SRD II Implementation Levels Vary in Europe

Although the updated Shareholder Rights Directive (SRD II) has been a positive step for increasing transparency and automation through the digitalization of proxy voting in Europe, there is an opportunity for further progress given the varying implementation standards across the region, according to a newly released white paper sponsored by global Fintech leader Broadridge Financial Solutions, Inc.

The white paper, “SRD II and Beyond – The Continuing Effort to Enhance Issuer to Investor Communication”, published by Firebrand Research, highlights the significant focus of the European Securities and Markets Authority (ESMA) and the European Commission (EC) on the asset servicing space to increase transparency and engagement between issuers and investors. These efforts specifically encourage automation and shareholder participation in corporate governance activities such as proxy voting.

The white paper draws particular attention to the varying levels of SRD II adoption across European states, and the current status at a market level. As SRD II was a directive rather than a regulation, each member state had discretion on how rules within the directive were transposed into local laws, resulting in the implementation of several different interpretations of the directive. Based on Broadridge’s analysis, 75% of eligible intermediaries that have holdings in SRD II markets are yet to fully adopt the SMPG-recommended MX20022 messaging required by the directive.

“ESMA will likely address any outstanding SRD II transposition delays with national competent authorities over the next 24 months,” said Virginie O’Shea, founder and CEO of Firebrand Research.  “In the meantime, there is an opportunity for market intermediaries to advance their state of readiness in order to address any unmet market level compliance obligations.”

“Given the popularity of governance as a topic due to ESG investment strategies and investor appetite, the market can expect the volume of voting at general meetings to increase year on year,” said Demi Derem, general manager of International Investor Communication Solutions, Broadridge.  “This in turn will require intermediaries – banks, brokers, wealth managers and CSDs – to further automate processes for all markets, locally and internationally, through a robust end to end service for the proxy voting lifecycle.”

To download the SRD II and Beyond – The Continuing Effort to Enhance Issuer to Investor Communication report, click here.