Shareholder Rights Directive: What You Need To Know

The Shareholders Rights Directive (“SRD II”) was implemented on 30 March 2020 in Ireland.

SRD II impacts not only management companies/AIFMs but also asset managers managing UCITS/AIFs investing in shares traded on a regulated market[1]. Entities in scope of SRD II are expected to have developed and disclosed (free of charge, on their website or by other means accessible online) a shareholder engagement policy (the “Engagement Policy”) and to have updated their voting policy or to have provided a reasoned explanation (publicly available online) outlining why they have not done so.

In addition, the asset managers should on an annual basis make publicly available on their website a disclosure on how they implement the Engagement Policy. This disclosure should include:

• a general description of voting behaviour;
• an explanation of the most significant votes; and
• the use of services of proxy advisors

(hereafter referred to as the “Implementation Disclosure”).

In case the Implementation Disclosure has not been published, the asset managers shall provide a reasoned explanation (publicly available online) outlining why they have not done so.

[The Central Bank of Ireland has not issued any guidance with respect to the timing for the publication of the Implementation Disclosure and in the absence of guidance, we would be of the view that such Implementation Disclosure should be published by 30 March 2021 which is the first anniversary of the Irish SRD II regulations taking effect. After the publication of the first implementation disclosure it should be updated annually.

Irrespective of this, where voting rights have been delegated to an asset manager under the investment management agreement, the asset manager is expected to develop an adequate and effective strategy for determining when and how voting rights attached to instruments held in the managed portfolios are to be exercised to the exclusive benefit of the UCITS/AIF concerned and its investors in accordance with the UCITS and AIFM Rules[2] .

The voting strategy of the asset managers should determine measures and procedures for (i) monitoring relevant corporate actions, (ii) ensuring that the exercise of voting rights complies with the investment objectives and policy of the relevant UCITS/AIF and (iii) preventing or managing any conflicts of interest arising from the exercise of voting rights.

These requirements and actions are necessary to ensure that funds remain compliant and a summary is set out below:

1. the publication on your website of an engagement policy and implementation disclosure which complies with the SRD II requirements including (i) an indication of the period it covers and (ii) the additional information required, in case you have any arrangement with pension, insurance and re-insurance investors. Please inform us on which website this disclosure is available; or
2. the publication on your website of a reasoned explanation as to why no engagement policy or implementation disclosure will be/has been published. Please inform us on which website this explanation is available; and
3. the compliance with the requirements, measures and procedures for the voting strategy as required by the UCITS and AIFM Rules and that this information has to be available on request by any investor.

[1]As defined in MiFID II Pursuant to Art. 37 of the Commission Delegated Regulation (EU) No. 231/2013 of 19 December 2012 (Level 2 AIFM
[2] Regulation) in application of Art. 14 AIFMD and Schedule 5 paragraph 74 of the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 (“UCITS and AIFM Rules”).

Should you have any questions on any of the information included here, please reach out to your usual DMS representative or contact us below.