Voting at General Meetings, Link Asset Services and CentralNic

CentralNic (CNIC) have announced that the proxy voting forms they sent out to shareholders on the register for their forthcoming General Meeting were invalid as it omitted a signature block. So they have sent them out again. As a shareholder in the company, I spotted the error and simply wrote by name and date on the bottom of the form and signed it. That should suffice.

It is a little known fact that you don’t actually need to use the proxy form issued by the company or their registrar so long as your instructions are clear. Which prompts me to talk about the conversation I have been having with Link Asset Services (formerly Capita) about proxy voting.

I complained to them when I received a notice of an AGM by post but no paper proxy voting form. They said I needed to specifically request a paper proxy form or use their on-line portal. The latter is tedious to use and not nearly as simple when you just want to cast votes as the system used by Equiniti. It transpired that on Link’s interpretation of the Companies Act they no longer need to send out proxy voting forms as only the notice of the meeting is legally required. This appears to be correct. This is what I said in a letter to their Operations Director after the exchange of several letters:

“I will continue to submit my proxy votes by post whether you supply a form to do so or not. Where you have not supplied one, I will use my own – I attach a copy of what I will be using. If you have any objections to receiving my proxy votes in that way, please let me know. I do not see how you can legally object as it meets the requirements of the Companies Act.

I note your comments about the low percentage of shareholders who submit proxy votes, and the even lower percentage who do so in physical form [6% and 3.8% reportedly]. The latter may simply be because you and companies are now obstructing those who do not wish to vote on-line by not issuing paper proxy forms!

Overall the low percentage of shareholders voting suggests to me that registrars and companies are not doing enough to both encourage voting and making it easy for shareholders to do so. This is a major concern because shareholder voting is a key part of ensuring good corporate governance in listed companies. The Government recognized this only recently by ensuring there are binding votes on remuneration for example, but obviously if shareholders do not vote then governance is undermined.

It is of course unfortunate that there is a financial incentive for both you and companies to deter shareholder votes as they undoubtedly cost money to process, particularly if they are submitted on paper. But that is not a good justification for adopting the recent changes that Link Asset Services has adopted.

In your letter you rightly point out that registrars are not regulated by the Financial Conduct Authority. I will be writing to them to encourage them to take on such regulation as it seems totally inappropriate to me that this area of financial markets and corporate governance is not regulated. The FCA should lay down regulations about what Registrars can and cannot do so that voting is maximized regardless of financial considerations.”

I also noted that the Link Asset Services on-line portal does not meet the requirements of the Companies Act for an “electronic address”.

I am writing to both the FCA and the BEIS department asking them to start regulating registrars so as to clarify their responsibilities under the Companies Act and so that voting is encouraged. If necessary the Companies Act should be amended to ensure voting is maximised.

So that anyone can use the generic proxy voting form I have devised I have made it available on my web site here: http://www.roliscon.com/proxy-voting.html

There is also a version you can use where you wish to instruct your stockbroker to vote your shares that are held in a nominee account. Most will do so although there may be a charge and remember that for ISA accounts they have a legal obligation to do so under the ISA regulations.

Please let me know if you have any comments on the use of these forms. If there is sufficient usage they can be made more digitally enabled in future.

Private shareholders do need to vote to make sure that your voice is heard. So please use the forms I have supplied to ensure your votes are recorded for all General Meetings.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Stopping Another Beaufort Case

Readers are probably aware of the administration of stockbroker Beaufort, how PwC are running up enormous bills to the disadvantage of creditors and how they also claimed to be able to charge the bills against client assets under the Special Administration Rules. See here for more information if you are not familiar with this debacle: https://www.sharesoc.org/campaigns/beaufort-client-campaign/

I hope all stock market investors have already written to their Members of Parliament on this topic, not just to get the Special Administration Rules changed but to get a proper and full reform of the share ownership system in the UK. If you have not, please do so now.

But another way to get the Government’s attention is to get enough people to sign a Government e-petition. One of the people affected by the Beaufort case has created just such a petition which is now present here: https://petition.parliament.uk/petitions/222801 . Please sign it now!

