Subject: Clarification and Further Queries Regarding Share Digitisation

Dear Bim,

I appreciate your detailed response to my concerns regarding the Digitisation Taskforce's interim report. Your dedication to ensuring an effective shareholding framework is noted, and I value your commitment to the long-term growth of the economy.

However, I would like to seek further clarification and address some specific points that were not adequately covered in your response. There are concerns that revolve around the implications of the proposed changes to shareholder ownership rights and the contradictions that exist between the stated principles and the practical outcomes of the proposed models. The taskforce’s final report – independent or otherwise – will not accurately reflect the best interest of the shareholder if the shareholder is not represented in these discussions.

Your statement emphasises the government's principles, which include ensuring that ultimate investors holding shares with intermediaries should be able to better exercise the rights associated with direct share ownership. While commendable in principle, this is fundamentally incorrect. For example, the proposal aims to define "baseline service" levels of engagement for intermediaries providing "access" to shareholder rights. However, the incorporation of an opt-in system for shareholders to exercise their rights, as suggested in the CSD model, appears contradictory to the objective of enhancing shareholders' ability to effectively exercise their rights. Shouldn't basic rights be automatically provided rather than being opt-in?

Furthermore, the proposal outlines the intention for associated charges for shareholders as part of this "opt-in" service to exercise rights (pg. 24 & 18). This approach introduces financial barriers and introduces the risk of exploitation, directly conflicting with the intended goal of empowering investors without unnecessary restrictions and directly contradicts the notion of facilitating shareholders to better exercise their rights. How does this align with the commitment to the needs of investors? And is there any evidence to suggest that the HM Treasury's advocacy for the CSD digitisation model isn't motivated by a desire to utilise these services to generate income revenue for the government? Given the current economic climate, this presents a conflict of interest.

The proposal also suggests that an amendment to primary legislation may be required to address legal title transfer (Recommendation 2, page 28). To quote:

“Intermediation through a nominee requires legal title to the shares to be transferred to the nominee - the former holder of the share certificate retains beneficial ownership only. Although use of the powers discussed in relation to Recommendation 1 would seem to be a straightforward way to achieve this goal, s7863) CA 2006 provides that such regulations cannot be used to change the person entitled to have their name entered on the company's register of members. This recommendation may therefore require an amendment to primary legislation.”

In a nominee arrangement, there is a separation between the registered shareholder (the nominee) and the beneficial owner (the individual shareholder). The nominee's name is recorded on the company's official shareholder register, making them the legal owner of the shares for legal and administrative purposes whereas the beneficial owner (i.e. the shareholder) will, in principle, only retain some economic rights over the shares (such as receiving dividends and having voting rights etc).

To force shareholders to surrender the legal title of their assets jeopardises their legal standing and engagement in crucial actions as the adoption of the CSD model risks rendering securities owners without recognised, enforceable ownership. The absence of a direct legal title could compromise shareholders' ability to participate effectively in corporate actions, influence decision-making processes, and defend their interests in legal matters related to the securities they own. It raises concerns about diminished control, limited legal recourse, and potential vulnerabilities for shareholders in navigating complex legal scenarios. Therefore - how can this align with the taskforce’s goal of enhancing the current share ownership system, given the substantial risks and potential infringements on shareholder rights?

The proposal goes on to say;

“Any provisions governing mandatory transfer of the legal title to certificated shares would need to strike a fair balance between the legitimate aims of digitisation and the impact on the rights of holders of currently certificated shares, and to comply with Article 1 of Protocol 1 to the European Convention on Human Rights as incorporated into domestic law through the Human Rights Act 1998.”

In the proposal, there's mention of the HM Treasury's commitment to comply with Article 1 of Protocol 1 to the European Convention on Human Rights as incorporated into domestic law through the Human Rights Act 1998.

However, the Article 1 of Protocol 1 to the ECHR states:

"Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law."

In practical terms, this means that under extreme scenarios, a powerful controlling entity, such as the UK Government, could potentially seize assets held within the nominee structure, taking away shareholders' investments. This risk becomes particularly significant if it's argued that such confiscation serves the "public interest." The question then arises: who would have the authority to define what falls under the umbrella of the public interest? If this determination is made by the very entities responsible for managing these assets, it inherently introduces a conflict of interest. Yet, the proposal doesn't address this or outline clear measures to safeguard shareholders from this threat. Without such clarity, the UK's Digitisation Proposal poses risks that extends beyond national boundaries; it serves as a potential blueprint for the erosion of global shareholder rights everywhere. The proposal raises apprehensions about the potential seizure of legal ownership of assets, posing risks to property rights worldwide.

As such - the reassurance that the needs of investors are at the heart of this work is appreciated. However, given the severity and contradictory nature of the talking points offered above, the proposal raises multiple concerns about the risk to shareholder rights and control, giving little weight to the reassurance as offered. It is imperative in matters of regulation and reform that any organisation, whether independent or otherwise, engages transparently and proactively, placing those directly impacted at the forefront of all discussions – with the Government and UK shareholders aligned on all matters. Unfortunately, the current situation falls short of this, as the UK Taxpayers funding the taskforce and as most directly affected by its decisions, find themselves excluded from the conversation.

In response to your statement here:

“Given that the Digitisation Taskforce is independent, and industry led, it would be inappropriate for me to respond to these queries whilst the Taskforce is in the process of reviewing feedback to the interim report. Once the final report is produced, the Government will thoroughly consider the recommendations and actions it intends to take next.”

