The Shareholders Rights Directive (SRD II) was implemented on 24 August 2019 and impacts not only management companies/AIFMs but also asset managers managing UCITS/AIFs that invest in shares of EU listed companies.
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.
Asset managers should also make publicly available a disclosure on how they will implement the Engagement Policy and this must be made annually and placed on their website. This “Implementation Disclosure” should include the following information:
- a general description of voting behaviour;
- an explanation of the most significant votes; and
- the use of services of proxy advisors.
In the event that the Implementation Disclosure is not published, asset managers must provide a reasoned explanation outlining why they have not done so and this must be made publicly available online.
The first annual disclosure can be made in respect of the first full period during which the Engagement Policy has been implemented as of 24 August 2019. This means that the Implementation Disclosure covering the year 2020 should be published, at the latest, at the beginning of 2021, and annually thereafter.
Management companies/AIFMs and the entity to which the voting rights have been delegated are required by UCITS and AIFM Rules1 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.
The voting strategy of management companies/AIFMs will 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. According to these UCITS and AIFM rules, management companies/AIFMs can refer to the voting strategy of a delegate, a description of which is available free of charge to investors.
These requirements and actions are necessary to ensure that funds remain compliant and a summary is set out below:
- website publication of an implementation disclosure which complies with the SRD II requirements including (i) an indication of the period it covers and (ii) the additional information required, should you have any arrangement with pension, insurance and re-insurance investors.; or
- the publication on your website of a reasoned explanation as to why no implementation disclosure will be/has been published; and
- the compliance with procedures for the voting strategy as required by the UCITS and AIFM Rules and this information to be available on request by any investor.
1 Pursuant to Art. 23 of the CSSF Regulation No. 10‑4 of 24 December 2010 and Art. 37 of the Commission Delegated Regulation (EU) No. 231/2013 of 19 December 2012 (Level 2 AIFM Regulation) in application of Art. 14 AIFMD (further detailed in section 5.5.10 of the CSSF Circular 18/698 of 23 August 2018) (“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.
Conor MacGuinness
Vanora Madigan
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