HSBC Global Investor Services has welcomed the recommendations in Paul Myners’s recent report on shareholder voting practice in the UK, particularly those on the registration of a client’s title to shares.
HSBC says it registers UK shareholdings held on behalf of fund managers and pension fund trustees in a nominee company name with a specific designation. The designation is extended to the level of each underlying fund where the client holds multiple portfolios. This contrasts with the practice by some other custodians to commingle the securities of many clients in the name of a nominee company, without a designation specific to a client or fund.
Myners has noted that, for institutional shareholders, registering title in the name of a nominee company with a specific designation has clear benefits in terms of identification of ownership rights. In particular, it delivers significant advantages to the process of voting UK shares and is consistent with promoting quality dialogue and transparent governance.
“Paul Myners’ report has concluded that, if asked, custodians will need to offer all customers the choice of a nominee company with a specific designation,” explains Paul Stillabower, Head of Business Development at HSBC GIS. “We fully endorse this point which confirms our long-held view that registering clients’ shares in designated accounts contributes positively to transparent governance. The report notes that specific designation may be more costly. Although this is correct in certain cases, it should be noted that this review was limited to the process of proxy voting. When analysed across all custody activities, the impact of designation upon our costs is broadly neutral or even favourable. This is because the benefits of designation extend to many areas of our operations, including reconciliations, corporate events and allocation of stock lending collateral. For HSBC, the set-up costs of a designated system have proved a sound investment. “The real issue now for custodians still running omnibus client accounting systems is that the cost and complexity of changing over to a system of designation is high. However, this should not prohibit a provider from following defined best practice, especially since the alternative could impair good corporate governance in the UK.”