by Chris French, Head of UK Core Product, Euroclear UK & International

The UK government, being determined to retain London’s position as a global financial centre, appointed Sir Douglas Flint, chairman of asset manager Abrdn, to lead a Digitisation Taskforce* to drive the modernisation of the UK’s shareholding framework bank in 2022.   
The basis of this modernisation came in the wake of the UK Secondary Capital Raising Review carried out by Mark Austin, which made key recommendations on how capital-raising by listed companies could be made more efficient.   
In the review, Austin emphasised the point for discontinuing dividends payments via cheques: “The longer-term reliance on cheques as the principal payment method (for dividends) should be phased out and replaced with payments using electronic communications.” However, moving away from antiquated approaches such as cheques is still a work in progress

Why cheques are outdated

Change is long overdue for many issuers, investors and intermediaries, and a more efficient, safer, and less costly alternative to dividend payments via cheque should be adopted to help ensure the UK’s capital markets are fit for purpose.   
Receiving dividends in the post exposes shareholders to various risks, such as misplacing cheques or even forgetting to cash the cheque in at the bank. 

Cheques also take time to clear - in some cases taking up to five days for the funds to become available in the payee’s account - potentially causing issues for shareholders that need funds to be withdrawn quickly.     

"Phasing out the paperwork will improve the ESG credentials of London’s financial centre."

On a macro level, the scale of thousands of dividend payments by cheque also has a significant environmental impact and phasing out the paperwork will improve the ESG credentials of London’s financial centre.   

As such, it is crucial for the UK to fully digitise dividend payment processes and adopt alternative approaches, making payments more secure and reducing costs now and in the future. 

What are the alternative options?

The Secondary Capital Raising Review recommends various alternatives to the use of cheques as a principal payment method from online, real-time clearance of funds to future developments such as via Central Bank Digital Currencies (CBDCs).   
Many investment trusts and UK companies already automatically pay dividends via an electronic transfer to shareholders. Some shareholders also elect to receive dividends directly into their bank accounts via BACS (Bacs Payment Schemes Limited) transfer, which provides a more secure means of receiving their dividends than cheques.   
Although Bacs remains a viable alternative, in most European markets, the standard practice for the payment of dividends is through the Central Securities Depository (CSD). This is the institution through which investors hold and transfer financial instruments, including equities, bonds, money market instruments and mutual funds.   
In the UK, CSD services are operated through the CREST system – a critical part of the UK’s financial market infrastructure that enables buyers and sellers to settle securities trades safely and efficiently at low cost.  

Riding on a CREST

There has been significant progress towards greater adoption of dividend payments through the CREST system as issuers and investors recognise its benefits. For instance, the CREST system offers same-day dividend payments in central bank sterling, euro and US dollar, and removes the need for the participant to submit individual dividend mandate instructions for each shareholding. This reduces the risk of payment error or payment rejection, benefiting both issuers and investors.  
Issuers still paying dividends by cheque must look beyond this antiquated and cumbersome payment method. More modern alternatives now exist which will lower operating costs, provide more safety and efficiency, and additionally help to improve companies’ ESG credentials.

*Read more about the Digitisation Taskforce on

This article was first published by The Treasurer.

Picture of Mohamed M'Rabti

by Chris French

Head of UK Core Product, Euroclear UK & International