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February 2023

Dematerialisation of shares: government policy paper

On 16 September 2021 the government published a policy paper announcing a package of proposed regulatory reforms. These reforms are the second phase of the government's response to recommendations made by the Taskforce on Innovation, Growth and Regulatory Reform on how the UK can reshape its approach to regulation following Brexit.

Among the proposed reforms is the dematerialisation of the minority of shares that are still held in paper, rather than electronic form. The government is to work with industry, regulators and shareholders in the medium term to determine the best mechanism for converting these paper shares into electronic form, while preserving the rights of existing shareholders.

In July 2022 the report of the UK Secondary Capital Raising Review chaired by Mark Austin went further and recommended the raising of the priority of this project in a ‘drive to digitisation’ to facilitate innovation, stewardship and improved market infrastructure, which is actioned by a Digitisation Taskforce with an independent chair and a clear set of principles to be followed.

The Government accepted the recommendation and established the Digitisation Taskforce with Sir Douglas Flint as Chair.

The Taskforce has been asked to a work with stakeholders across the financial services sector to build a broad consensus for change. In particular he has been asked to:

  1. Identify immediate and longer term means of improving on the current intermediated system of share ownership;
  2. Eliminate the use of paper share certificates for traded companies and mandate the use of additional options to cheques for cash remittances; and
  3. Consider whether the arrangements for digitisation can be extended to private companies.

Sir Douglas has been asked to provide a public report on the Taskforce’s progress and initial findings by spring 2023, and to publish final recommendations and an implementation plan by spring 2024.