than in the SRD2 Regulations.
The SRD2 Regulations give effect to the provisions of the Directive EU 2017/828 (SRD2) amending Directive 2007/36/EC (SRD1) as regards the encouragement of long term shareholder engagement and are incorporated into Part 17 of the Companies Act 2014 (related to public limited companies), as Chapters 8A to 8D inclusive.
The SRD2 Regulations also amend section 1000 (incorporating amended definitions), section 1092 and section 1099 of the Companies Act 2014 in order, amongst other things to extend provisions related to the giving of notice of general meetings to traded PLCs.
Broadly, a traded PLC has the right to identify its shareholders and obtain information regarding shareholders identity, that relates to shares held in that traded PLC from any intermediary who holds that information.
Where a shareholder requires information in order to exercise rights attaching to the shareholder’s shares, the traded PLC must, as soon as practicable provide an intermediary with (a) that information, or (b) where the information is available on the traded PLC’s website, a notice indicating where on the website the information can be found. Where a traded PLC transmits relevant information directly to the shareholder to whom it relates, subsections (1) and (2) of section 1110C will not apply in so far as that information is concerned (see ss1110C(1)(2) and (3) SRD2 Regulations).
When votes in a general meeting of a traded PLC are cast electronically, the traded PLC must send, as soon as practicable, to each person who has cast such a vote, an electronic confirmation of receipt of the vote (s1110D(2) SRD2 Regulations).
Where a shareholder's vote has been validly recorded and counted at a general meeting of a traded PLC, the traded PLC must, upon request by the shareholder, provide the shareholder with a confirmation that the vote has been validly recorded and counted. However this will not apply where information on whether or not a vote cast at a general meeting has been validly recorded and counted by the traded PLC is otherwise available to the person casting the vote or to the person on whose behalf the vote was cast, as the case may be (section s1110D(3)(a) and (b) SRD2 Regulations).
A traded PLC must (a) prepare a policy regarding the remuneration of its directors in accordance with section s1110M(6) ('remuneration policy'), and (b) cause a vote on the remuneration policy ('remuneration vote') to be held at a general meeting of the traded PLC. (s1110M (1) (a) and (b) SRD2 Regulations).
Subject to any provision of the traded PLC's constitution making a remuneration vote binding on the traded PLC ('binding vote'), a remuneration vote must be advisory ('advisory vote'). (s1110M (2) of the SRD2 Regulations).
Subject to subsection (8) , where a remuneration policy is approved by a binding vote, the traded PLC must pay remuneration to its directors in accordance with the remuneration policy to which that vote related. (s1110M (3)(a) SRD2 Regulations).
A traded PLC must prepare a remuneration report providing a comprehensive overview of the remuneration awarded or due, during the most recent financial year, to all of its directors in accordance with a remuneration policy prepared under section 1110M (s1110N(1) of the SRD2 Regulations). This section applies to the traded PLC’s financial years commencing on or after 10 June 2019 (s1110N(12) of the SRD2 Regulations).
The remuneration report must be clear and understandable and, where applicable, contain information regarding each director’s remuneration under 10 headings/categories that are set out in s1110N(2). (s1110N(2)SRD2 Regulations)
A traded PLC must not include in the remuneration report:
(a) special categories of personal data of individual directors, or
(b) personal data relating to the family situation of individual directors. (s1110N(3) SRD2 Regulations)
A traded PLC must cause a vote to be held in general meeting on the remuneration report prepared in respect of the most recent financial year. (s1110N(6) SRD2 Regulations)
When a vote is held under subsection (6), the traded PLC shall explain in the first remuneration report prepared after the vote how that vote has been taken into account. (s1110N(7) SRD2 Regulations)
After a general meeting at which a vote under subsection (6) is held, the traded PLC must make the remuneration report to which the vote related publicly available on its website, free of charge, for a period of 10 years. A traded PLC may keep the remuneration report publicly available on its website for a period longer than 10 years provided that the report does not contain the personal data of directors. (s1110N(8)(a) and (b) SRD2 Regulations)
Subject to subsection (5) , when entering into a material transaction with a related party, a traded PLC must publicly announce the transaction no later than at the conclusion of the transaction. (s1110O(1) SRD2 Regulations)
An announcement must contain: (a) information on the nature of the related party relationship, (b) the name of the related party, (c) the date and the value of the transaction, and (d) any other information necessary to assess whether or not the transaction is fair and reasonable from the perspective of the traded PLC and of the shareholders who are not a related party, including minority shareholders. (s1110O(2) SRD2 Regulations)
Subject to subsection (4) (transactions involving a shareholder of the traded PLC) a traded PLC must not enter into a material transaction with a related party without the transaction being approved, prior to the conclusion of the transaction, by a resolution of the traded PLC in general meeting. A traded PLC must ensure that the approval under paragraph (a) is carried out in a way that: (i) prevents the related party from taking advantage of its position, and (ii) provides adequate protection for the interests of the traded PLC and of any shareholder who is not a related party, including minority shareholders. (s1110O(3) (a) and (b) SRD2 Regulations).
