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SRD II - Shareholders Rights Directive II Tansposition

Legal Alert no. 124 - Transposition of the directive regarding the shareholders’ of listed companies rights (SRD II or Shareholders Rights Directive II)

On August 25, 2020, it was published on the Portuguese Official Gazette the Law No. 50/2020, of August 25, which transposes the Directive (EU) No. 2017/828 of the European Parliament and of the Council, of May 17 , relating to the shareholders’ rights of listed companies with regard to their long-term involvement (the Shareholders Rights Directive II or SRD II, hereinafter referred to as the “Shareholders Directive II”) which introduces several changes and / or amendments to (i) the Portuguese Securities Code - “Código dos Valores Mobiliários” (hereinafter “CVM”); (ii) the Collective Investment Undertakings Legal Regime – “Regime Jurídico dos Organismos de Investimento Coletivo” (hereinafter “RJOIC”) and (iii) the Credit Institutions and Financial Companies General Regime – “Regime Geral das Instituições de Crédito e Sociedades Financeiras” (hereinafter “RGICSF”) (hereinafter “ Law No. 50/2020, of August 25”).


I. Changes and Amendments to the Securities Code

Law no. 50/2020, of August 25, adds new rules to the CVM with a particlar impact for companies that issue shares admitted to trading on a regulated market, this is, for listed companies; for institutional investors, for financial intermediaries, for asset managers and for voting advisors (proxy advisors), especially in the following matters that we will analyze in the next paragraphs.
Regarding the shareholders’ identification, it is foreseen the possibility for the listed companies to request information from the centralized system management entity regarding the identity and participation held by the shareholders. The financial intermediaries participating in the centralized system shall reply immediately to the respective request (article 29.º-B of CVM).
With regard to the transactions carried out by listed companies with related parties, they are now subject to new legal rules regarding the respective internal approval process and its disclosure.

The new article 249-A, of the CVM, now imposes that listed companies define an internal procedure approved by the management body, with the prior opinion of the supervisory body, through which it periodically evaluates whether transactions with related parties are carried out within the scope of the company's current activity and under market conditions. The transactions that do not comply with these requirements are subject to approval by the management body, preceded by the opinion of the supervisory body, as well as to the disclosure requirement when their value is equal to or greater than 2.5% of the company's assets, except when any exemption applies.
Regarding the matter of the remuneration policy for the members of the management and supervisory bodies of listed companies, it is now foreseen that these companies shall define and disclose a remuneration policy for those bodies approved by the general meeting, as well as the mandatory preparation, by the management body, of an annual remuneration report (which may be replaced by a chapter of the annual report on corporate governance), to be submitted to the general meeting and also to be disclosed. It should be noted that some of these changes are in line with the recommendations of the Portuguese Institute of Corporate Governance, being that the main particularities of which are not only in relation to these recommendations, but also in relation to the legal and regulatory framework in force, we point out the following ones:


(i) the proposed remuneration policy is submitted to the approval of the general meeting at least every four years and, in the event of a relevant change, or of a non-approval at the previous general meeting, now it is foreseen that the article 26-C of the CVM shall apply . In accordance with the provisions of the new article 26-F of the CVM, until the approval of this remuneration policy by the general meeting, the existing remuneration practices remain in force and the remuneration policy approved by the general meeting which is in force remains as such until the general meeting approves a new remuneration policy ;

(ii) as for the Annual Remuneration Report, according to the new article 245-C of the CVM, transparency requirements are expanded and developed, covering, for example, the annual variation in remuneration, of the performance of the company and the average remuneration of workers in equivalent terms to the full-time employees of the company, excluding members of the management and supervisory bodies, during the last five financial years, presented together and in order to allow their comparison (paragraph c); or the number of shares and stock options granted or offered, and the main conditions for the rights’ exercise, including the price and date of such exercise and any changes to these conditions (paragraph e).

2) Especially in view of the now revoked Law No. 28/2009, of June 19, that reviewed the disciplinary regime of the financial sector in criminal and administrative offenses
3) Except in cases of exceptional derogation. See the provisions of the new article 26-D of the CVM.

