SEC Commissioner Aguilar Stresses the Importance of Updating Transfer Agent Rules
SEC Commissioner Luis Aguilar answered questions about updating the rules that regulate transfer agents. It is time, he said, for the SEC to close the gap that has developed between transfer agent rules and their actual activities in the current business environment.
According to Commissioner Aguilar, transfer agents play an important role in capital markets, since they act as registrars and keep track of changes in the record of ownership of a company's securities. He explained that because transfer agent rules under Section 17A of the Exchange Act were originally adopted in 1977, technological advances, changes to business practices and changes to market structure have created a gap between transfer agents' activities and the rules that regulate them.
Commissioner Aguilar made a number of suggestions regarding the regulation of transfer agents. They included the following:
- Because securities distributed as part of a fraud involving unregistered offerings often pass through transfer agents in order to remove certain restrictions on the stock certificates, transfer agents could facilitate such a fraud. Therefore, the SEC should consider more rules to address the appropriate levels of due diligence by transfer agents, as well as guidance for removing restrictions from securities and the need for more disclosure to the market of certain information.
- Since transfer agents function as gatekeepers, the SEC should adopt rules that provide additional safeguards to protect against the unlawful distribution of unregistered securities to help transfer agents.
- The SEC should work to ensure that appropriate rules are in place to eliminate or mitigate potential conflicts of interest in the transfer agent area.
- The SEC should address cybersecurity issues for transfer agents by considering the development of a Regulation SCI-like framework for them.
- The SEC should revisit transfer agent registration requirements to (i) assess whether they are rigorous enough to properly identify and weed out persons who may not be fit to serve as transfer agents and (ii) improve the registration process generally.
- The SEC should consider the minimum amount of information that transfer agents should be required to provide to clients, including, for example, the services to be rendered and fees to be paid.