The directors of a traded PLC must as soon as practicable, establish an internal procedure to assess whether or not transactions are entered into in the ordinary course of business and concluded on normal market terms for the purposes of paragraph (5)(a)(i). A related party must not take part in an assessment under this subsection. In this subsection ‘directors’ shall be interpreted in accordance with section 2(1).(s1110O(6) (a) (b) and (c) SRD2 Regulations)
When a related party of a traded PLC enters into a material transaction with a subsidiary of that traded PLC, the traded PLC must publicly announce the material transaction no later than at the conclusion of the transaction. (s1110O (7) SRD2 Regulations)
A traded PLC must ensure that all transactions with the same related party that have been concluded: (a) in any 12 month period, or (b) in the same financial year, are aggregated for the purposes of assessing if the transactions, when aggregated, constitute a material transaction. (s1110O(8) SRD2 Regulations)
This section is without prejudice to the rules on public disclosure of inside information as referred to in Article 17 of Regulation (EU) No. 596/2014 on Market Abuse (Market Abuse Regulation)(s1110O(9) SRD2 Regulations)
Section 1110O is in addition to, and not in substitution for, the provisions of the Companies Act 2014 as amended, or the general law, that constrain, in certain circumstances, dealings in property of a company and that provide for remedies in certain cases where those constraints are not observed (section 1110O(10) SRD2 Regulations).
In section 1110O(11) ‘class test’ means any one of the 4 tests set out in Schedule 21 (the Schedule to the SRD2 Regulations) inserted into the Companies Act by this section.
An intermediary that receives a request under section 1110B(1) from the traded plc or its nominee and is in possession or control of the information to which that request relates must, as soon as practicable, provide the requester with that information. An intermediary that receives a request and is not in possession or control of the information to which that request relates shall, as soon as practicable: (i) inform the requester that it is not in possession or control of the information, (ii) where the intermediary is part of a chain of intermediaries, transmit the request to each other intermediary in the chain known to the first-mentioned intermediary as being part of the chain, and (iii) provide the requester with the details of each intermediary, if any, to which the request has been transmitted under subparagraph (ii). (s1110B(2) (a) and (b) SRD2 Regulations)
Sections 1110B (4) to (7) apply amongst other things restrictions on the processing by the intermediary of information it receives in performing its obligations.
Where a shareholder in a traded PLC has given to an intermediary (relevant intermediary) an instruction relating to the exercise of rights attaching to the shareholder’s shares (in this subsection referred to as the ‘relevant instruction’), the relevant intermediary must, as soon as practicable and in accordance with the relevant instruction, transmit the information to which the relevant instruction relates to the traded PLC.
Where the intermediary cannot transmit the information to which the relevant instruction relates directly to the traded PLC in accordance with the relevant instruction, and the intermediary is part of a chain of intermediaries, the intermediary must, as soon as practicable, transmit the relevant instruction to each other intermediary in the chain of intermediaries known to the relevant intermediary as being part of the chain.
