The Hungarian Parliament passed Law LXVII of 2019 on Encouraging Long-Term Shareholder Engagement and amendments of further regulations for harmonization purposes on 2 July, 2019. The regulation was officially published on 9 July 2019 and, amongst others, is implementing articles 3a-3c of ‘Chapter Ia’ of Directive (EU) 2017/828 of the European Parliament and of the Council of 17 May 2017 amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement. Rules on identification of the shareholders, communication related to corporate events between the company and the shareholders, costs of intermediaries and third-country intermediaries are concluded within Chapter II of the new regulation.
Requirements imposed by the new law with regards to the shareholders’ identification and communication are also applicable for intermediaries not having a registered office or administration office within the European Union at the time providing the service. In the interpretation of the regulation, intermediaries are legal entities providing custodian services, nominees and the Central Depository as defined by the Hungarian legislation.
Below are the main features of the new act applicable in case of public limited companies:
I. Shareholders identification:
Shareholders’ identification information (for example: name and contact details, company registration number, number of shares, type and class of shares) has to be forwarded by the intermediaries to the company or the nominated third party within the timeframe and in the form set by the Implementing Regulation (EU) 2018/1212 laying down minimum requirements implementing the provision of The Shareholder Rights Directive (Directive 2007/36/EC) published on 3 September 2018 (EU Regulation 2018/1212).
Companies can delegate the collection of the data and communication with the intermediaries to a further intermediary, defined by the regulation as a nominated third party.
In case of intermediary chains, besides forwarding the information to the next intermediary in the chain, contact details of the next intermediary also has to be disclosed upon request of the company. Shareholders’ identification information is to be forwarded directly to the company or the nominated third party by any of the intermediaries possessing the identification data.
II. Communication related to corporate events
Timeframes and forms of communication between the companies and the shareholders, also applicable for the intermediaries and intermediary chains, are specified by EU Regulation 2018/1212. The company can make an exception in the means of communication in case it has directly informed the shareholder.
Companies are allowed to outsource the communication with the intermediaries to the Central Depository, who is obliged to forward the corporate event related data as prescribed for the companies.
III. Costs of intermediaries
Intermediaries are to make public in a detailed form all costs incurred during services related to shareholder identification and communication. These costs have to be non-discriminatory and in the proportion of the costs of the services provided. Fees charged for cross-border services may exceed the costs of the domestic services only with the actual additional costs incurred during service provision.
In line with EU Regulation 2018/1212 Chapter II of Law LXVII of 2019 on Encouraging Long-Term Shareholder Engagement and amendments of further regulations for harmonization purposes will come into force as of 3 September 2020.
Impact on investors: Market players affected by the new regulation – shareholders, companies, intermediaries and the Central Depository – will need to develop and implement new procedures and practices in order to comply with the new law. Market consultations and further discussions on the procedures are expected with the participation of all stakeholders, possibly within the frame of the Shareholders Rights Directive Working Group founded by the HU-NSG.