For listed companies these proposals will lead to significant changes to the mechanics of share ownership.  We summarise the key takeaways below.

Why this is happening

While it is true that most listed shares are already held electronically through brokers and nominee companies, a minority of shareholders in listed companies still hold paper-certificated shares. The requirement to manually administer these paper shares can significantly contribute to the burden and cost of listed companies.

DEMAT’s implementation plan follows a recommendation made in the UK Secondary Capital Raising Review, which argued for the total eradication of paper share certificates as part of a “drive to digitisation” (i.e. the holding of shares in fully digitised form) to modernise the UK's capital markets infrastructure and remove related inefficiencies caused by paper-certificated shares.

DEMAT was set up, in part, to build a practical roadmap for withdrawing paper certificates without denting confidence in the UK's settlement infrastructure. Their implementation plan is the first real step towards that goal.

Three stages, one direction

The plan sets out a three-stage transition towards the full digitisation of share ownership for listed companies.

Stage 1, which DEMAT has described as a “pit stop” rather than the destination, involves the replacement of paper share certificates with digitised share registration. This means that, for those shareholders still holding paper share certificates, their share certificates will no longer constitute legal evidence of ownership title for the underlying shares. Share ownership will instead be evidenced solely by entries on a company's digitised shareholder register, with shareholders being able to check their holdings through online portals. These measures are expected to take effect in late 2027.

Stages 2 and 3 envisages a transition to a fully digitised intermediated system, where all publicly traded shares will be held either via a central security depositary (such as CREST) or with an intermediary (such as a broker, bank or nominee). There is no timetable for the implementation of Stages 2 or 3 yet.

Share transfers go digital too

The plan also recommends modernising the existing stock transfer requirements to explicitly permit digital transfers and electronic signatures. DEMAT noted the importance of aligning this new transfer framework with HMRC’s proposed changes to the stamp duty regime, which plans to replace stamp duty and SDRT (stamp duty reserve tax) with a single securities transfer tax.

DEMAT accepts that some transfers (particularly off market transfers) won't fit into a digital transfer process. Transfers involving probate, personal representatives, attorneys acting under powers of attorney, and certain court-ordered transfers will likely need their own procedures. The detail here still needs to be worked out, but the general position is that the use of a paper transfer process should be limited to the vulnerable and digitally excluded.

What's still unresolved

The position is less straightforward where security is taken over paper-certificated shares. In this case, lenders would typically hold the original physical share certificate alongside an executed stock transfer form to allow them to enforce their security. It is not currently clear what equivalent security might be afforded to lenders once paper certificates are removed. It has been suggested that new security arrangements might mirror the CREST system, where secured shares are placed under the control of an escrow agent. DEMAT has said that they will engage with the lending community on this point.

Takeovers raise a similar issue, in particular the prevention of shareholders accepting more than one takeover offer. The current system provides that (i) shareholders with certificated shares can only accept one offer as they only have one paper share certificate to send to the offeror, and (ii) shareholders who hold shares on CREST can only accept one offer due to the operation of the CREST escrow system.  If a shareholder holds digitised shares outside of CREST, an equivalent safeguard will need to be built into the takeover framework.

Other questions remain open too: how off-market transfers get validated without paper documentation, how the reforms sit alongside companies whose shares trade across multiple jurisdictions, and how Stage 3's fully intermediated model will actually work day to day. None of this undermines the policy objective, but it does show there's a lot of implementation work still ahead.

Do articles of association need to change?

The implementation plan says legislation will override any inconsistent provisions in a company's articles, so amendment won't be mandatory. Even so, we expect many listed companies will want to review and update their articles once the reforms become effective. Existing articles often contain detailed provisions on issuing, replacing and producing paper certificates, plus other certificate-based procedures that will simply become redundant. Tidying these up as part of a broader constitutional review is sensible housekeeping.

Where this leaves us

We think that the proposals in the implementation plan mark an important milestone in modernising the UK's shareholding framework for listed companies. Stage 1 provides a clear roadmap for removing paper certificates by the end of 2027. The bigger questions on intermediated ownership, indirect shareholder rights and market infrastructure will take longer to settle, but the general drive towards digitisation is clear.