Peter Swabey, Company Secretary and Industry Leadership Director at Equiniti, explores key issues to keep an eye on 

Boiler Rooms Update
In February, we reported an increase in attempted share frauds, and we are pleased to say that this ‘boiler room’ activity seems to have abated slightly in recent weeks. This is certainly welcome, given a recent FSA press release noting that, there were more reports of share fraud – or ‘boiler room’ activity – in 2011 than 2010, although fewer people have actually lost money. Indeed, while the number of attempted share frauds reported to the FSA rose by 19% in 2011 to 5,401, there was a 7% fall (from 831 to 770) in the number of people who reported that they had actually invested in the fraud – representing an estimated £1.2m saved.

This is very encouraging, as it suggests that the efforts made by the FSA, by registrars and, particularly, by issuers to raise awareness of share fraud issues amongst shareholders are bearing fruit. We continue to encourage clients to raise shareholder awareness and to include the FSA/ ICSA Registrars Group warning in their mailings whenever they can.
The FSA has produced a new video in an effort to protect consumers from share fraud, which can be found online. It has also announced that it will be contacting 76,732 people whose names appear on a number of lists recovered from companies suspected of engaging in share or land purchase fraud - to let them know that they are potential targets for fraudsters. The letter, which can be viewed here, also provides tips both on how to avoid becoming a victim and on what to do if you have already invested.  A useful leaflet has also been produced.
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As predicted in my briefing in October last year, the European Commission has moved forward with its proposals for the regulation of Central Securities Depositories (CSDs) across Europe. A formal draft directive for consideration by the European Parliament and the Council of Ministers can be found here.
Within this document are two proposals that have significant implications for the UK market. The first is that all market trades be settled on a T+2 basis (i.e. settlement happens no later than two days after trade date) from 1st January 2015. The second is that all listed securities be traded 'in a book-entry form through the CSD' from 1st January 2020.

The Commission has proposed T+2 in a bid to reduce levels of counterparty risk in the pan-European market, while it believes that the trading of all securities 'in a book-entry form through the CSD' will improve reconciliation of shareholdings and reduce the risk of market uncertainty. However, we at Equiniti believe the first measure misunderstands the materiality of typical transactions in markets like the UK, which has significant retail share ownership. Similarly, there is no risk of a lack of reconciliation between the number of shares in issue and the number of shares that investors believe they hold in a registered share environment like the UK, particularly when a strong regulatory structure mandates the reconciliation of underlying securities.

The practical effect of these changes for the UK market would be mandatory dematerialisation, since it is impractical for all but paper share dealing services to offer T+2 settlement whilst still requiring paper from the shareholder in order to achieve settlement. This, in turn, will inevitably create cost of change in the UK market without any compensating benefit – whilst the principle of dematerialization is attractive, all previous studies have identified that theoretical cost savings tend to be more than outweighed by the costs of putting the necessary systems in place, at least in the short-term. Whilst costs and benefits will depend on the final model and there may be some beneficiaries, our feeling, therefore, is that these proposals are neither necessary nor appropriate for the majority of the UK market.

We understand that the UK Government has, to date, taken the line that market structural changes of this type should be left to individual member states to manage – a view shared by Equiniti. We will therefore continue to lobby both the Commission and the Government, in our own right and through the ICSA Registrars Group, and will keep you updated as matters progress.

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BACS £20m cap
In our March ezine, we reported that BACS (the UK scheme for the electronic processing of financial transactions) had announced that, with effect from 31 May 2012, a new maximum limit of £20 million would be applied to any individual payment included in a file of payments, such as a dividend payment file, processed through the BACS system.

Equiniti and the other registrars have lobbied both BACS and the Bank of England, explaining that the short notice given of this proposed change would require clerical intervention with our system generated files, creating significant risk. In order to give the various payment services time to develop automated solutions for our use, it has been proposed that the effective date of implementation be deferred until later in the year. We are currently seeking agreement to this at an industry level from BACS, the Bank of England and the banks.

For further information please contact your Relationship Manager or
ICSA Registrars Group Guidance Note
The Institute of Chartered Secretaries and Administrators Registrars Group (the Group) has published a guidance note on the practical issues around voting at general meetings.  The Group represents UK service registrars and its members are outsourced registrars for more than 99% of the quoted companies in the UK.
During recent voting seasons, we have become increasingly aware of a number of misconceptions in the market regarding how the end-to-end process of voting at general meetings should be managed. The guidance note, which Equiniti has agreed with the other registrars, is intended to remove this confusion and ensure that the market as a whole has a common understanding of how the voting process works, in time for it to be used in the run up to the majority of the 2012 AGMs.  If the process is better understood, and not seen as overly complex, more participants in the investment and voting chain will be encouraged to engage in this way with the companies in whom they invest. Equally, the issues which do sometimes occur can be more easily avoided. The guidance note can be downloaded here.

For further information please contact your Relationship Manager or