Dematerialisation And Digitisation Of A Shareholding Framework

For UK company secretaries, these approaches offer useful insight into what works in practice, and where the trade-offs lie. This article provides a general overview of how dematerialisation and digitisation, as it relates to shares traded on a public market, has been approached in other countries, answering some key questions:

1. Have paper share certificates been eliminated?
2. Is the use of an intermediary^A  generally required to hold shares?
3. Do shareholders have the right to vote through intermediaries?
4. Are digital communications generally the default?
5. Are electronic payments generally the default?

^A Intermediary is an individual or, more commonly, an organisation which holds an interest in investment securities on trust for another, who may be another intermediary or the ultimate investor 

Jurisdiction Findings

USA, Canada, Australia: market driven dematerialisation

These markets have largely eliminated paper certificates but retain flexibility, with shares generally dematerialised by default.

USA:

Paper share certificates: the US has not formally mandated dematerialisation, but in practice the market is nearly all electronic with most publicly traded U.S. securities held in electronic (book entry) form. Whilst existing certificates remain valid and have not been eliminated legally, these are often converted to electronic form when sold.

Use of intermediaries: in the US, the use of intermediaries is not legally required. However, in practice, many investors hold shares through intermediaries, reflecting how the market has evolved.

Right to vote through intermediaries: retail shareholders holding shares through an intermediary retain the right to vote.

Digital communication and electronic payments: the default method for communication is paper unless the investor consents to electronic delivery, which is allowed. Public companies must consider SEC regulations, state laws, and corporate bylaws that govern how information is delivered. Payments, such as dividends, are not legally required to be electronic.

Canada:

Paper share certificates: share certificates are not banned by the Canada Business Corporations Act. Provincial law and federal legislation can allow companies to adopt “uncertificated” shares. For listed securities the majority of share holdings are in book-entry form and whilst paper certificates still exist legally, it is uncommon. Many publicly traded securities are now in book-entry only.

Use of intermediaries: the law does not require shareholders to use intermediaries, but market practice has seen investors increasingly holding their shares in this way.

Right to vote through intermediaries: retail shareholders holding shares through an intermediary retain full voting rights. The right to vote is preserved through law even though legal title is with the intermediary.

Digital communication and electronic payments: the law allows digital delivery of shareholder communications, but paper delivery remains the legal default. Electronic payments, such as dividend payments, are not mandated by law.

Australia:

Paper share certificates: under corporate law, legal ownership of shares is determined by entry on the company’s register of members, not by possession of a certificate. The ASX (Australian Securities Exchange) rules require listed equity securities to be held in uncertificated (book‑entry) form through CHESS (Clearing House Electronic Subregister System) to allow trading. Paper share certificates still exist but are effectively obsolete in listed markets and must be converted to book entry form before trading.

Use of intermediaries: the use of an intermediary to hold shares is not legally required under Australian law however to trade on the ASX shareholders must use a licensed broker.

Right to vote through intermediaries: voting rights legally sit with the registered shareholder, with no statutory requirement for intermediaries to facilitate voting for beneficial owners; facilitation occurs in practice through contractual arrangements and market norms rather than regulation.

Digital communication and electronic payments: under Australian law electronic communication is the default method unless a shareholder elects to receive paper copies. No statutory mandate is in place that requires electronic dividend payments and shareholders may still choose to receive cheques.

EU: mandatory dematerialisation within a CSD framework

When the EU approached dematerialisation, they looked at the technical logistics of settling trading of shares, alongside the relationship and communication between a company and its owners. This was achieved through the twin pillars of the CSDR (Central Securities Depositories Regulations) and SRD II (Shareholder Rights Directive II).

The CSDR is designed to make the process of buying and selling securities safer, faster and more reliable, and acts as harmonised rules for the Central Securities Depositories (CSDs) across the European Economic Area that record and transfer shares.

SRD II establishes standards for shareholder identification, rights transmission and voting, to ensure that dematerialisation and digitisation of shareholdings improve shareholder engagement rather than only removing paper.

Paper share certificates: these have been eliminated through the prohibition on new paper share issuance and the mandatory dematerialisation of existing securities.

Use of intermediaries: for some countries this is a mandatory requirement whilst for others this is more of a de facto requirement. The operation of holding shares via intermediaries is supported by SRD II.

Right to vote through intermediaries: SRD II introduced rules that require intermediaries (e.g. custodians, banks, CSDs) to facilitate shareholder voting. They must: ensure shareholders can exercise their voting rights; transmit voting instructions from the shareholder to the issuer (or meeting agent); and do this without delay and in a standardised way.

Digital communication and electronic payments: it is left to individual member states to determine rules on consent for digital issuer-to shareholder communications, notably France and Netherlands are changing their laws to remove the requirement for shareholder consent during 2026. In some countries this is left to the issuer’s Articles of Association. Electronic payments are generally the default, considering local taxation and anti-money laundering requirements. The widespread use of the CSD and intermediaries and the implementation of SRD II drives digital communication and electronic payments.

Republic of Ireland

The Republic of Ireland completed the mandatory dematerialisation of shares on 1 January 2025. Unlike some EU countries however they have not mandated the use of intermediaries to hold shares and investors can still hold shares directly in their own name on a digital register. From an issuer perspective, their register of members is maintained by a company’s registrar. Although shareholders may hold shares directly in their own name, more sophisticated investors or those who have already appointed an intermediary hold their shares via Euroclear Bank, the CSD for Ireland. All shares deposited within Euroclear Bank are held on the share register in the name of a single nominee. Share certificates have been removed as the evidence of shareholding, which is the proposal that is recommended under Step 1 of the UK dematerialisation and digitisation programme.

Hong Kong: transitioning to an Uncertificated Securities Market

Hong Kong is implementing an Uncertificated Securities Market (USM) during 2026. Therefore, during this transitionary period there will be changes in relation to dematerialisation of shares and digitisation of the shareholding framework. The USM is designed to allow shareholders to hold shares directly, with legal title, and continue to have their rights to vote. This will allow investors to hold legal title electronically without paper certificates and issuers will stop issuing physical certificates over a phased implementation period.

Paper share certificates: currently these still exist and confer legal title. Under the USM legal title moves from paper certificates to electronic records. Issuers will stop issuing physical certificates over a phased implementation period. Importantly, under the USM shares can remain registered in the shareholder’s name on digital registers.

Use of intermediaries: it is not, and will not be, a requirement for retail shareholders to use intermediaries, but market practice has seen investors increasingly holding their shares in this way.

Right to vote through intermediaries: there is no statutory requirement equivalent to SRD II obliging intermediaries to facilitate voting for beneficial owners; voting rights rest with the registered shareholder. Beneficial owners using intermediaries can instruct a vote, but this is as a result of the market infrastructure that has been put in place, rather than a legal right.

Digital communication and electronic payments: this is not mandated but increasingly common. Listed companies commonly distribute AGM materials and notices electronically. Cheques remain legally valid and used although electronic payment is increasingly preferred by issuers. Issuers have a one-year transition period from the USM implementation date to comply with the mandatory offering of electronic payment options. Whilst not exclusively mandated as electronic, they will become the default method for many corporate actions.