An intermediary to whom the relevant instruction is transmitted under paragraph (b), and who can transmit the information which the relevant instruction relates directly to the traded PLC, shall, as soon as practicable and in accordance with the relevant instruction, transmit that information directly to the traded PLC. (s1110C(4)(a)(b) and (c) SRD2 Regulations)
s1110D. (1) Where an intermediary provides services to a shareholder in relation to shares, the intermediary must facilitate the exercise of the shareholder’s rights by:
(a) making the necessary arrangements for the shareholder to exercise the rights attaching to the shareholder’s shares, or (b) exercising the rights attaching to the shareholder’s shares upon the explicit authorisation and instruction of the shareholder, and for the shareholder’s benefit. (s1110D(1)SRD2 Regulations)
When votes in a general meeting of a traded PLC are cast electronically, the traded PLC must send, as soon as practicable, to each person who has cast such a vote, an electronic confirmation of receipt of the vote. s1110D(2) SRD2 Regulations)
(a) Subject to paragraph (b), where a shareholder's vote has been validly recorded and counted at a general meeting of a traded PLC, the traded PLC shall, upon request by the shareholder, provide the shareholder with a confirmation that the vote has been validly recorded and counted. (b) The previous paragraph shall not apply where information on whether or not a vote cast at a general meeting has been validly recorded and counted by the traded PLC is otherwise available to the person casting the vote or to the person on whose behalf the vote was cast, as the case may be. (s1110D(3)(a) and (b) SRD2 Regulations)
Subject to subsection (5), where an intermediary receives a confirmation under subsection (2) or (3), the intermediary must, as soon as practicable, transmit the confirmation to the shareholder to whom the confirmation relates. (s1110D(4) SRD2 Regulations)
Where an intermediary charges a fee for providing a service under this Chapter 8A (ss1110A-1110E SRD2 Regulations), the intermediary must publicly disclose the fee charged for such service.
Where an intermediary charges a shareholder, traded PLC or intermediary a fee for providing a service under this Chapter 8A, the first-mentioned intermediary must not charge a different fee for providing the service on a cross-border basis than the fee it charges for providing that service in the State.
However, an intermediary may charge a different fee for providing a service on a cross-border basis than the fee it charges for providing the service in the State where the difference between the fees charged: (a) is duly justified, and (b) reflects the difference between: (i) the actual costs incurred by the intermediary in providing the service on a cross-border basis, and (ii) the actual costs incurred by the intermediary in providing the service in the State (s1110E (1)(2) and (3) of the SRD2 Regulations).
A relevant institutional investor must develop and publicly disclose an engagement policy in accordance with this section. (s1110G(1) SRD2 Regulations)
Where a relevant institutional investor does not develop and publicly disclose an engagement policy it must publicly disclose a clear and reasoned explanation for its failure to do so. (s1110G(2) SRD2 Regulations).
The engagement policy must describe how the relevant institutional investor:
(a) integrates shareholder engagement in its investment strategy,(b) monitors investee companies on relevant matters, including strategy, financial and non-financial performance and risk, capital structure, social and environmental impact and corporate governance, (c) conducts dialogues with investee companies,(d) exercises voting rights and other rights attached to shares (e) cooperates with other shareholders (f) communicates with relevant stakeholders of the investee companies, and (g) manages actual and potential conflicts of interest in relation to its engagement. (s1110G(3) of the SRD2 Regulations)
Subject to subsections (5) and (6), a relevant institutional investor that has developed an engagement policy in accordance with this section must, on an annual basis, publicly disclose how its engagement policy has been implemented, in a manner that includes: (a) a general description of voting behaviour, (b) an explanation of the most significant votes taken, (c) information on the use, if any, of the services of proxy advisors, and (d) information on how it has cast votes in the general meetings of companies in which it holds shares. (s1110G(4) of the SRD2 Regulations)
A disclosure under subsection (4) may exclude information regarding votes that are insignificant due to the subject matter of the vote or the size of the holding in the company in question. (s1110G(5) of the SRD2 Regulations)
Where a relevant institutional investor does not, in a given year, publicly disclose how its engagement policy has been implemented in accordance with subsection (4), the relevant institutional investor must publicly disclose a clear and reasoned explanation for its failure to do so. (s1110G(6) of the SRD2 Regulations)
(a) Rules that apply to a relevant institutional investor regarding conflicts of interest will also apply to a relevant institutional investor regarding engagement activities.
