Securities Enforcement and Regulatory Update

Requirements for Intermediaries Under the EU Shareholder Rights Directive II

May 28, 2020

The EU Shareholder Rights Directive II (SRD II) contains new rules as applicable to “intermediaries” of certain EU shares and UK shares (see section on “Scope” below). EU member states and the UK are required to transpose these requirements into their national law by, and bring them into effect on, September 3, 2020.

Note that these rules have extraterritorial application, and, therefore, they will also apply to non-EU/non-UK intermediaries holding in-scope shares (e.g., U.S. broker-dealers, if providing custody services).

Scope

The new rules apply only to an “intermediary,” which SRD II defines to include any person who “provides the services of safekeeping of shares, administration of shares or maintenance of securities accounts on behalf of shareholders or other persons.”

Article 3e of SRD II clarifies that these rules apply to both EU/UK and non-EU/non-UK intermediaries alike:

“[The SRD II chapter containing the intermediary rules] also applies to intermediaries which have neither their registered office nor their head office in the [EU or UK] where they provide [intermediary services with respect to in-scope shares.]”

However, intermediaries need comply with the SRD II requirements only in relation to shares that are both

(a) admitted to trading on an EU or UK-regulated market (EU/UK Listed Shares)

(b) of an issuer that has its registered office within the EU or the UK (EU/UK Issuer)

Accordingly, EU/UK Listed Shares of a non-EU/non-UK issuer, and non-EU/non-UK listed shares of an EU/UK Issuer, are not in-scope for the purposes of the SRD II intermediary rules.

Intermediary Requirements

In particular, SRD II will require intermediaries of in-scope shares to

(a) gather, and relay to the issuer, the identity of shareholders

(b) facilitate the transmission of information between the issuer and its shareholders to enable ultimate shareholders to exercise their voting rights (e.g., notify shareholders of their right to vote during the next general meeting)

Level 2 legislation to SRD II sets out the minimum information that intermediaries are required to gather from/communicate to shareholders. However, EU member states and the UK are each free to impose additional information requirements when transposing SRD II into their national rules.

Next Steps

Broker-dealers (if providing custody services) and other intermediaries, wherever located (including in the U.S.), of in-scope shares should start preparations so to be able to comply with the SRD II intermediary requirements come September 3, 2020.

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