We share examples of good practice to increase retail shareholder engagement and reduce barriers to voting.
1. Who this applies to
- Investment platforms, stockbrokers and trading apps.
- Other retail investment intermediaries.
2. Introduction
Shareholder democracy is a vital part of well-functioning capital markets.
Retail shareholders may want to exercise their right to vote on various issues. For example, to elect board directors and on corporate actions such as takeovers, rights issues, and schemes of arrangement.
So that investors can engage effectively, they should receive timely and clear information about issues they may want to vote on.
Intermediaries should enable them to vote easily.
This is particularly important for votes at listed closed-ended investment funds with a significant number of retail investors.
Laws and guidance these examples refer to
Companies Act 2006
Our rules do not govern how intermediaries facilitate shareholder voting. However, under the Companies Act 2006, intermediaries may ‘pass back’ rights to beneficial owners.
Although not mandatory, most intermediary investment platforms already pass back rights to retail investor clients or do so on request.
Consumer Duty expectations
FCA-authorised firms should be guided by the Consumer Duty. This includes:
- Enabling and supporting retail customers to pursue their financial objectives.
- Meeting the information needs of retail customers.
- Equipping retail customers to make decisions that are effective, timely and properly informed.
3. What we’ve seen
Intermediaries enabled high turnouts of over 70% on recent shareholder votes.
We saw good practice when intermediaries applied the principles of the Consumer Duty effectively in the areas outlined below.
3.1. Supporting the information needs of customers
Our expectations
Firms should consider how to meet their customers’ information needs to enable them to make informed decisions.
Some retail investors want to engage more actively with their investments than others. In addition, the significance of individual votes will vary and may not be apparent to investors in advance.
We expect intermediaries to exercise judgment in how they communicate with customers about voting. They should take into account the potential impact of votes and the need to support informed engagement where it matters most.
Firms should make sure retail investors understand the potential impact if they choose not to receive information about voting opportunities.
Good practice
Opt-out services
Many intermediaries have an opt-out information service. In this approach the default is to engage consumers with voting opportunities associated with their shareholdings.
We observed opt-out services were generally more effective than opt-in services where customers, who want to know about voting opportunities, have to choose to receive information about them.
Proactive communications
We saw some firms proactively communicate with retail shareholders where they assessed a vote could significantly affect their financial objectives.
They did this even if they would not normally have done so. For instance, where the vote was not classified as a corporate action or if affected customers had not opted in to the voting information service.
Some intermediaries offered informative articles and other communications beyond the circular issued by the company. These explained the resolutions and their potential consequences in simpler language to help consumers understand the issues and their options.
3.2. Removing barriers to voting
Our expectations
It's good practice to allow customers to vote on all general meetings and corporate actions. Some intermediaries’ terms and conditions may not allow this. Firms should reconsider this.
It should be clear to customers what rights the platform facilitates and how this affects their ability to engage. Some have been unsure about what resolutions they can and cannot receive information about or vote on, or how to do so. This information should be easy to find and not confined to the terms and conditions.
A small number of customers have been charged to vote. We expect firms to act in good faith and be able to show how this is consistent with their obligations under the Duty. This includes providing fair value and ensuring consumers do not face unreasonable barriers – including unreasonable additional costs – during the lifecycle of a product.
Good practice
Online voting portals generally provided the simplest experience for customers.
Notifications of a corporate action or voting opportunity were often prominent in online client account interfaces. Some firms emailed customers with links to the voting portal when they sent out voting information.
Firms without online voting (which can depend on a third-party provider) generally provided other ways to vote. For example, email, telephone and post, which can be useful alternatives for vulnerable investors.
However, not also providing online voting may have raised barriers to wider participation by making it more burdensome for customers to vote and reducing the decision-making timeframe.
4. Future changes
The Dematerialisation Market Action Task Force (DEMAT) will be considering how to take forward the Digitisation Task Force’s final report recommendations on facilitating investors to exercise shareholder rights effectively and efficiently when the UK moves to a fully intermediated system of holding shares. This follows their work to remove paper share certificates.
The Treasury, the Department for Business and Trade (DBT), and the FCA are supporting this work.
The report proposed making it mandatory for intermediaries to provide a baseline service unless the investor opted out.
The recommendations included arrangements for intermediaries to:
- Provide information on the identity of beneficial owners to issuers.
- Pass company information from the issuer to beneficial owners to enable them to exercise their rights. For example, the annual report and any other information relating to a shareholder vote.
- Pass information from beneficial owners exercising their rights to issuers.
- Facilitate participation in meetings and voting.
5. Next steps
We encourage firms to consider how they can continue to improve their arrangements for facilitating investors exercising their rights.
They are also encouraged to engage with DEMAT to help shape the future arrangements in a way that works for companies, firms, and investors.
The Treasury, DBT and the FCA will consider whether and how to make legislative and/or rule changes to implement DEMAT’s final proposals.