The Shareholder Rights Directive II (SRD II) is a European Union (EU) directive, which sets out to strengthen the position of shareholders and to reduce short termism and excessive risk taking within companies traded on EU regulated markets. The Directive is due to be implemented in two phases, the first was June 2019 and the latter being September 2020. Are you ready?
Shareholder Rights Directive II amends the first Shareholder Rights Directive I (SRD I) which came into effect in 2007, with the objective of improving corporate governance in companies whose securities are traded on EU regulated markets. As an amending directive, it will require transposition into each Member State’s national law. Certain provisions entered into force on 10 June 2019 with the more impactful requirements entering into force on 3 September 2020. SRD II establishes requirements in relation to the exercise of certain shareholder rights attached to voting shares of companies who have their registered office in a Member State, the shares of which are admitted to trading on a regulated market situated or operating within a Member State. It also establishes specific requirements to encourage long-term shareholder engagement.
Do You Understand the Key Changes from SRD I to SRD II?
- SRD II makes significant changes to Article 3 which now gives companies the right to identify their shareholders. This creates an obligation on intermediaries to transmit the necessary information they hold on shareholder identity.
- Article 3 also requires intermediaries to transmit relevant information from the company to the shareholder to facilitate their exercise of shareholder rights. Intermediaries must publicly disclose what they charge for these services and costs must be proportionate.
- For Institutional Investors and Asset Managers, there are additional requirements to publish an engagement policy and disclose annually how the main elements of their investment strategy contribute to the medium to long-term performance of their assets.
- Proxy advisors must adhere to a code of conduct and disclose information to show how their voting recommendations are accurate and reliable.
- Shareholders have the right to vote on remuneration.
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