Company law – implementation plan for digitisation of UK share ownership published

DEMAT's implementation report covers the first step in the shift to fully digital share ownership for UK listed companies, targeting the withdrawal of paper share certificates by end-2027

The Dematerialisation Market Action Taskforce (DEMAT) has published its report on implementing the first phase of the move to fully digitise share ownership in UK traded companies (that is UK companies traded on a UK regulated market (eg the Main Market of the London Stock Exchange) or a UK SME Growth Market (such as AIM)). The first step in the process is to replace paper share certificates with entries on digital registers, which is intended to be implemented by the end of 2027.

Background

Currently, shares in UK traded companies can be held either through paper share certificates or digitally through intermediaries in a central securities depository (CSD) (in the UK, CREST). The vast majority of shares in UK traded companies are held digitally.

Administering the small number of paper share certificates causes market inefficiencies and increased costs for companies. The 2022 UK Secondary Capital Raising Review (UK SCRR) recommended moving to a fully digitised system as part of its proposals to improve secondary capital raisings (see more on the UK SCRR recommendations here). This was taken forward by the Digitisation Taskforce, chaired by Sir Douglas Flint, which published proposals in July 2025 for modernising how shares in UK listed companies are held. The Taskforce recommended a three-stage process:

• Step 1: removing paper share certificates as legal evidence of ownership and establishing digital registers for shareholders wishing to continue holding shares directly;
• Step 2: improving the intermediated system, in which shares are held through intermediaries as nominee for the beneficial owner; and
• Step 3: transitioning all shares into the improved intermediated shareholding system, so that all shares in UK traded companies will be issued in digital form and held through a CSD.
   

DEMAT recommendations for implementation of Step 1

DEMAT’s implementation plan for Step 1 includes the following key measures:

• Withdrawal of paper share certificates – When Step 1 takes effect, paper share certificates will automatically cease to be legal evidence of share ownership.
• Creation of new digital registers – Digital registers will need to be designed and established. An appendix to the report illustrates how standard corporate actions (such as bonus issues, rights issues and takeovers) would be affected. The report acknowledges that the regime should not be over-engineered, as these registers are only a temporary measure pending Step 3.
• Amendments to share transfer requirements – The current laws that govern the transfer of shares (which include the Companies Act 2006 and the Stock Transfer Act 1963) will need to be amended to cater for the digital transfer of shares.
• Use of shares as security – Shares are frequently used as collateral for financing, sometimes involving physical certificates being delivered to the lender for the term of the loan. The plan sets out the issues to be addressed where paper share certificates no longer evidence ownership, and the alternative arrangements to be put in place.
• Stamp duty and Stamp Duty Reserve Tax (SDRT) – Moving shares to the digital register, and subsequently into a CSD, will not trigger stamp duty or SDRT liability as there will be no change of ownership. However, stamp duty and SDRT issues will need to be resolved for transfers within the digital registers, which will need to work alongside the stamp duty reform proposals (see our blog post here for more information).
• Impact on articles of association – Articles frequently include provisions relating to paper certificates on the issuance and transfer of shares. The Step 1 legislative measures will need to override these provisions pending companies opting to amend their articles. The report recommends that a GC100-led body develop model amendments and guidance which may be adopted following Step 1.

The report also addresses concerns relating to competing bids under the Takeover Code, overseas branch registers, US registration requirements for offers made outside the US, and raising awareness of the move to full digitisation.

 Proposed timing & next steps

Secondary legislation will be required to implement Step 1, along with best practice standards governing the digital registers. The report envisages implementation in late 2027, with the precise date to be determined following further consultation with industry participants and system providers.

The Government has accepted DEMAT's recommendations and confirmed that the legislation to mandate that all publicly traded UK companies must keep digital share registers will come into force before the end of 2027. The specific date will be confirmed in due course.

The replacement of paper share certificates with digital registers is intended to be only a transitional step towards a fully dematerialised system. DEMAT is expected to publish its second report on Steps 2 and 3 next year. An appendix to the report sets out preliminary thoughts on these Steps to facilitate further discussion.