“Although it’s easy to forget sometimes, a share of a stock is not a lottery ticket. It’s part ownership of a business”
Peter Lynch, legendary manager of The Magellan Fund
Covid may have put a temporary check on it, but increasingly the free world is becoming more integrated. Business, communications, migration are all drawing us together: it may create strains between cultures and nations, but it is unstoppable. Technology and business see it as nothing but opportunity: migration is not always so voluntary but, as we commented on 16th August, it is steadily changing the character of our towns and cities.
The one area where business is handicapped by a myriad of national systems is securities and investment. This doesn't trouble the wealthy or the institutions who can afford the services of the investment banks, but it does hold back the extent to which personal share ownership can mirror international business activities.
So in this commentary, echoing the strategic thrust in The Bigger Picture and The Financial Outlook, we call for a new resolve to harmonise direct investment in shares.
A couple of years ago I visited the office of Global Shares, an enterprising company based in the village of Clonakilty in the Republic of Ireland, just west of Cork. This business has made a speciality of providing administrative support for employee share ownership in international companies.
In order to treat all employees fairly, a company needs to offer its staff the same arrangements in whatever national jurisdictions they might live - and that's difficult when the systems vary so widely. So Global Shares has developed a carefully-constructed approach to weave their way round the problems.
However, it's not so easy for customer share ownership where a company can't take responsibility in the same way as it can for employees.
There are three aspects which need to be addressed: the regulatory arrangements which enable people to invest in shares, the fiscal treatment of direct share ownership, and the mechanisms for the transfer and administration of their shareholdings. For employees, most of the regulatory responsibilities can be shouldered by the employer, and administration can be organised through investment banking custodians.
The ability for individuals to own equity shares directly, without complication or restraint, is one of the fundamental principles of capitalism. From time to time, influential officials may try to restrict this key right: I recall one such civil servant at HM Treasury during the Blair-Brown government who made the extraordinary statement ‘ordinary people don't belong in shares’; and about ten years ago The Share Centre had to organise a large-scale mailing campaign directed at an EU official in Brussels who was trying to define equities as ‘complex instruments’, and therefore inaccessible to the general public.
Enforcing systems of intermediation in this way undermines the very essence of a more egalitarian form of capitalism; in order to guard against it, the G7 should agree a principle confirming the right for individuals to own shares in businesses, and should agree to avoid introducing regulations and other constraints which undermine that right.
National systems for regulating investor activities can vary widely, and different tax treatment complicates the situation still further. For example, anyone resident in the UK who has bought American shares will be familiar with the ‘W8-BEN’ process. The concept of regulatory equivalence, currently employed in some aspects of the new UK-EU post-Brexit relationship, could be used to pave the way towards a more unified system.
Shareholding administration systems also vary widely, with name on register, bearer, custodial nominees and street names all contributing to the confusion. No wonder most investment platforms run a mile: in the UK, it's only Interactive Investor* who offer a comprehensive service in overseas securities.
One of the key proposals for egalitarian capitalism, set out and debated further in The Bigger Picture, is the proposal to introduce ‘Shares for Data’ in order to not only recognise the storage and harvesting of personal data but also enable the huge benefits of automation to be extended right across society, with dividends gradually replacing wages as work becomes scarcer.
But ‘Shares for Data’ needs to be global in its application, and to be simple to introduce. The wide current diversity of regulatory, fiscal and administrative systems across the nations of the free world needs to be addressed to allow it to be introduced without complication.
So here is our challenge to national governments and regulators - let's get that equivalence moving, towards the point where we can have a single worldwide structure for individual share ownership.
Gavin Oldham OBE
Share Radio
* note: Gavin Oldham is also a Director of Interactive Investor Ltd.