The Securities and Exchange Commission’s (SEC) two Republican commissioners dissented from an agency order against a Massachusetts-based transfer agent they deemed to be an example of regulation by enforcement.

DST Asset Manager Solutions was fined $500,000 as part of its settlement with the SEC announced Thursday, but Commissioners Hester Peirce and Mark Uyeda took issue with another undertaking: a requirement that DST “[r]equest that its mutual fund clients periodically send out notifications to their client shareholder base informing them of the risk of escheatment and educating them on steps to take to avoid dormancy, including updating their addresses and otherwise establishing contact with the funds or DST.”

The commissioners, in a dissenting statement, described the requirement as “an undertaking that effectively imposes a substantive new disclosure requirement on mutual funds.”

DST was penalized by the SEC for allegedly failing to exercise reasonable care to ascertain the correct addresses of lost securityholders. The agency faulted the firm for not properly contacting 78 lost securityholders who had assets totaling approximately $651,000 escheated—or reverted—to states between January 2017 and July 2022.

Peirce and Uyeda focused their statement on the “request” element of the notification requirement. The word “request” implies a level of flexibility that is contradicted by further language in the order requiring the firm to certify, in writing, compliance with the undertaking, they argued.

“If a mutual fund receives a request from its transfer agent that the commission required the transfer agent to make, fund counsel reasonably will view it as tantamount to a commission requirement,” they wrote. “While the order addresses only one transfer agent, its reach is broader. The undertaking implies that all mutual funds, with prompting from their transfer agents, should be sending periodic escheatment notices and conducting escheatment education for their shareholders.”

The commissioners further criticized the lack of guidance the order provides regarding what level of disclosure would be adequate.

“What is a regulator to do when it cannot fit one more rulemaking on the calendar? The answer appears to be ‘send enforcement to do the rulemaking,’” they concluded.

SS&C Technologies Holdings is the parent company of DST. A spokesperson for the company highlighted other issues with the order raised by Peirce and Uyeda when contacted for an emailed statement.

“We were heartened to see the dissent by two of the SEC commissioners indicating a transfer agent might believe the matching process used by DST was and is a reasonable precaution to protect mutual fund holders,” said Nicole Greene, head of U.S. global investor and distribution solutions at SS&C Technologies. “The dissenting commissioners also stated the order was not appropriate for an enforcement action. DST neither admits nor denies the contents of the order.”

The criticisms are the latest levied against the SEC regarding its perceived regulation-by-enforcement approach, which has largely impacted the cryptocurrency industry.