Asset managers should report their securities lending policy
to institutional investors on an annual basis as part of a
bundle of revised European initiatives designed to strengthen
shareholder engagement and boost transparency.
At the end of 2016 the EU’s three main
institutions – the Council, Parliament and Commission
– agreed the final text of the revised Shareholder
Rights Directive (SRD) after years of wrangling.
Votes on executive pay, transparency obligations for proxy
advisors and shareholder identification are all part of the
directive which applies to listed companies in the EU and
European Economic Area.
More specifically, the final text states that securities
lending can "cause controversy in the area of shareholder
As a result, asset managers should disclose their stock loan
policy to institutional investors annually. Officials are
also considering whether such information may even need to be
disclosed publicly further down the line.
Outlining the impacts of SRD to its members, securities
lending trade body ISLA said the final text reflects that there
are still "perception issues" around securities lending in
areas where it is not the primary focus.
ISLA has previously challenged the idea that securities
lending poses a threat to good corporate governance and has
stated that other factors are more significant than securities
lending when influencing voting behaviour.
SRD critics and Brexit
Since the SRD’s revision was initiated two
years ago, there have been significant changes to the proposed
Better Finance, a body that represents individual investors
across the EU, said the final version provides "limited
improvements" in shareholders rights, particularly in the
critical areas of shareholder identification and of the
exercise of cross-border voting rights.
Roger Lawson, deputy chairman at ShareSoc which represents
of individual investors in the UK stock market, described the
final text as a "typical example of EU bureaucracy as applied
to financial services".
"After years of work on this directive (and more to come),
it is a very unsatisfactory outcome."
"The political process and democratic input to EU decision
making is also grossly deficient, resulting in a half-baked
compromise which satisfies nobody."
The final SRD deal is still subject to legal-linguistic
revisions and a final vote in the European Parliament before
entering into force, likely within this quarter.
By that time Britain may have left the EU, meaning the
updated SRD might be the first EU legislation to be ignored by
the UK following the vote for the Brexit.
UK Prime Minister Theresa May has stated she intends to
trigger Article 50 by the end of March.
Many of the SRD provisions, for example on remuneration
votes, are already present in UK Stewardship Code, law although
it would require some changes to comply with it.