(b) For the purposes of paragraph (a), rules that apply to a relevant institutional investor regarding conflicts of interest include the following:
(i) Article 14 of Directive 2011/61/EU (AIFM Directive) (ii) Articles 12(1)(b) and 14(1)(d) of Directive 2009/65/EC (UCITS Directive)5, and the relevant implementing rules and technical standards under the UCITS Directive; (iii) Article 23 of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 (MiFID II Directive). (s1110G(7) of the SRD2 Regulations)
Where an asset manager implements an engagement policy on behalf of a relevant institutional investor, and such implementation involves the casting of a vote by that asset manager on behalf of the relevant institutional investor, the relevant institutional investor must publicly disclose where the asset manager has published information regarding the casting of that vote. (s1110G(8) of the SRD2 Regulations)
A requirement in this section to publicly disclose any matter must be read as a requirement to make the matter available free of charge on the website of the relevant institutional investor that is subject to the requirement. (s1110G(9) of the SRD2 Regulations)
A relevant institutional investor must publicly disclose how the main elements of its equity investment strategy are consistent with the profile and duration of its liabilities, in particular its long-term liabilities, and such disclosure must include how those elements contribute to the medium to long-term performance of its assets. (s1110I (1) of the SRD2 Regulations)
Where an asset manager invests on behalf of a relevant institutional investor, whether on a discretionary client-by-client basis or through a collective investment undertaking, the relevant institutional investor must publicly disclose certain following information regarding its arrangement with the asset manager under five headings with specific elements including take absolute long-term performance into account and the duration of the arrangement with the asset manager. (s1110I (2) of the SRD2 Regulations)
Where the public disclosure does not contain all of the elements specified in paragraphs (a) to (e) of subsection (2), the relevant institutional investor must publicly disclose a clear and reasoned explanation as to why such elements are not included. Public disclosure means a requirement in this section to publicly disclose any matter shall be read as a requirement to (a) make the matter available free of charge on the website of the person that is subject to the requirement, and (b) update the matter on an annual basis, unless there is no material change to the matter since it was last updated. (s1110I (3) and (4) of the SRD2 Regulations)
An institutional investor that is regulated by Solvency II may include the information referred to in sections 1110I(1) and 1110(I)(2) in its report on solvency and financial condition under Chapter 3 of Part 4 of the European Union (Insurance and Reinsurance) Regulations 2015 (S.I. No. 485 of 2015). (s1110I (5) of the SRD2 Regulations)
A relevant asset manager must develop and publicly disclose an engagement policy in accordance with this section. (s1110H(1) of the SRD2 Regulations)
A relevant asset manager who does not develop and publicly disclose an engagement policy in accordance with this section must publicly disclose a clear and reasoned explanation for its failure to do so.( s1110H(2) of the SRD2 Regulations)
The engagement policy developed under subsection (1) must describe how the relevant asset manager:
(a) integrates shareholder engagement in its investment strategy,
(b) monitors investee companies on relevant matters, including strategy, financial and non-financial performance and risk, capital structure, social and environmental impact and corporate governance,
(c) conducts dialogues with investee companies,
(d) exercises voting rights and other rights attached to shares,
(e) co-operates with other shareholders,
(f) communicates with relevant stakeholders of the investee companies, and
(g) manages actual and potential conflicts of interest in relation to its engagement. (s1110H(3) of the SRD2 Regulations)
Subject to subsections (5) and (6), a relevant asset manager that has developed an engagement policy in accordance with this section shall, on an annual basis, publicly disclose how its engagement policy has been implemented, in a manner that includes:
(a) a general description of voting behaviour,
(b) an explanation of the most significant votes taken,
(c) information on the use, if any, of the services of proxy advisors, and
(d) information on how it has cast votes in the general meetings of companies in which it holds shares. (s1110H(4) of the SRD2 Regulations).
A disclosure under subsection (4) may exclude information regarding votes that are insignificant due to the subject matter of the vote or the size of the holding in the company in question. (s1110H(5) of the SRD2 Regulations)
Where a relevant asset manager does not, in a given year, publicly disclose how its engagement policy has been implemented in accordance with subsection (4), the relevant asset manager shall publicly disclose a clear and reasoned explanation for its failure to do so. (s1110H(6) of the SRD2 Regulations)
(a) Rules that apply to a relevant asset manager regarding conflicts of interest shall also apply to a relevant asset manager regarding the engagement activities.
