Leveraging Technology Can Help Empower All Investors

Financial services firms have benefited from the trillions of dollars flowing into financial markets as a result of the ongoing process of market democratization. Today, however, the industry is discovering that democratization doesn’t just create new opportunities, it also creates new responsibilities.

For at least the past 50 years, financial markets have become steadily more accessible and cost-effective. The powerful combination of improved technology and lower costs has attracted millions of individual investors into markets. That trend accelerated dramatically with the introduction of commission-free trading in 2019, culminating with an explosion of retail trading activity on platforms like Robinhood.

With so many new investors entering such rapidly changing markets, regulators are acting to ensure a level playing field. In September 2020, the European Union went live with its updated Shareholder Rights Directive (SRD II). SRD II brought about many sweeping changes but two stand out, in particular. In many cases across Europe, it allowed issuers for the first time to understand who their underlying investors are. Also a first, it obligated retail banks and brokers to offer shareholder voting services to their underlying clients. EU regulators recognized that good corporate governance is underpinned by issuers and all investors talking to each other. In order to do that, issuers must know who their investors are and all investors need to be given the opportunity to vote—not just to the institutional investors, which was the standard practice for many years across Europe.

To address the lack of transparency over share ownership and encourage shareholder participation, SRD II required all banks and brokers to electronically distribute meeting materials to all institutional and retail shareholders quickly and securely. And although these rules originated in the EU, their impact is essentially global as SRD II requirements apply to all intermediaries that trade or hold European equities.

SRD II imposed entirely new responsibilities on many firms, who in some cases had to either create brand new solutions such as building a retail voting platform or completely restructure their existing processes to be compliant with SRD II’s tough new rules covering “without delay,” which impacted the dissemination of meeting and corporate actions materials.

Meeting these obligations has been an expensive and burdensome task. In addition to the logistical challenges posed by the new requirements, intermediaries must also navigate differences in how individual EU member states have interpreted the directive.

Luckily for financial intermediaries, the democratization trend is not limited to markets. It’s also playing out in technology. Until recently, the only way for financial services firms to obtain the infrastructure needed to take on a task like SRD II compliance was to build it themselves. To a large extent, that meant the most efficient solutions were limited to the largest firms with the biggest IT budgets.

That’s no longer the case. The arrival of cloud computing and software as a service (SaaS) is making innovative technology easier to access and cost-efficient to obtain. It’s also making it easier for financial services firms and companies of all types to partner with technology providers and other vendors to tackle complex business and technology projects like SRD II.

For example, my firm, Broadridge, was able to leverage experience in shareholder communications and technology development to rapidly create an SRD II solution. The platform is designed to help companies and intermediaries comply with the new rules by taking advantage of the most innovative voting platforms, mobile apps, and the latest technological advancements in artificial intelligence, blockchain and the cloud. Over the past year, we’ve completed more than 200 client implementations. These clients are using this “mutualized” solution to enable more effective communications for retail and institutional proxy voting and disclosure requirements, empowering millions of investors across markets.

This solution is only one example of the way financial service firms are using the cloud, other innovative technology, and the strategy of mutualization to address new business and regulatory challenges—all at lower cost and with less risk. This approach will be critical as the industry works to live up to its responsibilities to a growing and diverse investor base in an increasingly democratized marketplace.