- Taskforce proposals miss the mark.
- They put shareholder activism at risk and damage corporate governance.
The Digitisation Taskforce, comprising Sir Douglas Flint, Mark Austin and, latterly Chris Horton, has at long last released its long-awaited final report.
The report recommends a staged plan to completely eliminate both paper share certificates and digitised share registers, forcing all UK investors into an intermediated (nominee) system where shares are held on their behalf by financial institutions:
Step 1: Eliminate paper share certificates by 2027 (via a temporary transition to digitised registries)
Step 2: Improve the intermediated system of shareholding (to provide, among other things, a baseline service in relation to shareholders’ rights)
Step 3: All shares transitioned to the intermediated securities chain (eventually eliminating the digitised registries)
It includes 16 recommendations and proposes a Technical Group to oversee implementation. ShareSoc notes that the Technical Group does not include any individual shareholder representatives and would like to see this addressed.
The government has reportedly accepted all recommendations and committed to full implementation.
While the modernising of the system and dematerialisation of shares are positive steps, the taskforce’s proposals fail to address some of the taskforce’s key objectives. They contain fatal flaws that will strip essential rights from millions of investors and will erode their ability to hold company boards to account.
ShareSoc identifies two fundamental failures in the report:
Shareholder activism is at risk: the report proposes a “Shareholder Bill of Rights” which sets out a baseline service level for intermediaries.
This focuses on information rights and on the right to vote and participate in general meetings but signally fails to address other key shareholder rights including the rights to inspect and receive copies of the shareholder register, to submit statements and requisitions and to requisition meetings. It also looks to remove the headcount test for court sanction of schemes of arrangement (CA2006 S899) which protects minority shareholders in takeovers and delistings.
The protection of these rights is fundamental to good governance and to shareholder activism.
A key proposal is to restrict investors with proper purpose from having access to email addresses of other investors. This eliminates a primary benefit of digitisation, which is to facilitate communication between investors on stewardship matters including excessive executive pay, poor operational management, or environmental and social failings.
Investors are financially incentivised to opt out: although the report proposes a baseline service, it completely undermines this concept by allowing intermediaries to offer a level of service without access to shareholder rights at a lower cost.
This creates a perverse financial incentive for investors to opt out, en masse, from the ability to access rights associated with shares. It also introduces the risk that nominees may introduce prohibitive charges for the baseline service, effectively penalising responsible shareholders.
Allowing discriminatory pricing also degrades the rights of current certificated shareholders.
The taskforce has placed the interests of issuers and financial intermediaries above those of investors. The recommendations in the report fail to protect key shareholder rights and introduce dangerous financial incentives which will further erode investor engagement.
While ShareSoc acknowledges that some of the report’s recommendations offer an improvement over the current broken nominee system, it firmly believes these are overshadowed by the fundamental and damaging flaws at the report’s core.
We also note that the report fails to address the reduced financial protection for investors under the nominee system compared to direct ownership.
ShareSoc is now urging HM Treasury and government to override the damaging elements of the report’s recommendations and work with investor organisations to ensure a truly modern system that empowers all shareholders, rather than silencing them.
Post Date: July 21, 2025
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As a shareholder, I do not understand the problem associated with nominee accounts. The reality is that my vote is insignificant, but if I have a strong view on a subject I can instuct my nominee to vote my shares the way I want. If I am concerned about executive pay, I will inform my nominee who will then ask other shareholders of their view.
I am suspicious of centralisation. Efficient in some ways, but costly. What does a Nominee do apart from initially recording an individual’s details and their holding in a company? Ultimately the Company holds a register and I think that that is the one that counts, even more than a paper certificate.
Pilling charge for this in their ISA, but there is a modest ceiling and they do not charge more than this however large or complex one’s holdings. It gives a modest feeling of security against the chance of losing the certificate.
Hi John,
I don’t quite understand your comment. As you say, it’s the company’s share register that matters. Currently, with nominees, your beneficial interest doesn’t appear on the company’s register, only the nominee’s holding. Therefore you’re reliant on the nominee to pass on information from the company and to exercise shareholder rights on your behalf.
Some nominees do this but some don’t, or charge to do it (whereas if you’re on the company’s register directly, you automatically get information from the company and can exercise all rights). See also this illustration of how a shareholder who held their shares through one of the better nominees was deprived of important rights that they would have had, had they been directly registered.
Best,
Mark
I agree with your criticisms
I am at a loss as to why Flint is recommending that when certificates have been replaced by a digitised share register any individual shareholder would, after a short period, then be on the move again and have their holdings forcibly transferred to an intermediary where their legal ownership of the asset would then cease and transition into a beneficial ownership where exercising shareholder rights would depend on the intermediary.
Why on earth doesn’t the reform, as far as current own name shareholders are concerned, stop with the introduction of the digitised system? The system would be paperless but own name shareholders would retain their legal ownership and be able to exercise all their rights unencumbered as is the case now. The reform of the intermediary nominee system could then take place and when complete would hopefully lead to beneficial shareholders having the same legally enforceable rights as own name shareholders.
I would urge that the Society draws a line in the sand following the introduction of the digitised shareholder register and demands that after the establishment of a more satisfactory intermediary system the digitised system remains in place allowing currently certificated shareholders to choose whether in a paperless system they want to retain direct legal ownership of their shares or become beneficial owners through nominees.
My view is that in ethical terms what Flint is recommending could be construed as theft, where own name shareholders will ultimately be stripped of their legal ownership and forced into nominees as beneficial owners only.