(b) For the purposes of paragraph (a), rules that apply to a relevant asset manager regarding conflicts of interest include the following:
A requirement in this section to publicly disclose any matter shall be read as a requirement to make the matter available free of charge on the website of the relevant asset manager that is subject to the requirement. (s1110H(8) of the SRD2 Regulations)
A relevant asset manager who has entered into an arrangement referred to in section 1110I (2), with an institutional investor, to invest on the institutional investor’s behalf, the relevant asset manager must disclose, on an annual basis and complying with subsections (2) and (3), to the institutional investor how its investment strategy and implementation thereof:
(a) complies with that arrangement, and
(b) contributes to the medium to long-term performance of the assets of the institutional investor or of a fund managed by the institutional investor. (s111OJ (1) SRD2 Regulations)
The disclosure must include reporting on
The disclosure referred to in subsection (1) shall also include information on (a) whether and, if so, how the relevant asset manager makes investments decisions based on its evaluation of medium to long term performance of the investee company, including nonfinancial performance, and (b) whether and, if so, which conflicts of interest have arisen in connection with engagement activities and how the asset manager has dealt with them. (s111OJ (3) SRD2 Regulations)
Where the information to be disclosed in accordance with subsections (1) to (3) is publicly available, the relevant asset manager shall not be required to provide that information to the institutional investor directly (s111OJ (4) SRD2 Regulations)
Where a relevant proxy advisor applies a code of conduct, it must publicly disclose, on an annual basis: (a) a reference to the code of conduct, and (b) a report on its application of the code of conduct. (s1110K (1) SRD2 Regulations)
Where a relevant proxy advisor does not apply a code of conduct, the relevant proxy advisor must, on an annual basis, publicly disclose a clear and reasoned explanation for its failure to do so. (s1110K (2) SRD2 Regulations)
Where a relevant proxy advisor applies a code of conduct but departs from it, the relevant proxy advisor must publicly disclose, on an annual basis: (a) the ways in which the code of conduct was departed from, (b) an explanation for the departure from the code of conduct, and (c) any alternative measures adopted by the relevant proxy advisor. (s1110K (3) SRD2 Regulations)
A relevant proxy advisor must publicly disclose the following information in relation to the preparation of its research, advice and voting recommendations: (i) the essential features of the methodologies and models applied; (ii) the main information sources used; (iii) the procedures put in place to ensure the quality of the research, advice and voting recommendations and qualifications of the staff involved; (iv) whether and, if so, how the relevant proxy advisor took national market, legal, regulatory and company specific conditions into account; (v) the essential features of the voting policies applied for each market; (vi) whether the relevant proxy advisor has dialogues with the companies, and the stakeholders of the companies, which are the object of the relevant proxy advisor's research, advice or voting recommendations and the extent and nature of those dialogues; (vii) the policy regarding the prevention and management of potential conflicts of interest (s1110K (4)(a)SRD2 Regulations)
The information specified in this subsection must be made publicly available throughout a period of at least 3 years from the date of publication. (s1110K (4)(b) SRD2 Regulations)
Where the information already forms part of a public disclosure in accordance with the section, the relevant proxy advisor may elect not to disclose that information separately under this subsection. (s1110K (4)(c) SRD2 Regulations)
A relevant proxy advisor must identify and, as soon as practicable, disclose to its clients: (a) any actual or potential conflicts of interest or business relationships that may influence the preparation of the relevant proxy advisor's research, advice or voting recommendations, and (b) the actions the relevant proxy advisor has undertaken to eliminate, mitigate or manage the actual or potential conflicts of interest. (s1110K (5) SRD2 Regulations)
A requirement to publicly disclose must be read as a requirement to make the matter available free of charge on the website of the relevant proxy advisor that is subject to the requirement. (s1110K (6) SRD2 Regulations).
This summary of the SRD2 Regulations 2020, does not constitute legal advice and must not be used as a substitute for legal advice.
For advice on the SRD2 Regulations 2020 and or the applicable Listing Rules, please contact Paul Foley ->
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