In a series of proposed reforms, the U.S. Securities and Exchange Commission (SEC) is seeking to modernize the requirements for transfer agents, facilitate the advent of tokenized securities and fight fraud in microcap securities.
The SEC is aiming to update the regulatory requirements for registered transfer agents to reflect both the existing shift from paper-based to electronic trading and recordkeeping, along with the ongoing development of a blockchain-based trading environment.
The transfer agent rules last underwent a significant upgrade in 1986, and the SEC began the process of considering reforms back in 2015. Now, it’s finally moving ahead with proposed changes.
“When the commission first adopted the rules governing transfer agents, holding paper share certificates was the norm. Now few paper certificates exist, and transfer agents and other market participants are looking to a future in which many shares will be tokenized. Our rules need to reflect the new realities of how shares are held and transferred,” said commissioner Hester Peirce, in a statement accompanying the proposal.
Additionally, she said that regulators need to empower transfer agents to help combat microcap fraud.
To that end, the proposal’s new rules include requirements for transfer agents to develop compliance policies and procedures to avoid facilitating misconduct involving unregistered securities.
“Given transfer agents’ access to information about the securities and the parties involved, transfer agents are able and should be required to take reasonable steps to ensure they are not facilitating a potentially illegal distribution,” the proposal said.
The proposals will be out for a 60-day public comment period after their publication in the Federal Register.