The Securities and Exchange Commission has issued an advanced notice of proposed rulemaking (ANPR) for new requirements for transfer agents. Also released prior to the end of the year was a concept release requesting public comment on the Commission’s broader review of transfer agent regulation.
The SEC intends to propose new rules for transfer agents similar to those recently adopted for registered broker-dealers regarding amended annual reporting, independent audit, and notification requirements, which are designed to increase focus on compliance and internal controls.
The ANPR notes that the first transfer agent rules were adopted in 1977 and remain essentially unchanged even though they now operate in a market structure that bears little resemblance to what was in place more than 40 years ago. In response, the SEC identifies areas in which it intends to propose specific rules or rule amendments, including registration and annual reporting requirements, safeguarding of funds and securities, antifraud requirements, cyber-security, and business continuity and disaster recovery plans.
Questions posed for public comment include:
Should the Commission require that transfer agents and their officers and directors disclose any past or present affiliation with issuers serviced by, or broker-dealers affiliated with, the transfer agent?
The Commission intends to propose to require transfer agents to submit annual financial statements. Should these statements be required to be audited?
Should the Commission require that annual financial statements be submitted using a data-tagged format such as XML or XBRL? Should some other electronic format be required or permitted?
Should the Commission amend Forms TA-1 and/or TA-2 to require transfer agents to disclose information regarding the fees imposed or charged by the transfer agent for various services or activities?
Should transfer agents be required to file, on a periodic basis, information disclosing whether and how a transfer agent maintains custody of issuer and security-holder funds and securities?
Should the Commission require transfer agents to maintain, implement, and enforce written compliance and/or supervisory policies and procedures, similar to those required of broker-dealers?
Should rules require registered transfer agents to designate and identify a chief compliance officer? If so, should the Commission adopt rules governing the reporting lines and relationships of the chief compliance officer? Should the chief compliance officer be required to file an annual compliance report? What information should be included in the annual compliance report?
Have transfer agents experienced internal or external access breaches, internal or external fraud or abuse, or other issues associated with creating, accessing, controlling, altering, or securely storing issuer or investor information or data, including security-holders’ private account information and other private personal information, whether electronic or otherwise?
What are the most significant risks or threats with respect to such information and data? What policies, procedures, or controls may be employed to mitigate these risks or threats and address these challenges?
There will be a 60-day public comment period for both the ANPR and the concept release following publication in the Federal Register.