SEC Commissioners Recommend New Transfer Agency Rules

After 30 years, the U.S. Securities and Exchanges Commission is revising its “anachronistic” transfer agency rules.
By Janet Du Chenne(59204)
After 30 years, the U.S. Securities and Exchanges Commission is revising its “anachronistic” transfer agency rules.
Given sweeping changes in the securities industry in that time period the commissions want to bring its rules more in synch with the TA industry’s roughly 450 providers.

Changing the rules has been on the regulator’s agenda for some time. The SEC’s division of trading and markets had initially developed recommendations for proposed transfer agent rules and briefed Commissioners on them. It then worked on a concept release, whereby it sought public comment on possible updates and improvements to the Commission’s regulatory framework for transfer agents.

Hinting that some urgency was required, Commissioner Luis Aguilar and Commissioner Daniel Gallagher said a “concept release may be warranted to gather additional information and viewpoints on certain topics, but there are critical reforms requiring immediate action that we can propose now.”

While the SEC chair instructed staffers to build on a concept release, Agullar and Gallagher presented SEC chair Mary White with their joint recommendations for proposed updates and improvements to the Commission’s transfer agent rules that they believed need not wait for a concept release. “We hope this will catalyze Commission action to improve the transfer agent rules and to enhance Commission monitoring of the transfer agent industry,” they said in their letter.

Among other things, their recommendations are intended to ensure that transfer agents do the following:
• Safeguard investor assets, in part by requiring transfer agents to be appropriately insured or bonded;
• Establish written agreements with their issuer clients, so that both parties fully understand their rights and obligations;
• Process dividends and other payments in a timely manner, and promptly notify shareholders about the status of their payments;
• Develop business continuity and disaster recovery procedures;
• Prevent fraud, particularly with regard to microcap securities;
• Avoid or properly disclose and manage conflicts of interest;
• Develop procedures to govern their use of information technology; and
• Disclose key information in their annual filings with the Commission, including the identities of all issuers and securities for which they perform services.

They expect the SEC to publish proposals for comment as soon as possible.