Three Things the Commission Could Do for European Shareholder Democracy

There is a version of the next decade in which tens of millions of European investors — pension members, retail fund holders, beneficiaries of insurance products — routinely direct the votes attached to the shares their capital ultimately funds. The technology exists and is in use. The demand is real and growing on both the institutional and the retail side. What stands between the present and that future is not innovation or appetite; it is a small number of specific points in the regulatory architecture where a targeted intervention would convert a patchwork of pioneering programmes into infrastructure that scales.

It is in that spirit which our company, Tumelo, has just responded to the European Commission’s Call for Evidence on the update of the Shareholder Rights Directive. We operate the pass-through voting platform that sits behind a number of major asset managers and the asset owners who invest with them — six fund managers globally, more than twenty-five asset owners, and over £300 billion in assets. We see, every day, where things work and where they catch. From that vantage point, the SRD review is a real opportunity. A handful of carefully chosen unlocks could expand the franchise of European shareholder democracy by an order of magnitude. Our written response to the Commission sets out a number of these. In this post we focus on three that, taken together, illustrate the kind of intervention we hope for.

Each one starts from a problem we encounter operationally; each one ends in a regulatory move that is narrow, proportionate, and compatible with the existing architecture; and each one would put the right to vote within reach of investors who are currently hindered from doing so.

1. Give fund managers the data they need to offer pass-through voting at scale

Pass-through voting works by splitting a fund’s votes in proportion to what each underlying investor holds. Mechanically, this requires the fund manager to know who those underlying investors are and how much of the fund each holds. For institutional clients investing directly with a fund manager, this is straightforward. For the much larger population of investors who invest through a distribution platform, a wealth platform, or an insurance wrapper, it is not.

When a fund is distributed through such a platform, the platform typically becomes the registered holder of the fund units. The platform holds a complete record of which underlying investors — institutional asset owners or individual retail clients — own units of each fund and in what quantities. The fund manager sees only the platform’s aggregate position. Today, there is no obligation under the Shareholder Rights Directive, or under most national frameworks, that requires the platform to share its underlying ownership data with the fund manager, even when the fund manager wishes to facilitate pass-through voting for those underlying investors. In our experience, platforms frequently decline.

The workaround is laborious and disproportionately falls on the investors who are most determined to participate. Each asset owner has to self-identify as a holder of the fund, negotiate a bespoke data feed with the platform or supply data directly, and accept that the fund manager has no way to verify the data against the platform’s own records. Engineering teams at pension schemes, for example, spend time building point-to-point integrations that would not be necessary if the platform simply shared the data the manager needs. For retail investors served through retail platforms, the workaround is not even available: there is no realistic mechanism for an individual retail investor to negotiate a custom data feed. So instead they rely on byproducts of other regulation, such as Open Banking/Open Finance, which sometimes allows them to connect their accounts. But none of this was designed to support shareholder voting, and none of it is infrastructure a fund manager can build on with confidence.

Our recommendation to the European Commission is a pair of duties on platforms, sitting alongside each other. First, a duty to notify: where a fund manager has made pass-through voting available on a fund, platforms should be required to notify the underlying investors that the right exists, and to facilitate the onward transmission of voting instructions without additional per-investor charges. Second, a duty to disclose: where an underlying investor asks to exercise their shareholder rights — including through pass-through voting — the platform should be required to disclose that investor’s identity and holdings in the applicable funds to the fund manager. This second duty should apply regardless of whether the platform is the registered holder of the fund units, and should be paired with a right for the fund manager to verify the data against the platform’s records, so that the integrity of the process does not depend on trust alone.

Framed this way, the two duties are modest extensions of obligations platforms already discharge. Under UCITS, platforms already act as the conduit through which investors receive regulatory notifications about the funds they hold — material changes to fund terms, fund mergers, suspensions of dealing. A notification that pass-through voting is available, with a route for the investor to act on it, sits naturally alongside those existing duties rather than as something categorically new. And the disclosure duty is a one-link extension of SRD II’s existing shareholder identification logic, applied to the platforms that currently sit between the registered holder of the fund units and the beneficial owner of the economic interest.

What this enables, in practical terms, is participation for the entire population of investors who currently sit outside the pass-through chain because the data needed to include them is under lock and key.

2. Make split voting an EU-wide right

Pass-through voting depends on the ability to split a fund’s aggregate voting entitlement so that a portion of the votes is cast in line with each underlying investor’s preference. In the US, there is no barrier to split voting for US issuers, which means all US investors can already do pass-through voting (or voting choice) on companies in their home markets.

But that’s not true of Europe. In some Member States, split voting is straightforward. In others, split voting is permitted only at certain levels of the custody chain (for example, at the nominee level but not at the level of segregated beneficial-owner accounts), or is permitted in principle but subject to procedural requirements that are impractical within AGM-season timelines. The result is a genuine regulatory patchwork.

