Shareholders Rights Directive II in Luxembourg Are you ready? - A modern legal framework to foster the development of more engaged shareholding ...
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Shareholders Rights Directive II in Luxembourg Are you ready? A modern legal framework to foster the development of more engaged shareholding and sustainable companies
On 1 August 20191, the Directive 2017/828/EU of 17 May 20172
which amends Directive 2007/36/EC3 as regards the encouragement
of long-term shareholder engagement (SRD II) was transposed into
Luxembourg law (the Law, the 1 August 2019 Law). The Law amends
and supplements the Luxembourg Law of 24 May 2011 concerning
the transposition of the European Directive 2007/36/EC on the
exercise of certain rights of shareholders in general meetings of listed
companies.
1
http://legilux.public.lu/eli/etat/leg/loi/2019/08/01/a562/jo
2
https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32017L0828
Directive (EU) 2017/828 of the European Parliament and of the Council of 17 May 2017 amending Directive 2007/36/EC as regards the encouragement
of long-term shareholder engagement – (thereafter SRD II)
3
The European Directive 2007/36/EC of the European Parliament and of the Council of 11 July 2007 on the exercise of certain rights of shareholders in listed companies – (thereafter SRD I)
SRD II is one of the key cornerstones of the EU sustainability agenda
aiming at improving the long-term viability of European companies Key takeaway
and creating a more attractive environment for shareholders. Below
measures are key in achieving these goals:
• SRD II aims to enhance the sustainability of EU
companies whose shares are listed on a regulated
• Identify shareholders - enabling direct communication market in an EU Member State, encouraging a long-term
between companies and owners investment engagement amongst shareholders and
• Improve engagement of institutional investors and asset increasing transparency towards investors
managers - encouraging focus on long-term company • SRD II extends its scope to institutional investors and
performance assets managers
• Enhance disclosure requirements for institutional investors, • The legislation is wide-ranging and includes a number of
assets managers and proxy advisors – enabling informed new provisions such as:
investors decisions • The establishment of a framework for listed
• Introduce rights to vote at the general meetings on companies to identify their shareholders by obliging
the directors’ remuneration (remuneration policy and intermediaries to timely transmit information related
remuneration report) - strengthening the link between pay to shareholders identity.
and performance of directors (Say on pay) • The mandatory transparency of the voting and
• Improve shareholder oversight on material related party4 engagement policies of institutional investors and
transactions asset managers.
• Facilitate the exercise of rights by investors • The obligation for proxy advisors to provide
information about their voting recommendation and
This alert is a high-level overview of some relevant novelties to disclose their conflicts of interest.
brought by the Law. The Law entered into force on 24 August • The disclosure of the directors’ remuneration policy
2019. and individual remuneration, in combination with a
shareholder vote.
• The improvement of shareholders’ oversight on
companies’ material related-parties’ transactions.
4
Related party has the same meaning as in the International Accounting Standards adopted in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the CouncilEntities in scope
The Law applies to the following entities:
• Luxembourg companies whose shares are admitted to trading on a regulated market5 of a
Member State6 (EU-regulated market), (the EU listed companies)
• Luxembourg companies, whose securities are traded on a market of a non-Member State,
which is regulated, operates regularly, is recognised and open to the public; may choose to
subject themselves to the requirements of the Law, by an express provision in their articles,
(the non-EU listed companies, together with the EU listed companies the Listed companies)
• Institutional investors (e.g., life insurers and pension funds), to the extent they invest directly
or through an asset manager in shares traded of listed companies
• Asset managers (e.g., investment firms providing individual discretionary portfolio
management services, AIFMs7, Management Companies), to the extent they invest in such
listed companies on behalf of investors
• Intermediaries in the custody chain (e.g., depositaries, central securities depository), in so
far as they provide depositary services to shareholders or other intermediaries with respect
to shares in listed companies
• Proxy advisors, to the extent they provide services to shareholders with respect to shares of
listed companies
The Law currently exempts UCITs8 and AIFs7 from the provisions of SRD II except for the
requirements of its chapter III dealing with transparency of institutional investors, assets managers
and proxy advisors.
5
Regulated market as defined by art 1 § 31 of the Law of 30 May 2018 on markets in financial instruments, established or operating in a Member State of the European Union (EU)
6
Member State is a member state of the EU
7
Alternative Investment Funds Managers (AIFMs), Alternative Investment Funds (AIFs) as defined by art 1 § 46 and art 1 § 39 respectively of the Law of 12 July 2013 on alternative investment fund managers
8
Undertakings for collective investment in transferable securities (UCITS) as defined by art 2 § 2 of the Law of 17 December 2010 relating to undertakings for collective investmentHow is your firm impacted?
