2nd Shareholders’ Rights Directive – Implementations in the Stock Exchange Act 2018

Co-author: Dr. Silvia Wandl

During a marathon session of the Austrian Parliament on 3 July 2019, the changes to the Austrian Stock Exchange Act 2018 proposed in the corresponding government bill, were adopted. As had widely been hoped for, and in line with demands by the banking industry in particular, Section 179 (7) of the Austrian Stock Exchange Act (banking secrecy in connection with disclosure of the identity of shareholders) was passed with a 2/3 majority, as is required for a law of constitutional rank.

The new provisions bring changes not only for issuers, but also for intermediaries, asset managers and proxy advisors.

In Detail

In Austria, the provisions on the special requirements for the identification of the shareholders of a listed company and on transparency for institutional investors, asset managers and proxy advisors of Directive (EU) 2017/828 amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement (2nd Shareholders’ Rights Directive – 2nd SRD) were implemented in the Austrian Stock Exchange Act 2018 (SEA 2018) and, unlike for example in Germany, not in the Stock Corporation Act with the other provisions of the 2nd SRD.

A new 5th main part, “Shareholders’ Rights”, was inserted into the SEA 2018, in Sections 177 et seq. SEA 2018 (government bill dated 15.05.2019, 624 BlgNR 26. GP). It contains provisions concerning:

• The identification and information of shareholders and the facilitation of the exercise of shareholder rights – “know-your-shareholder“; and
• The increase of transparency among institutional investors, asset managers and proxy advisors (e.g. ISS, Glass Lewis have a combined market share of >90%) – “comply-or-explain“.

Intermediaries

Section 2 of the 5th main part of the new SEA 2018 (Sections 179-184 SEA 2018) applies to intermediaries – i.e. investment firms, credit institutions or central securities depositories – insofar as they provide shareholders or other intermediaries with services (safekeeping of shares, administration of shares or maintenance of securities accounts) in connection with shares of companies which have their registered office in a Member State and whose shares are admitted to trading on a regulated market situated or operated in a Member State (and EEA). It also applies to intermediaries resident in third countries.

The provisions on the identification of shareholders will only enter into force on 3 September 2020 (and may therefore partly not yet be relevant for the 2020 AGM season), simultaneously with Commission Implementing Regulation (EU) 2018/1212 of 3 September 2018, laying down minimum requirements implementing the provisions of the 2nd SRD as regards shareholder identification, the transmission of information and the facilitation of the exercise of shareholders rights. This Implementing Regulation contains the relevant requirements for the operational handling and, above all, the transmission of information and the notifications to be made for intermediaries (content, format, language, technical requirements, deadlines to be met, etc.). Only the provisions on costs (transparency regarding fees charged) and penalties have already partly come into force on 10 June 2019.

Listed companies have the right to identify their shareholders if they hold 0.5% or more of the shares or voting rights. Correspondingly, intermediaries are obliged to provide this information.

An intermediary must transmit information addressed to the shareholder, which the company is required to provide to the shareholder, to enable the shareholder to exercise rights flowing from its shares, and which is directed to all shareholders in shares of that class, or a notice indicating, where on the company’s website such information can be found. This obligation to provide information shall not apply if the company directly provides the information to the shareholders.

The intermediaries must immediately communicate the information received from the shareholders in connection with the exercise of the rights attached to the shares to the companies, in accordance with the shareholders’ instructions.

Furthermore, intermediaries are obliged to facilitate a shareholder’s participation and voting in general meetings abroad (“Cross-Border Voting“), either by enabling the shareholders to exercise their voting right themselves or by allowing the intermediary to exercise the voting right on behalf of the shareholders, with their express consent.

If the shareholder participates in the AGM by means of electronic voting, the intermediary must immediately provide the shareholder with a confirmation, as to whether and how the vote was exercised. Again, there is an obligation to forward the confirmation to other intermediaries, unless the confirmation can be sent directly to the shareholder.

Especially for intermediaries, the new obligations give rise to a number of legal issues that have not yet been clarified completely and that are still the subject of alignment. This, for example, applies to the exemption from banking secrecy for inquiries from foreign issuers who, under their national law, may also be entitled to request information from shareholders with a holding of less than 0.5%, or in connection with the disclosure of costs.

Another issue arose in connection with the definition of “asset managers”. During a coordination meeting at the Chamber of Commerce, a common understanding was reached that the term – in line with the wording of the legal definition in Section 178(3) SEA 2018 – apart from managers or management companies in the investment fund sector – only includes investment firms pursuant to Article 4 para. 1 (1) of Directive 2014/65/EU (MiFID II), which provide portfolio management services, but not credit institutions.

Institutional Investors, Asset Managers and Proxy Advisors

The third section of the fifth main part of the new SEA 2018 (Sections 185-188 SEA 2018) implements the provisions on the increase of transparency for institutional investors (which may also include e.g. insurers), asset managers and proxy advisors. These provisions enter into force retroactively as of 10 June 2019. The aim is to enable an informed investor decision.

Institutional investors and asset managers must draw up an engagement policy, which has to be made available to investors on their website. It must describe the investment strategy, communication with the listed company, voting behavior and management of actual or potential conflicts of interest. If these requirements are not met, the according decision and a clear and reasoned explanation for it must be publicly disclosed.

Asset managers shall disclose, on an annual basis, to the institutional investors with which they have entered into an agreement how their investment strategy and implementation thereof complies with that arrangement and contributes to the medium to long-term performance of the assets of the institutional investor or of the fund.

Proxy advisors shall publicly disclose reference to a code of conduct, which they apply and report on the application of that code of conduct. Where proxy advisors do not apply a code of conduct, they shall provide a clear and reasoned explanation why this is the case.

The intention behind these measures is to impose a greater level of transparency regarding the investment strategy, engagement policy and the implementation thereof on institutional investors and asset managers. Furthermore, they are a reaction to the increasing significance of proxy advisors’ activities and their influence on the voting behavior of many shareholders.

FMA as the Competent Authority

The Austrian Financial Market Authority (FMA) is tasked with monitoring compliance with the provisions, which they have criticized in the pre-parliamentary procedure. The FMA has the authority to impose fines of up to EUR 25,000.

How PwC Legal can support you

We will be happy to support you in analyzing the effects on your company or institution. Our experts can advise you on

• Legal questions relating to the new provisions
• Implementation of the new obligations regarding processes, governance and documentation
• Implementation of workshops
• Advice and support in regulatory inquiries and audits
• Representation in administrative proceedings
• Any questions in connection with regulatory and corporate law

Your PwC contacts:

Dr. Silvia Wandl
PwC Legal | Manager | Attorney-at-law, Corporate M&A
Office: +43 1 384 05 50 Mobile: +43 664 4417464
E-Mail: silvia.wandl@pwc.com

Mag. Irene Eckart, B.A.
PwC Legal | Senior Manager | Attorney-at-law, Financial Services
Office: +43 1 384 05 50 Mobile: +43 664 88639005
E-Mail: irene.eckart@pwc.com