SEC proposes overhaul of transfer agent rules to support blockchain, electronic records

The news marks the first major proposed overhaul in almost three decades, but will it make it over the finish line?

The SEC is proposing its first major review of transfer agent rules in decades, bringing the framework closer to the way securities are now issued, recorded and transferred, including through blockchain technology.

The proposal has been welcomed by Computershare, which told Governance Intelligence the changes could clarify transfer agents’ responsibilities while supporting innovation and operational resilience.

‘The SEC’s proposal represents an important milestone to modernize the transfer agent regulatory framework and ensure it reflects the critical role transfer agents play in today’s securities capital markets,’ says Fiona Chalmers, CEO of issuer services at Computershare.

‘A modernized framework can help strengthen and clarify these obligations while giving transfer agents the regulatory foundation needed to support innovation and operational resilience in an increasingly global environment.’

The SEC says its existing transfer agent rules have not been significantly updated since rules were first adopted in the late 1970s and early 1980s. Transfer agents remain responsible for maintaining official ownership records and supporting the transfer of securities between issuers and investors.

The proposed amendments would update existing rules and forms, rescind one rule and introduce two new rules, supporting wider use of electronic recordkeeping and the broader range of services transfer agents now provide.

According to commissioner Mark Uyeda, the SEC had waited too long to update the framework.

‘It has been 40 years since the Commission last significantly updated its transfer agent rules,’ Uyeda says, adding that distributed ledger technology and tokenization, which were ‘barely on the horizon in 2015’, are now reshaping how transfer agents perform their core functions.

Blockchain moves into the rulebook

One of the most significant aspects of the proposal is its treatment of blockchain and distributed ledger technology.

The SEC has previously said that a registered transfer agent can use distributed ledger technology as its official master securityholder file, provided it meets existing requirements around recordkeeping, reporting, examination, security and accessibility. <a href="https://www.sec.gov/rules-regulations/staff-guidance/trading-markets-frequently-asked-questions/frequently-asked-questions-relating-crypto-asset-activities-distributed-ledger-technology” rel=”nofollow noopener” target=”_blank”>The proposed amendments would incorporate that technological reality more directly into the transfer agent framework.

The proposal asks whether specific requirements should apply when blockchain or other distributed ledger technology is used as a master securityholder file or as a component of one. It also seeks comment on definitions and requirements that could affect transfer agents using these technologies.

For tokenization firms, the changes could provide greater regulatory clarity around the infrastructure underpinning tokenized securities.

Securitize, which operates a blockchain-based transfer agency business, said on LinkedIn it was encouraged to see the SEC recognize that transfer agent rules need to evolve alongside blockchain adoption. The company has previously argued that transfer agent rules should be modernized to allow public blockchains to support tokenized securities while transfer agents retain their role in overseeing the official ownership record.

‘Transfer agent rules need to be modernized to leverage the power of tokenized securities, including using a public blockchain, as augmented by the transfer agent,’ Securitize said in its earlier submission to the SEC’s Crypto Task Force.

These changes also reflects a broader shift away from the paper-based assumptions embedded in the existing framework. Uyeda notes that most securities transactions now occur electronically rather than through the physical exchange of certificates and settle at T+1 or faster.

Greater reporting and operational requirements

The SEC is also proposing changes designed to give investors and market participants greater visibility into transfer agents’ operations.

These include updates to reporting requirements covering areas such as the handling of funds and securities and turnaround performance. The proposal would also clarify requirements concerning lost securityholders, the removal of restrictive legends and documentation of agreements with clients.

For Computershare, the focus remains on maintaining the integrity of the ownership record as the underlying infrastructure changes.

‘Transfer agents remain fundamental to maintaining the accuracy and integrity of the official ownership record, protecting investor rights and supporting confidence in the US capital markets,’ Chalmers says.

The SEC’s proposal comes more than a decade after the agency issued a 2015 concept release on modernizing transfer agent rules. Uyeda says the intervening period has seen rapid technological change but no resulting rulemaking, describing the proposal as a return to a process based on ‘study, public engagement and careful consideration of market developments’.

The proposal will be open for public comment for 60 days once published in the Federal Register.

Natalie Bannerman

Natalie is a former telecoms and infrastructure journalist, a role she held for nearly seven years. Before this, she worked in the B2C startup space, covering lifestyle, arts and culture reporting. As senior reporter for Governance Intelligence she…

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Source: www.governance-intelligence.com