25 March 2013

EuropeanIssuers' response to the IOCV-IOSCO consultation on client assets protection

EuropeanIssuers responded to the IOCV-IOSCO Consultation Report on Recommendations Regarding the Protection of Client Assets. EuropeanIssuers has a strong interest in the protection of client assets, since the reduction of intermediary risk.

EuropeanIssuers has a strong interest in the protection of client assets, since the reduction of intermediary risk, inter alia through stronger and clearer obligations put on intermediaries to safeguard assets, contributes to increased trust in direct investment in shares and bonds. There is currently an adverse impact on end-user confidence (both shareholders and companies) in markets, if cross-border votes and other forms of communication are not getting through the investment chain, due in part to problems with regulations regarding the protection of client assets.

EuropeanIssuers has been involved in the negotiation of the Unidroit (Geneva) Securities Convention and has contributed to the debate on securities law in the EU. The Consultation report touches upon several aspects that are also treated in those and other legislative international instruments. EuropeanIssuers would like to reiterate its previous position on securities law, i.e. that:

• securities should always be treated as property, not as cash
• investors should always have the option to hold securities in segregated accounts
• intermediaries should contribute to facilitating the casting of votes in General Meetings and
• shareholder identification is an important part of the proper functioning of markets from the company perspective and should be recognised in cross-border situations.

These elements contribute to reinforcing the direct relation between issuers and investors and therefore to the protection of investor’s assets.

EuropeanIssuers fully agrees with the two main concerns addressed in the Introduction to the IOCV-IOSCO consultation report, i.e.:

• intermediaries should obtain the client’s explicit, written consent to any waiver or modification to the protection of the client asset regime or any opting-out of the client asset protection regime and
• addressing the challenges that may arise if an intermediary holds client assets in a chain of custody through multiple jurisdictions.

EuropeanIssuers has expressed opinions to the effect of the first concern in the European working groups on General Meetings and Corporate Actions, where the benefit of shares (and sometimes bonds) can be waived by the client. Such waiver should always be explicit and in writing.

On the second concern, although EuropeanIssuers fully agrees with clear and transparent obligations for intermediaries, EuropeanIssuers would also like to underline that a client asset protection regime that provides all necessary certainty, reduces the risks of inflation of securities and facilitates the restitution of securities needs in the first place to be put in place by public authorities. However, EuropeanIssuers regrets to see that in certain jurisdictions, markets liquidity is privileged over asset protection and ownership rights in securities appear no longer to exist.

Press release

EuropeanIssuers´ response

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