More Transfer Agent Risk Assessment by the SEC
Prompted by Dodd-Frank, the SEC added scrutiny of stock transfer agents to its “Examination Priorities” list for 2013. In this article we summarize those areas on which the SEC is focusing.
For the record, we are talking about the Transfer Agent Program under the Clearance and Settlement Program within the Examination Priorities List for 2013 of the National Examination Program of the Office of Compliance Inspections and Examinations of the Securities and Exchange Commission. Whew!
The TA Program involves a total population of 460 transfer agents covering equity, debt and mutual fund securities – 75% of which are non-banks registered with the SEC, and 25% banks registered with the Comptroller of the Currency, the Fed or FDIC depending on what kind of bank it is. The program addresses “ongoing risks” and also “new and emerging issues,” as follows:
Ongoing Risks
- Timely transaction turn-around
- Accurate recordkeeping and records retention
- Safeguarding funds and securities
- Having sufficient staff and experience at TAs which are growing rapidly
New and Emerging Issues
- Appropriate oversight of microcap issuer record keeping, especially relating to the removal of securities transfer restrictions
- TA principals’ potential conflict of interest with issuers, vendors and other industry participants
- Proper handling of newer “hybrid” securities by TAs
- Outsourcing TA functions offsite, and even to foreign locations
- Providing third party administration to plans and funds, possibly necessitating broker-dealer or investment advisor registration
The program-mandated scrutiny is not merely, or even primarily, designed to uncover SEC violations. The program description cites more positive goals like better understanding actual practices before drafting new TA rules, and thus better anticipating any undesired or unintended consequences of such rules. Specific subjects here could include proxy reform, the JOBS Act, escheatment practices and dematerialization (see our previous “Term of the Month” on this).
So the TA Program seems appropriate, and well-intended. Of course, like with any government endeavor, we will need to see how it is actually and fully implemented to judge its efficacy – keeping our readers informed along the way.