www.nicsa.org

SEC Transfer Agent Rule Revamp

Wednesday, July 27, 2016

NTAC:3NS-20

www.nicsa.org

Transfer Agent Rule RevampWebinar Objectives

• Gain insight into how the TA Concept Release impacts multiple facets of the industry

• Learn about the differences between various types of investor recordkeeping services

• Understand the regulatory oversight function for non-US transfer agents and retirement recordkeepers

NTAC:3NS-20

www.nicsa.org

Transfer Agent Rule RevampWebinar Agenda

• Overview of the SEC’s TA ANPR and Concept Release

• Potential Impacts on– Mutual Fund Transfer Agents– Operating Company Transfer Agents– Non-US Transfer Agents– Retirement Recordkeepers

• Key Issues and Questions

NTAC:3NS-20

www.nicsa.org

Transfer Agent Rule Revamp5 Primary Release Discussions

History of clearing and settlementSummary of the current TA rulesEvolution of TA activitiesAdvance Notice of Proposed Rulemaking

(ANPR)Concept release

NTAC:3NS-20

www.nicsa.org

Transfer Agent Rule RevampANPR Section

TA registration and filing – Forms TA-1 and TA-2Written TA agreementsSafeguarding funds and securitiesSecurities compliance with Federal Securities

Laws (anti-fraud)CybersecurityDefinitions, application and scope

NTAC:3NS-20

www.nicsa.org

Transfer Agent Rule RevampConcept Release Section

Processing of Book entry securities Mutual fund TA specific issues (vs. stock TA)

includes discussion regarding omnibus & dealer “sub-accounting”

includes compensation discussionTPA regulationCrowdfundingOutsourcing Activities and Non-Qualifying

Securities NTAC:3NS-20

www.nicsa.org

Webinar Panelists

Craig Hollis – Boston FinancialChief Compliance Officer

Bill Speirs – CST Trust Company/STACChief Risk Officer

Jeff Cook – DST SystemsDirector of Regulatory Compliance

NTAC:3NS-20

www.nicsa.org

Transfer Agent Rule RevampPolling Question #1

What type of industry participant do you represent?a) Mutual Fund Transfer Agentb) Stock Transfer Agentc) Retirement Recordkeeperd) Asset Managere) Other – Technology Vendor, Accounting, Consulting,

Professional Services, etc.

NTAC:3NS-20

www.nicsa.org

Mutual Funds TA Perspective

Craig HollisChief Compliance Officer, Boston Financial

NTAC:3NS-20

www.nicsa.org

ANPR and Mutual Funds TA’s

– Standard practices for mutual funds TA’s–Business Continuity Planning –Anti-Fraud provisions–Differences between certificated and

uncertificated securities–38a-1 support

NTAC:3NS-20

www.nicsa.org

TA-1 and TA-2 Filings

–Which changes make sense?–Disclosure of fees, clients, material

contracts–How this information is already made

available publicly for registered funds–Potential of specific public disclosures to

impact negotiating power of a mutual funds’ board of directors

NTAC:3NS-20

www.nicsa.org

Rules for Mutual Funds TA’s

–Characteristics of and issues associated with TA’s to mutual funds–Omnibus and subaccounting questions and

considerations–Practical reasons why rules specific to this

line of business make sense

NTAC:3NS-20

www.nicsa.org

Transfer Agent Rule RevampPolling Question #2

What type of products do you service?a) Mutual Fundsb) Equitiesc) Defined Benefit or Defined Contribution Plansd) More than 1 of the abovee) Not Applicable

NTAC:3NS-20

www.nicsa.org

Equity TA Perspective

Bill SpeirsChief Risk Officer, CST Trust Company

NTAC:3NS-20

www.nicsa.org

TA vs. Broker-Dealer– TA is agent of issuer, not the shareholder– Issuer chooses TA and pays fees– Professional recordkeepers – ministerial function– Don’t hold securities as custodian, recommend,

execute or settle transactions or charge account fees

– Don’t extend margin, have principal trading account , lend customer securities or finance operations with leverage

– Don’t have settlement exposure to counterparties

NTAC:3NS-20

www.nicsa.org

Restricted Securities / Legal Opinions

– No statutory or regulatory basis to demand opinion– Due diligence checks on legend removals• Issuer’s officers, directors & shareholders• Attorney providing legal opinion

– Contemplating safe harbour on legal opinions• Potential impacts

– Liability exposure, cost & time for due diligence– Limited ability for staff to validate attorney background

