Digitisation Taskforce

Last year, the UK government formed the Digitization Taskforce primarily with the aim to drive forward the modernization of the UK’s shareholding framework. Such modernization is expected to entail the elimination of paper share certificates for traded companies and the improvement of all processes within the share issuance, registration, recording, and transaction process. Further objectives were / are the replacement of cheques for cash remittances (via digital representations) and the application of digital arrangements towards newly formed private companies.
Back then, the government commissioned Sir Douglas to lead the taskforce and ask him to provide a first report in Spring 2023. This interim report has now been published. In it, Sir Douglas presents some initial findings in this matter and issues some initial recommendations based on these findings. These recommendations are briefly outlined below:
Initial key recommendations presented by the Digitization Taskforce
1. The government should enact legislation and ensure that company articles of association are changed promptly to halt the issuance of new paper share certificates.
2. The government should introduce legislation mandating the dematerialization of all existing share certificates. This means converting physical share certificates into electronic form, making shareholding more efficient and reducing paperwork.
3. The government should consult with stakeholders (issuers, investors) to determine the best approach for handling any remaining paper share interests after dematerialization. This could involve addressing the concerns of shareholders who may still possess physical certificates and finding a suitable solution.
4. Intermediaries involved in the clearing and settlement of share transactions should be obliged to adopt a common technology enabling them to respond quickly to requests from issuers regarding the identification of ultimate beneficial owners (UBOs).
5. Intermediaries offering shareholder services should be transparent about the extent to which clients can access their shareholder rights and the associated charges for those services. – Shareholders should be able to efficiently vote and receive confirmation that their votes have been recorded. Additionally, a reliable two-way communication and messaging channel should be established between issuers and ultimate beneficial owners through intermediaries.
6. After digitization of certificated shareholdings, the industry should transition away from using checks for payments and instead mandate direct payments to the ultimate beneficial owner’s nominated bank account which would simplify the payment process and reduces the risk associated with paper-based transactions.
It’s important to note that these recommendations are still at the proposal stage, and the government and Sir Douglas in particular seek feedback on each and every one of them before finalizing and implementing any changes.
For instance, in view of recommendation (4), the proposed obligation of intermediaries to adopt common technology enabling them to respond quickly to requests from issuers regarding the identification of ultimate beneficial owners (UBOs), the government seeks feedback on
– how to transpose such requirement;
– how a service level agreement could look like between the intermediary and the issuer; or
– how often an intermediary should be required to fulfill requests from issuers (what is „normal usage“ and what goes beyond).
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The final report, which will be published within six months, will likely incorporate the feedback received and provide a more concrete plan for the modernization of the shareholding system.