The empowerment of the retail shareholder: Fintech as a corporate governance enabler

There has never been such an intense focus on corporate governance in Europe. Regulatory developments, and investor trends related to the rise of environmental, social and governance (ESG) strategies, have compelled the industry to take a much closer look at how well it is servicing the requirements of the investor community.

The EU’s flagship Capital Markets Union (CMU) has retail investor engagement at its heart and as a result, the European regulatory community is focused on ensuring end shareholders have the opportunity to exercise their voting rights. Retail investors represent a major source of potential capital and liquidity for initial public offerings and follow-on share offerings, especially for the small and medium-sized enterprises across Europe. The future of European capital markets is closely tied to the development and engagement of this community.


The introduction of the updated Shareholder Rights Directive (SRD II) two years ago was a key first step toward granting retail investors with more rights, and there are further revisions to the regime around the corner to ensure national regulators are all on the same page. The Sustainable Finance Disclosure Regulation (SFDR) and the UK’s own version of these sustainability rules are also set to enshrine in regulation the requirements to provide more transparency at the entity and instrument level for investors across Europe and beyond. The ESG regulations across the region will also act as a driving force for further investor engagement in the form of shareholder voting on issues such as sustainability and board diversity.


Governance has long been a topic for discussion within the institutional investor community, but the retail investor community has increasingly begun to make its voice heard. As Europe continues to make the markets more accessible to retail investors, traditional and online brokers have been focusing on fintech to allow these investors to easily open and manage their accounts. A logical extension to this model is enabling these investors to engage in electronic voting in both a domestic and a cross-border context. After all, the next generation of investors have much higher expectations for digital support from their financial institutions.


Fintech adoption in this area could grant these market participants a competitive edge as the retail investor community grows across the region. The ability to influence corporations via voting on important issues such as board diversity, climate change and sustainability is likely to become increasingly appealing to this community as these issues continue to dominate the public consciousness. Retail investors should be able to access a baseline of information on the company and be able to vote from anywhere. Savvy financial institutions focused on the new breed of retail investor are focused on a seamless user experience offered through various communication channels, mobile devices and social media sites.


Retail investors need much better access to shareholder communications, corporate management and share offering information, and digital channels are the perfect way to supplement traditional methods of information delivery. The European Commission is also keen to improve financial literacy across the EU as part of the CMU, and investor engagement is a key part of this strategy.


Established financial institutions need to ensure that their offerings keep up with new start-ups aimed at the next generation of retail investor, while continuing to meet their regulatory compliance obligations including those that focus on protecting and servicing the retail investor community. As retail investors start to gain a better awareness of their rights and understand that their vote can actually impact an issuer Annual General Meeting (AGM) outcome, they are increasingly likely to assess their service providers in terms of their ability to offer them that voice. Well-prepared firms can demonstrate to the next generation of retail investor that they are ahead of the curve when it comes to ESG leadership and digital adoption. Early brand visibility will enable first movers to gain a head start on the long game being played out. Specialist vendors, that can provide an array of turnkey voting solutions to the retail community, are a good starting point for those firms seeking to offer services for new and emerging ESG-related retail investor obligations.


To read the recent white paper, The Rise of the Retail Investor, and for more information about Broadridge’s retail voting services, click here.