The Digitisation Taskforce, chaired by Sir Douglas Flint, has delivered its final recommendations for modernising how shares in UK listed companies are held.
The Taskforce was set up in response to one of the recommendations of the 2022 UK Secondary Capital Raising Review, which looked at the regime for secondary capital raisings by listed companies in the UK and how it can be improved (see our blog post here for more detail on the Review).
Currently, shares in UK listed companies can be held either through paper share certificates or digitally through a chain of intermediary nominees in a central securities depository (which in the UK is CREST, operated by Euroclear United Kingdom & International). The vast majority of shares in UK listed companies are held digitally. The Taskforce believes administering the small number of paper share certificates in the UK system causes unnecessary inefficiencies and costs.
The report recommends a staged approach to removing paper share certificates in listed companies and moving to a fully intermediated system. In summary:
- Removal of paper shares and establishment of digitised registers – In the first stage of the digitisation process, current paper share registers will be replaced by digitised versions. Certificated shareholders' interests will be reflected solely in the digitised register already administered by a listed company's registrar. Listed companies would no longer be permitted to issue paper share certificates and certificates would no longer be required when transferring shares.
- Improvements to intermediated system – There are concerns about the current intermediated system (where shares are held through intermediaries), in particular the ability for retail shareholders to exercise their rights under the current system, as ultimate beneficial owners are not the legal owner of their shares. In the second stage of the digitisation process, over the course of this Parliament, the government, FCA and a newly-formed technical group will work to reform the intermediated system to ensure that shareholders can exercise their rights effectively through intermediaries. The report recommends a package of measures to achieve this, including payments to shareholders becoming entirely digital and intermediaries being obliged to provide a 'baseline service' to all shareholders (including extending more rights to ultimate beneficial owners). Most of these measures will require legislative and/or FCA rule changes.
- All shares transition into the intermediated system – As stage three of the digitisation process, once the improvements have been made to the intermediated system, all shares will transition into the intermediated system, with digitised share registers being phased out.
The government has accepted the recommendations made in the report and set out how it will take them forward.
In line with the report's recommendations, the government says that it aims to legislate to implement the first phase, that is to end the issuance of paper shares and require companies to replace paper share registers with digitised share registers, by the end of 2027 at the latest, with a precise date to be determined by the newly-formed technical group.
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