Remuneration Transparency Engagement & Voting Transparency
• Analyse the remuneration policy of the • Publicly announce material related party
listed company and adapt voting behavior transactions
accordingly • Transmit information to enable all
shareholders to engage and exercise their
Engagement & Voting Transparency voting rights
• Confirm shareholders’ votes being validity
• Develop and annually disclose an
Asset Managers / recorded and counted
engagement policy explaining how
shareholder engagement is included
Institutional
Investors Remuneration Transparency
in the chosen investment strategy and
d
implemented via the exercised voting pacte firms • Establish policy regarding remuneration of
Im
behavior directors
• Annually disclose to institutional investors Listed • Hold vote on remuneration policy by
how the chosen investment strategy and general meeting of shareholders
Entities
implementation thereof contributes to the
medium to long-term performance of the
SRD II • Disclose annual report on remuneration
publicly on their website for a period of
assets of the institutional investors (asset 10 years
managers only)
• Annually describe and disclose the
inclusion of shareholder engagement in the
investment strategy (institutional investors
only)
Depositaries
• Annually disclose arrangements with asset
manager (institutional investors only)
Shareholder Identification Engagement & Voting Transparency
• Establish a framework for listed entities to identify • Transmit information to enable all shareholders to
their shareholders engage and exercise their voting rights
• Ensure transmission of related information to • Facilitate exercise of rights by shareholders
listed entities on request by the listed entity • Provide confirmation of receipt of the shareholders’ vote
without delay • Provide confirmation on vote processing to shareholders
on request (maximum three month after the vote) unless
that information is already available)
• Conduct reviews of the fee grids
• Safeguard proportionality of costs
• Safeguard non-discrimination between issuer (for fees
depending on issuer’s primary market)Date of application
The local Luxembourg transposition of SRD II was adopted on 10 July 2019. The Law entered into force on 24 August 2019. Accordingly,
the requirements around Engagement & Voting Transparency and Remuneration Transparency should be applicable from that date on. The
requirements around Shareholder Identification & Engagement will only be applicable from 3 September 2020 as per EU implementing
regulatory technical standards.
Implementation Phase
3 September 2018 10 July 2019 3 September 2020
European Commission published Parliament Adoption Intermediary
Regulation (EU) 2018/1212 laying down of the bill of law requirements
minimum requirements and guidance
implementing SRD II Shareholder Identification & Engagement
January 2019 February 2019 24 August 2019
Vote on the bill Publication of Entry into force
of law in the the bill of law of the Law
government Engagement & Voting Transparency December 2020
council First end-of-year
Remuneration Transparency reporting for all
parties
2018 2021
February – March
2019
Comments period
for the bill of lawHow EY Luxembourg can help
EY proposes a holistic approach to identify areas of non-conformities and subsequently implement SRD II. By combining regulatory and
industry expertise with digital solutions, EY can assess compliance gaps and help to efficiently put SRD II requirements into practice.
Awareness Health Check Final Report Detailed Assessment
High- level High- level Detailed
Phase
assessment assessment assessment
Context and Changes Compliance Assessment Regulatory Report Detailed Gap Analysis
+ Implementation
Kick-off meeting On the field Wrap-up meeting Depends on complexity
• Raise awareness for • Assess current • List major high level gaps • Analyze regulatory gaps
SRD II amongst the key compliance status by and focus areas in detail
Goals
stakeholders of the main requirement • Display the impact on the • Implement appropriate
organization • Evaluate impact on business measures to fill gaps
• Agree on focus areas for client’s business • Discuss further steps and identified
assessment present EY tools
• Identify additional key
stakeholders
• Agree on timelineEY | Assurance | Tax | Transactions | Advisory Olivier Maréchal
Partner, Financial Services Advisory Leader
About EY +352 42 124 8339
EY is a global leader in assurance, tax, transaction and Olivier.Marechal@lu.ey.com
advisory services. The insights and quality services we
deliver help build trust and confidence in the capital markets
and in economies the world over. We develop outstanding Jens Schmidt
leaders who team to deliver on our promises to all of our Senior Manager, Financial Services Advisory
stakeholders. In so doing, we play a critical role in building a +352 42 124 8231
better working world for our people, for our clients and for Jens.Schmidt@lu.ey.com
our communities.
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All Rights Reserved.
This material has been prepared for general informational purposes
only and is not intended to be relied upon as accounting, tax or other
professional advice. Please refer to your advisors for specific advice.
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