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OCIE Warns of Transfer Agent Failures to Safeguard Assets


The SEC’s Office of Compliance Inspections and Examinations has issued a Risk Alert citing transfer agents for deficient safeguards and lost securityholder procedures.  Reporting on 75 transfer agent examinations over three years, OCIE observed misappropriation of shareholder funds and theft of physical certificates, inadequate account reconciliation processes, commingling of funds, and failures to secure physical access.  OCIE also observed failures to adequately search for lost securityholders including neglecting to send written notices.  OCIE recommends heightened policies and procedures, fund segregation, frequent reconciliations, locked vaults, video cameras, periodic audits, and controls around lost property.  OCIE published the Risk Alert “in order to encourage TAs to review and strengthen their applicable policies, procedures, and controls related to their paying agent operations.”

This is the regulatory warning shot for transfer agents.  Expect sweeps and enforcement actions to follow.  This Risk Alert also puts registered funds and their Boards and CCOs on notice that they should consider oversight procedures.