The new legal provisions also aims to promote the participation of shareholders, defining and implementing specific procedures with regard to general meetings of listed companies. Among these, we highlight the following:

(i) The electronic voting (foreseen in the new article 22.º-A of the CVM), a topic that has a relevant impact, especially in the current context of the pandemic caused by the COVID-19 virus. It is established that the company and the financial intermediary acting as representative of the shareholder, in an accessible and free manner, shall send to those who exercised the electronic vote a confirmation of the receipt of the votes casted in this way;

(ii) The transmission of relevant information by listed companies for the purpose of exercising rights by shareholders, which are inherent to their status as shareholders. According to the new article 29.º-C, it is established that these companies must make available to financial intermediaries, through the centralized system management entity, standardized information necessary for the exercise by the shareholders of the rights inherent to their shares or a notice with the reference to the location of the website where this information may be found;

(iii) Facilitation of the exercise of shareholders' rights by establishing that financial intermediaries providing services for the registration and deposit of financial instruments must take the necessary measures so that shareholders of listed companies can exercise their rights inherent to shares, including the right to vote and to participate in general meetings, among others (as foreseen in the new article 29-D of CVM);
4) Including financial intermediaries that provide these services and do not have their registered office or central administration in the European Union, when providing services in relation to the shares of companies that have their registered office in a Member State and that are admitted to trading on regulated market located or operating in a Member State.

1) Which, in turn, amended the previous Directive 2007/36 /EC, of the European Parliament and of the Council, of July 11, 2007.

 

On August 25, 2020, it was published on the Portuguese Official Gazette the Law No. 50/2020, of August 25, which transposes the Directive (EU) No. 2017/828 of the European Parliament and of the Council, of May 17 , relating to the shareholders’ rights of listed companies with regard to their long-term involvement (the Shareholders Rights Directive II or SRD II, hereinafter referred to as the “Shareholders Directive II”) which introduces several changes and / or amendments to (i) the Portuguese Securities Code - “Código dos Valores Mobiliários” (hereinafter “CVM”); (ii) the Collective Investment Undertakings Legal Regime – “Regime Jurídico dos Organismos de Investimento Coletivo” (hereinafter “RJOIC”) and (iii) the Credit Institutions and Financial Companies General Regime – “Regime Geral das Instituições de Crédito e Sociedades Financeiras” (hereinafter “RGICSF”) (hereinafter “ Law No. 50/2020, of August 25”)

I. Changes and Amendments to the Securities Code
Law no. 50/2020, of August 25, adds new rules to the CVM with a particlar impact for companies that issue shares admitted to trading on a regulated market, this is, for listed companies; for institutional investors, for financial intermediaries, for asset managers and for voting advisors (proxy advisors), especially in the following matters that we will analyze in the next paragraphs.
Regarding the shareholders’ identification, it is foreseen the possibility for the listed companies to request information from the centralized system management entity regarding the identity and participation held by the shareholders. The financial intermediaries participating in the centralized system shall reply immediately to the respective request (article 29.º-B of CVM).
With regard to the transactions carried out by listed companies with related parties, they are now subject to new legal rules regarding the respective internal approval process and its disclosure.

The new article 249-A, of the CVM, now imposes that listed companies define an internal procedure approved by the management body, with the prior opinion of the supervisory body, through which it periodically evaluates whether transactions with related parties are carried out within the scope of the company's current activity and under market conditions. The transactions that do not comply with these requirements are subject to approval by the management body, preceded by the opinion of the supervisory body, as well as to the disclosure requirement when their value is equal to or greater than 2.5% of the company's assets, except when any exemption applies.
Regarding the matter of the remuneration policy for the members of the management and supervisory bodies of listed companies, it is now foreseen that these companies shall define and disclose a remuneration policy for those bodies approved by the general meeting, as well as the mandatory preparation, by the management body, of an annual remuneration report (which may be replaced by a chapter of the annual report on corporate governance), to be submitted to the general meeting and also to be disclosed. It should be noted that some of these changes are in line with the recommendations of the Portuguese Institute of Corporate Governance, being that the main particularities of which are not only in relation to these recommendations, but also in relation to the legal and regulatory framework in force, we point out the following ones:


(i) the proposed remuneration policy is submitted to the approval of the general meeting at least every four years and, in the event of a relevant change, or of a non-approval at the previous general meeting, now it is foreseen that the article 26-C of the CVM shall apply . In accordance with the provisions of the new article 26-F of the CVM, until the approval of this remuneration policy by the general meeting, the existing remuneration practices remain in force and the remuneration policy approved by the general meeting which is in force remains as such until the general meeting approves a new remwuneration policy ;
(ii) as for the Annual Remuneration Report, according to the new article 245-C of the CVM, transparency requirements are expanded and developed, covering, for example, the annual variation in remuneration, of the performance of the company and the average remuneration of workers in equivalent terms to the full-time employees of the company, excluding members of the management and supervisory bodies, during the last five financial years, presented together and in order to allow their comparison (paragraph c); or the number of shares and stock options granted or offered, and the main conditions for the rights’ exercise, including the price and date of such exercise and any changes to these conditions (paragraph e).
The new legal provisions also aims to promote the participation of shareholders, defining and implementing specific procedures with regard to general meetings of listed companies. Among these, we highlight the following:


