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Digitising share certificates long overdue

Digitising share certificates long overdue
(Olya Kobruseva/Pexels)

While the vast majority of shares are held in electronic form, there are understood to be up to 10mn investors who still hold their shares in paper form.

These will likely include shares from privatisations in the 1980s, and certificates passed down from earlier in the century. 

The challenge for advisers is that trading and settlement of shares held in paper form is generally more expensive and often takes longer.

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There is also the associated risk of certificates going astray during the process, creating an added administrative burden and hindering communications between advisers and their clients. 

The government says the time is right to consign these paper certificates to the past. In his Mansion House speech on July 19 2022, chancellor Nadhim Zahawi accepted the recommendations of the UK secondary capital raising review (Austin review), which included the digitisation of paper share certificates.

He also appointed Sir Douglas Flint, chairman of Abrdn, to lead a digitisation taskforce and harness this process to enhance the rights of retail investors.

The move will allow for existing paper shares to be transformed into electronic holdings with the same substantive shareholder rights. And for many, change is long overdue. 

The digitisation of paper share certificates is a key foundation in the modernisation of post-trade processing and will enhance the UK’s position as a fintech hub and premier centre for capital raising. 

For advisers and their clients, it promises to deliver substantial benefits, including greater efficiency, transparency and cost savings. Crucially, it is a vehicle to protect and extend shareholders’ rights and empower individual investors to participate in the shareholder economy.

Collaboration will be vital

Although the government has given the green light to the move, the details of the transition itself are a work in progress. On July 20 2022, the government published its ambitious terms of reference, which set out objectives for Flint and the taskforce.

These are not limited to simply scanning certificates in as PDFs but extend to the digitisation of the holding chain and addressing the legal modernisations suggested by the Law Commission.

Defining the exact model will require broad industry collaboration and stakeholders’ input will be vital in determining the best mechanism. Indeed, one of the taskforce’s key objectives is to work with stakeholders across the financial services sector to build consensus on change. 

Inevitability, this will affect individual investors, so the adviser community will have an important role to play. They will have the opportunity to help shape policy and transition and ensure investors’ interests and concerns are addressed in full. 

The modernisation of post-trade echoes an accelerating and cross-industry trend to digitise operations and processes. Most sectors, arguably, have undergone some form of digital transformation and are at different stages in their journey.