CRESTCo, the London CSD owned by the Euroclear Group, will on 12 July introduce automated dividend and interest payments, and electronic tax vouchers, for its account-holders. In a related development, CRESTCo will also launch a bespoke service for clients to transmit electronically to an issuer’s registrar their dividend-election instructions, such as whether to take all or part of their dividend entitlement in cash or to reinvest all or part of the proceeds in more shares.
CREST says that, since it started in 1996, it has long aimed to facilitate the processing of corporate actions with the goal of minimising the use of paper in these operations. The move to automate dividend payments and tax vouchers, which follows a lengthy consultation and approval process with UK securities market participants, builds on another major corporate actions service enhancement introduced in January 2003, when CRESTCo introduced electronic proxy voting for its customers.
From 12 July, issuers and their agents will be able to transmit both the payment and the tax voucher in a single message, giving them a single distribution mechanism. Until now, most dividend distributions in the UK have been made via BACS (Bankers Automated Clearing Systems) or by cheque. CREST says the move to electronic transmission will not only improve efficiency but also substantially reduce the risk inherent in sending paper-based payments.
The decision to offer clients the possibility of attaching electronic tax vouchers to their payment messages was taken after the UK Inland Revenue announced that, from 1 January 2004, it would no longer be compulsory for issuers to distribute tax vouchers exclusively in physical form.
The new dividend-election service allows an election to be made either on a one-off basis, for a particular corporate action, or on an ongoing (i.e. evergreen) basis to cover all future dividend or interest payments in relation to the security in question.
CREST says that, in order to offset customers’ development costs, it will waive dividend-payment transaction fees until the end of May 2005. From June 2005, in line with the current CRESTCo tariff structure, the sender and recipient will each be charged 15 pence per instruction.
Election messages will be charged at 50 pence for input and 15 pence for acceptance or rejection of the message.
“Dividend payments are the most prevalent of all corporate actions, which has made their absence from the CREST system until now all the more conspicuous,” says Tim May, the recently installed CEO at CREST. “With the impending addition of electronic tax vouchers, we can justifiably lay claim to having removed significant paper flows from the securities-processing landscape in the United Kingdom.”
Market participants have welcomed the initiative. “We warmly welcome CRESTCo’s initiative,” says Robert Coyle, CEO of Capita Registrars. “The entire dividend-payment and tax-voucher environment will be improved immeasurably by this development. Automating these processes adds choice and will benefit issuers and investors alike, with greater efficiency, lower costs and substantially less risk.”