After careful deliberation, ShareSoc and UKSA have now submitted this response to Sir Douglas. Special thanks are due to Mohammed Amin, who co-ordinated our joint response.
We express concern that the proposals in the interim report do not fulfil the DT’s terms of reference. In particular, they do not ensure that the rights of current certificated shareholders will be maintained. The report proposes a number of options for dematerialising current certificated shareholdings.
Option 3, Sir Douglas’s preferred approach, forces certificated holdings into pooled nominee accounts. This fails to protect the rights of current certificated shareholders, whilst introducing complexity in dealing with lost certificates.
In our view, Option 1 (which digitises the existing personal certificates) is much more easily achieved, has lower attendant risks and will facilitate substantially all of the desired cost benefits. Option 1 will also reduce the potential for a backlash of public opinion.
We also note that a variant of Option 2, involving the use of segregated custody accounts, has operated successfully for many years in Sweden.
Sir Douglas appears not to have fully investigated Options 1 and Option 2, and to have favoured Option 3 without proper comparison of the costs and benefits of each alternative.
We are also concerned that access to information on beneficial shareholders will be restricted even more than is currently the case. This will limit the ability of shareholders or shareholder groups to gather support for actions where company managements do not act in shareholders’ interests. We understand concerns about data protection and privacy but put forward an alternative proposal that both addresses privacy and enables proper communication between individual shareholders in an issuer.
As next steps we will seek to meet with the DT to discuss our concerns and ShareSoc will consider what further action we should take to ensure that the final version of the Flint report addresses those concerns. Watch this space!
Mark Bentley, Director, ShareSoc