There are in excess of 10 million investors who hold their shares in paper certificated form. So today’s announcement by the Government is of interest.
Lord Frost set out the below points about getting rid of paper share certificates today as part of a Brexit regulatory review.
Dematerialisation of shares – Although the majority of shares are held in electronic form, a minority are held in paper form. It is more expensive and takes longer for holders of paper shares to trade them and there is a risk of certificates going astray. The Government will work with industry, regulators and shareholders in the medium term to determine the best mechanism for converting these paper shares into electronic form, while preserving the rights of existing shareholders.
This is not really new News. As I understand it, paper shares are being scrapped in 2025 anyway.
Dematerialisation” allows companies to issue securities without a paper certificate to evidence them. It also allows existing paper shares to be transformed into electronic holdings. The general trend towards holding shares electronically was formalised by EU legislation in the form of the Central Securities Depositories Regulation (“CSDR”).
The CSDR sets a deadline of 2023 for ceasing the issue in paper form of most new publicly traded securities and a deadline of 2025 for the dematerialisation of existing paper shares for publicly traded securities. Therefore, the CSDR affects individual shareholders who hold their shares directly through paper share certificates. These certificates will need to be replaced with an electronic form of holding shares.
Now that the UK has exited the EU, the CSDR requirements no longer apply.
However, regardless of the status of the CSDR in this jurisdiction, stakeholders have told us that dematerialisation is generally considered to be a positive step towards greater efficiency.
The issue was addressed by the Law Commission Review of Intermediated Securities, to which ShareSoc contributed. see https://s3-eu-west-2.amazonaws.com/lawcom-prod-storage-11jsxou24uy7q/uploads/2020/11/Law-Commission-Intermediated-Securities-Scoping-Paper-1.pdf
Cliff Weight, Director, ShareSoc