ii comments on Law Commission scoping paper

We support tabled recommendations to level up the playing field for retail investors.

There is no question that UK plc is being propped up by retail investors. But, more often than not, they have been left out in the cold, particularly through the disapplication of pre-emption rights that has been prevalent across the many emergency fundraisings in 2020. 

Voting is another important area where retail investors are not getting their voices heard. The publication of the Law Commission scoping paper, ‘intermediated securities: who owns your shares?’, published on 11 November 2020, lays out recommendations which aim to level up the playing field for retail investors.

interactive investor, the UK’s second largest DIY investment platform, is supportive of the Commission’s intentions. Our research for the Law Commission suggests there is a mismatch between the sort of voice private investors want to have at the boardroom table of UK PLC, and what they actually get. It’s time their voices were heard, and we welcome this scoping paper. 

Richard Wilson, CEO, interactive investor, says: “We welcome the work by the Law Commission on retail shareholder rights. It shines a light on a key issue that interactive investor has been leading on as we shape the UK financial system for the future. 

“We think much of the Law Commission’s work has merit and look forward to working together to ensure that the voice of our customers is heard. 

“We are disappointed though that they missed the elephant in the room. The scandal of “pre-emption” allowing public companies to take retail investors’ money then rob them via rights issues is a blight on our financial system. We scorn corrupt countries for this, but we are teaching it. Appalling!”  

Moira O’Neill, Head of Personal Finance, interactive investor, adds: “While pooled funds have been deliberately omitted from the paper, by virtue of the fact they are not companies in their own right, we would have liked to see the investment trust sector mentioned. Retail investors account for around a third of the trust industry’s shareholder base and so they have an important role to play when it comes to voting – and our customers are huge fans.” 

The retail investor view

Illustrating the need for action, interactive investor polled 1,101 of website visitors* on behalf of the Law Commission and found more than six in ten (62%) say they rarely vote at AGMs, if ever.

This clashes with the fact that most (53%) said they would be interested in voting on all shareholder resolutions, with executive pay highest on the agenda for 22% of customers. As talk of action on ESG issues grows, interactive investor also found one in four (25%) customers were primarily interested in voting on resolutions about corporate governance and on environmental or social issues.

Just over a fifth of customers (21%) said that they voted on company resolutions at least sometimes, and only 6% say they always do. Almost a third of respondents (30%) said that they would in fact be more likely to invest in a company if they felt they could affect the way it is run through exercising their right to vote. 

Commenting on the ii research for the Law Commission, Professor Sarah Green, Commercial and Common Law Commissioner at the Law Commission said:

“It is clear that some investors wish to enjoy the benefits of share ownership, including voting on shareholder resolutions. But not all investors who wish to vote are able to do so. The reforms we have suggested would help ensure that the system of holding investments through an intermediated securities chain works for everyone.”