I understand that the Taskforce is in the process of reviewing feedback on the interim report. However, your statement, suggesting that it would be inappropriate to respond to queries while the Digitisation Taskforce is reviewing feedback, appears to misinterpret the nature of the Taskforce's role and its connection to the HM Treasury. The Taskforce, as explicitly stated in its launch, was initiated by the Chancellor to modernise the UK's shareholding framework. Being a government-led initiative, it falls directly under the purview of the HM Treasury. Therefore, it is entirely within the appropriate scope to actively engage and seek clarification on behalf of UK taxpayers to advocate for proper representation within this government-mandated initiative that directly impacts shareholder rights.

The directive to await the final report and government assessment, without affording shareholders proper representation, equally introduces a troubling dynamic. It opens the door to a scenario where decisions are made without adequately considering the diverse and nuanced interests of shareholders. The absence of active participation and channels for open communication heightens the risk of a one-sided decision-making process, neglecting critical perspectives while prioritising objectives or perspectives aligned with the government's agenda. Moreover, this statement presumptively suggests faith in the government as best fitting to make said assessments for UK shareholders, but what evidence supports this notion? In the context of the ongoing financial challenges faced by the UK and the government’s role and related responsibility for this critical breakdown, the Treasury’s positioning itself—or a task force appointed by itself—as the most-qualified assessor of shareholder needs in this self-appointed role is not only misguided but also dangerously presumptive. This assertion raises concerns about impartiality.

Why should trust be unquestionably extended, especially given the ambiguity about the specific actions the government intends to take after the final report, providing no clarity on how concerns will be addressed in the final decision? The basis of our engagement is to demand active participation for enhanced transparency and accountability, which requires concrete actions and clear steps to address our concerns.

As example - core conversational points such as these are being missed without necessary shareholder representation:

1.	With historical reference to financial scandals like Enron, the Subprime Mortgage Crisis, and the WorldCom accounting scandal, how does the proposed framework intend to learn from these examples and ensure that clarity, transparency, and precise regulations are in place to protect shareholders from similar risks?
2.	If shares are transitioned into a nominee structure, what safeguards will be in place to prevent the controlling entity from unilaterally changing terms and conditions, including (but not limited to) restricting voting rights, diluting ownership, or imposing dividend restrictions?
3.	What justifies the mandatory implementation of the CSD model, and what evidence supports the preference for this model among UK shareholders?
4.	Can the task force provide evidence of extensive research and consultations with shareholders regarding the rejection or advocacy for specific digitisation models? Specifically, were shareholders fully informed of the risks and options available to them in these discussions?
5.	How does the HM Treasury plan to address the ambiguity in the language used in the proposal?
6.	Given that established entities like Computershare offer free services for Direct Registration System (DRS'd) assets without additional fees, what rationale is behind introducing increased financial burden on shareholders in the proposed CSD model?
7.	Does the government agree to address transparency concerns related to financial abuse and market manipulation (such as predatory naked short-selling activities) in the nominee structure with vigorous reporting as shared with the wider public should shares be held within the proposed nominee structures?
8.	Can you explain why the proposal refers to the issuer's register (aka, the direct register) as the "secondary registrar" and why the nominee (sub-register) is not explicitly labelled as such?
9.	Given the dismissal for select proposed models - can you clarify whether the UK Treasury has the financial resources to invest in its systems, especially given the proposal's objectives to modernize and digitize the securities framework?
10.	How will the government ensure the security and privacy of shareholder information within a CSD model, preventing leaks, identity theft, and financial losses?
11.	Why wasn't a complete Direct Registration System (DRS) proposed as a digitization solution model, given its advantages and alignment with shareholder interests?

For a fair and objective evaluation, shareholders must have a meaningful role in ongoing discussions, ensuring their concerns are heard and considered. The current lack of robust engagement mechanisms raises questions about the transparency and inclusivity of the decision-making process. This initiative directly impacts us, and the onus is on our tax-funded government to ensure our proper representation and involvement in the ongoing conversation. Respectfully, it is not our responsibility to request involvement; it is the government's responsibility to assure full facilitation for our inclusion without question.

As such – as the Economic Secretary of Treasury, can you please responses to the following:

◦	When can UK Tax-payers expect to receive a detailed engagement plan, outlining specific the steps in which the taskforce intends to actively involve shareholders in the ongoing discussion?
◦	What steps will the HM Treasury take to assure this performed by the taskforce?
◦	Can you provide assurance that the process of digitising shareholdings will not be rushed, underlining the significance of a meticulous examination of the proposed changes?
◦	How does the HM Treasury plan to uphold effective communication channels moving forward, considering its role as a government-mandated organisation funded by UK taxpayers of whom they are obligated to serve?
◦	Are the government invested in making a commitment to acknowledging and recognising the value of shareholders input in the ongoing process? And how will this be demonstrated?
◦	When can we anticipate a response to this email?

We kindly remind you - your role in advocating for shareholders is paramount at this critical juncture. Transparency, clarity, and inclusive dialogue are essential components of a robust decision-making process, particularly when it comes to government-led initiatives impacting investor rights. Your dedication to representing our collective voice is pivotal, and we eagerly anticipate your proactive engagement in this matter.

Thank you for your ongoing efforts, and we look forward to hearing about the concrete actions you intend to take to uphold shareholder interests.

Yours sincerely,

An Invested Shareholder