(i) The electronic voting (foreseen in the new article 22.º-A of the CVM), a topic that has a relevant impact, especially in the current context of the pandemic caused by the COVID-19 virus. It is established that the company and the financial intermediary acting as representative of the shareholder, in an accessible and free manner, shall send to those who exercised the electronic vote a confirmation of the receipt of the votes casted in this way;

(ii) The transmission of relevant information by listed companies for the purpose of exercising rights by shareholders, which are inherent to their status as shareholders. According to the new article 29.º-C, it is established that these companies must make available to financial intermediaries, through the centralized system management entity, standardized information necessary for the exercise by the shareholders of the rights inherent to their shares or a notice with the reference to the location of the website where this information may be found;

(iii) Facilitation of the exercise of shareholders' rights by establishing that financial intermediaries providing services for the registration and deposit of financial instruments must take the necessary measures so that shareholders of listed companies can exercise their rights inherent to shares, including the right to vote and to participate in general meetings, among others (as foreseen in the new article 29-D of CVM);
 

 

 


On August 25, 2020, it was published on the Portuguese Official Gazette the Law No. 50/2020, of August 25, which transposes the Directive (EU) No. 2017/828 of the European Parliament and of the Council, of May 17 , relating to the shareholders’ rights of listed companies with regard to their long-term involvement (the Shareholders Rights Directive II or SRD II, hereinafter referred to as the “Shareholders Directive II”) which introduces several changes and / or amendments to (i) the Portuguese Securities Code - “Código dos Valores Mobiliários” (hereinafter “CVM”); (ii) the Collective Investment Undertakings Legal Regime – “Regime Jurídico dos Organismos de Investimento Coletivo” (hereinafter “RJOIC”) and (iii) the Credit Institutions and Financial Companies General Regime – “Regime Geral das Instituições de Crédito e Sociedades Financeiras” (hereinafter “RGICSF”) (hereinafter “ Law No. 50/2020, of August 25”).
I. Changes and Amendments to the Securities Code
Law no. 50/2020, of August 25, adds new rules to the CVM with a particlar impact for companies that issue shares admitted to trading on a regulated market, this is, for listed companies; for institutional investors, for financial intermediaries, for asset managers and for voting advisors (proxy advisors), especially in the following matters that we will analyze in the next paragraphs.
Regarding the shareholders’ identification, it is foreseen the possibility for the listed companies to request information from the centralized system management entity regarding the identity and participation held by the shareholders. The financial intermediaries participating in the centralized system shall reply immediately to the respective request (article 29.º-B of CVM).
With regard to the transactions carried out by listed companies with related parties, they are now subject to new legal rules regarding the respective internal approval process and its disclosure.