The Special Administration rules that apply to financial institutions (banks and stockbrokers for example) are helpful in many ways and were well conceived following the banking crisis in 2008. But rule 135 which allows client assets to be filched by an administrator, even when they are held in trust, seems to have been snuck in without notice and without consultation. It means anyone who holds shares in a nominee account (as most people do nowadays) is at risk of substantial losses if the broker goes bust. That’s a more common occurrence than most people realise mainly because most brokers operate in a highly competitive and low margin market.

SO MAKE SURE YOU SIGN THE PETITION TO ENSURE YOUR ASSETS ARE SECURE

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Protecting Yourself Against Administrations

Investors now know that when your stockbroker goes into administration, your assets are not secure (or “ring fenced” as your contract with them often says) because they can be seized under the Special Administration Regulations by the administrator to pay their costs. This has become clear from the Beaufort case. That means many investors are facing losses because Beaufort client accounts, like most stockbroking accounts now, were nominee accounts with the shares registered in the name of Beaufort.

There are two possible ways to protect your assets: 1) Hold your shares in the form of paper share certificates – not the most convenient format for trading and expensive to do so even if you can find a broker still willing to handle them; or 2) Hold your shares in a personal crest account, i.e. a “Sponsored Crest” account where your broker acts as the sponsor but the shares are registered in your name and traded electronically.

Some doubts arose in my mind about whether the latter would actually provide the protection required. For example, would an administrator be able to transfer the shares into their name, or stop the transfer of the account and hence the holdings to another broker? So here are the answers provided by Killik & Co who. It provides some reassurance:

In order for a participant to change Sponsor, CREST require:  

  • For those Participants that are already Sponsored, 3 letters as follows – – One from the existing Sponsor stating they are happy for the Participant(s) to move away from them on a set date. – One from the Participant(s) requesting to move Sponsors on a set date. – One from the new Sponsor stating they are happy to take over sponsorship of the Participant on a set date.
  • However, our understanding is that, where the Sponsor is in administration, a letter is not required by the existing Sponsor.  We believe it would be possible therefore, for the sponsored member to instruct another Sponsor to take on the sponsorship of the account.  Note that CREST is not a custodian or a depository and the shares are actually held by the Sponsor, but in the name of the legal owner. 

Regarding the question of the ability of the administrator to issue instructions on the stocks or transfer them into their own nominee name, our understanding is that the administrator has no rights over the securities held in the name of the legal owner as specified on the legal register. 

This information is provided by Killik & Co to the best of their knowledge and belief. For more information contact Gregory Smith on 0207-337-0409.

There are few brokers that still offer personal crest accounts (Killik & Co are one of them), but that still leaves the problem that ISAs and SIPPs have to be held in nominee accounts. Until the administration legislation is reformed, the only solutions for them are to open multiple broker accounts so that no one of them contains assets worth more than £50,000 (the limited covered by the Financial Services Compensation Scheme) or to pick a broker which is large enough and with a balance sheet that is strong enough that it is unlikely to go into administration. Having multiple broker accounts can be wise for other reasons than the risk of administration even if it can make life very complicated and possibly less secure – for example IT meltdowns in financial services companies are not uncommon (RBS and TSB are examples). It can be very frustrating not to be able to trade even for a few minutes (as happened this morning with the LSE due to a technology problem) let alone days or even weeks as Beaufort clients are suffering.

It is perhaps unfortunate that these risks might make for an anti-competitive stockbroking market. Folks may be very reluctant to sign up with new brokers who have a limited track-record.

But we really do need some reform of the insolvency rules to stop administrators grabbing client assets, a new electronic “name on register” system that protects ownership to replace the nominee system (something I have been campaigning on for years), and the ability to hold ISA and SIPP holdings in our own name.

ShareSoc are running a campaign on the Beaufort case (see https://www.sharesoc.org/campaigns/beaufort-client-campaign/ ) and have also asked anyone who is concerned about this issue, as all stock market investors should be, to write to their M.P.s. Please do so. Only that way will we get political action on these issues. ShareSoc can provide a template letter you can use.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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