If we want everything to stay the same, we have to change everything. The paradox is almost too good to be true. 45 years old, the American rules governing transfer agents, these intermediaries who keep the official register of shareholders and validate each transfer of securities, are preparing to reinvent themselves to accommodate the technology which threatens to make them obsolete. On September 1, the Securities and Exchange Commission (SEC) proposed an overhaul of this framework inherited from the 1970s and 1980s, to integrate blockchain and securities without paper certificates. Injective had already become a registered transfer agent with the SEC earlier this year. This new project wants to generalize the movement.
A framework designed for paper, exceeded by code
Let's understand clearly. The 273 transfer agents registered in the United States still operate under regulations designed in the days when action was materialized by a piece of paper signed in ink. The discrepancy almost makes you smile.
According to the SEC's official statement, Chairman Paul Atkins wants the overhaul to reflect "current transfer agent processes and operations, including the use of electronic communications and blockchain technology." Nothing trivial.
Indeed, the Commission itself recognizes, in the text of its proposal, that “market players are actively seeking to bring transfer agents native to blockchain, or ‘onchain,’ into the American market.” The train is therefore already in motion and the SEC is chasing after it.
5 concrete projects, a deadline of 60 days
Hold on, we're entering the regulatory pipeline. It’s dry, but that’s where everything comes into play, so we’ve done the translation for you. Concretely, the SEC is proposing five changes.
One, additional time to examine the files: a new transfer agent would wait 45 days after submitting its registration form (the TA-1) to enter into activity, compared to 30 today. And an error identified in its annual report (the TA-2) should be corrected within 60 days.
Two, security is changing dimensions. The rule which simply required the protection of customer funds would become a real risk management rule: compulsory separate bank accounts, emergency plan in the event of breakdown or bankruptcy, and written procedures against computer attacks.
Three, end of the preferential regime for small players. The exemption which exempted the most modest from keeping certain records would be removed, quite simply because in the era of electronic records, the SEC believes that no one has an excuse anymore.
Four and five, two entirely new rules. The first requires each agent to write down their compliance procedures in black and white, a requirement never formulated so precisely. The second locks a sensitive point: it is impossible to remove the notice which blocks the resale of a security, or to facilitate an unregistered transaction, as soon as there is reason to believe that it violates the law.
That's it for the technical part, you can relax your attention. The public consultation remains open 60 days after publication in the Federal Register. Nothing is final yet, but the timetable is set.
One more signal in the march towards tokenization
This project does not happen alone. The previous week, the Commission sent the White House an overhaul of the custody rules applicable to investment advisors, to clarify how they can hold digital assets on behalf of their clients.
