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SEC Issues Transfer Agent Concept Release

The SEC recently issued a concept release that solicits comments on the need for new requirements for transfer agents. The concept release includes provisions related to “registration and annual reporting requirements, safeguarding of funds and securities, antifraud requirements in connection with the issuance and transfer of restricted securities, and cybersecurity and information technology, among others.”

The release also requests comments “on the Commission’s broader review of transfer agent regulation” including “the processing of book entry securities, bank and broker-dealer recordkeeping for beneficial owners, administration of issuer plans, outsourcing and the role of transfer agents to mutual funds and crowdfunding.” The release notes that processing obligations related to mutual funds were exempted from initial 1977 rulemaking “because at the time, the Commission believed that the activities required for the redemption of investment company shares . . . were significantly different from those required for the transfer of stocks and bonds.” As a result, “although they provide many services identical to those provided by Operating Company Transfer Agents, Mutual Fund Transfer Agents are exempt from the key turnaround, processing, performance, and recordkeeping requirements.”

The Concept Release states that the Commission is considering applying the transfer agent rules to mutual fund transfer agents in light of “[t]he growth of the mutual fund industry since 1977, the attendant growth of the portion of the transfer agent community specifically focused on servicing that industry, the proliferation of fund share classes, the growth in intermediary omnibus account arrangements and the Mutual Fund Transfer Agent community, and the complexity of fund processing and reliance on NSCC’s systems.” Specifically for omnibus accounting, the release notes that “[t]he Commission is examining the issues or concerns that may arise in connection with the lack of visibility that issuers and transfer agents acting on their behalf may have regarding the records maintained by intermediaries for their customers who are beneficial owners of mutual funds that are being serviced through omnibus and sub-accounting arrangements.”

SEC Chair Mary Jo White said that “[t]ransfer agents increasingly play critical roles in the securities markets and our rules need to be updated and enhanced to ensure that investors and our markets are optimally served.” The release comes after a public statement issued in June 2015 by then-Commissioners Luis Aguilar and Daniel Gallagher that called for an update to transfer agent rules. Commissioners Michael Piwowar and Kara Stein issued a statement that same day concurring with Aguilar and Gallagher.