SEC Proposes New Rules for Transfer Agents Using Blockchain

SEC moves to modernize transfer agent regulations

The U.S. Securities and Exchange Commission (SEC) has proposed a major overhaul of the rules governing transfer agents. Transfer agents are institutions that keep track of who owns a company's stocks and bonds. The new proposal aims to modernize requirements that have remained largely unchanged since the 1980s.

This update specifically addresses the growing use of blockchain, which is a shared digital ledger used to record transactions. It also looks at tokenized securities, which are traditional investments like stocks or bonds turned into digital tokens on a blockchain. The agency noted that many market participants are currently trying to bring on-chain transfer agents into the U.S. market.

Key updates in the proposal

• Modernizes registration, recordkeeping, and safeguarding requirements.
• Introduces new rules for digital and automated market systems.
• Increases reporting requirements for transfer agents.
• Sets new standards for cybersecurity and operational resilience.
• Updates rules for using third-party service providers and restrictive legends.

Addressing outdated paper-based systems

The SEC stated that its current rules for transfer agents were written in the late 1970s and early 1980s. At that time, the industry relied heavily on physical paper certificates and manual recordkeeping. The agency believes the existing framework is no longer enough to handle modern risks, such as cybersecurity threats and digital recordkeeping errors.

This move is part of a broader effort by the SEC to simplify and update its rules. Other recent actions include a proposed overhaul of custody rules for investment advisers. This could clarify how firms must hold and protect digital assets for their clients.

The importance of updating transfer rules

The SEC explained that the current rules do not adequately cover blockchain-based recordkeeping or tokenized fund administration. By updating these standards, the agency intends to better protect investors and ensure that records remain accurate as securities move to digital platforms. The proposed changes also address how different blockchain networks work together.

Public comment and next steps

The SEC is now looking for feedback from the public regarding these proposed changes. Interested parties will have 60 days to submit their comments after the proposal is officially published in the Federal Register.

Sources

• Cointelegraph