Regulatory summer update – Covid-19 leaves its mark

The Covid-19 outbreak has influenced many aspects of companies’ and institutions’ activities, including regulatory processes and their planned implementation.

The Danish government has also passed temporary provisions allowing companies to depart from the existing rules for filing annual reports and holding annual general meetings. This has significantly affected the 2020 AGM season. Below, we give a brief overview of recent developments within the regulatory area – SRD II, MAR, the AGM season and CSDR – and the expected next steps.

SRD II – industry associations’ request for a one-year postponement not accepted

The general implementation deadline for the amended Shareholder Rights Directive (SRD II) was 10 June 2019, but for some parts of the Directive, including the provisions concerning shareholder identification, transmission of information and facilitation of the exercising of shareholder rights, the implementation deadline is 3 September 2020. The new framework thus impacts existing rights and responsibilities, procedures and processes, and also the systems that are needed to support them.

Just before Easter, 11 industry associations sent a letter to the European Commission requesting another year’s notice to implement the remaining parts of SRD II, so as to give the European financial industry a more realistic timeline to fully comply with SRD II and the Implementation Regulation – and thereby achieve a higher level of convergence of implementation practices.

In the letter, the associations drew attention to the fact that the implementation efforts were challenged even before the advent of the global Covid-19 outbreak, which has further strained the industry’s capacity to implement the Directive in a timely manner – among others because the day-to-day activities of their members are significantly impacted by the necessary emergency measures put in place to mitigate the consequences of the Covid-19 outbreak.

The trade associations’ request for postponement has not been accepted, and the implementation of the remaining parts of SRD II will therefore take place in accordance with the original time schedule. However, due to the rejection of the request for postponement, it is expected that a number a market participant, including VP and other stakeholders in the financial sector, will need to go ahead with interim solutions for a period of time until the development of a full ISO20022 message flow will be implemented and operational in all markets.

MAR revision – postponement of ESMA report

In October 2019, the European Securities and Markets Authority (ESMA) published a consultation paper on MAR (the Market Abuse Regulation).
The consultation paper covered a wide range of fundamental MAR-related topics – such as issues and questions related to the identification of inside information, the definition of inside information, the delaying of disclosure of inside information, market soundings, insider lists and share buy-back programmes.

On 13 December 2019, ESMA published the responses it received from stakeholders concerning its consultation on the review of MAR. According to the original time schedule, ESMA intended to submit the final review report to the European Commission in the spring of 2020.

At the time of writing, it is expected that the report will be postponed and submitted to the European Commission in Q3 2020.
Based on the report, the Commission will put forward proposals for amendments to MAR, after which these will be handled according to the standard EU decision-making procedure.

An updated and formal time schedule for the revision of MAR has not yet been disclosed by the authorities.

A strange and different AGM season

The Covid-19 outbreak and the resulting new rules and regulations affected companies in many ways – and also put them under pressure in relation to the filing of annual reports and the holding of annual general meetings.

On this basis, the Danish Minister of Industry, Business and Financial Affairs allowed businesses to depart temporarily from their obligations in relation to filing annual reports and holding their annual general meetings. At the beginning of April, the deadline for the filing of annual reports by listed companies was extended by three months, and the management was authorised to depart from provisions in the articles of association stating when the company must give notice of and/or hold its annual general meeting.

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Due to the ban on gatherings of more than 10 people during the normal AGM season, the new rules also introduced the possibility of holding a fully electronic annual general meeting, even if this had not been approved in advance by the annual general meeting and stated in the articles of association. The ban was not lifted until 8 June 2020 (with certain restrictions).

Danish listed companies chose different ‘strategies’ for their annual general meetings during the period when gatherings of more than 10 people were banned. While many annual general meetings were deferred, others went ahead as ‘virtual’ meetings of some kind – but not in accordance with the Danish Companies Act’s definition of virtual meetings (Section 77). Only few companies chose the ‘real’ virtual general meeting form where shareholders had the opportunity to cast their votes during the meeting, and also had the opportunity to ask questions.

“The ban on gatherings has affected the 2020 AGM season significantly. On the positive side, we have generally seen that the capital represented at AGMs has been close to the levels in previous years – due to the fact that shareholders have become accustomed to voting in advance of the general meeting, and also the high proportion of foreign shareholders in Danish companies that vote by proxy. On the other hand, the level of debate at annual general meetings was reduced significantly, due to the very limited physical attendance,” Flemming Merring, Head of Issuer Services at VP, comments.

He continues: “Now that the ban on gatherings for annual general meetings has been lifted, many of the companies that have not yet held their AGM have convened their AGM. There is no doubt that companies wish to close their annual reporting and the annual general meeting process as soon as possible, and we expect most AGMs to be held before the end of June.”

Usually, VP publishes an analysis of trends and developments observed during the AGM season in June, but due to the changed rules and the delay of many AGMs we will undertake this follow-up in August.

Delay of CSDR Settlement Discipline Regime

On 5 May 2020, the European Commission adopted the text of an amendment to the CSDR Delegated Regulation concerning settlement discipline. It provides for a delay in the application of the settlement discipline until 1 February 2021. The adoption is followed by a scrutiny period of two months, during which co-legislators can object to the adoption of the article.

The reasons for the extension of the original deadline relate primarily to the timing of the ISO messaging update required to support the implementation of the penalty mechanism in T2S and operational aspects in connection with mandatory partial settlement and buy-in.

“The CSDR Settlement Discipline Regime is simple in theory, but very complex to develop and implement in practice. The extended deadline adopted by the European Commission reflects this fact, but even with the new deadline, CSDs and settlement participants still have a long road ahead of them,” Sussie Nyholm, Business Analyst, Post Trade Products at VP comments.

The latest development expresses this complexity. On 8 June 2020, the European Central Securities Depositories Association (ECSDA) wrote a letter to the European Commission requesting a further postponement in the implementation of the Settlement Discipline Regime, possibly by one year beyond the date of 1 February 2021. Furthermore, ESCDA points out, that the Covid-19 outbreak has impacted the overall implementation of regulatory projects and IT deliveries of financial institutions, including CSDs and their participants.

Market participants are still awaiting a response from the Commission and until then the work at VP is planned in accordance with the 1 February 2021 deadline.

Flemming Merring

Senior Product Manager, Issuance Products

+45 4358 8968
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We want to provide our customers with efficient, reliable and excellent investor services and at the same time, we take pride in finding solutions supporting legal and technical issues related to Issuance.

- Flemming Merring , Senior Product Manager, Issuance Products