British companies are drowning in unnecessary paperwork. An antiquated system, whereby a few listed shares are held in paper form and the holders are entitled to physical copies of documents, means custodian banks are sent an estimated two tonnes of paper on a typical day. Annual reports, prospectuses and shareholder guides must be printed and shipped, too. One large company said the paperwork generated by an acquisition required a forklift truck and filled two Royal Mail lorries.
Paper share certificates, proving ownership of a company, have been a blight on corporate Britain for years. Only a small minority of shares have not yet been digitised: roughly 1% of the FTSE 350, affecting up to 10m certificates. Yet they represent a disproportionate and costly part of the administrative burden. “It’s a deadweight loss that impacts everyone,” says Mike Coombes of PrimaryBid, a capital-markets technology platform.
Change is long overdue. In 2022 the Digitisation Taskforce, led by Sir Douglas Flint, chairman of Abrdn, an asset manager, set out to digitise the system after a paper shortage at Abrdn delayed a shareholder vote on a £1.5bn transaction. In July 2023 his review published provisional recommendations, including a proposal to stop the issuance of new paper certificates. The task-force’s final report is now said to be nearing completion.
Eradicating paper would make capital markets more efficient. Under one scenario proposed by Sir Douglas, Britain’s parallel systems of retail ownership—paper and digital—would be simplified by moving paper shares to the existing digital system, known as a central security depository (CSD). This would streamline the separate processes for creating new shares or communicating with shareholders.
Advocates for reform say a paperless system would also widen retail participation at a time when the Labour government wants to revive London’s stockmarket. Holding and trading shares electronically is cheaper, faster and more transparent; physical certificates risk getting damaged or going astray. A single CSd would mirror the successful model in Sweden, for instance, where 40% of household wealth is held in stocks and shares, compared with 11% for British households.
Not everyone agrees. Lobby groups such as ShareSoc, which represents individual investors, fear Sir Douglas’s recommendations would disenfranchise paper shareholders, who have direct relationships with companies. Unlike nominee shareholders whose stock is legally held by brokers or investment platforms such as Hargreaves Lansdown, paper shareholders can take part in company votes or attend annual general meetings. In theory, most platforms allow these rights, but their record on facilitating them is mixed.
Others are abolishing paper. India has scrapped paper certificates for public companies and most private ones. Japan has ended its paper trail for publicly listed firms. France and the Netherlands have also replaced paper records with electronic ones. With most shares in Britain now held electronically, the justification for sustaining a legacy system is paper-thin. ■
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