The concept of introducing dematerialisation to the UK has been floated for several decades and would see the removal of physical share certificates. In the middle of the last decade a cross-party industry stakeholder group developed an industry model that considered how dematerialisation could be implemented and the form that it could take within the UK and Ireland.

The market had hoped that in accordance with the requirements of the EU Central Securities Depositary Regulation, we would see dematerialisation introduced by 2023 for new securities and, at the latest by 2025 for existing securities. However, following the EU referendum vote, government resources were diverted and the project to deliver the necessary legal and system change to facilitate the introduction of dematerialisation in line with the industry-proposed model was paused.

In the years since the decision to pause the project, market participants continued to discuss the benefit of implementing dematerialisation with government departments. Dematerialisation has been referenced as part of the Law Commission’s review into intermediated securities, as well as more generally including in response to the Covid pandemic, where the paper-handling inefficiencies within the securities industry were brought into sharp focus. This led to the government making an announcement in late 2021 that they would be pursuing the implementation in the near term, in consultation with the industry.

The introduction of dematerialisation into the UK market poses several potential benefits, not least as a consequence of being able to learn from global implementation projects in markets such as Ireland, Hong Kong and the United States. This should facilitate implementation in a manner that works best for the UK market and leverages global experiences. However, caution is also necessary to avoid suboptimal outcomes which increase costs and introduce unnecessary frictions.

The industry model that was previously developed and widely supported by all key market stakeholders laid out some of the perceived benefits, challenges, potential solutions, and practical considerations, together with the core principles that were seen as being key to any solution.

In our view, the solution should continue to support shareholder rights (critical from a corporate governance perspective) and the ability for investors to choose how their investments are recorded (either directly or via their chosen intermediary). This would have the benefit of retaining key elements of current market infrastructure and legal framework, but also be more efficient to deliver, whilst also enhancing digitalisation within the sector, reducing the legally necessitated reliance on paper.

Key Principles of the ‘Industry Model’

The Industry Model, previously developed by the market, laid out several core principles which were:

  • Registered shares
    There is great benefit and efficiency from a registered share structure which is constructed of the direct record and the operator record. The retention of the structure should be preserved as a key and central feature.
  • Dematerialisation must produce benefits for Issuers and Investors
    The correct solution would likely create greater levels of efficiency, modernise elements of the market and have the opportunity to reduce fraud risks. Dematerialisation cannot be introduced without costs to the market and while currently such costs are unable to be quantified until a solution is known, they must be fairly apportioned between market participants.
  • Book-entry model adopted must be best for the market
    The solution must be right for the UK market and should look at the models used in other countries to understand the pros and cons.
  • Shareholder rights must be protected
    A number of models used in other countries have seen a degradation of shareholder rights, such as the ability to have direct voting rights.
  • Issuer rights must be protected
    With increasing demands on Issuers in relation to governance, shareholder/stakeholder engagement, the solution shouldn’t provide barriers such as reducing shareholder transparency, restricting communications or the passing on of shareholder rights.
  • Efficient structure
    The solution needs to be focused on market efficiency and direct (preferably electronic) communications, which is underpinned with strong legal positions.
  • Logical and measured transition plan
    The transition to a new world must be considered carefully and a protracted period of grandfathering in existing securities would damage market efficiency and create a two-tiered system which is likely to be problematic.

Other Models

The working group that established the industry model considered other potential solutions before reaching their conclusions on the appropriate way forward. These included the potential for using Distributed Ledger Technology, which has yet to be implemented at such a large scale and could present challenges for individual retail shareholders. Also considered was a model whereby existing registered shareholders would hold their shares via an intermediary/nominee. A comparison of some key characteristics in relation to a ‘Direct’ holding model and an ‘Intermediated/Nominee’ model have been summarised below:


