On December 22, 2015, the SEC issued an advanced notice of proposed rulemaking and concept release seeking public comment on a wide range of issues relating to transfer agent regulation. The release identifies certain areas in which the SEC intends to propose specific rules or rule amendments applicable to transfer agents, including with respect to registration and annual reporting requirements, safeguarding funds and securities, anti-fraud protections and cybersecurity and information technology. Additionally, the concept release seeks public comment on a broader range of issues to better inform the SEC’s consideration of additional rulemaking, including, among others, the role of transfer agents to mutual funds based on the unique trading, market, asset class and other relevant characteristics of the mutual funds they service.
The SEC notes that the shift to omnibus account arrangements for mutual fund shareholders has altered the roles and responsibilities of mutual fund transfer agents in traditional shareholder servicing and recordkeeping and, consequently, has led to decreased transparency of beneficial owners and their trading activities and related records. The release also cites the increasingly complex nature of mutual fund transaction processing and compliance responsibilities borne by mutual fund transfer agents in contrast to operating company transfer agents among the reasons for the SEC’s request for public comment. The concept release requests comment on the 22 specific topics related to the role of transfer agents to mutual funds, including the following:1
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Should the SEC impose additional recordkeeping and disaster recovery requirements for mutual fund transfer agents?
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How are mutual fund transfer agents compensated today? Do any aspects of the structure or terms of their compensation raise regulatory concerns? Do mutual fund transfer agent fees based upon the fund’s net assets create any con icts of interest? Do mutual fund transfer agents provide fee rebates to issuers and, if so, do these raise any issues of regulatory concern?
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How often do mutual fund transfer agents serve as fund administrators for the same mutual fund? Does this dual role create conflicts of interest for either the mutual fund or the mutual fund transfer agents? Does this dual role raise other concerns?
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Should the SEC propose rules governing how mutual fund transfer agents oversee sub-transfer agents to mutual funds?
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What oversight functions, if any, do mutual fund transfer agents typically perform for intermediaries performing sub-transfer agent or sub-accounting services to beneficial owners of mutual fund shares? What are the types of initial versus ongoing due diligence performed? What types of obstacles do mutual fund transfer agents face in performing the oversight function?
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What problems, if any, are created by transfer agents’ lack of visibility into the identity of beneficial owners and products serviced by intermediaries acting as sub-transfer agents?
In addition to the specific issues noted above, the SEC invites public comment relating to any other matters that are relevant to the use of transfer agents by mutual funds.
Comments on the release are due on or before February 29, 2016. The release is available at http://www.sec.gov/rules/concept/2015/34-76743.pdf.
1 Although the discussion on transfer agents to funds in the release focuses on open-end funds, the SEC also seeks comment on transfer agents to other registered investment companies. For instance, the SEC seeks comment on whether it should address specific issues related to mutual fund transfer agents and transfer agents that service other registered investment companies.
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