The European Shareholders' Rights Directive II (“SRD II”) has been transposed into Irish law with the publication of the European Union (Shareholders’ Rights) Regulations 2020 (“Regulations”). The Regulations aim to promote greater shareholder involvement in the corporate governance of public companies which have a registered office in the EU and are listed on EU regulated markets (“Investee Companies”).
Who?
SRD II introduced new transparency obligations for “institutional investors” (insurance companies and occupational pension schemes) and “asset managers” (AIFMs (excluding sub-threshold AIFMs), MiFID firms providing portfolio management, UCITS management companies and self-managed UCITS).
The Regulations further specify that a “relevant asset manager” means an asset manager (a) that invests in shares traded on an EEA regulated market on behalf of investors, and (b) in respect of which Ireland is the competent Member State, within the meaning of SRD II.
Non-EU asset managers are not subject to the requirements of the Regulations, however, investment advisers located in third countries (e.g., the United States) may be indirectly impacted as a result of a delegation arrangement with an in-scope entity.
When?
The Regulations, which were due to be implemented in Ireland by June 2019, took effect on 30 March 2020.
What?
The Regulations insert three new chapters into Part 17 of the Companies Act 2014 relating to rights of shareholders (Chapter 8A), transparency of in-scope entities (Chapter 8B) and remuneration policies, remuneration reports and transparency and approval of related party transactions (Chapter 8C).
In this OnPoint, we focus on the transparency requirements in Chapter 8B as they apply to asset managers.
Shareholder Engagement Policy
The Regulations require relevant asset managers to develop and publicly disclose a policy that describes how they integrate shareholder engagement in their investment strategy. Alternatively, asset managers can publicly disclose a clear and reasoned explanation for not developing such a policy.
An asset manager must also make available, on an annual basis, information on how that engagement policy has been implemented. This annual disclosure must include, for example, a description of voting behaviour, an explanation of the most significant votes and any use of proxy adviser services.
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Disclosure to Institutional Investors
Where an asset manager invests on behalf of an institutional investor (insurance companies and occupational pension schemes), whether on a discretionary client-by-client basis or through an investment fund, it must disclose on an annual basis to the institutional investor how its investment strategy and implementation thereof complies with the arrangement and contributes to the medium to long-term performance of the assets of the institutional investor or of a fund managed by the institutional investor.
The disclosure must include reporting on:
- the key material medium to long-term risks associated with the investments
- portfolio composition
- turnover and associated costs
- the use of proxy advisors
- the asset manager’s policy on securities lending and how it is applied to engagement activities, if applicable, particularly at the time of the general meeting of the investee companies
- whether conflicts of interest have arisen in connection with engagement activities and how the asset manager has dealt with them
- how the relevant asset manager makes investment decisions based on its evaluation of medium to long-term performance of the Investee Company, including non-financial performance.
Where the disclosures are already publicly available, the asset manager need not provide it directly to the institutional investor.
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Next steps
The Regulations came into operation on 30 March 2020 and apply with immediate effect (i.e. there is no transitional period). As such, relevant asset managers must:
- update their shareholder engagement policies or provide a public explanation as to why a policy is not in place; and
- assess the annual disclosure requirements applicable to them (if any) with respect to institutional investors.
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