Advocating good faith reliance with limitations

NTAC:3NS-20

www.nicsa.org

Written Contracts

– Require written contracts between issuer & TA covering certain basic topics

– Questions understanding of fee structures– Questions filing of fees with SEC in standardized

framework of terminology– Potential impacts• Need to re-negotiate existing contracts• Jurisdictional conflicts & logistical issues• Need to restructure fee schedule

NTAC:3NS-20

www.nicsa.org

TA-1 and TA-2 Filings

Expansion to include:• Issuers & securities where act as TA or provide other

services• Specific services provided for each issuer or security• Disclosure of any past or present affiliation with issuers• All material contracts and fee schedules• Audited financial statements (US GAAP)

NTAC:3NS-20

www.nicsa.org

Conflicts of Laws and Jurisdictional Issues

– Potential conflicts of laws• Outsourcing – OSFI Guideline B-10• Privacy – PIPEDA and provincial laws vs. State laws• Unclaimed property – Provincial acts vs. State laws• Proxy tabulation

– Jurisdictional Issues• SEC 17Ad-17 – Lost Securityholders & Unresponsive Payees• Shareholder statements• SEC 17f-2 – Fingerprinting of Securities Industry Personnel

NTAC:3NS-20

www.nicsa.org

Transfer Agent Rule RevampPolling Question #3

Would you vote for a separate set of rules to apply to Mutual Fund Transfer Agents and Stock Transfer Agents?a) Yes, separate the rule setb) No, keep them combinedc) No opinion

NTAC:3NS-20

www.nicsa.org

Third Party Administrator Perspective

Jeff CookDirector of Regulatory Compliance, DST Systems

NTAC:3NS-20

www.nicsa.org

Third Party Administrators

– Perhaps the issue with the most widely varied responses.

– Concept Release broadly lumps many duties discussed into “Plan Administration”. • They footnote it saying it has no fixed definition. • Thus, many comment letters defined roles. • “The majority of Plan Administrators that provide

services for Retirement Plans do not perform statutory transfer agent functions”.

NTAC:3NS-20

www.nicsa.org

Third Party Administrators Concept Release– TPAs generally are hired by the Plan. – Majority of TPAs are not registered as transfer

agents, but some do voluntarily.– TPAs act as intermediary between plan and its

participants (such as enrollment, payroll deduction instructions, reallocate/rebalance instructions, payment requests).

– Sub-TA services (order net/aggregation)

NTAC:3NS-20

www.nicsa.org

Third Party Administrators Concept Release– Issuer Plans • Handle communications with investors• Purchase shares for the plans• Maintain custody• Maintain records and send account statements

– Potential Broker/Dealer Registration Issues• Transaction execution and order routing/netting• Transactions may not require TA registration but could

trigger BD requirements.

NTAC:3NS-20

www.nicsa.org

Third Party Administrators Concept Release– “The Commission staff has stated its view

that it will not recommend enforcement action where a TPA performs some “clerical and ministerial” activities without registering as a broker, subject to the conditions that, among things, the TPA refrain from netting or matching orders.”

– Cites instances where enforcement actions were brought against TPAs acting as unregistered BDs because they engaged in netting trades.

NTAC:3NS-20

www.nicsa.org

Third Party Administrators Sought comment on whether new rules would be needed for clarity, consistency, and certainty to Plan Administration and similar activities.

NTAC:3NS-20

www.nicsa.org

Third Party Administrators Industry responses varied widely– Distinctions between TA/recordkeeper and TPA,

outlining the common duties of each.– Providing a long list of federal regulations in which

TPAs are already subject to, including ERISA and DOL.

– Review of the statutory TA functions under 3(a)25– Congressional intent and other rules– Limited role in trade execution

NTAC:3NS-20

www.nicsa.org

Third Party Administrators Responses varied widely– TPA does not have the authority or power to

transfer ownership. Its role is to merely track it. – TPA does not transmit or handle cash/securities. – TPAs are not integral to the clearance and

settlement of securities transactions. – Existing rules already achieve the goal– TPA activities are not subject to regulatory

oversight and the SEC should address it.

NTAC:3NS-20

www.nicsa.org

Third Party Administrators Recommendations varied widely– Do not issue any new regs for a TPA. – Pull the TPA fully under the umbrella of TA.– Do not pull a TPA in under the TA umbrella, but if

regulations are issued, make them specific to the roles and tasks of the TPA only.

– Adopt appropriate, tailored regulatory requirements for TPAs.

NTAC:3NS-20

www.nicsa.org

Questions and Answers

NTAC:3NS-20