Paper share certificates are on their way out. The UK’s Dematerialisation Market Action Taskforce (DEMAT) will abolish them by end-2027. What is still being decided is how companies will be able to identify their shareholders once the system is fully digital.
Under proposals being actively pushed by custodians and intermediaries, that process could become slower, less complete, and significantly more expensive. For smaller quoted companies, it is a direct threat to a tool that most boards rely on without realising it.
The QCA has already engaged with the taskforce responsible for designing the next steps. This article sets out what is at stake and why it matters to smaller quoted companies.
What is s793 – and why it matters
Under Section 793 of the Companies Act 2006, any UK public company has the right to demand information from anyone it reasonably believes holds, or has held, an interest in its shares.
In practice, it means public companies can build a detailed picture of who owns the company at a predictable and low administrative cost, whenever it needs to.
Consider what that looks like ahead of an AGM. A board wants to know which institutional shareholders are likely to vote, whether sentiment has shifted or any new names have appeared on the register.
Figures presented to the QCA’s Corporate Governance Expert Group suggest routine exercises typically achieve close to 99% visibility into the beneficial owner base, with responses received within five to ten working days. Boards can engage directly and on the front foot rather than walking into an AGM blind.
The system works because it is entirely at the company’s discretion. There are no fixed windows, no statutory fees payable to intermediaries, and no minimum thresholds. Companies decide when to run an analysis and how often.
For a smaller quoted company without a large investor relations team, that flexibility is how it stays close to its shareholders.
What changes under an SRD II-style model
Now consider the same AGM scenario under the model some intermediaries are actively pushing for. Instead of issuing a notice directly, a company must route its identification request through the custody chain via standardised messaging. In several EU member states, requests are limited to holders above a 0.5% threshold. In some jurisdictions, they are restricted to AGM periods only.
The consequence is that intermediaries become gatekeepers. They forward requests, control data flows, and charge fees for doing so. In France and Germany, per-request charges introduced under SRD II have added thousands of euros to the cost of each shareholder identification exercise. Costs that vary by custodian and are difficult to budget for in advance.
The outcome is measurable. European issuers that previously monitored their shareholder base monthly or quarterly now run fewer analyses, because each exercise has become unpredictable in cost.
The result is that boards know less about who owns their company and pay more to find out.
The DEMAT risk
The QCA supports the government’s ambition to modernise the UK’s market infrastructure, and digitising shareholding records is long overdue. But modernisation must work for all issuers.
Without adequate representation of smaller quoted companies in the taskforce’s discussions, the reforms to Steps 2 and 3 risk leaving them paying more to know less about who owns them.
Two specific risks stand out:
- Identification thresholds. If the taskforce adopts thresholds of the kind used in several EU member states, issuers could find themselves unable to identify a significant portion of their shareholder base.
- Access to shareholder data. Under the emerging CREST model, there are reports that issuers could be required to pay to access their own shareholder data — fundamentally changing the economics of shareholder identification.
The intermediaries and infrastructure providers with a direct commercial interest in the outcome are well-represented in the taskforce’s discussions. The smaller issuer perspective is not. The reforms need to reflect that difference.
What good reform looks like
Modernisation should build on s793’s strengths, not dismantle them. A reformed infrastructure can deliver faster responses and more efficient workflows without introducing custodial fees, identification thresholds, or mandatory messaging standards that strip issuers of control.
The UK’s issuer-friendly shareholder identification regime is part of what makes London an attractive place to list. Reform that works for large institutional issuers but not for smaller quoted companies is not proportionate reform.
What happens next
The DEMAT programme’s next major report is expected in summer 2026. The QCA has already written to Mark Austin CBE, Chair of the Dematerialisation Market Action Taskforce, to set out these concerns and to request that smaller quoted companies are meaningfully represented in the discussions ahead.
We will continue to engage with DEMAT as Steps 2 and 3 take shape. Members with concerns about how dematerialisation could affect their company’s ability to identify its shareholders should not hesitate to get in touch.
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Stay tuned for further updates as we continue to lobby for a fairer, more competitive financial market policy.
