To: The Kay Review
Department for Business Industry & Skills, Spur1, Floor 3, 1 Victoria Street, London SW1H 0ET
From: UK Shareholders Association 25th April 2012
Further to your Interim Report of February 2012 and our first submission of 25 November 2011, we would like to draw attention to the latest ONS bulletin (28 February 2012) on Ownership of UK Quoted Shares 2010. This appears to have had little publicity but the figures show the first reversal of the long term trend for the reduction in holdings by UK individuals, indicating an increase from 10.2% to 11.5% in just two years. The survey suggests that this may be due to the low yields available on alternative investments. A December 2011 report from Capita states that private shareholdings were above 12% in the first part of 2011.
If the figures are to be relied upon, they suggest to us that, given further encouragement by Government and the impact of the implementation of the RDR, a much more significant increase is possible over a period of years. Moreover since the ONS gives "Rest of the world" as 41.2% it follows that individuals have 20% of those shares actually held within the UK, i.e. those where any action following your final report is likely to be effective. Further, it is generally accepted that the proportion of a company held by private individuals is broadly in inverse ratio to the size of the company. This leads us to conclude that private shareholders could still have a real impact in the smaller company market where, surely, the engines for growth are to be found
We are raising these points particularly because of the strong impression given by the Interim Report that the authors do not see private shareholders as having any significant role. This is highlighted by the inclusion of the words "through an effective asset management industry" in paragraph 2.7 of the Interim Report which seem to us unnecessary and pre-empting alternative approaches. Yet it is clear from various other comments in the Report that major problems are seen in stewardship by the asset management industry which by its existence adds a material layer of unproductive cost between companies and the ultimate investors. We accordingly ask that Professor Kay and his Advisory Board should not be too hasty in ruling out the possible benefits from involvement of private shareholders.
Paragraph 6.14 points to the data which would permit answers to a number of significant questions. A major reason for the absence of such data is that the true beneficial owners of many shareholdings are hidden in nominee accounts. We, in UKSA, have other reasons for wishing for full transparency i.e. to reverse the loss of information and ownership rights under the present system. However, if systems were introduced whereby beneficial ownership was visible directly to the issuers, as used to exist with share registers based on certificated holdings, then the possibilities of using the information so available would be unlimited. Such recording systems exist in other countries, such as Australia, and are consistent with full dematerialisation as currently proposed by the European Commission.
At the moment, the figures produced by the ONS are the subject of various estimates and extrapolations leading to considerable doubts about their reliability. The examination on behalf of the FRC of the alternative approach proposed by Richard Jenkinson of Junction RDS, referred to in our November submission, is taking many months to complete. The fact that it is taking so long is itself an indication of how unsatisfactory the present situation is.
Chairman, Government Policy Group
UK Shareholders’ Association