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Commissioners Push for Action on Transfer Agent Rules

Commissioners Luis Aguilar and Daniel Gallagher recently issued a public statement calling for the SEC to update rules governing the transfer agent industry. The pair calls the rules “anachronistic” and “out of sync” and note the lack of significant revision for almost 30 years, despite “sweeping changes in the securities industry.” They suggest that several transfer agents themselves have realized the “pressing need” for an update.

They acknowledge the Commission’s stated goal of improving the transfer agent rules and the effort by the Division of Trading and Markets to develop a concept release, a tool often used by the SEC prior to issuing a rule proposal to gather additional information from the public. However, Aguilar and Gallagher argue that the correct approach is to move forward with an actual rule proposal, noting that the Division had briefed the Commissioners on recommendations for proposed rules before changing course to develop the concept release at the behest of Chair Mary Jo White. While gathering information and industry input may be important, they argue that “there are critical reforms requiring immediate action that we can propose now.” Aguilar and Gallagher note that they have each met separately with Chair White to discuss these critical reforms.

They suggest updates to:

  • 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.

Commissioners Michael Piwowar and Kara Stein issued a statement later the same day in which they thanked Aguilar and Gallagher for “their continued focus on updating the regime” and also concurred that “the issue of transfer agent regulation is pressing and timely.”