SEC’s Office of Compliance Inspections and Examinations Issues Risk Alert Highlighting Risks and Issues Associated With Transfer Agents Also Serving as Paying Agents

February 15, 2019

On February 13, 2019, the staff of the SEC’s Office of Compliance Inspections and Examinations issued a Risk Alert that (1) highlights risks and issues associated with paying agent1 activities, (2) identifies significant exam deficiencies related to the safeguarding of funds and securities by paying agents and (3) provides a listing of some common features of robust safeguarding policies, procedures and controls for paying agents

The staff’s observations from recent examinations of paying agents generally fall into two categories: (1) safeguarding of funds and securities (e.g., misappropriation and theft, and inadequate policies, procedures and controls) and (2) notification to unresponsive payees and policies and procedures for lost securityholder searches (e.g., failure to send (or untimely) payee notifications and inadequate lost securityholder searches).

The Risk Alert indicates that transfer agents should review and strengthen their applicable policies, procedures and controls related to their paying agent operations.

1 A paying agent accepts payments from the issuer of a security and distributes the payments to the holders of the security. See Rule 17Ad-17 under the Securities Exchange Act of 1934. Paying agent activities vary, but commonly include, among other things: processing and disbursing principal, interest, and dividend payments to bondholders or shareholders based on an issuer’s payment schedule; handling escheatment and lost shareholder search and report filing; and making distributions for mutual funds.


Compliance, Investment Advisers, Investment Companies, Mutual Funds, Regulatory