This patchwork has a real operational consequence. Fund managers seeking to offer pass-through voting across their European range have, in practice, found themselves launching one jurisdiction at a time — Swiss-listed issuers first, say, with other markets to follow as the legal work in each is completed. Some have launched pass-through only for clients in particular jurisdictions, because of the additional legal and operational complexity of serving clients across borders under inconsistent rules. The bottleneck is not investor demand. It is not the technology, which is the same in every jurisdiction. It is the duplicative legal and operational work required to launch in each new market, which makes every additional country a separate project rather than an extension of an existing one.

The cleanest fix is an explicit, EU-wide right for shareholders and their agents to split votes in proportion to the interests of underlying investors, applicable in every Member State, with intermediaries required to facilitate split-vote instructions and transmit them through the chain without undue delay.

Once split voting is a portable, pan-European right, pass-through voting becomes a single product launched across the EU.

3. Make customisation the default in proxy voting

The third unlock concerns the analytical layer that sits above the voting infrastructure: the policy framework that tells investors how to vote and the proxy research that supports it. Here, the structural problem is not legal but economic. In the dominant model of proxy advisory services, pricing scales with customisation. The more bespoke an investor’s voting policy, and the more nuanced the analysis required to apply it, the more the investor pays. The standard benchmark recommendations — the same recommendations being given to many other clients — are the cheapest option.

The economic incentive that this creates runs directly counter to the policy ambition that sits behind the SRD: that investors should exercise their voting rights in an informed, considered, and individualised way. A pricing structure that financially penalises the investor who wants their voting policy to reflect their own stewardship priorities is, in effect, a structure that defaults investors into a small number of common positions. That is one of the dynamics that has driven the long-running concern about the influence of the proxy advisor duopoly, and it is a dynamic that technology can dissolve.

Tumelo’s ProxyBeacon is already showing what that dissolution looks like in practice. It allows an investor to define their own stewardship rules in natural language and generates rule outputs — determinations of whether a company’s disclosed facts trigger any of the investor’s rules — rather than supplying voting recommendations of our own. Customisation is not an upsell but the basic mode of operation, and the marginal cost of an additional rule, an additional client, or an additional jurisdiction is low. The point is not that any one product is the answer, but that the labour-intensive, one-size-fits-all model is no longer the status quo. A revised regulatory framework should be designed to reflect that, in three connected ways:

• First, a regulatory framework for proxy advisors should be technology-neutral — neither requiring nor penalising the use of automated tools in the preparation of voting research, and focused on the quality, transparency, and reliability of the output rather than the method by which it is produced.
• Second, the definition of “proxy advisor” should clearly distinguish providers of voting recommendations (properly within scope) from providers of technology and tooling that enable investors to set and express their own policies. Providers of tooling should not be captured by the same regime designed for advice-givers.
• Third, any new authorisation or registration regime should be proportionate, with thresholds and simplified processes for smaller providers, so that compliance burdens absorbable by an organisation with hundreds of analysts do not become a market-foreclosing barrier to smaller, technology-driven entrants. The risk to avoid is a regime that addresses the legitimate concerns about the incumbent advisory market while inadvertently entrenching the very firms it was intended to discipline. There hasn’t been innovation in this space for decades. With AI, that could change, but only if regulators embrace and support innovators.

The prize, if customisation becomes the default rather than the premium, is qualitatively different shareholder engagement. Investors vote on their own terms, against their own articulated standards, and the votes that companies receive are informative in a way that aggregated benchmark votes are not. A 30% vote against a director, in a world where the underlying votes are driven by structured rules, can be decomposed into the specific governance standards that drove the dissent. That is the kind of feedback companies can act on, and it is the kind of dialogue between issuers and shareholders that the SRD set out to encourage.

What this could add up to

Each of these three unlocks is, on its own, seemingly technical and modest. Combined, they describe a coherent direction for the SRD review: take the pass-through voting infrastructure that the market has built over the past several years, and remove the specific points of friction that are currently keeping it from delivering at scale. Open the platform layer to the data that fund managers need. Make split voting a portable, pan-European right rather than a jurisdiction-by-jurisdiction negotiation. Let customisation be the default mode of proxy research, rather than the premium tier. Our full response to the Commission sets out a wider programme — covering, among other things, the legal certainty that pass-through programmes need to persist as they scale, the cost barriers that currently disenfranchise cross-border retail investors, and the AGM-timeline reforms that would let voting infrastructure operate properly at peak season — but the three discussed here are, in our view, where the largest gains in participation lie.

None of this requires a leap of regulatory imagination, or disturbs the underlying allocation of legal ownership and fiduciary responsibility on which fund management depends. What it does is widen the franchise, putting the right to vote within reach of the asset owners and retail investors who, today, are sitting outside the chain because the architecture has not quite caught up to them. The Commission’s review is a chance to take the architecture the rest of the way, and we are genuinely optimistic about what could come out of it.