Direct Record (the Model)Nominee/Immobilised Depositary Model
Legal StatusPreserves current position, legal status which is a key principle of dematerialisation.Requiring shareholders to hold via a nominee/intermediary would remove their direct legal rights. Furthermore, it would require legal changes to shareholder rights and the definition of shareholder. It could also give rise to additional issuer obligations in connection with all intermediated investors.
TransparencyShare registers are publicly available subject to the requirements of the ‘Proper Purpose’ test.s.793 allows disclosure of beneficial interests through the issuance of disclosure requests, as well as the obligation to maintain a register of responses received via a s.808 Register of Interests. Some Nominee chains are deliberately opaque so any move to change this principle would attract significant objections.
MobilityInvestors retain the choice as to how their securities are held and have freedom to move their securities between holding mechanisms in an efficient manner.Shareholders could choose their intermediary but (absent of significant legal change) there would no longer be an option of holding direct legal title.
Trading OptionsFree to use broker of choice – open competition.Limitations on using different broker to hold/sell.
Corporate Governance and VotingShareholders can attend, appoint a proxy, ask questions and vote directly at general meetings.Attendance/Voting is at the discretion of the intermediary, requiring additional steps, and are often a chargeable service. Immobilised Depositary model lengthens the ownership chain and introduces further complexity & cost. Would require law change and redefining status of shareholder to end investor.
CommunicationsReceive all communications direct from the Issuer.Subject to Terms & Conditions of service with potential for delayed delivery.
Corporate ActionsCan elect directly with the Issuer Agent up to the relevant closing time/date.The presence of an intermediary enforces early cut off times due to the ownership chain. Nominee makes the election.
Foreign OwnershipNo known barriersAdministrators will be subject to legal and due diligence issues in servicing specific jurisdictions. This could result in existing overseas shareholders not being able to be serviced. This would necessitate a separate solution.
Terms and ConditionsRights and Conditions defined by UK law and Articles of Association.Articles of Association vs Terms and conditions may result in a high degree of variance from one intermediary to the next.
CSD & Regulatory CostsUnchanged. Issuers retain option of administering their own register.Reduction of choice and imposed regulatory burden of cost. Regulatory overhead will introduce barriers and stifle competition.
Security and Sales ProcessNew model needed but this should be limited to a change to the enquiry process and new CREST messaging.For sales out of the nominee broker, efficient procedures already exist. However, to preserve competition, for sales by a different broker, a new Security model needed.
TransitionCommunication on current ‘ownership model’ easier to understand. Would ease transition.Forcing shareholders to appoint or default to a chosen intermediary will be more difficult to explain and require distribution of T&Cs with opt-out provisions, leading to greater level of complaints. Significant legal changes required to enshrine shareholder rights to beneficial owner level and could result in increased burden and costs for issuers.



Whilst the industry model envisaged ownership of shares would continue to be evidenced by the share register maintained by the Issuer or their agent in accordance with company law requirements, it would do away with certificates as prima facie evidence for an investor of their shareholding. However, shareholders would continue to be able to evidence their shares or gain access to administer their investments via the internet or phone, in much the same way as today.

The model considered solutions that would allow brokers to digitally verify holdings prior to any sale or transfer. For purchases where the individual wished to be a direct shareholder the solution proposed that this would use existing CREST withdrawal processes with some form of notification issued to the individual to confirm the transaction. This process could also be adapted to take advantage of additional information collected by the broker, facilitating not only electronic communications, but also enhanced shareholder verification perhaps.

Any solution must ensure there are suitable protections for the integrity of the share register, give certainty to the validity of transactions and provide mechanisms for disputes to be resolved.

The introduction of dematerialisation, if done effectively, would see benefits introduced to the UK market such as removing the need for lost share certificate indemnities which incur costs for shareholders and, on occasion, Issuers. Through the retention of a direct model of shareholding, we believe it will allow shareholders to continue to experience the rights they enjoy today whilst also allowing Issuers the level of transparency they need to ensure continued good corporate governance. It is anticipated that administration of registers would become quicker and more efficient and if more key data is collected from shareholders allow for more comprehensive anti-fraud mechanisms to be introduced and reduce the environmental impact of shareholder communication, not to mention the potential for ancillary savings for Issuers themselves.

While we appreciate and support the need for communication and engagement channels for shareholders who are digitally excluded, recent activities such as the 2021 census and the global pandemic, have shown that people are increasingly comfortable in adopting digital methods to communicate and engage with organisations.

If you have any thoughts or questions related to dematerialisation then please email John Britton (, Industry & Governance Director.

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