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.