The government should bring forward new legislation "in short order" to stop the issuance of paper share certificates and set a timeline for the withdrawal of existing ones, the digitisation taskforce has said.
In its interim report, out on July 10, the taskforce, which was set up to drive forward the full digitalisation of shareholding in the UK, recommended legislation should be put in place as soon as possible to stop the issuance of new paper certificates.
It said there was no reason the issuing of such certificates could not be stopped as quickly as within six month's time of setting a date.
The government should also set a date to withdraw all existing share certificates by mandating their digitisation, and consult with stakeholders on how to handle certificates whose owners can't be traced.
"We see no reason why legislation should not be brought forward in short order to eliminate fresh issuance for any purpose at an implementation date in the near term – say, within six months – to allow shareholder communication on the changes and for shareholders to nominate the destination for future digitised issuance," the taskforce, headed by Abrdn chairman Sir Douglas Flint, said.
"In the absence of a direction for future digitised distributions previously taken in scrip or through a Drip, issuers may choose to take powers to default such shareholders to take their dividends in cash."
The aim is to leverage technology to allow for existing paper shares to be transformed into electronic holdings with the same substantive shareholder rights.
There have been several studies into such reforms previously however they were unsuccessful in driving change because of questions over implementation.
The latest interim report recommended intermediaries who participate in the clearing and settlement system, should be forced to put in place common technology to handle requests from issuers quickly, and they should be open about their service to shareholders and their charges.
When their service includes access to shareholder rights, intermediaries should facilitate the ability to vote and a two-way communication between the issuer and the ultimate owner.
However, intermediaries should not be forced to offer such access, as long as they are transparent about the service they offer.
"One of the notable improvements evident in recent times has been the greater facilitation of access to retail shareholder rights through brokers, wealth managers and the major retail platforms in the UK," the report stated.
"There should be no distinction in access to rights between shareholders who are directly registered and those who hold their shares through intermediaries.
"As we are recommending that certificated shareholders should be digitised and their interests represented through a nominee structure, if we do not facilitate access to expression of their rights we would be removing access to rights that these shareholders currently enjoy – this would be a retrograde step."
'Finally caught up'
Flint was appointed by former chancellor Nadhim Zahawi in 2022 following the Austin review into UK secondary capital raising, which had recommended the digitisation of paper share certificates.
