International Securities Services Association
Jyi-chen Chueh
04 August 2020
Beneficial owner disclosure has recently become a topic that is gaining attention from regulators, issuers, market infrastructures and service providers. Jyi-chen Chueh, operating committee chair for the International Securities Services Association reveals the findings of its recent report on the matter
Image: Jyi-chen Chueh
Could you tell us a little bit about the ISSA Corporate Actions Working Group and its make up?
The International Securities Services Association, commonly known as ISSA, is an association with more than 120 institutions. Its main objectives are the promotion of industry best practices within the securities services industry, through international coordination and cooperation. Much of this work is completed by ISSA’s Working Groups, which look at topics that affect the securities services industry and develop solutions and best practise guidance that can benefit the whole industry.
As the name suggests, the Corporate Action & Proxy Voting Working Group (CA WG) focuses specifically on the areas of corporate actions and proxy voting. The team has already tackled many topics of interest to the industry including, most recently, a report on the beneficial owner disclosure.
What are some of the key issues around disclosing the ultimate beneficial ownership and why is this such a critical requirement?
When securities are held directly or in segregated accounts, the process of identifying the ultimate beneficial owner is relatively simple. However, with the growth of cross-border investments, investors and issuers are typically connected through a chain of intermediaries, which can be relatively long. As such, when a security is held in a commingled account, it will be necessary to look through multiple layers to have transparency and identify the ultimate owner. The disclosure process is key to good corporate governance to meeting regulatory reporting obligations and to detecting and preventing tax evasion as well as other financial crimes from occurring.
The ISSA Corporate Actions Working Group conducted a survey, during the latter part of 2019, on beneficial owner disclosure. Could you explain what the key aim of this was?
The key aim of the survey was to obtain a snapshot of the beneficial owner disclosure processes in place globally. By understanding and identifying common practices, as well as challenges that the industry was facing, it would be possible to provide guidance on how transparency could be further improved.
What were the findings from the beneficial owner disclosure report conducted by the ISSA Corporate Actions Working Group?
The key findings showed that, whilst there were many common practices across different markets, a number of challenges continue to exist with ongoing lack of standardisation across jurisdictions which impacts all parties in the chain, including the complexity of enforcing consistent cross-border practices.
Why has the disclosure of beneficial ownership information received increased attention from regulators, issuers, market infrastructures and service providers?
At a macro level, efficient and accurate disclosure processes and frameworks contribute to the overall agenda of achieving greater market stability and investors protection through good corporate governance and transparency.
Transparent ownership disclosure helps investors and potential investors have better information related to the ownership structure and decision control of the issuer’s company.
From issuers, regulators, and other stakeholders’ perspective, knowing the correct beneficial owners of securities is a key way to prevent and detect fraud, tax evasion and/or other financial crime.
Do you think the industry needs to draw their attention to automation and standardisation to tackle some of the challenges around the disclosure of beneficial ownership information?
Further automation and standardisation will definitely help to tackle some of the challenges around the disclosure of beneficial ownership information. There will, however, need to be greater harmonisation of practices for this to be truly effective. For this to happen, there will need to be a concerted effort by all parties in the process to achieve this goal.
What other challenges are you seeing around this topic?
Innovation and new technologies will have an important role to play in coming up with more efficient solutions. This creates both an opportunity and a challenge again, given the current disparate practices and the need to gain agreement on standards and standardisation.
What can be done to help with the harmonization of practices across markets and regions in this space?
Continued focus from regulators, issuers and services providers on the topic of beneficial owner disclosure can definitely assist the harmonization efforts. Take the European initiative - the Shareholders Rights Directive (SRD) II - whose main objective is to increase the transparency and the efficiency of information flows between issuers and investors throughout the chain of intermediaries.
This offers a great opportunity for the European markets to come up with common practices and enable greater harmonisation across. Coordination of regulatory requirements and adoption of common technical standards at a cross-border level will be pivotal in its success.
Do you think there is a need for more regulation around the disclosure of beneficial ownership information?
There has already been significant effort made by all players to enable the accurate disclosure of beneficial ownership information and feedback from the market shows that regulation will likely be the biggest influencer of the process in the future too.
How do you expect this space to change over the next two years? What will be the big talking points?
The implementation of SRD II will likely herald the biggest change over the next two years. Assuming that this is implemented successfully across the EU member states, it could provide a set of common practices and levels of harmonisation that could then be utilised to drive change in a number of other markets where there is currently a lack of automation and standardization.
How will ISSA help drive change in this market?
ISSA has recently established a new working group – The New Norm – which is focused on lessons learned in securities services from the current pandemic. A number of topics which are corporate action and proxy voting related have been identified. The ISSA CA WG is now looking at best practice and guidance notes to help our members and the broader industry to implement improved practices and processes.
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