The new article 249-A, of the CVM, now imposes that listed companies define an internal procedure approved by the management body, with the prior opinion of the supervisory body, through which it periodically evaluates whether transactions with related parties are carried out within the scope of the company's current activity and under market conditions. The transactions that do not comply with these requirements are subject to approval by the management body, preceded by the opinion of the supervisory body, as well as to the disclosure requirement when their value is equal to or greater than 2.5% of the company's assets, except when any exemption applies.
Regarding the matter of the remuneration policy for the members of the management and supervisory bodies of listed companies, it is now foreseen that these companies shall define and disclose a remuneration policy for those bodies approved by the general meeting, as well as the mandatory preparation, by the management body, of an annual remuneration report (which may be replaced by a chapter of the annual report on corporate governance), to be submitted to the general meeting and also to be disclosed. It should be noted that some of these changes are in line with the recommendations of the Portuguese Institute of Corporate Governance, being that the main particularities of which are not only in relation to these recommendations, but also in relation to the legal and regulatory framework in force, we point out the following ones:
(i) the proposed remuneration policy is submitted to the approval of the general meeting at least every four years and, in the event of a relevant change, or of a non-approval at the previous general meeting, now it is foreseen that the article 26-C of the CVM shall apply . In accordance with the provisions of the new article 26-F of the CVM, until the approval of this remuneration policy by the general meeting, the existing remuneration practices remain in force and the remuneration policy approved by the general meeting which is in force remains as such until the general meeting approves a new remuneration policy ;
(ii) as for the Annual Remuneration Report, according to the new article 245-C of the CVM, transparency requirements are expanded and developed, covering, for example, the annual variation in remuneration, of the performance of the company and the average remuneration of workers in equivalent terms to the full-time employees of the company, excluding members of the management and supervisory bodies, during the last five financial years, presented together and in order to allow their comparison (paragraph c); or the number of shares and stock options granted or offered, and the main conditions for the rights’ exercise, including the price and date of such exercise and any changes to these conditions (paragraph e).
The new legal provisions also aims to promote the participation of shareholders, defining and implementing specific procedures with regard to general meetings of listed companies. Among these, we highlight the following:
(i) The electronic voting (foreseen in the new article 22.º-A of the CVM), a topic that has a relevant impact, especially in the current context of the pandemic caused by the COVID-19 virus. It is established that the company and the financial intermediary acting as representative of the shareholder, in an accessible and free manner, shall send to those who exercised the electronic vote a confirmation of the receipt of the votes casted in this way;
(ii) The transmission of relevant information by listed companies for the purpose of exercising rights by shareholders, which are inherent to their status as shareholders. According to the new article 29.º-C, it is established that these companies must make available to financial intermediaries, through the centralized system management entity, standardized information necessary for the exercise by the shareholders of the rights inherent to their shares or a notice with the reference to the location of the website where this information may be found;
(iii) Facilitation of the exercise of shareholders' rights by establishing that financial intermediaries providing services for the registration and deposit of financial instruments must take the necessary measures so that shareholders of listed companies can exercise their rights inherent to shares, including the right to vote and to participate in general meetings, among others (as foreseen in the new article 29-D of CVM);
In relation to the policy for the involvement of institutional investors and financial intermediaries that provide portfolio management services (article 251-B) it is foreseen that they shall develop and disclose an involvement policy that describes how to integrate the involvement of the shareholders in their investment strategy, as well as the information on the application of this policy and their vote in the general meetings of listed companies in which they hold shares (in addition to the rules on conflicts of interest to which they are subject). Institutional investors shall also begin to disclose the main elements of their investment strategy in shares of listed companies, as well as the agreements with asset managers.
A note should also be made on the matter regarding of the transparency of portfolio managers and consultants in voting matters (Article 251-D and Article 251-E). It is now expected that, in the case of portfolio managers, they report annually to institutional investors on how their investment strategy and execution comply with the agreements they have established and, in the case of consultants on voting matters, that they disclose to the public information about their code of conduct, on the preparation of their studies, on opinions and voting recommendations and on possible conflicts of interest .
Finally, and with regard to the CVM, it shall also be mentioned the amendment to the provisions of articles 85, 93, 222-A, 359. 390, 392, 394, 397 and 400 of this Law, and, in particular, the enshrining of some sanction provisions essentially related to the matters dealt with by Law No. 50/2020, of August 25.
II. Amendment to the Collective Investment Undertakings General Regime (Articles 92-A to 92-C RGOIC)
Regarding the RJOIC, and, according to certain parameters, Law No. 50/2020, of August 25, adds a new subsection on the transparency of the management companies of collective investment undertakings and self-managed collective investment companies authorized for the exercise of the management activities of such bodies and discretionary and individualized portfolio management for others (except for a few exceptions) - Articles 92-A to 92-C RGOIC, making reference to some of the new provisions of the CVM and which are regulated in relation to:
(i) the policy of involving shareholders in their investment strategy;
(ii) the conflict of interest rules for the activities of these entities in listed companies; and
(iii) the transparency duties provided for in the CVM, including the disclosure of information along with the respective annual report.


III. Amendments to the Credit Institutions and Financial Companies General Regime
The amendments made to the RGICSF are more limited and concern only sanctionatory issues. According to the new subparagraph qq), now added to paragraph 1 of article 211 of the RGICSF, now constitutes an especially serious infraction for non-compliance with the rules related to remuneration practices and policies contained in the RGICSF, as well as the omission to carry out mandatory disclosures regarding them.

IV. Revoke of Law no. 28/2009, of June 19, which established the approval and disclosure regime applicable to the remuneration policy for members of the management and supervisory bodies of public interest entities and revises the sanctionatory regime for the financial sector in criminal and administrative offenses.

V. Entry into force
Law No. 50/2020, of August 25, came into force on August 26, 2020, with the exception of some of the new provisions related to the confirmation of votes casted electronically, identification of shareholders, and transmission of relevant information to shareholders and facilitation of the exercise of shareholder rights, which will come into force on September 3, 2020.
It is also on September 3rd that it will come into force the Implementing Regulation (EU) 2018/1212, of the Council, of September 3, 2018, which establishes the minimum requirements with regard to the identification of shareholders, the transmission information and facilitating the exercise of shareholder rights, including the model frameworks to be used for this purpose.
To access the full text of Law No. 50/2020, of August 25, please click here.

 

 

 

For more information about this topic, please contact:

Joana Pereira Dias
+351 219 245 010
joanapdias@ctsu.pt

 

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