Shareholder Rights Directive

This regulatory update is for audit leaders across all sectors, not just financial services.

The Shareholder Rights Directive II is a step change in governance. It is not only a regulatory compliance issue but one of transparency and accountability that all organisations need to be ready for.

In response to corporate failures, it is about enhancing stewardship.

Audit leaders need to be aware of how this change could impact their organisation:

  • Financial Services - compliance risk, operational impact on activities of asset owners/ managers
  • Private Sector - strategic risk, corporate governance impact, ability to attract investors
  • Charities - reputation risk through investment association and lack of stewardship activity
  • Public Sector - reputation risk through investment association and lack of stewardship activity

What is happening?

The existing 2007 Shareholder Rights Directive (SRD) has been revised following learnings from the financial crisis to encourage more effective stewardship and long-term investment decision-making. The UK has been progressive in its approach to stewardship and many elements are already common practice in the UK.

Implementation of SRD II is required by 10 June 2019.

In response to these changes and governance observations in the 2018 Kingman Review, the Financial Reporting Council (FRC) has scheduled a mid-2019 update to the Stewardship Code.

Brexit impact

The FCA has outlined new rules, CP19/7, to ensure compliance with SRD II. These apply if the UK leaves the EU with a transition period. In the event there is no transition period, SRD II may still be relevant and the FCA will revise proposals at a later date.

Why is the change needed?

The stewardship role of investors in good corporate governance has increased in importance following numerous corporate failures. The pursuit of profit at any cost is no longer tolerated.

Speaking in March 2019, Edwin Schooling Latter of the FCA,…