BP, Shell, BAE Systems, and other leading British companies ramp up their lobbying efforts to fully digitize shareholder registers. They fear that a planned overhaul will not be sufficient and that London could fall behind competing stock exchanges.
Large companies have long argued that the British share ownership system cannot keep up with other countries and burdens them with millions of pounds in unnecessary expenses. The abolition of physical share certificates is seen as a first step towards modernizing communication between British publicly listed companies and their shareholders. It is estimated that two tons of paper are sent every day by London-listed companies to depositaries, with much of it ending up in trash bins.
Tens of thousands of shareholders of the largest publicly traded companies in the UK still hold paper shares, with some companies sending out more than 500,000 pieces of paper to inform them about annual general meetings. This practice costs companies millions of pounds annually, in addition to the costs for shareholder votes on takeovers.
Sir Douglas Flint, Chairman of asset manager Abrdn, was commissioned by ministers two years ago to review the system as part of efforts to revitalize the British capital markets. These markets have been burdened by a number of companies relocating their primary listings abroad.
Most shares of companies listed in London are held digitally through a central depository known as CREST. However, companies must maintain a separate register for a minority of investors who still hold paper share certificates.
Last year, Flint tentatively recommended a complete shift to digitization, with all shares to be held in the depot. The proposal was supported by several large publicly listed companies such as Shell, industry groups such as TheCityUK and UK Finance, as well as the GC100 group of FTSE 100 company secretaries.
In recent weeks, Flint has indicated in private meetings that he may make a less comprehensive recommendation in his final report, which is expected to be released in the fall. This has caused concern among some companies and banks.
It is feared that a watered-down reform could force some companies to replicate their existing paper-based system in digital form in addition to CREST, which means they would still have to bear the costs of maintaining two registers.
BP, Shell, BAE Systems, and National Grid were recently involved in discussions with the GC100 group to launch a new initiative for an "irreversible" complete digitalization.
Lobby groups such as TheCityUK, UK Finance, and the Association for Financial Markets in Europe have also participated in discussions about a letter to Flint, urging him to stick to his original proposal.
A dispute over this issue could undermine efforts to restore London's reputation as a stock exchange for large international companies, including a revision of the British listing rules coming into effect this month.
An insider who has been involved in discussions to modernize the rules of the City of London for years said it would be "crazy" if the debate on the digitization of British stock registers continued. "The London market cannot afford to have these quirks – even if it could in the past – that don't exist elsewhere," said another insider.
Flint, however, was strongly lobbied by groups opposed to full digitization, including registrars who earn millions of pounds managing the current system. They argue that mandating the use of CREST would take away individual investors' ability to hold shares directly, rather than through a nominee.
Changes must also avoid making London less attractive to international companies with dual listings abroad.
Flint's provisional recommendation for complete digitalization could pose problems for companies with separate shareholder registers for foreign branches. Some of the largest British companies have branch registers in Hong Kong, including banks HSBC and Standard Chartered as well as the insurer Prudential.
Flint, The CityUK, UK Finance, Shell, National Grid, and BAE declined to comment. BP did not respond to a request for comment.
